I recently had a few valuations on my property with a view to selling. What one of the valuers told me was interesting. He said that a lot of the banks, if investigated properly, would be guilty of mortgage fraud. Forget people knowingly getting themselves into massive debt, the banks were actively encouraging it with reduced deposits and the promise of big returns in short timescales. When banks were sending surveyors out to give places a risk assessment and make sure that the value of the loan and the value of the property added up, in most cases they would just tick a box on a sheet without even going inside the property. Banks were more than happy to give 100% mortgages on property values that were totally unrealistic and with no risk assessments carried out.

It was the year before the crash precipitated by Lehman Brothers Collapse, but what we know as the credit crunch started on the 9th August 2007 according to Google. Northern Rock went bust on the 14th September 2007, so a few weeks after the chickens had come home to roost.

NR made a commercial decision on risky lending. It failed. What was reprehensible, as I said at the time, was Gordon Brown rescuing NR. He should have protected their depositors, sold their loan book and had it wound up asap. That would have sent a strong message out. Instead for political reasons (employment in the NE, I assume) he chose to prop it. It should have been seen to have failed and its name immediately expunged.

At the time that it happened there were probably several other banking CEO's on the phone to him on the hour saying "I think we need to talk Gordon", Northern Rock didn't happen in isolation, they were just the ones to go out in the first round of musical chairs.

Anti-austerity was always a hopeless doctrine.

The idea you can spend your way out of major debt it, quite frankly, ridiculous.

It's a bit like defaulting on a loan and then asking your bank to give you another £5,000.

The last two houses I bought pre-2007 (in fact one of them April 2007) had the usual building society survey paid for by me and done by what I presume was someone qualified by the BS to do so, when I asked the vendors if they'd spoken to the surveyor on both occasions they never saw a surveyor let alone invite them in, the building society "survey" was obviously just a kerbside cursory glance to make sure there was a property at that address, or possibly not even that.

Totally agree reference 'surveys'. It is simply something done to confirm to the bank that the property is worth roughly what is being paid. There is no real benefit to the buyer, who normally pays the survey fee.

The survey on my flat told me it was about 350 years old and in a converted hall in a rural setting. Which I could pretty much tell from the moment I looked at a photo of the place.

It isn't ridiculous. To reduce your debt you need a growing economy. To reduce spending when the economy isn't growing or is in poor health is economic illiteracy.

To start with, there are 2 issues here - the economic crash and government debt/deficit levels.

In order to reduce the latter you first have to fix the former.

In order to fix the former (a financial crash) you need to increase public spending in order to make up some of the drop off in consumer spending. Otherwise the economy shrinks, and if you decrease public spending you are actively taking money out of the economy.

That's why the Bank of England was desperately printing money to put INTO the economy.

Then, when the economy is relatively stable and growing you can deal with any debt/deficit issue. Through a combination of progressive tax rises and carefully planned public spending cuts over a long time period.

To cut public spending and increase a consumption tax during the recovery from a financial crash that severely affected consumer spending is economic battery.


It's the equivalent of being made redundant and looking for a job but saying you'll cut your costs by selling your car and so make it much harder to find a job.

Just to add to the above, one of the most effective ways of very quickly bucking up a downturn in the economy happened in the early 90s when the (I guess) Tory government set a 100% Corporation Tax relief on capital investment.

That one very simple, easily administered thing led to a huge increase in turnover to any company who supplies anything in the production cycle to any other company, overnight businesses who had clung onto old uneconomical machinery suddenly had an opportunity to replace it with a discount against their next tax bill and of course the businesses that supplied them probably had a corresponding increase in their Corporation Tax on their increased profits the following year, like most taxation issues the dry world of accountancy often does not predict what the knock on effects of policies actually are - we saw this one immediately in a sudden resurgence of sales especially in the spring quarter when the tax year deadline approached and businesses wanted to offset a tax liability for some useful asset investment.

The argument for austerity doesn't make sense in a fragile economy, with huge private debt.
If both the public sector, and the private sector are both paying down debt at the same time, then banks stop lending money, and, money stops circulating into the economy causing it to shrink - which is what's happened in Greece.

In the UK, we've just been lucky so far that we've been able to print currency to keep ourselves afloat. In reality, as soon as interest rates rise and, demand for oil catches up with the current over supply and oil prices start to rise again, and the grave reality of our economic situation will hit home and, we'll probably be in a worse position than the Greeks.
Currently our debt is 80% of GDP, when you factor in all the private debt its 900%. This won't be repaid, either the bubble bursts, and our living standards plummet, or we write off a huge amount of private debt, and break up the too big to exist banking system and restore some balance and reality to our economy.

complete rubbish there was never a question of mortgage default bringing NR down. They simply couldnt borrow money in the market when banks stopped lending to each other so their revolving credit failed to revolve.

Yep. Reducing taxes like that, VAT, employers NI etc or schemes like the car scrappage scheme are exactly what should happen to help stimulate economic activity.

But of course that increases the deficit and debt.

Why do people continue to equate the interests of those pushing for austerity with their own?

From their perspective it is working just fine.

Kind of reminds me of Dick Cheney entering Iraq without an exit plan. How forgetful of him ...

