Government to offer loans to buy cars

Sir_Humphrey

Wookster wrote: »

You are not answering my question.

If you regard the lending that occurred in the last 10 years as reckless, what is different about lending now, when the risk of default is higher?

Why won't it be reckless?

I see your question now. A loan to a sound company in a recession is safer than a loan to a reckless company in the good times. That is because the business model of a sound company (eg Gillette) is so much better than that of a lousy comapny (eg pets.com) that it outweighs the issue of a recession.

Not to give a loan to a sound company, which is unlikely to go bust in a recession is irrational. If the banks are being irrational, the govt has to restore rationality.

Generali

Sir_Humphrey wrote: »

Passing the money on to banks no. But I think the economic situation is better without having had the banks and everyones savings wiped out, no? And providing money to car companies allows R&D, so of course it is investment.

The issue is that it does no go far enough. The weakest banks need to be nationalised, and a far bigger fiscal stimulus applied. The latter is being done by Obama, provided he can get it past the dino-Republicans.

The money doesn't go on R&D though usually. It goes on paying for all those expensive promises Ford and GM made years ago to their now pensioners and now can't afford to keep. That and what else? From what I can see, it involves filling up large empty spaces with cars that aren't being sold.

Out of interest, how big a ''fiscal stimulus' (by which I guess you mean budget deficit) would you like to see applied?

The bill so far seems to have reached GBP800/household/year. That's a lot of jam that we're going to have today rather than tomorrow.

Wookster

Sir_Humphrey wrote: »

I see your question now. A loan to a sound company in a recession is safer than a loan to a reckless company in the good times. That is because the business model of a sound company (eg Gillette) is so much better than that of a lousy comapny (eg pets.com) that it outwieghs the issue of a recession.
Not to give a loan to a sound company, which is unlikely to go bust in a recession is irrational. If the banks are being irrational, the govt has to restore rationality.

But you're still not answering the question.

You're talking about rational and irrational behaviour.

Why is lending (including car loans) likely to be safer now than it was in the growth environment?

Generali

Wookster wrote: »

But you're still not answering the question.

You're talking about rational and irrational behaviour.

Why is lending (including car loans) likely to be safer now than it was in the growth environment?

More to the point, how is a Civil Servant with little or no commercial experience going to be able to pick a 'good' business model from a 'lousy' one?

Wookster

Generali wrote: »

More to the point, how is a Civil Servant with little or no commercial experience going to be able to pick a 'good' business model from a 'lousy' one?

That probably explains the mess we are in - much of the Labour leadership has zero commercial experience. They've lived in a world where they can avoid questions, never have to be efficient and never have to answer to anyone or plan beyond the next election.

Sir_Humphrey

Generali wrote: »

More to the point, how is a Civil Servant with little or no commercial experience going to be able to pick a 'good' business model from a 'lousy' one?

We might almost do as bad a job as the banks over the last ten-twenty years. I don't recall pets.com receiving govt funding. Or maybe nationalised banks would be run at arms length, just as the other nationalised industries are/were. You must be almost as ignorant of nationalised commerce as we civil servants are supposed to be if you think civil servants ran the nationalised industries.

As far as health benefits are concerned, that is a US issue only of course, and I am arguing about the UK bailout. Of course, if pension benefits and health benefits are cut, this will divert spending, further reducing demand, and further continuing the death spiral. For the US, the obvious solution is to set up an NHS. All you continue to demonstrate is that free marketeers just do not have clue how to run economies rather than individual companies.

Sir_Humphrey

Wookster wrote: »

But you're still not answering the question.

You're talking about rational and irrational behaviour.

Why is lending (including car loans) likely to be safer now than it was in the growth environment?

For an equivalent loan, it is more risky in a recession. However, in the example I gave I was not talking about equivalent loans, and the extra risk would not be great enough to not give the loan..</p>

Rational behaviour would be to grant the equivalent loan to a sound company with a higher risk premium added in (i.e a higher IR)

Generali

Sir_Humphrey wrote: »

We might almost do as bad a job as the banks over the last ten-twenty years. I don't recall pets.com receiving govt funding. Or maybe nationalised banks would be run at arms length, just as the other nationalised industries are/were. You must be almost as ignorant of nationalised commerce as we civil servants are supposed to be if you think civil servants ran the nationalised industries.

As far as health benefits are concerned, that is a US issue only of course, and I am arguing about the UK bailout. Of course, if pension benefits and health benefits are cut, this will divert spending, further reducing demand, and further continuing the death spiral. For the US, the obvious solution is to set up an NHS. All you continue to demonstrate is that free marketeers just do not have clue how to run economies rather than individual companies.

If it was as easy as all that to pick the good and bad companies then bad companies wouldn't even get the chance to struggle on.

Wookster

Sir_Humphrey wrote: »

For an equivalent loan, it is more risky in a recession. However, in the example I gave I was not talking about equivalent loans, and the extra risk would not be great enough to not give the loan..</p>

Exactly. So how do you know that lending is going to be safer now than it was in the good times?

Is it possible to lend at the same quantum now as it was in the good times and not be !!!!less?

Sir_Humphrey

Generali wrote: »

If it was as easy as all that to pick the good and bad companies then bad companies wouldn't even get the chance to struggle on.

I am not saying it is easy in all cases, I am just saying that it is difficult for banks as well as govt, and both can make mistakes. But on another thread, we have a clear example of a good business in trouble with the bank for absolutely no rational reason. The banks are right to be more cautious right now, but some businesses are in trouble simply because of atavistic fear on the part of the banks. The pendulum has swung too far away in the direction of credit tightening. I bet Alan M is not the only one in that predicament.