Editor's Blog7 mins ago
credit crunch
9 Answers
Can some one explain to me in laymans terms why this country is in this mess how did it happen?
how the tax cuts are going to help , and why should I as a tax payer have to pay for the damage done in a few years time for people in power **** ups
And what do you think would be the best way to go GypsyX
how the tax cuts are going to help , and why should I as a tax payer have to pay for the damage done in a few years time for people in power **** ups
And what do you think would be the best way to go GypsyX
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This is in simple terms......
The banks lent money to people for mortgages, these mortgages were packaged into larger investment funds which were then sold to other banks.
In theory what should have happened is those mortgages were paid back with interest, so banks purchasing those investments would have had a return. However those mortgages were given to people who couldn't pay them back. In the US in particular rules allow people simply to hand the keys back and be free of the debt, therefore the investments were in effect worthless and banks have had huge losses as a result.
However don't for a second thing that this is confined to the US, banks in the UK like Northern Rock and Bradford and Bingley have also lent massive amounts of money to people not able to pay them back.
The up shot of this is that banks won't lend to each other and also won't lend to any body who is a risk, no more 10X income multiple loans, no more unchecked self cert mortgages. House prices in the UK have been inflated to a massive and unnatural level and the banks are now unwilling to lend that much to people, hence the term credit crunch, i.e. a lack of credit available to people.
Less credit means less money, less money means people spending less. The theory is that a cut in vat will get people spending, people spending is good for retail business and therefore the ultimate plan is to stop business going bust.
Problem is that the reason people are spending less is because they no longer have the money, and are no longer able to spend, a 2.5% cut on VAT is nothing more than posturing from a Goverment who know the games is up but could never admit as such.
The banks lent money to people for mortgages, these mortgages were packaged into larger investment funds which were then sold to other banks.
In theory what should have happened is those mortgages were paid back with interest, so banks purchasing those investments would have had a return. However those mortgages were given to people who couldn't pay them back. In the US in particular rules allow people simply to hand the keys back and be free of the debt, therefore the investments were in effect worthless and banks have had huge losses as a result.
However don't for a second thing that this is confined to the US, banks in the UK like Northern Rock and Bradford and Bingley have also lent massive amounts of money to people not able to pay them back.
The up shot of this is that banks won't lend to each other and also won't lend to any body who is a risk, no more 10X income multiple loans, no more unchecked self cert mortgages. House prices in the UK have been inflated to a massive and unnatural level and the banks are now unwilling to lend that much to people, hence the term credit crunch, i.e. a lack of credit available to people.
Less credit means less money, less money means people spending less. The theory is that a cut in vat will get people spending, people spending is good for retail business and therefore the ultimate plan is to stop business going bust.
Problem is that the reason people are spending less is because they no longer have the money, and are no longer able to spend, a 2.5% cut on VAT is nothing more than posturing from a Goverment who know the games is up but could never admit as such.
.... the issue is a little more complex than that but in essence that's it.
Problem is is that it is far too late to actually do anything about it, things should have been done a few years ago, but the Government decided they wanted to throw sense out of the window to continue the party. People will say what could/should they have done, and I'm not saying it would have been easy, but we should have tried to bring an end to it rather than continue with unsustainable growth which was always doomed to failure.
Problem is is that it is far too late to actually do anything about it, things should have been done a few years ago, but the Government decided they wanted to throw sense out of the window to continue the party. People will say what could/should they have done, and I'm not saying it would have been easy, but we should have tried to bring an end to it rather than continue with unsustainable growth which was always doomed to failure.
Yes I watch the news but I have not seen on any channel the bottom line of why it has happened or been allowed to happen only the after math that is going to effect us all in some way this was predicted a long time ago but still ignored by the powers that be
wowo a thankyou for the break down in your reply
wowo a thankyou for the break down in your reply
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