The GFC Can be Solved.....

hallmark

You could argue that there is no financial crisis. All we're actually seeing is a natural evening-up of the playing field. For most of our lives the West has been rich & enjoyed a high standard of living whilst the majority of the world was poor & large chunks of it starving. There is no logical reason this would continue indefinitely now that communications & technology have reduced barriers as they have. And in fact it's not. Countries like China are churning out goods whilst countries like the UK are in decline. I suspect that ultimately what we'll end up with is a much closer standard of living between the established rich countries of the West & everywhere else. Which will be deeply unpleasant for those in the West of course, since it'll mean their standard of living dropping a fair bit.

Prudent

Quote:
"Keen says, the key to averting or curtailing a second Great Depression is to reduce the levels of private debt, through a unilateral write-off, or jubilee. The irresponsible loans the banks made should not be honoured. This will mean taking many banks into receivership. Otherwise private debt will sort itself out by traditional means: mass bankruptcy, which will generate an even greater crisis".

What about accountability? Surely if we disregard accountability then it undermines many of the safety measures across the society. Many of the those involved in the lootings during the riots did it because they felt they could with no consequences. I have always taught my class the Scottish proverb - You fly with the craws, you get shot with the craws (crows in translation). All of our actions have consequences and we must be responsible for that. Taking on personal debt is often a choice.

kabayiri

Generali wrote: »

That is absolutely fascinating. Any idea if it's accurate? It's quite long and very, very interesting (to me).

Who knew that the late lead singer of INXS was such an amazing historian?

Didn't you get a clue from the name "INXS" (In Excess) ? They and their front man were truly visionaries of the economic future.

Personally, I believe there has to be a debt reset mechanism inherent in all loan transactions, at individual; corporate; and state level.

Interestingly, Mr Hudson was a vociferous opponent of the state bank bailouts 3 years ago. I know this is considered the wrong view on here, but I believe that history will prove him right.

Generali

Joe_Bloggs wrote: »

There is an official statistic called the Household savings ratio.
There is so much alleged information ,speculation and hyperbole in the media. Does anyone have a grip as to where this statistic is coming or going. Does it in fact matter.

J_B.

According to the BoE (link - opens in Excel), savings by individuals and family trusts were at £954,272,000,000 in Aug 2011. One year earlier they were at £933,744,000,000 so deposits over that time have increased by 2.2% in nominal terms, a fall in real terms.

Now that doesn't include 2 things, NS&I and Gilt (Government bond) sales. From EOFA 2010 - 2011, the face value of Gilts outstanding rose from £913,500,000,000 to £1,033,000,000,000 (link). That's an increase of 13.1% and a good chunk of that will be held by British investors. The NS&I total savings was also increased by £14,000,000,000 but I can't find what %age that is.

According to Director of Finance Online (riveting stuff - link) the UK saving rate was 0.5% in 2010 and is now 2.7% which is a huge leap. IIRC the savings rate was negative at some points last decade in the UK.

Generali

kabayiri wrote: »

Didn't you get a clue from the name "INXS" (In Excess) ? They and their front man were truly visionaries of the economic future.

Personally, I believe there has to be a debt reset mechanism inherent in all loan transactions, at individual; corporate; and state level.

Interestingly, Mr Hudson was a vociferous opponent of the state bank bailouts 3 years ago. I know this is considered the wrong view on here, but I believe that history will prove him right.

Seriously though it was a fascinating thing to link to. Thanks very much

lemonjelly

ILW wrote: »

The difference is that many of those in debt are there through being f eckless. I do believe that those that have just fallen on hard times through no fault of their own should be treated leniently, but those who have run up 20 or 30 grand on designer shoes and countless foreign holidays should be punished.

Are you limiting this to peoples personal debt? Or are you including the many business' that are effectively mortgaged to the hilt & can't operate because of their debt burden?

& of these 2 examples, which has caused more economic damage?

Generali

Prudent wrote: »

Quote:
"Keen says, the key to averting or curtailing a second Great Depression is to reduce the levels of private debt, through a unilateral write-off, or jubilee. The irresponsible loans the banks made should not be honoured. This will mean taking many banks into receivership. Otherwise private debt will sort itself out by traditional means: mass bankruptcy, which will generate an even greater crisis".

What about accountability? Surely if we disregard accountability then it undermines many of the safety measures across the society. Many of the those involved in the lootings during the riots did it because they felt they could with no consequences. I have always taught my class the Scottish proverb - You fly with the craws, you get shot with the craws (crows in translation). All of our actions have consequences and we must be responsible for that. Taking on personal debt is often a choice.

Economists call that moral hazard: if you don't face the consequences of your actions, why behave sensibly?

The problem is I don't see any other choice. Debt needs to be forgiven and the asset side of bank balance sheets can't shrink unless the liability side does too.

ILW

lemonjelly wrote: »

Are you limiting this to peoples personal debt? Or are you including the many business' that are effectively mortgaged to the hilt & can't operate because of their debt burden?

& of these 2 examples, which has caused more economic damage?

If a business used much of the borrowed money to overpay executives etc there should be personal penalties for those who sanctioned it.

If a business fails due to say, a customer folding on them that is a different matter.

lemonjelly

ILW wrote: »

If a business used much of the borrowed money to overpay executives etc there should be personal penalties for those who sanctioned it.

If a business fails due to say, a customer folding on them that is a different matter.

It is difficult to track the progress of a £10 note through a business though. Who is to say that a business borrowing large amounts is using that cash to pay £ to directors, whilst re-investing income from sales?

But the issue is too simplistic. People have borrowed beyonmd their means. Loads of people on here are unhappy about that - these are f eckless people after all, they should be allowed to crash burn (that at least is the popular sentiment). However business' have done the same - borrowed beyond their means. What they have done with the money is, to a great extent, irrelevant. They have engaged in irresponsible borrowing.

So my original query still stands:

ILW wrote: »

The difference is that many of those in debt are there through being f eckless. I do believe that those that have just fallen on hard times through no fault of their own should be treated leniently, but those who have run up 20 or 30 grand on designer shoes and countless foreign holidays should be punished.
.

lemonjelly wrote: »

Are you limiting this to peoples personal debt? Or are you including the many business' that are effectively mortgaged to the hilt & can't operate because of their debt burden?

& of these 2 examples, which has caused more economic damage? .

Given your answer, I will extend the question - partially to play devils advocate with Generali as well, as we've debated this before;). I would argue that Popular perception is these so-called f eckless borrowers are the sole ones to blame for this crisis. I strongly disagree with this. Any lending/borrowing is a minimum 2 party agreement. Responsibility lies on both sides. So why is there so little hoo-ha regarding the irresponsible lending?

In my vocation I have argued for years that banks have been lending irresponsibly (obviously on a much smaller scale that the causes of the GFC, but the analogy stands).

Why do we rant about bankers bonuses, but not the action/lack of by banks? Why are we not angry about the culture of irresponsible lending which grew in the financial system?

(dons tin hat waiting for generali's response;))

kabayiri

Generali wrote: »

Seriously though it was a fascinating thing to link to. Thanks very much

It's nice to find a thread which challenges my (and probably others) values and beliefs.

Intrinsically, I would want to honour debts. But then I do believe that people should have a second chance to right mistakes; a reset from past error. It's not easy to reconcile these positions.