The coming worldwide credit crunch

Yes, TJ,

 "The banks encouraged reckless spending on all levels by convincing people that they could have it all now and worry about the paying later"

and yes again!

"Despite the banks, no one forced anyone to borrow money to consume or to speculate on shares or property. I have however some sympathy for those who bought a home and were obliged to pay too much, but other forms of debt and consumption were entirely voluntary."

This was in 2006!

From The Independent September 2006

UK borrowers account for one third of unsecured debt in western Europe
On average, a Briton has twice the debt of a European
Total consumer debt in the UK is at a record £1.3 trillion
New debt last year came to an unprecedented £215bn

Britain's "buy now, pay later" consumer culture has led to unprecedented levels of personal debt. The average Briton now has more than twice as much unsecured borrowing - including overdrafts, personal loans and credit card debt - as the typical European, according to a report published by Datamonitor.

http://www.independent.co.uk/money/loans-credit/britain-becomes-never-never-land-as-personal-debt-runs-out-of-control-417809.html

On a smaller scale and in relation to Spain, please don't lose sight of the generation who saved, put by for a rainy day, lived according to their means, bought their retirement home in the sun from their hard earned efforts (not from credit) and are being penalised both from a system that defrauded them of their monies/homes, and/or banks who refuse to recognise their responsibilities according to the law. To generalise can sometimes do a disservice to those who lived by the book, those who had no intention of living beyond their means and followed all procedures to minimise the risks. They tend to be an older generation who now appear to be paying the price for those who were encouraged (rightly or wrongly) to do otherwise.

Thanks TJ222. Very insightful and eloquently put!!! ... so many lessons learned from this. I personally hope that the younger generation will have chance to reflect on this enforced "correction" and recognise (eventually!!) the realities and consequences of not living within their means (can it be equated to the aftermath of the war when everyone back then was forced to live according to their means?) What made it more palatable psychologically  was presumably that everyone was in the same boat (ish), all pulling together for a common cause. In this instance however, it appears the opposite and all too many continue to look to their own self interests, refuse to see the overall picture and how by pulling together and each being prepared to make some sacrifice should help in the longer term. As you rightly say, it's all relative, and "Overnight the 5% public sector pay cuts suddenly look like a tremendous option and any kind of pension looks like a fantastic deal. ".

We all need a reality check right now, but the trouble is no-one believes the messenger, as there have been so much lies/deceipt/corruption this past decade (if not more) that to be told to cut your cloth according to your means, really means "you can make sacrifices but don't expect us to ", where the "us" is the politician/businessman/banker etc who appear to be making very little sacrifice. Is is any wonder that Jo public is very wary and distrustful when the mention of "pain and misery" is discussed? Until such time as a common cause is identified and sacrifice across the board is seen to be employed, then there is bound to be growing public discourse, resentment and unwillingness to make sacrifices, which only compounds the problem.

Surely eradication of corruption, evolved transparency and accountability will have to walk side by side with austerity measures if any longer term headway is to be made across the various nations? Otherwise more and more citizen unrest will ensue as the hypocrisy becomes ever more apparent. Just another part to the equation re any solution, no?

Yes, Ads, I have every sympathy for that sector, the people  who saved in order to buy their home and who were defrauded.  It is completely unjust. 

As for the majority who lived beyond their means whether encouraged to do so or not., will they learn the lesson?   I wonder.

Patricia

Everyone has an anecdote I am sure about the encouragement to spend spend spend scenario.

I can remember, must be eight years ago, receiveing a letter or two from a well-known credit card company offering me their platinum card (not gold, but platinum!).   Sure I was making my living but in no way was I in platinum league. 

I threw the letter in the bin.  Some days later their call centre contacted me to offer the platinum again and had I got their letter.  I asked the girl how much she thought I was earning, heh heh.  Long story short, I asked them to cease sending me those "offers" and while they were at it to stop sending me offers to buy expensive rings  and other luxury items on the "never-never". 

That was me.  But I bet there were some or many who took up the offers and landed themselves in heavy debt.

