Yet More Gloom From The Financial Pages
Yet again, this morning, the ‘papers are peppered with stories suggesting that we are teetering on the brink of a very deep depression indeed.
At the root of the growing financial storm are the “credit-chickens” which are relentlessly now starting to come home to roost! Clearly “golden nest eggs” are about as rare as “hens teeth”, these days, for the credit providing institutions!
To give readers a flavour of today’s gloomy financial news your news team has selected a number of “snippets” that illustrate the unfolding “crisis of capitalism”!
Snippet 1
The U.S. government has dramatically bailed out the country’s two biggest mortgage giants in a desperate bid to bolster the housing market and the wider economy.
The Treasury and Federal Reserve announced measures to shore up the Federal National Mortgage Association, named Fannie Mae, and the Federal Home Mortgage Corporation, known as Freddie Mac late last night.
Treasury Secretary Henry Paulson said the government was planning to expand its current line of credit to the lenders should they need it, after their shares slumped last Friday amid concerns they were about to go bust.
The government would also buy equity capital in the firms to bolster them as house prices continue to drop, Mr Paulson said.
In a separate statement, the Federal Reserve pledged to lend to Fannie Mae and Freddie Mac if they need additional funds.
Fannie Mae and Freddie Mac either hold or back $5.3 trillion of mortgage debt, which is about half the outstanding mortgages in the United States meaning they effectively underpin America’s entire housing market.
It is hoped the plans will calm rising panic on Wall Street about the companies’ futures but there are fears the move could have an impact on the UK and across Europe.
Snippet 2
Two-thirds of financial chiefs among the country’s top 350 companies believe we haven’t yet seen the worst of the credit crunch.
The gloomy forecast was made in a second-quarter survey of 83 chief financial officers, representing companies worth a combined £260billion.
Professional services firm Deloitte said 66 per cent disagreed with a May statement by U.S. Treasury secretary Henry Paulson that the worst of the crunch ‘is likely to be behind us’.
The findings come a week after business leaders at the British Chambers of Commerce warned of a ’serious risk’ of recession as the UK’s economic gloom mounts.
Corporate cashflow is coming under increased pressure as the squeeze makes credit harder to come by and more expensive, the survey found.
More than three-quarters (77 per cent) of chief financial officers said credit is hard to obtain, up from 63 per cent in March and 48 per cent in September last year, Deloitte added.
Snippet 3
Soaring numbers of hard-pressed homeowners are extending the life of their mortgage to cut payments.
Mortgage brokers have seen a sharp rise in customers taking the ‘longer life’ option when their current deal ends.
Around 10 per cent of people who have re-mortgaged in recent months have taken the radical decision, experts say.
On a 25-year mortgage, the average term, monthly repayments on a £155,000 loan are £999.
Increasing the term to 30 years cuts payments to £929, while they drop to £884 for a 35-year deal.
With household bills, from food to fuel, rising rapidly, family finances are stretched to the limit. The chance to cut mortgage repayments is very tempting for those struggling to make repayments and fearful of repossession.
The mortgage broker John Charcol said that over the last two months between 10 and 15 per cent of its clients who have remortgaged have either extended the life of their mortgage, or switched to another cheaper alternative - an interest-only deal.
Snippet 4.
Alliance & Leicester was today set to fall into Spanish hands after it accepted a £1.26 billion takeover bid from the owner of rival bank Abbey.
Banco Santander, which bought Abbey for £9.5 billion in 2004, ended years of speculation about the future of A&L with a bid worth 299p a share.
The price - which hits 317p a share once the 18p dividend is included - shows just how far from grace the British banking sector has fallen.
Just two years ago, Crédit Agricole of France considered paying £13 a share for A&L - or £5.8 billion.
A&L shares have plummeted since then but jumped 1013/4p to 321p today - a rise of 47 per cent.
Under the terms of the proposed deal, A&L shareholders will receive one share in Santander for every three they own in the British firm.
Analysts believe other bidders may emerge and said it could spark a wave of deals in the banking sector. Lloyds TSB has long been linked with a move for its smaller rival.
The Financial Services Authority is encouraging consolidation as it seeks to bolster British banks that have been battered by the credit crunch.
It is desperate to avoid another Northern Rock-style collapse.
Snippet 5.
Rents in London are soaring by almost eight per cent a year as tens of thousands of would-be house buyers scrap plans to get on the property ladder.
Landlords say they have seen the strongest demand from tenants for decades following a collapse in property purchases since the start of the credit crunch.
Young buyers have been effectively driven out of the market and into renting by the disappearance of 100 per cent and 95 per cent mortgages.
Rents in parts of the capital are rising by more than two per cent a quarter and increased 7.8 per cent Londonwide in the year to June, according to the Gumtree advertising website.
The highest average monthly rents were in Westminster (£1,986) followed by Kensington and Chelsea (£1,725) and Islington (£1,480). The growing influence of Canary Wharf pushed rents in Tower Hamlets to an average £1,407. The lowest London rents were in Bexley (£897) and Barkingand Dagenham (£929). Some property experts claim the London market is in the midst of a major restructuring, with rentals rising as attitudes to property ownership shift among young professionals.
