Interest Merry-Go-Round

The banks reluctantly pass on an interest rate reduction (1.5%) suggesting that the good fortune afforded the 'bailed-out' banks, with public taxpayer money, is forwarded to potential borrowers. This will probably encourage borrowing as the illusion is that the good times are ahead.

Wrong

Low interest loans are made to suck in the punters. When the banks' life-blood of interest has been applied in terms of 'affordability' (low rate of interest), the short term appears to benefit the borrower, but in the longer term it is reasonably predictable that the interest rate will rocket. After any money has been loaned and is, of course, considerably less than is repayable. Possibly in six months' time, yet inevitable. It's how the system functions.

According to the News of the World (Sunday newspaper) the bank (HBOS) is playing the old game of celebration for doing nothing. A £330,000 bash for staff when customers are suffering difficult times. Some companies do have a party, though only after 'profits' and shareholder dividends have been announced and after massive (alleged) profiteering.

It would seem reasonable to suppose the bank sees good times ahead. Today's 'cheap' (low startup interest) loan becoming the stranglehold of the failure-proofed and future-proofed banking system. That's been a message forcefully rammed home into the taxpayers' collective brain. Whatever happens, whatever incredible and amazing ineptness and lack of any real ability or capability, the banks will never be allowed to fail. It's the summit of cynicism and (almost) unbelievable crassness.

There will come a time in the history of most cars that spending good money to prop up a tired old car is bad economy. More frequent breaking-down requires more financial input to keep it going to just break down... again. Failed old cars can be scrapped. The financial system won't ever be scrapped even though it's beyond any possible repair. Keep propping it up with more and more expensive 'solutions' that can never work. The next failure is highly dependent on the previous failure(s). The holed colander just gets more holes and the leak becomes the flood.

Be mindful to remember that one country that has a good credit rating has low interest on its loans, so this country can lend (bail out) finance charging a much higher rate of interest than it pays back. The risk, of course, is that the 'bailed-out' country could default. In fact, probably will default. The expected payback simply defers the problem, whether it's paid or not. But this keeps the simmering melt-down at bay.

Update: 25.11.2010

The lunatics are still running Asylum Westminster, but it involves money (a nation's sovereign power to control).

Quantitative Easing