Patricia

Thanks for the reply TJ,

Just one more question then because you seem to have been along the right lines since the the start of this thread back in 2007. In your experience IF you had bought a Spanish property and financed it with a Spanish mortgage as we do, would you

A. ride it out ?or

B. sell now (if you managed to get a buyer) at whatever price you could get before the Euro collapses??

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I certainly have not forgotten about the people you describe - because i am one. I may not be near retirement age, but i like you and many others will be caught up in a mess that was no creation of ours. This is life and it does no good to dwell on it, unfair as it maybe.

What perhaps is more useful is to focus on understanding what went wrong and more importantly what we can do to protect and make the best for our families and friends and the wider community.

They say fore armed is fore warned. This crisis was visible from a long long way back and the reason why i wrote this thread was to try and help people understand what was going to happen. I suspected that as i wrote it much would fall on deaf ears, but if it has changed anyone's thinking or actions for the good then i am glad.

I am happy to keep commenting on this thread and updating it along with others to discuss what is really going on. 

BUT i would really like to focus on a new topic of something like common myths of money and economics and what we can do to help ourselves and prosper in the future. Maybe this is for a new thread if anyone is interested that is.

Yes, TJ.  This would definitely be a worthwhile topic.

"BUT i would really like to focus on a new topic of something like common myths of money and economics and what we can do to help ourselves and prosper in the future. Maybe this is for a new thread if anyone is interested that is."

Patricia

Sounds interesting...

 RD

I cannot really advise you on your situation because i would need to know alot more about you and even then the buck must stop with you.

What i can say is that if you bought the property for a home and you love and enjoy Spain AND you can sensibly afford it, then i think little has changed. You bought it for the right reasons and life is too precious to spend it worrying about any monetary loss.

If however you bought it as an investment, or may need the money in the future, or cannot really afford the luxury of a second home, then things are different.

If you have been following this thread for a while you will know my views on interest rates and where they are headed and inflation and property prices and where they are headed.

They may well be able to keep the Euro together for some time yet, maybe a long time. BUT it will be at the expense of more and more bailouts and subsequently more and more economic trouble.

TJ

You never make mention of the vulnerability and outrage that comes from ongoing lack of justice and consumer protection in this scenario. I find it inconceivable to detach the two, as once bitten twice shy? It's the foundation to a civilised society and I can't see any long term formula to the workings of money that doesn't include this as part of the future package. But perhaps you see this differently?

 Actually i made this very point several times in the recent point on here, maybe not this thread, it may have been the Spanish petition thread to EU/MEP. I do not have the time today to search for it.

I gave the example of buying a 100acre mansion with pools and castle in a far flung land for 5 grand. The owner soon finds that its been appropriated by the friendly local Junta because the rules have been changed. Five grand or 50p its not much of a bargain if you don;t own it.

I also said this is why London is a magnet for big money. The justice system in the UK for now is a great respector of property rights. This alone attracts capital from countries where citizens are not so blessed and are looking for a safe "home' for their wealth.

I alos said that i think no one should consider Spain as a property location to buy, until various laws and rules are sorted and enforced and buyers can be confident that their rights are fair and will be respected.

As far as the bank guarantee thing goes, it looks to me like Spain has behaved like a third world country, but with first world prices. I have no personal experience of this and am no expert on it, but that is the way it looks to me. Also planning/illegal builds etc the list goes on. If everyone was to boycot Spain as in new buys, Spain would soon get this sorted!!!

Sorry TJ, I thought you were implying by your previous observation that it was still OK to purchase even though the existing system stinks!  If only everyone would come together to pressure the Government to clean up their act and implement justice....... the Spanish youth seem to be focusing on this however. Trouble is (back to money) how can this be funded now that there are so many caught up in this scenario? Will the Banks/Government have the funds to meet their legal obligations? Given the suspected magnitude of the problem how on earth can this be resolved?

As for a mortgage, it's another sad reality that the financial system, given the rules and regulation associated with taxes actually encouraged people to take out mortgages in Spain as a means of offsetting IHT etc. Another nail in the coffin re "financial games/strategy" that has backfired and added to the crisis.

