Friday, 9 January 2009

QUESTIONS WITHOUT ANSWER

We seemed to have entered a period of post-Christmas hibernation. Our French family have returned and bedded in, one of our Grandsons took himself off to work in the French Alps and with eager anticipation we quietly await the birth of our fourth great grandchild in a few days. His (because apparently it is a "he") sisters are not quite so eager. “He’ll be a nuisance” “He’ll keep us awake at night” “We’re going to come and live with you” etc, but we just know that when he arrives they will become besotted with him, as we all will.

Now tranquillity is fine, but it’s boring and during this period my mind has gone into overdrive. My paternal grandmother was extremely poor, having become widowed at a very early age with 7 children to bring up. But by all accounts she was a suffragette and passionately interested in world affairs.

I think that I inherited her enquiring mind and recently this silly old woman has been wondering why we have a financial crisis. Where has all the money gone to? It has to be somewhere. Surely it can’t have just evaporated. I know that economists will explain to this illiterate old biddy that it isn’t quite that simple but I say why? Who has the money? Answer that.

The banks say they have no money to lend because they lost confidence in each other and consequently the inter bank lending rate (LIBOR) is too high. This is causing businesses to fail, unemployment and the property market has simply gone into freefall. So why, if the banks don’t trust each other, don’t they just borrow direct from Joe Public? At the moment Joe Publics savings are only earning a pittance in interest and some will, no doubt, be squirreling it away in a sock draw. Pay him a rate the equivalent to the LIBOR rate and hey presto, money will pour into the coffers again. Problem solved.

And in the middle we have Gordon Brown looking like a rabbit caught in the headlights, sloshing money around the banking system which immediately disappears into that terrifying black hole, creating more public sector jobs and, God help us, borrowing more money from the IMF.

And how come the IMF has money to lend? And where does the IMF get its money from anyway? From the Countries that it lends it back to? Does it do what it says on the tin? Is it funded by the nations to lend back to the nations? Now forgive me for saying this, but if that is the case it’s absolute bullshit.

I remember once reading that Stalin said the only way to defeat the western world was with drugs, pornography and industrial dispute. Well we have the drugs, we have the pornography and industrial dispute has been replaced with financial chaos. Do we have a hidden enemy at war with us? I have several suspects in the frame at the moment, but I think prudence dictates that I should to keep my own counsel on that one!

And finally .... Don't take life too seriously; No one gets out alive.

28 comments:

Chapati said...

Some good questions. The banking system, with all its various 'exotic products' that it trades with each other, the volumes of money involved, and all that jazz just completely fathoms me!

And I work in finance!!!! Not too far off from learning about investment, and what they do...

I think it's precisely that - complete lack of transparency even to someone who is currently studying what they do in great detail, which was their failure...seems we're not far off hiding the money under a mattress, BoE can't really cut interest any lower!

Lindsay said...

Like you, my paternal great grandmother was a suffragette and a personal friend of Emily Pankhurst. Underneath Mrs Pankhurst's statue are buried a few of her suffragette memorabilia. My great-grandmother's badge is there too!

DogLover said...

I don't know the answers - despite having done a year's economics at university before I got fed up with it!

However Robert Peston writes for people like us and some of his books can be found on Amazon:

See http://www.amazon.co.uk/s/ref=nb_ss_b?url=search-alias%3Dstripbooks&field-keywords=Robert+Peston&x=20&y=23

Retiredandcrazy said...

Hi Chapati one of my grandsons is an economist in the City and his best advice is stock up on Tesco value beans! Transparency? They don't know the meaning of the word.

Retiredandcrazy said...

We owe these ladies a great debt don't we Lindsay? My grandmother was so poor that I am sure she was not an activist. She would have been too busy keeping body and soul together. They were so plucky.

Retiredandcrazy said...

Surely DogLover you can't mean Gordon Brown's bestest friend Robert (treacherous bastard) Peston? The man that leaked news of Northern Rock needing a bale out causing a run on the bank and a stock market crash?

menopausaloldbag (MOB) said...

Okay, I give up. You caught me out. I have trillions of pounds of currency under the mattresses in ma hoose! I have no intention of giving it back to incompetent bankers so until they behave themselves, I am hanging onto it, okay? There are almost as many theories as there are currencies as to where the money has gone but in fact a lot of it isn't money at all.

The open market operates on many levels and a great deal of trading is done in bonds, stocks, shares, promises, hedge bets and so on. A lot of the activity isn't even money - just a shifting of electronic figures/promises between financial organisations, market traders, governments and people to drive prices up and down as the supply and demand chain fluctuates daily. A lot of money is calculated against futures markets on what something may cost and the proposed profits and that projection is used to generate loans. The money probably never ever exists in the first place so that when the market collapses people renege on paying, money is written off in bankruptcy, futures markets collapse and you cannot get money from the future no matter how good it looked! The open market works on a complex system of what if, bluff, risk, supply, demand, need and greed! Once the confidence has gone, no one sticks their hands in their pockets! This sub prime debt that is the major contributor to this recession was simply too many financial organisations lending mortgage money to very high risk people who borrowed way above their means and cannot pay back. This is a typical futures market where the interest on the returns over a typical 30 year period generates a huge projected income for lenders and the world economies they are part of and as such, they borrow, lend and continue to invest hugely against those projected figures in the hope the market and economy remains stable and so the cycle continues. High risk behaviour and we have had an epidemic of that since the recession of the mid 80’s and as such, all that money that was projected on paper just doesn’t exist! Oops! We operate in a system based upon promises – fantastic when sensible lending is in place and the economy remains stable, but crap when it crumbles and people lose jobs and their ability to pay loans becomes even more difficult. It is a bit more complicated than this but this is the general gist of things – an open market based on what if!

