Stazjia’s Commentary

Posts Tagged ‘recession

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The local South West England BBC TV news reported yesterday about protestors on the rooftop of a building in Bristol. They allege that the housing association, Places for People, should be renting it out at an affordable rent instead of putting it up for sale.

Housing associations in the UK are principally in the business of providing social housing. This was once the job of local councils but was put in the hands of housing associations some years ago. In this country house ownership is the norm whereas in many other countries in Europe, renting a home is more usual. There isn’t the same kudos there to be a home owner… Now read on

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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.

In my last post I suggested we had some moderately good news with falls in prices of food and petrol (gas). Well, while all that remains true, there is a suggestion we are already in recession according the Ernst & Young’s Item Club.

The housing market is collapsing, unemployment is rising, Ernst & Young predict a rise to 2.2 million, and the budget deficit is increasing, again according to Ernst & Young, it is likely to hit £92 billion (British pounds).

According to Chancellor, Alistair Darling, the British Government plan to fight the worst effects of the recession by reflating the economy with public spending so signalling a return to Keynsian economics (John Maynard Keynes).

Alistair Darling, British Chancellor of the Exchequer

Alistair Darling, British Chancellor of the Exchequer

Darling said, “Much of what Keynes wrote still makes sense. You will see us switching our spending priorities to areas that make a difference – housing and energy are classic examples where people are feeling squeezed. What I want to avoid is getting ourselves in a position governments have done in the past, where you face an immediate problem and cut back on the things the country will need in the future … we can allow borrowing to rise.”

It seems like a good idea to get money moving around the economy but, in the end, taxpayers will  pick up the bill. The alternative could cost those same taxpayers even more – maybe their jobs, their houses, or, if they are lucky and lose neither, increased taxes to pay. More unemployment means the tax burden is carried by fewer people but with higher benefit payments added to the burden.

It look like we are living in interesting times, unfortunately.

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.

It’s raining again today – actually it’s bucketing down and there’s a severe weather warning. We’ve had so much rain over the last couple of weeks that the ground is sodden and can’t absorb any more. I took the dogs for a walk on the common at 7.45am today and it was like paddling because there was so much water lying on top of the grass. Just like Sunday, my top half was dry under my waterproof jacket and my jeans were so wet all the way up that I had to change them as soon as I got in.

Britain is just not a fun place right now. Apart from the rain, pundits are forecasting we are heading for a recession in just a few months. I wonder what gives them that idea. Could it be the bottom falling out of the property market, people not being able to get mortgages, nobody’s got any money to spend so businesses are having a hard time, rising oil prices, more people going bankrupt, etc, etc?

I think that the problem isn’t really in the Government’s power to fix. It all started with the home loans problems in the USA and the fact that British banks got hit because they had been underwriting some of those mortgages. That led to a shortage of mortgage funds here, people couldn’t get mortgages which led to home owners not able to sell their property at the expected price (or at all, in some cases), and then a lot of personal loans and borrowings have dried up. Most people are nervous now and just not prepared to spend money the way they have been doing with easy credit available. All of this against the background of rising fuel and food prices.