Sense:
... banks must also be made safe-to-fail. Credible bankruptcy regimes which force creditors to automatically swap their debt for equity should be introduced... The goal should not be to restrict business, to cap the size of companies or to vindictively cut profit margins. Rather, it should be to prevent growth in the financial sector if it occurs in ways that rely on implicit public guarantees.
All good stuff, it's all long been in the MW manifesto.
Shit:
If households and businesses cannot borrow, they cannot spend or invest, leading to a downward spiral in demand and in prices.
Wot?
There are plenty of people who have never been in debt (e.g. who rent or live with their parents and don't even have a mortgage) who still go to work; create wealth; earn money and then spend it. It might take them a bit longer to acquire larger items (aka "investing"), it's called "saving" but over a lifetime, they will probably "spend" more (and hence encourage more wealth creation by others) than another individual who borrows and spends willy-nilly, because the latter individual will be spending a large chunk of his future income on loan interest.
Similarly, businesses that can leverage up can expand faster than otherwise; but are far more likely to go *pop* and cause far greater damage when they do than a business that grows organically.
Christmas Day: readings for Year C
3 hours ago
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I have a memory of a TV show where a farmer who had never borrowed a single penny wanted, at the age of 50, to get a small mortgage on a house (about 10% of it's value IIRC). No lending history meant that he could not borrow the money from any of the normal lenders.
It seems that we have become fixated with being in debt.
CFF, I've been there as well, actually. I had to fill in extra forms to get a mortgage because I had no previous record of paying off a mortgage or other debts.
This piece was music to my chubby ears, Mr Wadsworth.
Your comment on the second aspect of the article illustrates something of great importance. Not only have we had a house price bubble, we have also had a general consumerist bubble based on credit card borrowing. As I understand it this is now being deflated by people having the good sense to reduce their most expensive debts.
To argue that long-term recovery requires more current spending, as the government seems to do, is a misguided and one-sided argument.
The essential question is: spend using what?
If you spend using borrowed money everything just costs you more. Our whole economy has been skewed by future income being thrown at thin tellies and fridges with two doors. It could never last.
Borrowing for the big things that can't generally be saved for in a reasonable time - like houses and cars - is one thing. Borrowing for little stuff does nothing other than store up a problem for later. Now is that later and the proverbial (or is he metaphorical) piper must be paid.
The little people are facing reality by paying-down the debt they know they should never have incurred.
This might or might not be part of a major re-alignment of private spending. My fear is that people will hit the plastic again if times appear to be brighter. My hope is that they will see the folly of spending money they don't have in order to pay £200 in interest charges to save £100 on the ticket price. Maybe one day the message will hit home.
"Our whole economy has been skewed by future income being thrown at thin tellies and fridges with two doors."
To be fair, 85% of consumer debt is mortgages. With first time buyers, it's the vendor spending the proceeds on flat screen tellies, and with re-mortgaging it's the owner spending the proceeds on flat screen tellies.
I don't have any debt, because it is against my religion to pay interest. Note: It is not against my religion to receive interest :-)
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