Hey ho, I've still got enough money to fund a new space programme though so I'm hanging onto it! If only eh?!

Retiredandcrazy said...

What a brilliant answer MOB, I couldn't have put it better myself. You mean greed rules - OK!

DogLover said...

Yes, R&D, of course Peston should have kept quiet about Northern Rock and we wouldn't be in the state we're in now.

He clearly caused the stock market crash, as you say; that was real treachery.

They're all the same, these news reporters, I blame them for being beastly about the bankers and the rest of the guys who looked after our economy for us.

Maggie May said...

I think GB has borrowed, borrowed and borrowed. He sold the gold reserves off, he gives hand outs to all & sundry, whether they need it or not. (We never had a penny except free bus passes!) Everything has been handed over to Brussels. Now they are after our gas.
The pension pot was stolen by someone....... was it GB or Thatcher?
Probably MOB is right about the money never existing in the first place. It was all on paper.
What a mess......

Retiredandcrazy said...

Do I detect a note of irony here DogLover? What concerns me is that there were dire warnings about the economy overheating and credit spiralling out of control several years ago. Nothing was done about it.

I personally know of a guy that set up a company lending to sub-prime clients. He even got an AIMS listing. I remember thinking at the time "how can he get away with this? Arn't there regulations?" Well I guess the answer to that is that there were regulations but they weren't water tight. Why?

Why did this all happen? This is the big question. The warnings and signs were there and nothing was done.

We all know that greedy banks caused it, but did they control it or were the Big Swinging Dicks left to rip and bring global economies down deliberately?

There, now I have openly declared how mad I really am! Sorry.

And then we have Mandelson! An ambitious man if ever I saw one. Why did he leave a lucrative career in the EU where one day, no doubt, he would have ruled? Why come back to a once Great but now spectacularly failing Britain? That, my friends, is another question.

As for Robert Peston, why leak the Northern Rock thing? For personal glory? - I guess. Because he was encouraged by Gordy? - I guess. Because there was a hidden adgenda? - for sure.

Retiredandcrazy said...

You are so right Maggie, and the pension pot raid was Gordon too!

Sandi McBride said...

I hear these same thoughts from Mac all the time. He also wants to know who's got the money, insisting someone has it and they aren't sharing! Maybe you two should start asking the press some pointed questions!
hugs
Sandi

BABOOSHKA said...

From someone who gave up the owlrd of finance and banking years ago to persue professional photography, silly bankers are e the last people who should have anything to do with the economy. Great post, lots of ansgt and irony.

Grit said...

squirrel has found an admirable solution to the credit crunch after listening to all the gloom and doom on the news. she has drawn some splendid pictures of five pound notes, queen's head and all, coloured them in, and put them in my purse.

Retiredandcrazy said...

I suspect that Mac and I could get into big trouble if we were set loose on the world Sandi.

Retiredandcrazy said...

Thanks for visiting Babooshka, and thanks for recognising the irony!

Retiredandcrazy said...

Squirrel is one savy little lady Grit. She should put herself forward to print the additional money that the government is going to produce.

Hang on a minute, didn't Germany try that after WWII and Zimbabwe recently creating hyper inflation? Did it work?! http://www.newzimbabwe.com/pages/opinion119.13850.html. Oops there goes IMF again!

Valleys Mam said...

Where did the money go - look at who bought up our infrastructure, look who sold our assets.
Depreciation is a massive factor
Um also we didnt have the money in the first place RC. This depression is scarey, the previous ones have been on a cash basis , this one is all underpinned by credit - we never had the money we were handing around in the first place,
Our finance systems are all based on trust and the perception that ,the bits of paper we have can be redeemed if need be - on out banknotes - I promise to pay the bearer on demand. Yeh right

Sarah said...

I try not to think about the financial state of the world; it causes me anxiety and I live in fear of being overwhelmed by my Mother's neurotic tendancies to stockpile soap and toilet roll and fear the end of the world as we know it...
...like that could be such a bad thing?
It would be crap to be cold (no fuel) or hungry, but people with friends gather for support; it's friends we need to cherish, and love to be our currency...
...sorry, but am compelled to add a little hippy optimism to the comments!
xx

Crystal Jigsaw said...

We have a system of which no one seems able to answer the burning questions. We are constantly being inundated with bad news about job losses and people losing money that they have worked hard for all their lives. Our local paper has reports on our ecomony every day as you would expect but it is very rarely good news.

CJ xx

david mcmahon said...

The real suspect is - the square on the hypotenuse.

Ask Frazer!!

Sandi McBride said...

Congrats on the POst of the Day mention at David's!
hugs
Sandi

Retiredandcrazy said...

VM, my mother explained to me when I was growing up that "I promise to pay the bearer on demand" meant that our money was underpinned by gold ingots sitting in the Bank of England. Not now it ain't!

Retiredandcrazy said...

Do you know Sarah, I vowed to be more upbeat this morning and friends and family are more important than having "stuff". But (here I go again)what if....... Aww! I'm going stop right there!!!

Retiredandcrazy said...

The other night my daughter decided that she was going to watch the news until there was something good reported. She watched to the end and there was nothing good! How awful is that?

Retiredandcrazy said...

Ah David, a voice of sanity at last. And thanks for mentioning me as post of the day.

Retiredandcrazy said...

And thanks for alerting me on the post of the day Sandi.