On the same day that 5 robbers were sentenced for their part in the £50million robbery in Kent I also read that the FBI is investigating various companies associated with mortgage selling and mortgage bundling for resale as safe investments in the USA and I would be very surprised if they don’t find some dodgy dealings somewhere along the chain of transfer.

Banks around the world had been reporting and contine to report millions and millions of dollars written off as unobtainable repayments on these packages of mortgage debt and yet no one appeared to be taking any blame for such enormous mistakes. We are told that these mortgages were sold to people who had no hope of repaying them so someone, somewhere must have been aware of that. The parcels of these high risk debts were packaged up and sold as good investments. Somebody must have known they were not so good but sold them on regardless. The whole world is affected and the blame for the credit crunch and the expected recession is pinned mainly on the mortgages that could never be repaid. The banks buying these packages must have been either inept, criminal or conned. If you buy something that is supposed to be a safe investment and it turns out to be worthless paper you would feel cheated to say the least but you would also think they might have checked before buying them.

It seems likely that a credit crunch would have appeared at some point. Consumers can only go on borrowing money for so long. Ultimately it has to be repaid and you can extend the loans, take out replacement loans and put the debt on your mortgage but at some point you have to start paying it back.

The mortgage crisis seems to have provoked a more sudden credit crunch than might otherwise have happened. The further reduction in US interest rates to just 3% is likely to ease the situation in the US and may give people a little more confidence for the future but the debts are still out there and consumerism has had a good run and it may well be on it’s last legs now regardless of how low interest rates go.

Basic principles remain the same. If you spend more than you earn you will end up in a bad place and it doesn’t matter how low the interest rate is . No doubt the whizz kids in the city will continue to be given huge bonuses to shuffle paper around the world but from the evidence we see in the credit crunch it would seem they are more concerned with making their bonuses than they are in checking what they are doing to earn those bonuses.

Whatever happens it is the consumer who ends up paying. Much as we may like to think that it’s nothing to do with us. We will all be paying for these bad decisions by the banks for some time to come.

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Filed under: Banking • Money

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