Yes because history shows thar such a programme failed so spectacularly post-WW2

Shortly after the global banking crisis, Brown and Darling reduced VAT in an attempt to keep stimulus in the economy. In 2010 the economy was growing and employment was rising again. Unfortunately the bunch of sociopaths who then took charge seized the opportunity to shrink the state in the name of "austerity". This ideological decision led to an immediate reversal of that (albeit sleight) growth, a reduction in spending power and real hardship for those at the bottom of the income scale.

Economic illiteracy at its finest

NR was a simple bank unlike, say, RBS. So, the reason other banks would not lend to them was because they perceived a risk of default.

The circumstances are completely different to post WW2. Then there was major rebuilding in the UK, Europe, Japan etc - therefore a huge stimulus to the world economy. Given the UK, despite being broke, was such a major producer it was always going to get a big slice of the growth action. Accordingly, your approach made sense. Now the situation is far different and the full flung anti-austerity approach would, I suspect, prove disastrous.

No it wasn't. It was because the other banks didn't have any money to lend and Northern Rock was more exposed to a drying up of the credit markets since that's where most of their funding came from.

[urlhttp://www.bbc.co.uk/news/world-europe-33578778[/url

Pretty much spot on from Varoufakis. Frankly, I think the way he's been demonised in the media is a disgrace. The guy is a legendary economist, and one of the finest of his era, he (and people like him) should be the ones leading the EU economy out of crisis, instead of the neo-classical talking heads currently at the head of the table.
On a slightly separate note, I recommend his book [iA Modest Proposal[/i which he wrote with Stuart Holland. I think it's a must read for anyone with an interest in the Eurozone crisis.

Banks had money to lend, they were just frightened of lending to other banks as they did not know where the losses stopped.

Pre-failure, NR had a big surge in mortgage lending, yet its share price fell and it issued a profits warning. Would seem everyone but its management and the FSA saw the writing was on the wall!

You are completely wrong. The reason why NR went belly up was because of its business model whereby it borrowed money in the UK and international money markets so it could provide mortgages which it then sold on. The market for these re-sold mortgages dried up due to the 2008 crisis and so due to lack of revenue as it was unable to re-sell the mortgages, its source of funds to repay the loans it had already taken out dried up.

They were engaged in the exact same thing as Fannie mae and Freddy mac were in the US. Bundling up mortgages to create a Mortgage Backed Security (MBS) and selling it to the secondary mortgage market. When that market dried up, so did NR's ability to meet its creditors.

It wasn't its inability to borrow that killed it but its inability to sell on mortgages to fund is already existing debt that did for it.

Now we are getting somewhere. No one would buy because they were worried about what was bundled (ie the potential for defaults within the bundle)!

Varoufakis has been totally discredited not just by the media but by his record.

At the start of this year things were looking up for Greece with a poll of economists predicting 2% growth for 2015 following 2014's modest 0.8% growth. Unemployment while very high had edged lower. The same group of economists now predict outright recession this year with even worse to come.

The reason for this adverse change is the election of the Syriza government in late January. They have plunged the economy into uncertainty and snuffed out the positive signs that they inherited. They showed little sign of wanting to negotiate seriously and niavely played poker with the EU and instead of gaining sympathy and substantial concessions from their creditors and so ended up accepting a much worse set conditions with much worse austerity to come.

Varoufakis has to take a big share of the responsibility for their failed strategy and for a dire lack of financial management of their economy. He was the one to whom the MD of the IMF directed the remark about the need for "adults in the room" for any future negotiations and led to him being sacked.

The six month experience of the ultra left wing Syriza with their dysfunctional government of academics and dreamers has set the economy back years. As the IMF have pointed out earlier in the year it was thought that Greece would require no further debt relief. It now believes it will need a further €50 billion over 2015-18. The bill that the poor Greek people will have pay for 6 months of Varoufakis and Tsipras is huge.

Billy the Kid was legendary but he was still a criminal.

Wrong again it wasnt the threat of their mortages going bad - we didnt have anything the default issues we had in US. They just got caught up in the whole mailstroom of financial issues surrounding sub prime mortgages getting AAA ratings.

As I said the market for their MBS's dried up. Why it dried up isn't the issue, it's [ibecause[/i it dried up they had no funds to meet their creditors.

The similarity to Mae and Mac in the US is that is exactly what those organisations did, sell MBS's. The fact no one wanted to buy Northern Rock's MBS's anymore was virtually certain to be because Mac and Mae effectively killed the market due to the sub-prime issue, (they were selling bundles of worthless mortgages no one wanted so you'd have to be a bit of an idiot to think MBS's were still a good idea whoever was selling them).

Well austerity does have a negative impact on GDP. That is an economic fact and as the Greek's have just had more austerity heaped on them why would you expect any different? You don't need to believe me the IMF will tell you the same thing.



Simplistic nonsense. They haven't snuffed anything out. Greece has been running a budget surplus and continues to do so if you disregard loan repayments. Of course you can't because if those repayments exceed the surplus you still have to borrow money to pay your creditors and that is what the whole argument has been about. Restructuring the debt so Greece can pay its creditors which it can't if this doesn't happen.



The IMF pointed out what Varoufakis and Tsipras have been saying all along. That without debt relief there isn't a viable solution. On that they were signing from the same hymn sheet and to suggest otherwise is being disingenuous. What Varoufakis and Tsipras wanted was debt relief without further austerity as they believed that would contract the economy and make matters worse not better. This is not a controversial view and one shared by plenty of respected economists outside if Greece. The German's were having none of it and have won.