Tuesday, 7 October 2008

Scrimping and saving

The credit crunch is really exposing our divided society once again. The haves and the have-nots are visible for all to see.

On the one hand, the well-heeled minority are scarcely affected. They have plenty of money to absorb dearer mortgages, food and fuel without batting an eyelid. Their only concern is whether their savings are still secure, so they're busy moving their money around from rickety banks to safer ones.

Everyone else, on the other hand, either barely solvent or heavily in debt, is frantically juggling their inadequate incomes to pay all the bills and working out what they can cut back on. With no spare cash to save, wobbling banks are the least of their problems.

The government naturally is focussing on the well-padded and their savings dilemma, pumping fortunes into ailing institutions and reassuring the worried wealthy that they won't lose a penny.

But I don't see the same fortunes being put at the disposal of the barely solvent to help them break even and get rid of some debt. There's no chance of ruinous mortgages being paid off or fuel prices being cut.

The government feels your pain, buddy, but there are really no practical measures they can take. You'll just have to hang on until better times come round. Quite frankly, you shouldn't have overstretched yourself in the first place.

And what really pisses me off is the TV newsreaders grinning like Cheshire cats after every dire economic bulletin. I suppose on their luxurious salaries they can afford to grin. They won't be tightening THEIR belts any time soon.


  1. Nick I don't know what it's like in Ireland other than your interest rates are low in comparison to your earnings but every time my card looks like it's maxing out, I receive offers of extra credit at 18% interest. I don't take them but wouldn't mind betting most do! Then there's the tempting offers by other card providers to reduce your interest if you switch your balance to them! The banks have to be held accountable for some irresponsible lending although 'the buyer beware' comes to mind. I have heard of the first mortgage foreclosure on one of my US commenters. She's only 2 months in arrears with her payments. The intolerance has begun!

    Yesterday the Federal Reserve here did the right thing and cut interest rates by 1%. Had it been the usual .25 the banks said they would not pass it on. As it is, most major banks have passed on .8%. This following a similar move last month has reduced our debt by 1.05% yeh, like that'll make a difference! For the record, the savings rate is 7% ish, mortgages 9.8% ish and that's after the rate cuts, the dollar is falling and earnings are not as high as in Ireland. It's still tough making ends meet whilst the CEO's of bailed out banks will still be pulling in their 180 million a year!

  2. All signs are that it's going to get worse before it gets better.

    They offer 12 interest free payments when you buy with your credit card here and market it very agressively.

    A time bomb be a ticking!

  3. what I was wondering was if the bank I got my mortgage from went bust would that mean I wouldn't have to pay it back?? :-)

  4. Baino - I never ever take up those credit card offers but I gather they're still very common here. And shops keep offering their own credit cards which have over-the-odds interest rates.

    A foreclosure after only two months in arrears is nasty, but I bet there's a lot more to come. Yes, how on earth do all those CEOs get by on a paltry million or ten a year?

    Quicky - Indeed, even in the current mega-debt crisis, some lenders are still making totally irresponsible offers. Are they mad?

    Conor - You wish! No, probably it would just be taken over by another bank or by the government and you'd still have to pay!

  5. Hi, Nick: I'll respectfully disagree about the way that you are dividing up the population: it's not a case of well-heeled vs. not.

    Rather, the bailout funds seem to be going mainly to those who have spent beyond their means, or who invested foolishly. The responsible folks who saved and who paid off their mortgages (like moi) are simply getting stuck with their bill.

    I'm unhappy about the moral hazard of the bailout: unless the people who created, promoted, and propagated the trash are held accountable, the excesses will continue.

    I also would rather see the money go to directly support mortgages and pensions of people in trouble, rather than to the indirect creditors in an effort to promote their liquidity.

  6. In an ideal world, I would like to see the money going directly to those in need. However I can't help being a little tickled by the idea that this bailout is a big step away from traditional capitalism...and perhaps some real good can come of that? I will not claim to be an economic expert (or even someone with the first clue about it, frankly), but the socialist in me was enjoying the idea of someone regulating bonuses and wages for the City fat cats.

    LOVE your comment about the media. Couldn't agree more. They are practically giddy with each nugget of bad news.

  7. FG - You're telling me, it's a very big U turn from traditional capitalism. The government's intervening in private enterprise left, right and centre. So much for the market knowing best. Yes, I'm glad to see some limits on the fat cats at last. And don't the journos just love a bit of really horrible news - just as long as it doesn't affect THEM.

