Credit Crunch - a personal view

geoffnye's picture

My view on the credit crunch is somewhat contraversial and some may say cynical. The American public has been living beyond its means for over 30 or more years now, always encouraged to spend now and pay later.When I first visited America in the 70s multiple credit cards and higher and higher credit limits were becoming the norm even then and the old culture of saving up for what you needed was already extinct.Today they have the lowest ratio of savings to disposable income in the western world and the UK is not too far behind them.

Understandably, [ I myself worked in the financial services industry for 32 years] banks have been able to exploit the change in society values by selling a vast array of lending products.Staff in banks have been target driven at higher and higher levels of intensity since the early 90s and their task was greatly helped by a long period of low and declining interest rates in recent years both here and in the US - making it somewhat easier to sell their products.Bank shareholders have been happy seeing rising profits and growth in their share values for many years and the feeling has always been that we could go always go on and on in the same way - lending more and more against rising collateral wealth,making even higher profits.

In an attempt to make those profits even better, the US and even UK banks considered - where were those previously unconsidered opportunities - yes at the margins of their customer base. Interest rates were low,inflation was low so what was the problem. Lend today,increase those profits and worry about any possible fallout if and when it happened.Those problems and their effects are now with us.

Higher interest rates caused the initial problem with repayments harder and harder to service but increasing world inflation caused by increased commodity prices due to emerging economy demand is now with us also. This may make it even more difficult for debts to be serviced and perhaps just perhaps the credit crunch has worse to come.

The banks were taking a short term view as their customers did - make hay while the sun shines. During my working life.however,whilst I was selling those very same products,I often thought to myself - can this always be a one way bet - I always had my doubts.Now we have ,some say, the worst world financial crisis since world war 2.

The emerging economies have generally had and still have a higher propensity to save than the West and because of this banks there have not as a whole experienced the same problem with loan delinquencies. Their quest for higher living standards and hence a larger proportion of world resources could,I fear, provide an even worse problem for the west for reasons I have already outlined.I hope I am wrong.


Your Comments

I am not particularly financially minded. I don't play with stocks and shares and I am a normal person who at best may use sites like money saving in order to keep in touch with the financial offers about today. This has led me to open higher interest savings accounts and an isa. I find it all rather overwhelming and often play safe with money. We have just had our first baby together (I also have 2 step children who are with us every other weekend). The continuing rise of bills takes its toll not only financially but emotionally. I want to offer my daughter quality time and have reduced my hours with my employed job. I am a therapist and in a way lucky because I can supplement my income with private work. I have to admit that even that has been effected with everyone tightening there belts and the work load reducing.

Both my partner and I are stuck financially because we commute an hour to work and petrol costs are high, but can't afford to move closer to work! It seems to me that costs are just continuously rising. Having been on maternity leave we have relatively small debts now that we did not previously have. We saved for maternity leave didn't go into it blindfolded but there litterally is no money for the unexpected things life brings. I can see how people end up in alot of strife! Fear stops me running up high credit card bills and loans.

We have had to make harsh choices financially - for us quality family time has to take precedence over financial gain. It's stressful, anxiety provoking and hard. I can't see how we can have a family friendly society when finances lead people to having to work such long hours. I don't have the answers, only so much budgeting can work. I really think something needs to change. For now we will keep plodding along.

I must say I agree with geoffnye, although I sympathise with lumpygiraffe too. Personally I have always had the principle of not borrowing unless I really had to - like for a mortgage for instance - but I have been lucky. When I went to Uni I still got small grant. Even then, loans were available, but in order to travel I worked during the summer and lived within my means during term time. My wife went to Uni 7 years later and ended up with a small loan as a result but with me wellinto work we soon paid that off. I never borrow on credit cards unless its interest free - just too expensive. I have always saved for things I wanted - even cars. I have always bought decent old cars (we're talking over ten years old here!) However, things have changed though - it seems students drive cars and live in centrally heated homes these days when that was unusual when I studied. The overall expectation for a very high standard of living is huge now - and like geoffnye I think people have to lower their expectations. I am also lucky in that I work overseas in a cheap country, so I have paid off my mortgage and bought a buy-to-let. I have plenty of spare cash to put into savings, so I can honestly say that the credit crunch has yet to bite as far as I am concerned. I am in a position to take advantage of the higher interest rates, and my buy to let makes enough money and costs so little not to worry about it paying for itself - actually I fully expect to continue to make money off it even if house prices fall. My messgae to folk would be cut back on non-essentials. Do you really need two cars and three tellys (I don't have one of those!)? What about cycling or a motorbike? What about downscaling your home? When I was a kid I shared a bedroom with my brother. Can't kids share these days? Don't try to keep up with the Jones if its going to cost you dear. Be content and live within your means. When I return to the UK from working abroad, I don't buy a new car or hire one - I buy an old car for less than 50 quid, drive it for a few months and thenm flog it again. It works great. Get a reality check - budgetting does work if you get a grip on your expectations - and stop watching all those crappy shows about celebrities and reading mags that tell you you need to wear guchhi or prada or whatever. Contentment is my motto.