Landlord Michael Holmes, author of Renovating For Profit, said: “Until now renting has been a bit of a dirty word. I was brought up to see it as ‘money down the drain’. Owning a house is deeply ingrained in the British psyche and it’s our equivalent of the American dream. But in the new economic climate we’re seeing a real shift in attitudes.”
Since 1994 house prices have soared 300 per cent while rents have risen 50 per cent.
The Gumtree report found 67 per cent of young homeowners would not hesitate to sell up and rent if they found their mortgage payments unmanageable. More than two thirds of renters between 25 and 44 were not planning to take out a mortgage at any time and more than 80 per cent wanted to continue renting “for the foreseeable future”.
Strange - is it not - that the Tory Party (and later Labour) that was so “bullish” in promoting a “credit-is-good” culture - particularly in the field of home ownership - is now so keen to avoid any culpability for the growing credit crisis!
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The Lib Dems for once had quite a good idea.The building trade has laid off thousands of workers in the past few weeks.Why don’t the government step in and keep the men in work by offering to purchase the houses being built, and use them for social housing?
This would cut waiting lists for council housing,keep men in work so that they weren’t receiving benefits and bring in rental income on the properties to benefit the Councils.The housing would be an asset on the public books.
Too much to hope that Brown will do anything to help the working class. How can people keep voting for Labour?
Remember the saying “if America sneezes Britain gets a cold ? “Could this be why we have seen so much global movement of people, especially to these shores? Is there famine looming across the globe? One thing is for certain, the people who have remained in their own countries will come out on top because there are no paddy fields in Ireland, there are no ducks in Bombay, there are no New Jersey potatoes in America. As this gets worse, the people who have travelled across the world and dependent on state handouts will come off worse because they will have no way of feediing themselves. When the oil, the handouts and the free gifts run out they will be doomed. GOOD LUCK TO ALL.
What is happening to all the Poles etc., who are over here working in the building trade? Are they now on the dole, receiving handouts? I don’t suppose that for one minute they’ve gone home!
You failed to mention the problems of the Labour Party. Last week they were £24,000,000 in debt, so there is every possibility that this week it is worse!
Ed! If they go bankrupt can they all stay as MPs, or will there be loads of By-Elections. Please don’t laugh! It could be serious!
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Ah, but you forget that Alan Sugar has offered to pay off their debt, in return for the Mayorship of London!–Ed.
“But we have always had Capitalism,” I hear you cry, “it has served us well. It beats the only alternative which is Communism.”
This is the line so embedded in the minds of the people and is reiterated almost as totem. Establishments around the world have worked incessantly and in collusion to create this mindset…and to conceal a very plausible, fair and wholly workable third way that would once again put the modes of production back into the hands of the worker. (The very probable fact that none of you have heard of the term ‘Distributism’ is a case in point.)
Under a Distributist economic system never again will you work for those who don’t want to; never again will profits come before people; never again will you be exploited by the machine and its use of international usury and internal purposeful wage reductions…because “Workers Will Own, and Owners Will Work”.
What is Distributism?
http://www.distributist.blogspot.com/2007/01/distributism-defined.html
The New Distributist League:
http://distributistleague.blogspot.com
Why not purchase a copy of Hilaire Belloc’s “Economics for Helen”, to be found in Excalibur shop at an extremely reasonable sum of £5?
http://products.bnp.org.uk/acatalog/Economics.html
Open your mind and read all about the things that Capitalist systems work tirelessly to keep from you. Enjoy.
Still, at least we’ve got our global reputation for diversity, which is bound to be a major factor in our future economic miracle. Or was that just Communist/Common Purpose propaganda?
Who will be able to afford sky-high rents when the chickens hit the fan and how can you bolster a bubble once it’s burst? All Mervyn King’s horse’s asses and all his merry men won’t be able to put Humpty Dumpty back together again for a long time to come.
Sheriff: Nicely put. I can imagine
a lot of very hungry people incorporating Humpty Dumpty’s remains into a fry-up and Mervyn King’s horses arses (Geoffrey Chaucer’s spelling) getting a very vigorous kicking, along with those of all the LibLabCon traitors, later this year.
Interesting times ahead indeed.
“Merrill Lynch has warned that the United States could face a foreign “financing crisis” within months as the full consequences of the Fannie Mae and Freddie Mac mortgage debacle spread through the world………
……The country depends on Asian, Russian and Middle Eastern investors to fund much of its $700bn (£350bn) current account deficit, leaving it far more vulnerable to a collapse of confidence than Japan in the early 1990s after the Nikkei bubble burst. Britain and other Anglo-Saxon deficit states could face a similar retreat by foreign investors.”
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/16/ccusdebt116.xml
The crisis may well be on us much quicker than we thought.
The crunch is explained in a brilliant cartoon strip here:
http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&xml=/money/2008/03/26/bcncrisis126.xml