englishangel wrote:
I have just watched "Requiem for Detroit" and there is 38.7% unemployment, 40% illiteracy and from a peak population of 2million, there are now 800,000 and GM and Chrysler have gone cap in hand to the US Government for funding.
Was it Chrysler (now General Motors) who had to be bailed out in 1982? Auto manufacturing is the classic cyclical. Come a recession / economic downturn and people hold on to their cars a few years longer creating a "pent-up demand". Second hand prices start to go up and people start to think it better to buy new than used; this lags the rest of the economy. The US has several problems - Japanese design and manufacturing ability, the depth of the recession, possibly poor management and Detroit was / is a One-Industry city.
(assessment help from Peter Lynch acknowledged)
englishangel wrote:It was (mainly) US sub-prime lending.that toppled the first domino, admittedly GB didn't help but he hardly "single-handedly screwed up the economy".
Sub-Prime - yes BUT and a huge BUT.
In the so called "Secondary Banking Crisis" of the late '70s or early '80s I don't know how many UK banks failed - ISTR it was well over 20 - and all because of what is now called "sub-prime" morgage lending. The general public knew little about what was happening. My next door neighbour - an officer in the Bank of England - freely admitted that he changed his paycheques into cash which he hid "under the bed". Circumstances have since changed thanks to the Government / FSA / Stock Exchange
1 Publicity; the Freedom of Information Act plus different Stock Exchange rules mean that companies cannot be dealt with quietly and behind the scenes. In the secondary banking crisis there was almost no publicity so takeovers and cleanups couple be accomplished behind the scenes and few if any people lost their money.
2. The FSA (aided and abetted by the government) had brought in swinging new and horrendously complex financial capitalisation rules which I suspect even many at the FSA don't really understand and which allow smart people to get around the rules. (I understand that these have now been scrapped - too late)
3. Whilst in the throes of the recession the FSA tightened the rules at a time when it was impossible for many banks to comply; the stock market would not accept new issues / rights issues thus forcing the banks into a worse situation
4. I have personal concerns about the calibre of many of the middle management FSA staff at the time some of whom I knew personally (there were some excellent ones). They were ticking boxes - many very likely not understanding the situation and probably not allowed/fearful to take early remedial action
5. Bankruptcy and administration rules have hit the banks hard - they are forced to write off debts rather than try to get their money back.
Northern Rock (which really was the UK catalyst) was a special case; it was (IMHO) very badly run, breaking one of the most basic tenets of lending. The market knew the situation and was moving in a way which could have resulted in a quiet turnaround but the whistle got blown and panic ensued. That brought in 3 above. The FSA knew all about Northern Rock in advance but allowed it to get into that situation, acting too little and too late. IMHO it was shades of the Bank of Credit and Commerce International failure
There was another Government inspired cause. Under 2 above (and for their own purpose) banks hold freely marketable government stocks ("gilts") which figure positively in the ratios. As the stock market fell from 6300 to about 3700 the price of the stocks fell. Of course, under current rules the stocks have to be downgraded in the bank balance sheet by the amount their price fell (even though one prays that the government will pay its debts on due date). This triggered / worsened the ratio problem which helped trigger the RBS etc problem. (RBS had another problen - the unjustified price it had paid for ABN-AMRO ..............)
Then we had "Lloyds" - a most conservative bank which had to take over a bank in difficulties thereby pulling Lloyds itself down.
A bit like the American Car industry, banking is cyclical - they have times of increased bad debts and times when the vast majority of those "bad" debts are paid off. It was a question of weathering the storm.
GB might not personally have screwed up the economy but the banking problems were laid / exacerbated during Blair's watch. He is also a right ar**hole over current lending. He claims that the situation was caused by bad lending and is now trying to force the banks to lend to customers which the banks consider to not be credit-worthy.
(- which I just noticed is a notorious aerospace company)