Anyway, I look forward to your observations on " common myths of money and economics and what we can do to help ourselves and prosper in the future".

I very much fear, TJ, that the boycott Spain idea is unlikely to fly. 

Even as we write here and exchange views there are people buying property in Spain.  An acquaintance has just spent a little over one million euro for a largish apartment........

Patricia

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"Sorry TJ, I thought you were implying by your previous observation that it was still OK to purchase even though the existing system stinks!"

I have lost you ads, what does this refer to - which observation?

I fear that as regards cleaning up all the "damage" the reason its not happening is because they can't. They simply do not have the cash. Infact its much worse than that - Spain's banking system is bust and Spain will soon be forced to bail it out as happened in the UK with HBOS and RBS. The difference is that as part of the Euro, Spain cannot simply print the money like the UK did, it will need to borrow it from the ECB or the IMF or the stability fund.

Even if it can borrow the funds to bail the banks, its not clear that Spain can afford it, since these loans come with high interest rates due to the lack of confidence. Spain is finding its bond rates increasing for the very reason that no one really knows what the Spanish banks are holding in the way of toxic assets and how bad the problem is now and will be in teh future. What everyone does know is that the banks are in a terrible mess, hideing billions upon billions of bad loans and the numbers are getting worse every day that goes by.

The chances that Spain then can find additional billions to sort out homeowners and put things right is i think negligable. What we have learnt from this crisis is that the banks will always be rescued by the taxpayer regardless of fault. The general public are not so lucky - they just get to foot the bill.

 To keep you up to date there was a critical vote late last night on confidence in the Greek government. If it had been a NO vote the result would have been very serious for the whole Euro region as it would have pretty much sealed their fate.

As the article below points out it was in fact a bit of theatrics, the outcome known safely in advance and designed purely as a piece of spin to try and instil some much needed confidence. The article is from Money week, i have not posted it here because i do not have permission, but if you like you can read it here -

http://www.moneyweek.com/news-and-charts/economics/europe/how-to-insure-your-wealth-against-a-greek-default-54222

Note to ads - notice the reference to money flowing like rapids into London property rather than concrete on the CDS.

Also the comment at the end on UK inflation. There was an article yesterday in the DT about the BOE preparing the way for more QE and the arrival of confetti money.

I’m out of sync here! So if you could bear with me I’ll address the previous points first, which focus on Spain.

Apologies TJ, upon re-reading “What i can say is that if you bought the property for a home and you love and enjoy Spain AND you can sensibly afford it, then i think little has changed. “ I realise I misread the detail of your post. I mistakenly thought you were referring to the fact that little had changed with relation to purchasing another property and I was concerned by the ongoing lack of consumer protection within the existing Spanish justice system. 

As for the suggestion that the Banks are unable to fund the monies owed from their illegal activities (non provision of BG's, refusal to meet valid BG claims, etc) , now we come to the crux of the matter, as how does the Spanish system treat those successful first instance judgements, and the attempts thereafter to embargo assets? Are these not classed as a form of ownership of rights? Are the Banks not obliged to recoup monies to meet the judgements at that point in time and ensure that they do not systematically deny consumer rights by delaying the process of law, thereby leaving the consumer unprotected? The “assets” whether they be liquid or otherwise at that point in time should be protected by law, but we all know that this is where the problem lies. There appears to be systemic failure to enforce legislation in Spain.

Who ultimately takes ownership of these assets when bailing out the Banks some years after the judgements have been made but not enforced? The Spanish Government? The Government that negligently, (or incompetently), delayed implementation of the law when liquid assets and/or real estate assets were available to meet these judgements, thus compromising the innocent party? The Government that continues to turn a blind eye to the non enforcement of laws in place to protect the consumer?  If so, then the Government has effectively failed in the duty to protect citizens according to the laws of the land, and in some eyes this can be considered as theft of assets could it not???Hence the immediate requirement for a fair compensation structure to be in place.

