Credit where it’s due

I GENUINELY don’t get the Conservatives’ point when they bang on about individuals’ indebtedness.

It seems to be a central plank in their attack on the government that it should act to prevent people from borrowing outwith their means.

As it happens, I agree that large levels of personal debt is a bad thing. But is the party of the free market suggesting that the government should have created an artificial credit crunch ten years ago by restricting citizens’  borrowing power? Is the party of individual freedom saying that instead of individuals taking responsibility for their own actions, the government should be blamed for their levels of debt?

And does this mean that under a Conservative government, loans and credit cards will be much harder to get? 

The party’s rhetoric at the moment seems to suggest as much, but the cynic in me strongly suspects that all this bluster about personal debt is no more than that: bluster. We all agree that personal debt should be less, but unless you support government making decisions about how much you can borrow – which neither of the parties do, incidentally – then this is one area that should be decided by individuals and their lenders.

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14 Comments

Filed under Conservative Party, Economy

14 responses to “Credit where it’s due

  1. Andy

    Tom, you just don’t get it at all. In personal cicumstances, just as in national circumstances, borrowing is fine if you have the werewithall to back it. BUT as been shown in every labour government you, labour, f*** up the economy to such an extent that you can’t even get credit from the IMF who take credit worthiness quite seriously. It always takes a conservative government to put the economy right afterlabour government – just study some history before you give the standard labour knee jerk reaction.

    Anyway, I don’t much care anymore – Brown has forced my hand; Australia has just accepted my application to emigrate so I’ll be taking my skills and my (currently) £25k tax bill there .. at least it won’t be spent on labour’s benfit scrounging client state any more. It will be spent on protecting borders efficiently .. I’m so relieved .. I may be 39 but jeez I feel optiomistic about life now
    bye bye you socialist f*** wits

  2. John

    “We all agree that personal debt should be less, but unless you support government making decisions about how much you can borrow – which neither of the parties do”

    How can anyone not support that? It’s always happened, it’s just that until 10 or so years ago when everyone and everything started throwing money around, it was the market that imposed limits and not the government.

    There is public policy grounds for this to. Number 1, the economy. Any first year Economics student knows that long term ecomonic growth is driven by the savings rate. People spend and economy grows, then people save and the economy levels off for a while, then people spend again and so the cycle continues.

    Over the last 10 years we’ve had artificially high rapid growth. Anyone with a brain could see the economy was overheating, yet for some bizzare reason everyone thought it was sustainable? People spent, then borrowed so they could spend more, house prices were driven up and people cashed in on their equity and spent more until the economy was always on the up. It was an economy on borrowed money that was inevitably on borrowed time. The money ran out, and now no-one has any savings, and we are all laden with so much debt we won’t be saving again for some time.

    THATS why I blame this government. People on £15,000pa were able to rack up credit card debts of £60,000 or more without regulation and without any checks at all. Northern Rock openly bet their futures on house prices never going down again with 110% morgages at 10X a person’s annual salary. Yet this government did nothing.

    Yes our banks bought a LOT of bad debt that had to be written off, but much of the problem was also home grown in people being allowed to OPENLY borrow well beyond their means and it happened on a never before seen scale. Well, that’s not strictly true. It happened once before….in the lead up to the great depression.

    If this government does anything it’s got to regulate the credit market. Never again should a person on £15,000pa be able to rack up credit card debts of £60,000 or more. Never again should people be offered morgages that they clearly can’t afford, and that openly bet on house prices never going down again.

    As evidenced, the economy depends on it!

  3. bupendra bhakta

    Mr Harris, I have worked in finance for many years and in many countries. Many countries have restrictions on credit precisely to prevent the sort of housing bubble and bust and consumer debt bubble and bust that the UK has experienced – and will continue to experience.

    How can you agree that large levels of personal bad debt is a bad thing but then wash your hands and imply that nothing should be done about it?

    It is a very curious that you can sit now with hindsight and see how much damage has been inflicted on our economy by reckless lending yes by UK bankers and say that we don’t need more regulation.

    The housing bubble arose in the UK because the demand for housing exceeded the supply. Of course one response should have been to increase the supply.

    But another response should have been to crimp the demand. Be honest, almost all one needed to get a self-certification mortgage was a pulse. So when mortgage money is so widely available and better than free, of course you’re going to have a housing bubble and burst.

    And, you may not like to hear me say it, but the government and the Bank of England sat back and did absolutely nothing about it.

    Do you really think that was the right approach?

    Do you really think there was no culpability?

  4. Chris' Wills

    It may simply be that they think that people should realise that spending beyond your means isn’t always sensible (investments can go down) and that the goverment shouldn’t bail them out by robbing from those who haven’t been profligate.

    I realise that this may be difficult for a NuLabour supporter to understand as the goverment seems to want people to spend spend spend rather than save; it is also happy to spend what it doesn’t have so sets a bad example.

  5. The only problem with high personal debt are the circumstances which make people feel they need to get into it.

    What is the market solution to this particular problem?

  6. Dumb Brummie

    Tom

    I bought our first house in 1979. You were just a little boy then. We had to save the deposit with the Building Society we used, to prove we could save, and as I was on a low salary, the deposit was 30%.

