Well I am no economist but I believe that the availability of credit (or lack of it) is what is causing the issue in the UK right now and I can only assume globally.

I think that in UK, Europe and USA, we have a problem caused by the greed of the past. Where any decision is influenced by the amount of bonus you can get, how could anyone make a decision that was right from a business perspective !! This applies to banking sector (shares, investment, loans) and to the estate agency business.

This has caused the last ten years of spiralling house prices, with associated ‘equity greed’ (where people borrow more than they can afford in the never ending belief that prices (house values) will continue to climb). It has also caused the creation of ridiculous lending policies where in US they lend money to people without jobs or incomes (Ninja mortgages – now referred to as toxic debt!) and in the UK 125% lending against your home to people now in negative equity.

 

 

It is widely reported that the economy moves in cycles, boom and bust. If that’s the case then why did none of our big financial institutions predict the down turn, which according to the graphs was long over due? The answer can only be that they were the greed of the past, fuelled by bonuses.

As the pendulum swings we are now seeing economic crisis (both personal and business) caused by a lack of credit. In the housing market – house prices are falling as lenders panic and refused to lend – partly in fear of acquiring more debt but I also believe, more insidiously, because they were worried about the state of their ‘books’ and the existing bad debt they are carrying. They have not only stopped lending to the general public – with inevitable consequences, they have stopped lending amongst themselves with catastrophic consequences. Namely fear spreading to external investors in the market – the people with the real money, who have removed it from the money markets, and if they have any sense they are buying up businesses and property directly at discount prices (hence why the rich get richer in a depression).

The lack of funding is also having a dramatic and spiralling effect on business as not only new credit is refused (mostly because of fear and lack of actual money) but also because banks are reducing existing lines of credit and in some cases calling credit lines in! Cash flow is the life line of any business and the ‘lack’ and ‘fear’ will continue, either to the point of our destruction or until someone has the courage to change.

Courage to change

How can we encourage courage

Post script added

PS Can I now apologise for the amount of bold text – clearly ranting – in the above blog. Obviously posted in the heat of my frustration :) feel lots better now :)

4th june 2009 – day of European elections (don’t get me started on that !!) :) …..? – may need to be forced by the US and UK governments as there seems to be a distinct lack of courage around. The brink of destruction is still some way off and considerably more painful and long lasting than we might think.

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