  8. So the lesson of the moment is owe LOTS of money, I mean billions and the govt will help. Owe a paltry couple of hundred thousand and default on a few payments and you are on your ass in the rain. Nice.

    When the subprime debacle emerged just over a year ago it was the alarm bell sounding. The intricately linked banking system is now unravelling and the show is far from over. Mark my words, there will be some interesting propositions put forward by govts in the next 6 months or so. I will be digging in my garden and cutting all non essential purchasing and being even more frugal. Things are going to get very ugly indeed.

  9. Sorry, Dave, completely missed you there! Maybe I've misunderstood, but I thought the bailout was for the banks' bad debts rather than the debtors themselves. But you're right that the banks who created the problem should be penalised and not the taxpayers who'll ultimately cough up the cash.

    Muddy - Absolutely, the poor souls who're being repossessed are getting bugger-all help. And this whole mess results from the authorities constantly turning a blind eye as the banks' lending and borrowing got more and more profligate. Like you, I suspect things will get much uglier.

  10. Unregulated financial engineering at its worst, Nick. I posted on the same topic, synchronicity, eh wot?
    The poor will continue to suffer and the rich not at all. we need to change the entire system from the ground up or maybe it is already happening. Socialism. Yay.
    Not a bad word anymore.
    PS my word ver. was "upcawlk" I thought how appropriate!

  11. www - Not sure engineering is the right word, that sounds much too sober and sensible! This was more like financial gerry-building. Yes, state socialism is suddenly flavour of the month and the free market has been thoroughly humiliated.

  12. I think the press does enjoy it all in a sick sort of way but I also think the press is being affected by this. I think that's why reporters are sitting up and no longer giving John McCain a pass. There was no serious scrutiny of his campaign till all this financial drama started. Hit reporters in the pocketbook too and they start running stories and asking questions.

  13. Liz - Yes, I suppose even the affluent newsreaders have savings they're concerned about and they'll be blaming market-fanatics like McCain for the mess. In fact pro-market right-wingers generally must be taking a bashing from people who happily supported them until the banking collapse woke them up with a jolt.

  14. I read a very interesting article in the paper yesterday (can't remember whether it was the Irish Times or the Irish Independent) which really shocked me. Apparently there are extremely wealthy individuals who lend money to banks and in return get a very high interest rate, because its a risky loan and they could theoretically lose everything. The Irish government's bank guarantee will cover loans from these billionaires and not just money on normal deposit, even though they loaned the money fully knowing the risks. Paid for by the taxpayer who's struggling to keep his own home, of course.

  15. Caro - Well, that's it, every savings deposit is guaranteed regardless of how prosperous the depositor is and whether any money lost will be a hardship or not. Outrageous. And as you say, the ordinary, possibly hard-up taxpayer will foot the bill. That is, if any bank goes under which so far they haven't.

  16. Sorry Nick, don't usually comment twice on one post but some really good items have been mentioned here. Yes people have been suckered into credit/mortgages when they should have known better (I'm probably one, I constantly switch cards to credit providers who will reduce interest) but what irks me is the lack of regulation in the US banking system. Let's hope this has been a learning curve. It's inter-bank borrowing and the recall of debts that have caused this. The signs were on the wall for the US after Enron . .the first in many giants to fall. And the press frankly are giving me the shits big time. Only they other night they were hounding our PM about effects of the international global crisis on Australia. We still have 2% economic growth, the US none. We have 4% unemployment, the US 6.7% . .STOP PANIC SELLING PUNTERS . . it's emotion that's causing much of this and the media have a lot to answer for. Wish I had shares in the Fear Index (yes it does exist)

    I haven't watched the news for a week (been on leave) and my stress levels have dropped considerably. Rant over.

    Almost: AIG took their leading sales reps on a pre-planned holiday after the bail out . . call that responsible? Hell no!

  17. Baino, feel free to comment as much as you like! You're right, the problem both in the UK and the USA was breathtaking lack of regulation while the banks were behaving like six year olds. I gather the Oz banks are much more cautious and more tightly controlled.

    I think mainly the media are just reporting what's happening. The real problem is all the panicky investors selling so many shares the share indexes are plummeting to scary depths.

  18. These aren't savings deposits I'm referring to Nick - these are actual loans involving huge sums negotiated between the bank and the investor. They are not safe like deposit accounts, hence the extremely high interest paid on such loans.

  19. Sorry, Caro, completely missed your point there. If loans are covered as well as savings, as you say that's shocking, the risk should be entirely on the head of the person who made the loan.