Does Mervyn King really have a clue about what's happening?

AD9898_2

I don't think it's immoral to borrow money, however I do think it's taking the p!ss slightly when people need to be bailed out through excessive borrowing and bad lending. They must of known it was a gamble to borrow so much, and as with any gamble if you lose that's the way it goes.

It seems though at this 'roulette table' when you lose, the 'house' says 'don't worry mate, we'll cover your losses'.

B_Blank

julieq wrote: »

Why?

You may not like it, but it's not immoral. The borrowers generated your savings returns in good times, why is it "moral" to accept that transfer of wealth when it's immoral to accept the reverse effect?

The reckless borrowers who indebted themselves to unsustainable levels (and are now being protected by low interest rates int he face of high inflation) are different to the responasible borrowers whom pay back their debts and whom I have no problem with. They are helpful to the economy and I would never argue otherwise.

But you think the legions of people who took out huge debts which they were always going to struggle to service when the economic cycle hit a down peroid in anyway helped savers generate returns in the long term then you are living in crazy land.

I dont see how I can explain this any simpler, and there is simply not a counter arguement.

case study:

If 100 people borrow off a bank and 90 pay back then they are helping savers at that bank with their interest in a roundabout way. However, the 10 would borrowed recklessly and cant afford to pay back their debt (without significant government intervention) are not helping anyone. They are just living the good life when they have not earnt the right to live such a life.

This is a "so-called recession" for alot of people. They indebted themselves and now the BoE is rewarding them with low interest rates whilst the savers bail them and the banks out.

I think you need to realise the distinction between responsible borrowers (who are intend very important to the economy) and the irresponsible ones who got a mortgage for 6 times their salary with a 0% deposit and now cant pay off their debt without falsely low interest rates.

Can you possibly disagree with this point?

tomterm8

B_Blank wrote: »

Can you possibly disagree with this point?

You can not have reckless borrowers without reckless creditors. That is a reality. And the truth was, the banks were very reckless indeed in some countries (particularly America).

Laying the entire blame on borrowers is ridiculous.

Risk is the fundamental element that banks are supposed to be good at managing. Their job is very much to recognize reckless borrowers... and not to lend to them. Instead, they actively marketed to reckless borrowers during the boom.

shortchanged_2

julieq wrote: »

You have to say that this whole thread is pretty clueless anyway. Mervyn King is perfectly rightly saying that the situation is volatile and difficult to predict. That doesn't mean you can't form policy or take reasonable actions based on probabilities.

Is it clueless to ask if the person who has major say on the monetary policy (who is supposed to be an economic expert) for this country has no idea which way things are going?

Any monkey can say 'inflation could go up but then again it could go down.':think:
Plus he's probably on a tidy wage as well to state such obvious facts.

ultrawomble

shortchanged wrote: »

Plus he's probably on a tidy wage as well to state such obvious facts.

Not to mention his index linked pension....

julieq

It is clueless to demand certainty in volatile conditions. That demonstrates a complete lack of understanding of risk. Mervyn King would be quite wrong to attempt to define a certain outcome if the best analysis shows volatility. In a volatile situation, you apply caution to any step you take because the outcome is uncertain.

Just to return to lending and borrowing, there simply has been no mass default in this country. The irresponsible lending was in the US and the debt was sold in a packaged format to generate unsustainable returns for greedy and parasitical UK savers, who believed they should become rich just by sitting on a pile of cash.

Emotive language, perhaps, but it's not an inaccurate assessment. By and large borrowing in this country both secured and unsecured was responsible. The proof of the pudding is in default rates which are low and were low even when mortgage rates were higher. A very high proportion of people are still on the same basic rates they were pre crash too because of the fashion for fixing. Low base rates are not to bail out irresponsible UK borrowers, they are to attempt to stimulate growth.

gagahouse

tomterm8 wrote: »

You can not have reckless borrowers without reckless creditors. That is a reality. And the truth was, the banks were very reckless indeed in some countries (particularly America).

Laying the entire blame on borrowers is ridiculous.

Risk is the fundamental element that banks are supposed to be good at managing. Their job is very much to recognize reckless borrowers... and not to lend to them. Instead, they actively marketed to reckless borrowers during the boom.

With "originate and distribute", you didn't need to care about managing risk, you had simply "passed" it on to some other poor sap i.e pension funds. The banker and the bank got paid up front, well, you know the rest.