Banking inquiries show the extent of risk taking
February 26, 2009 | Leave a Comment
Paul Moore has been in the news this week claiming he had been sacked by the HBOS boss, Sir James Crosby, for arguing that the bank was taking too many risks. Sir James resigned from his role assisting the Financial Services Authority arguing that, whilst he feels these claims are unfounded, he does not want to make the FSA’s role any harder in these challenging times.
Earlier this week several bank leaders publically apologised for their role in the financial crisis. For many of us it is a relief after watching the horror of the world banks’ decisions unfold around us to witness some degree of culpability for their decisions…however sincere or not those apologies. Whilst the silence was almost deafening in the immediate aftermath of the global finacial crisis, it was hard to have any respect for those who were still rewarded with bonuses for spectacular failure.
Who is to blame for the credit crunch?
November 14, 2008 | Leave a Comment
Are the banks to blame for the credit crunch?
During the economic boom, banks became ever more lax about who they were lending to. The credit bubble was huge and there seemed to be plenty to go around. The huge profit margins on lending eventually lending institutions to get greedy and less discerning about who they loaned money to. They were starting to gamble and consumers lapped it up. Eventually, with 100% mortgages, cheap loans and cheap credit cards, people were going to find it hard to repay debts and the bubble burst.
In America, subprime mortgages were being widely made to people with a poor credit history who would find it difficult to pay. This has been a major factor in banks now being wary of lending money and so is a major cause of the credit crunch.
In the United Kingdom house repossessions are up by 40% but U.K. bankers still largely blame the collapse of the subprime market in the U.S. The subprime loans were billed as being Triple A star safe loans. Mortgage companies selling these loans played a huge part in the credit crunch as over confidence lead to complacency and less discerning lending decisions being made.
How far are consumers to blame for the credit crunch?
Consumers need to carry some blame for taking out loans that they could not afford to pay back. However, they were also encouraged into inappropriate borrowing by aggressive sales by lenders, inappropriate loan sizes and too high a credit card limit. The lenders were keeping their eyes more on the huge potential profits to be made out of interest payments and took their eye off whether consumers could realistically repay their debts if they kept being added to.
The old trick of 0% interest for 6 months was a good one for getting people to transfer lending companies…but the ides was that the original loan would be repaid with the new one. As consumers’ budgets got squeezed by interest payments, credit cards were still being used rather than paid off and the acount being closed.
Agressive mortgage lending made it easier to buy a home. This forced realty prices unnaturally high meaning a 100% mortgage could easily leave a buyer with negative equity when the bubble burst.
Are estate agents to blame for the credit crunch?
All estate agents are guilty of is encouraging people to buy at the peak of the housing boom. Realtors who had commission arrangements for selling particular lenders’ mortgages will have played a lesser role in the credit crunch and they encouragesd a housing boom. However, this could not have happened without mortgage lenders making the money available in the first place.
Is the government to blame for the credit crunch?
Many argue that the government should have ensured that the central banks controlled the situation more tightly and prevented irresponsible lending. The fallout of the credit crunch has shown that a lack of central control can have massive implications.
Further questions arise over whether banks should be bailed out by governments as this partly exonerates them of the moral responsibility for their actions and places further financial stress at consumers and businesses doors.
