Saturday, November 29, 2008


Enlighten me please. We are in this financial mess because everyone stretched themselves too far. Banks gave 100% mortgages (and even gave people money in their pockets). You could take out excessive numbers of credit cards if you wanted. There were just so many ways to extend your credit that people ended up over-committed and then the money ran out.

So how does the government trying to force banks to increase loans actually help. What is needed is money in the pocket. This is achieved through tax cuts. Increasing lending just increases the long term problem. Cutting VAT means, even if the shops pass it on, that for every £100 spent you save all of £2.50. The public need to feel safer, and that is done by making sure their pockets feel full.

Maybe if Brown spent less time writing to X-Factor contestants then he would have more time to think about trying to get us out of this.

1 comment:

Sarah said...

It's a little more complicated than that. The deregulation of financial services led to irresponsible lending, including giving mortgages to people who couldn't afford them. These mortgages were then sold on throughout the financial sector, which meant that a lot of financial companies were exposed to higher levels of risk than most people realised. This became apparent when companies started failing. So banks became reluctant to lend to each other and to us.

In Britain there are also signficant problems associated with property being treated as an investment rather than a place to live. This, along with the increased mortgages being offered, has exacerbated the boom in property prices. This makes it difficult for first time buyers.

So the lack of lending means a lack of buying. With a lack of confidence as well, this leads to unemployment, which leads to even less spending and less confidence, and the whole economy grinds to a standstill. This is why the government are trying to get banks to lend again - not to get us further into debt but to keep small businesses afloat and help first-time buyers.

I'm not against tax cuts. Give tax cuts to the poorest, who are struggling to heat their homes. Pay for them by higher taxes for higher earners, with more stringent rules for non-domiciles.