The European Parliament stipulates "In any event, the purchase of a real property in Spain is carried out in accordance with national laws and any alleged transgression of that law has to be resolved before the competent Spanish judicial authorities " "The proper means of seeking redress is through the Spanish courts and, ultimately, once all domestic remedies have been exhausted, the Court of Human Rights at Strasbourg "

THE COMPETENT SPANISH JUDICIAL AUTHORITIES!

 This needs to be challenged in light of the video (2 hours 45 mins  ) that has come from Brussels seminar relating to property rights and chaired by Diana Wallis MEP who is vice president of the European Parliament  (http://www.alde.eu/event-seminar/events-details/article/eu-property-rights-and-wrongs-37447/) , during which the EU commission refers to  "member state competence" and Mr A Walker QC makes reference to political pressure on enforcement timeframes.

Isn't the truth that there should not be "hopeless cases" with "victims" but protection according to the laws of the land within a member state? Doesn’t this lie at the heart of any civilised financial structure?

For those wishing to follow up on this point, may I suggest you direct your queries to diana.wallis@europarl.europa.eu

Now to your more recent posting and a higher level concern. With relation to the UK, do you see the UK Government failing to protect Bank savings, or are these now ring-fenced under the existing system of UK government-backed Financial Services Compensation Scheme (FSCS), albeit with limits of £85,000 per account? Is the inference that even this system is under threat given the euro crisis?.

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I cannot really help much with the issue wrt consumer/property rights. I have no legal experience and prefer to keep it that way, no disrespect to Maria who it seems has done her best to try and make up for this miserable situation.

There is a big difference between being right and getting your way. If it was up to me i would reimburse ALL those who were scammed, not just the money lost but an equal amount in compensation and if there was any spare change give it to charity. The banks could come next.

Sadly its not up to me and there are lots of expressions that come to mind - 

Caveat Emptor

Possesion is 9/10 of the law 

He who has the Gold makes the rules

Its ironic indeed that the very safety and respect of property rights in the UK was the factor that gave UK buyers confidence to buy abroad with some abandon. They unconciously (perhaps) assumed that because Spain was part of the EU they would enjoy the same rights. As it turned out they do indeed enjoy the same rights, but sadly that matters little if these rights can't or won't be enforced.

Around the world people are pouring their money into hard assets so that it is not stolen by inflation and currency debasement. They have chosen London because they believe that the UK will both respect AND enforce their properrty rights.

As we talk, in Greece people are draining their accounts before their money evapourates. Elsewhere people do not seem to be so clued up. It seems that people need to see the ship sinking before they worry about the lifeboats

Money is going into gold because even in the UK clued up people DO NOT trust the banks and their money system. The current price of gold reflects that lack of trust in paper money its telling you the jig is nearly up. Without trust the notes in your pocket are just a piece of paper and intrisically are worth the paper content only. History unfortunatly shows that ALL paper currencies eventually go to their intrinsic value which in the case of paper is Zero. Google hyperinflation and you will see a long long list of countries that suffered this throughout recent history. The names may shock you ie America!

As regards your last question about the UK and the deposit guarantee and QE.

In a country that prints money there is no fear about getting your money back from bank deposits/savings within the agreed amounts that you mention. This is not the issue, the issue is not how much money you have but what it will buy when you get it back!

A large dose of inflation... it is the only near term answer to the problem and the engineering is being put in place as we write, if it were not there would already be deflation, as experienced by Japan.

In the medium term I doubt that the profligacy of the last 30 years can be put behind us... people of all generations expect ney demand, continual and rapid improvement in living standards

Deflation would be the final nail in the coffin for the world economy as spending would dry up completely.

Barry

What happens if a country goes bankrupt?? I have been reading this as an option to the Euro collapsing but cannot understand the difference. Also if a country did declare its self bankrupt what difference would this make to Joe public?? obviously the country wouldnt cease to exist neither would all the businesses in that country (same as if the Euro collapsed, you would still have your newsagents/cafes/restaurants etc etc open and trading) wouldnt you?? Finally, how would a country becoming bankrupt affect people with motgages abroad, would it be the same as the Euro collapsing?