    Not that long before that, we had “Hire Purchase”. There was a huge debate as to whether it was moral to let people buy things on the never-never.

    Yet the economy managed with large scale borrowing and without house price inflation.

    Your man with the moral compass is responsible for wrecking the lives of millions. I hope he has sleepless nights, but I think not. Now he is starting to summon up the WWII analogies, I worry about his mental health.

  7. richard

    “And does this mean that under a Conservative government, loans and credit cards will be much harder to get? ”

    I don’t claim to speak for the Conservatives but in my (semi-)humble opinion, credit should be easily and readily available to those that have the means to afford to repay it and impossible to get if you don’t.

  8. Jim Baxter

    You have to wonder what would have happened if the UK government had introduced tighter credit controls unilaterally. Would there have been complaints that our financial services were being disadvantaged in the international marketplace? Would we have heard that people should be free to manage their own finances and take their own risks without interference from the nanny state?

  9. Johnny Norfolk

    The Conservative party is for individual freedom, but not financial anarchy that the Labour party has created, so come off it Tom. Labour have led the way changing all the banking rules messing up the bank of England, etc.etc..
    History will judge this Labour government to be the worst.

  10. richard

    @ Jim Baxter

    You’ve hit the nail on the head. In the early part of the decade there was a great deal of pressure coming from the financial services sector to deregulate.

    Labour’s policy of “light touch” regulation is one (of several) reasons that we find ourselves one of the worst placed economies in Europe to deal with a financial downturn. Our economy was built like a house of cards from public debt, private debt, massive public sector employment, massive public sector spending and a whole lot of wishful thinking.

  11. Auntie Flo'

    bupendra bhakta and those arguing for restrictions are so right – and your government is so wrong.

    House price booms and busts on the back of unmanaged, out of control credit are so often the key drivers of recessions and that is exactly what’s happened here.

    Your government knowingly and deliberately fuelled a dangerously overheated boom and bust cycle from:
    Out of control mass migration
    Consequent, unsustainably spiralling housing demand
    Consequent, unsustainably rocketing house prices
    Runaway credit and dangerously low interest rates

    Why didn’t Blair take the measured, rational management approach to migration and the inevitable housing boom and bust that would stimulate, the approach that the rest of Europe took? Why did he refuse to put those rational management structures in place when the option was there – and why didn’t Brown and the rest of the cabinet insist on that?

  12. Auntie Flo'

    For over a decade Brown and Blair forcaste endless growth in our economy. They bragged about our dangerously low interest rates and loved the spiralling growth in house prices. No more boom and bust, they claimed, the cycle has been defeated.

    Never once did they take their eyes off the false boom of those phoney interest rate indicators and look at the real – and frightening – indicators of how sick the inflation in the housing market and our economy had become.

    So sick that, even with low interest rates, millions could not afford to buy homes.

    So sick that millions were in unsustainable debt up to their eyeballs to pay for their homes.

    So sick that a whole generation was taking its cues from out of control government borrowing and government promises of endless boom to borrow like there was no tomorrow.

    Nulabour reaped what it sowed: a whole generation sick to it’s stomach with debt in a dangerously sick economy.

  13. credit controls are not needed, the banks should be lending to individuals at whateer level they want as long as they can justify that the individual has the means to repay the debt.

    This is where the regulator has failed again. The FSA has been missing on watch again. The FSA has plenty of rules in place to ensure that lenders are checking repayment ability, however they are woeful at enforcing their rules and the lenders are willing to turn a blind eye.

    Gordon Brown has established these rules and regulators, if after 10 years as chancellor he is not to blame at all, then why is it not time for ‘a novice’ if the politicians inactions have no bearing on the outcome

  14. Ian B (1)

    It’s nothing to do with “regulation”. The problem is centralised control of interest rates via the central banks- in our case the Bank Of England. By holding those rates down, it creates an illusion in the financial markets that they should be lending more than they should be. So they do. Then the whole house of cards crashes down and government tries to save us from a problem which it created itself. Until people get their heads around this, we’re going to always live in a boom and bust society.

    The inevitable false boom pushes money into those markets where loans are the norm- property in particular. This leads to rapid price inflation. Some of those affected are delighted to have a “sure fire” investment. Others are just paying the vast prices to get a roof over their head. It forces all property buyers to be speculators. Then, when the crash comes, and property prices attempt to collapse to their real level, ordinary people find themselves trapped in a long term usurous loan of, say, £200,000 for a property which is really only worth £50,000. Obviously they don’t like this very much- especially as they had little choice in taking the loan out- so they obligate the government to try to sustain the inflated prices. So the government can only do this by pumping in more inflation- and the whole thing becomes self-sustaining, a never ending disaster.

    Any free market will have a credit and loan component. But the market we have now is grossly distorted by interventions. The bubble was not the “free market” running amok. It was state regulation running amok.

    People naively ask for more regulation. They imagine some wise owls- experts- who will somehow prevent future calamities. But the wise owls themselves never see the coming crisis. They always believe “this time it’s not a bubble, it’s real growth”. The watchmen are inevitably as bad as those they watch. The system is fundamentally broken. That’s what needs fixing, not trying to make that fundamentally broken system work. It never will.

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