The Credit Crunch

So the banks have played their cards! We can now see exactly how greedy they have become. The Sub-Prime credit fiasco has highlighted what many of us knew a long time ago.

The banks around the world have been gambling, and as their gambles have paid off, they have increased their risk. It was only a matter of time before this blew up in their faces, and boy has it done that! The fat-cat salaries the banks have been paying have been fuelling and rewarding the risk takers.

One of the first rules of financial management (and one that your bank would tell you) is that if you spend more than you earn, you are in trouble.

A famous quote from Charles Dickens' classic work, David Copperfield. In it, Mr. Micawber notes the difference (in his view) between happiness and misery.

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

So we are now in a credit crunch - first time buyers, who have been suffering because of the high (and increasing) house prices, are now unable to get the mortgages to get onto the housing ladder, despite house prices coming down. Existing mortgage customers will face a problem when they remortgage - what if the mortgage provider decides that despite a perfect record, that the person is no longer 'creditworthy' in the modern climate - what happens to their property? Will their house be repossessed? Will they be forced onto an unaffordable high lending rate - to further fuel the fat-cat pay deals at the top of the banking system?

It is an old story - the banks hold our money and charge us for the privilege, they gamble with our money and charge us for the privilege, and they screw up and charge us for the mess. The CEO of Northern Rock screwed up, and got a huge payout - and who pays for this? The shareholders - in the case of Northern Rock - this now means the taxpayer!

And then the Government offer to bail the banks out with our money. Very few of these banks are British only, and have been making the same mistakes overseas, but we are bailing them out. I leave you with one question - have you ever seen a poor banker?