Stazjia’s Commentary

Posts Tagged ‘banks

Bank of England

Bank of England

Almost everybody in the UK knows that the Government has given the banks a huge bail-out package to help the British economy in general. Two days ago the Bank of England cut the interest rate by 1.5% – a move that astonished everybody, including the experts.

After the Bank’s announcement, the big question was, would the banks pass this cut on to their customers?

The Chancellor of the Exchequer, Alastair Darling, had a meeting yesterday with the heads of the major high street banks and told them in no uncertain terms that they were expected to pass the cut on to borrowers.

Recent interest rate cuts have not been passed on to customers so not helping to the slide into recession. It is said the Chancellor pointed out to the bank chiefs that people of the UK are not happy having to pay out of taxes to help the banks but still see the banks keeping interest rates on loans and mortgages high. He is said to have told them that any future government help would not be forthcoming if the banks were not prepared to co-operate.

HSBC and Barclays Banks side by side in a street in Devizes, Wiltshire, as well as in defying the government.

HSBC and Barclays Banks side by side in a street in Devizes, Wiltshire, as well as in defying the government.

Mortgages
This pep talk helped to some extent. Only Barclays and HSBC have not agreed to pass on the full interest rate cut to customers on standard variable mortgages (those whose repayments go up and down in line with bank interest rates but its at the bank’s discretion and may not reflect the increase or decrease).

Gordon Brown said, “Yesterday, we saw decisive action on interest rates from the Bank of England and the European Central Bank, and I welcome the fact that a number of British banks have now decided to pass on the interest rate cut to customers, to families and to businesses.”

The people who are happy are those on variable rate mortgages that literally track the rise and fall of the rate set by the Bank of England. Here’s the sting in the tail – most banks will no longer sell tracker mortgages as of yesterday. They have also stopped opening many new premium savings accounts

Behaviour of the Banks
For many years, people in this country have learned to hate banks. Their bank charges have been a scandal and many people have started legal proceedings against banks to recover excessive charges. Almost all of these have been settled out of court by the banks because they did not want a legal ruling (ie case law) on the subject in case it opened the flood gates to more people recovering charges.

In this current economic crisis they are withdrawing overdraft facilities from small businesses, calling in loans after maybe just one missed payment and foreclosing on mortgages much more quickly than they ever did in the past.

House for sale

House for sale

This has led to the closure of small businesses, an increase in bankruptcies and repossessions of homes. The latter is particularly hard to understand.

The housing market is currently in a very bad state. Mortgages are hard to get, prices have fallen and very little property is being sold. Repossessed homes are just going to stand empty while families have to be helped by local councils.

Giving people more time, maybe repayment holidays and trying to avoid repossession would appear more sensible. If the banks were prepared to help people get back on their feet, there is a chance that many of them would be able to pay their mortgages in the future. If not, and repossession has been delayed, at least the housing market might recover somewhat so houses that have to be repossessed might sell more quickly and at a better price.

It seems that the banks are determined to put their own interests above those of the country in general. They don’t seem to understand that a long term recession will hit them too.

Some years ago, a farmer was very upset with his bank so he took his muck spreader to the local branch of his bank in Chippenham, Wiltshire, and sprayed the front of the bank with muck. It was reported on the TV news and most people said “Good for him, serve them right.” Perhaps that’s what the banks deserve now.

British £50 notes

British £50 notes

It seems that Prime Minister, Gordon Brown may have had the answer for the rest of the world with his plan for government to buy shares in failing banks in the interests of stopping a slide into recession by propping up the economy and restoring faith in world markets.

Here in the UK, however, banks are saying that the conditions the government is imposing in return for help are too onerous. The British Government will buy preferential shares that have to be repaid before shareholders can receive a dividend. Lloyds TSB are trying to negotiate better terms.

Just when everybody was hoping things wouldn’t get worse, they got worse. Figures released by the UK’s Office of National Statistics yesterday (15 Oct, 2008) shows the biggest rise in job losses since 1991. These figures only account to August this year and unemployment is likely to go even higher this and succeeding months. In fact, David Blanchflower of the Bank of England told The Guardian newspaper that unemployment figures could top 2 million by Christmas.

Well, the financial crisis goes from strength to strength. There are rumours that more British banks are in trouble and might follow Northern Rock and Bradford and Bingley. Let’s hope that the rumours aren’t true.

With just the two that have already hit the rocks, there have been job losses and more companies are in trouble and making staff redundancies. As people spend less, companies are cutting production and more people will suffer redundancy or shorter working hours.

Last night on TV, an expert said that even if there is a rescue plan for the banks, it will take weeks or possibly months for it to have a real effect and much longer to restore confidence to the point where banks will resume lending to each other. Even that might not be on the same scale as before so there will be less liquidity in the system.

None of this sounds like there will be an end to the crisis any time soon.

Like many Europeans, I couldn’t believe that Americans could re-elect George Bush at the last election. Apparently, some Americans couldn’t believe it either as I had apologies emailed to me by friends in the US, assuring me that they hadn’t voted for him.

Generally, who a nations elects as its leader is strictly its own business and nationals of other countries have no right to interfere or criticize. In the case of the USA, it’s different because it is our business too. It’s said here that “If America sneezes, the whole world catches a cold” so we do worry about the leaders of that country. Right now, it looks as if the US has done more than sneezed and the rest of us could go down with pneumonia.

To continue the analogy, it seems like nobody is confident of the best drug for the condition. Will billions of dollars of taxpayers money really cure the problem? According to commentators, it seems that it will cost every taxpayer in the USA more than $2000. Fine for those people who have been getting big fat bonuses from the financial markets, lending money and related activities, not so good for those who can’t afford health care or medical insurance. Pretty bad for those who are just making ends meet with difficulty.

The fact that there doesn’t seem to be concrete plans in place for what is going to be done with these billions of dollars is worrying. Are we supposed to believe that people who could make such a mess of things know how to fix them? I don’t think so. Even John McCain said: “When we’re talking about a trillion dollars of taxpayer money, ‘trust me’ just isn’t good enough.”

The consequences in Western Europe and other industrialized countries could be catastrophic for their economies. Bad as this will be, what will happen to those desperately poor regions of the world? Will their people be left to fend for themselves, dying from hunger, HIV/AIDS, drought, bad water, floods and violence?

Right now it seems we are ‘living in interesting times’ as the Chinese curse is supposed to say. Let’s hope they get boring very quickly.