25th February 2009

Exactly a month ago I wrote about the banking crisis and I was suggesting that we need to rebuild trust between bankers and their clients. Looking over the last four weeks many initiatives have been announced, record losses are in the public domain and we are on the third (I think!) banking bail out. All of this but we do not seem to be learning from the mistakes of the past. This is so frustrating and leads me to believe that some people think that a political solution is more important than a real solution. We have an excellent opportunity to reign back the credit culture fuelled by the “must have now” demands of people who do not know what it is to work and wait for something.

Perhaps I am showing signs of old age but I was brought up to appreciate the need to save and avoid the misery of too much credit. My background is very much blue collar working class but we never lived beyond our means – yet I never felt deprived in any way. The country would have a much sounder platform from which to grow and thrive in the future if we started to choke off the easy credit culture so prevalent.

What frustrates me is that Banks and others are being pushed to maintain historically high levels of lending and, for example, it is made easier to get 100% finance on a new car just when we need to stop and return to normal.

If we laid down in law that a deposit of at least 10% was required for a new house and no mortgage lender could exceed these levels then house prices would normalise and people would not be faced with a desperate need to jump on the roller coaster ride for fear of being left behind. It would reduce the numbers of repossessions as people would only take on a mortgage when they have shown an ability to save. Undoubtedly some speculators would be unhappy but we should not base a housing market upon the gamble of potential capital gain. Similarly with say a 25% deposit on any new car.

The same is also true of businesses. Whilst I have sympathy for workers at LDV, the truth is that the company has not made a profit in four years and if it needed cash to stay in business then its owner need only sell one of his yachts – not appeal for a government bail out. Businesses need cash to survive as I have previously pointed out and banks have an important role to play with short and long term lending – but only to viable businesses. The recent story about a pampered celebrity chef left me very annoyed. Here was someone wanting the bank to put in 100% of the money needed to keep his restaurant chain going but refused to place any of his own wealth at risk either in cash or security. Exactly why does anyone think a bank should take this action? If the chef in question was confident of success then he should have backed his feeling like any good entrepreneur with his own cash. Not to do so and then go on a public whingeing session is doing a disservice to real business people.

So I am advocating a return to good old fashioned lending combined with a savings culture. It will mean a perod of decline whilst the markets readjust but in the long term it is the only way forwrad for the country. Whilst we are at it perhaps we could cap the ability of governments to borrow too! It saddens me the levels of debt that our children will inherit through the selfish actions of our generation.

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