Can We Trust The Finance Industry?
The repercussions of the international banking credit squeeze are continuing to reverberate around the world. Stock markets have reacted to further bad news about companies that are exposed to losses due to the sub-prime and liar-loans lending debacle. Liar loans are a term used to refer to loans made to people who have not been required to provide any evidence of income or security.
 It seems odd that people will lend money without any proof that the person borrowing can afford to repay the loan but it would seem that they were happy to do this since they could then bundle up the loans and sell them on as ‘investments’ to various banks and other investment companies.
It is staggering that people working in the finance industry were paid huge salaries and bonuses for coming up with these crazy offers. Any schoolboy or girl would look at these loans and see that the maths does not work. Unless, of course, they naively thought everybody taking out these loans would be totally honest. Surely the finance industry is not that naive? If not then what were they thinking when they set up these loans? They surely must have been able to foresee the consequences but presumably they considered that selling on the loans cleared them of any obligations or potential problems. It does demonstrate what a selfish industry the finance industry is.
They have made their money and grabbed their bonuses and everybody else will have to pay for their carelessness. The effects of this will reverberate for some time yet. Investors of all sorts will have lost and continue to lose money on their investments. People saving for their retirement will find they have less than they had hoped and confidence in the stock markets will be reduced.
Consumers were misled, or seduced, by reduced early year payments and, temporarily, reduced interest loans into taking out loans and mortgages they could never afford to repay. The large numbers of people affected will have even less spending power and the rest of us will have our spending abilities reduced too as the effects travel outwards like a ripple in a pond. This is bound to hit businesses of all types.
This should be a warning to all of us, both individuals and governments. We cannot trust big business since their motives are entirely self centred and they are only looking to their next shareholders meeting rather than the long term view. Society has become dependent on credit to fuel a massive consumer spending boom. It was obvious to anybody who looked that this was unsustainable. The money has to come from somewhere to repay these debts and it would seem we are borrowing against our children’s inheritance and they will be the ones who have to pay the true cost.
It would be fascinating to be able to sit back as an observer and view this dispassionately as the fools running the finance industry suffered the results of their own foolishness. Unfortunately the fools have already got their money and very few of the rest of us are likely to be unaffected. What can we do about it? Very little it would seem. This is so far out of our hands that all we can do is suffer the consequences and be as prepared as possible for the next time such greed and stupidity causes global problems. There is a saying that, ‘A fool and his money are soon parted’. Unfortunately that also applies to you if you let your investments be managed by fools but how do you judge who are the fools? It would seem it could be anybody in the finance industry and, as they say, past performance is not a guide to future income.
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