Pyramid Comment: Banking Panic

"Everyone should calm down and refrain from
making simplistic comments in a very complex area
which just causes unnecessary worry and concern."

Between 1990 and 1993, some 247,000 home owners lost their homes (falling house prices and rising unemployment attaining record levels). Central bankers throughout the world cut interest rates to bolster confidence and ensure that any institution in trouble could borrow their way out of trouble. After the recession of 1979-1981, everything reverted to 'normal'. But this shows how unstable and volatile normality actually is, especially when the prime-directive is to protect the system at all costs, but sacrifice the saver.

(i) Inflation increased so interest rates went up steeply, a traditional 'stemming-the-flow' move to stop borrowing. But as usual as everything costs more then borrowing will inevitably go up in order to make ends meet. A vicious cycle. And very cynical because rising expenditure is the result of 'mismanagement' that created high prices in the first place. Everybody pays for the 'mistake' with a justifiction that it's "not in our control". A euphamism for "out of control". It's still about redistribution. But change the creation to control (wealth and power) and this is different.

(ii) Recession followed with loss of employment and repossessions rising.

* What happens to a repossessed property due to repayment default? Presumably the lender (building society or bank) owns some of the property: the part that hasn't been paid for and if some repayments have been made, what proportion of a property can be repossessed?

Repossession

(iii) The UQ (aka UK) joined the ERM. To maintain sterling at a given exchange rate, the Conservative government kept interest rates at extremely high levels. Prime Minister John Major, indicated that the policy had 'killed" inflation. It certainly killed a lot of households, people losing jobs and not able to afford the huge increases in mortgage repayments. Individual Voluntary Arrangements (adjusting the bankruptcy laws) make it, on the face of it, much easier for defaulters to dodge their responsibilities. However, the question*, above at (ii), still stands about repossession of a partly paid-for home before default. The reason for this cannot be generosity, but a method of 'creating' money. Goverments do not do this out of kindness. Look deeper. Much deeper. The negative equity trap (or here) emerged from the snake-pit: result.

Disaster

House prices dropped as nobody could move. The banks and building societies would suffer. The government suffered and paved the way for change.

Protect the system at all costs,
but sacrifice the saver

Pyramid Comment

Wednesday, October 31, 2007

Banking Panic - The Plan (3)

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