Government to offer loans to buy cars

Sir_Humphrey

Wookster wrote: »

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?

You obviously have trouble distinguishing between giving a sound loan at a different rate and not giving one at all. The former is sensible. The latter (what is happening) is irrational and economically disastrous. Do you want me to write out my argument in crayon next time?

Wookster

Sir_Humphrey wrote: »

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.

Lets be perfectly honest - Alan M's business services the construction industry, which has probably been hit the hardest. As a banker who was adopting a more risk averse approach to the portfolio one can sympathise with the banks decision, though not with the manner and speed it was taken, making it very difficult for Alan to find alternative financing.

Sir_Humphrey

Wookster wrote: »

Lets be perfectly honest - Alan M's business services the construction industry, which has probably been hit the hardest. As a banker who was adopting a more risk averse approach to the portfolio one can sympathise with the banks decision, though not with the manner and speed it was taken, making it very difficult for Alan to find alternative financing.

This is the rub. It is the lack of finance AT ANY PRICE that is the problem. Nationalisation would help with the banks in the worst trouble as the state could look at their books and control how the bail out money is allocated. This would be in the public interest rather than the private interest of the banks. In the interim whilst this was sorted out, bypassing the banks with govt support to industry would tide things over.

In practise, the government resists nationalisation, and is not providing enough support to tide things over, owing to them trying to stick to the failed neo-liberal political ideology that existed pre-credit crunch.

Wookster

Sir_Humphrey wrote: »

This is the rub. It is the lack of finance AT ANY PRICE that is the problem.

Well we don't know all the facts of Alan's story (though I do hope he finds a workable solution).

Does this mean that you accept that the cost of lending should increase fairly significantly in the current climate?

StevieJ

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>

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)

Tthe risky loan by the govt is somewhat mitigated by the costs of not giving the loan i.e. unemployment costs and future loss of that industry.

Sir_Humphrey

Wookster wrote: »

Well we don't know all the facts of Alan's story (though I do hope he finds a workable solution).

True, I am just choosing his company as one example.

Wookster wrote: »

Does this mean that you accept that the cost of lending should increase fairly significantly in the current climate?

I accept that risk premia should be higher. They were far too low in the period of reckless lending pre-credit crunch. It is for this reason why IRs had to be cut. This means that the risk premium is on a lower base rate. It is not remotely enough to cut IRs alone, but it is part of the solution.

Wookster

Sir_Humphrey wrote: »

It is for this reason why IRs had to be cut. This means that the risk premium is on a lower base rate. It is not remotely enough to cut IRs alone, but it is part of the solution.

Have you been ranting and raving about banks not passing on the recent BoE interest rate cuts to end users?

In any case BoE cuts have a limited effect on the net margin a bank makes as its obtains money at LIBOR rates (on average) which are normally (but not for the last few months - since August 2007) at a reasonably consistant spread to the base rate.

Wookster

I think people like you, StevieJ & rochdale are completely missing the issue the myself, !!!!!! & Generali have with debt and excessive spending. The first few paragraphs of the article below articulate it very well if you can be bothered to read:

http://cynicuseconomicus.blogspot.com/2008/06/funny-view-of-wealth.html

Sir_Humphrey

Wookster wrote: »

Have you been ranting and raving about banks not passing on the recent BoE interest rate cuts to end users?

Nope. I would not expect every cut to be passed on, for the risk premia issues I discussed. I think you are forgetting that I am a housing bear...

Wookster

Sir_Humphrey wrote: »

Nope. I would not expect every cut to be passed on, for the risk premia issues I discussed. I think you are forgetting that I am a housing bear...

Well we agree on one thing.

You didn't answer one of the questions above: what sort of stimulus package would you like to see the government introduce?