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Yes, but ....... the "crunch" is not apparently occurring as a consequence of high unemployment or inflation.

The mortgage lenders are being very coy about the marital status of those in arrears with their mortgage payments.

If the the borrowers with arrears are disproportionately cohabiting couples, it is fair to claim that the credit crunch has been precipitated as much by social dysfunction as by financial greed or regulatory incompetence.

Any remedy will need to address the underlying social issue.

But the fact that the UK and US are both suffering from the same social dysfunction must be acknowledged first.

Nick - Hate to pop the bubble on your distorted worldview. The crunch has nothing to do with defaulting or getting into arrears on mortgages. The crunch in credit is related to the wholesale credit markets, and the rate at which the interbank lending market is priced. Any fall out will hit people regardless of their marital status.

This is a financial problem with potential for social repurcussions and not the other way round. To think otherwise is to have taken leave of ones senses.

Surely the most interesting remark is from the man who was twice popularly voted in as Mayor of London, which includes the City and has such a major role in the UK economy. "Sadly I don't think this is the end of capitalism".

"The crunch has nothing to do with defaulting or getting into arrears on mortgages", James?

So what made lenders nervous?

I totally support DC's call for global centre right solidarity in support for free markets but neither should we shy away either from calling for a well regulated capitalist environment which is fairly taxed and prudentially based -rather than the irrational exuberance and hubris which has recently characterised the hedge fund indutry which ironically under Gordon Brown's "new Labour" watch was able to boast it paid less tax on income than their own secretaries. We should support better depositor insurance, once the crisis is over reintroduce moral hazard by ending the privatising of profits and nationalising of losses eg Nortern Rock, a review of the tripartite system splitting BoE, Treasury and FSA supervisory roles, a ban on ways to circumvent capital adequacy rules, a reasonable tax on non doms and some level of international financial good governance through the BIS in co-operation with the OECD and EU. We owe this to our citizens who will look to the Conservative Party under David Cameron not as a party mainly concerned for defending the interests of the wealthy but also ordinary citizens and their savings. David has rightly made it clear from the start of his leadership we will be an inclusive party and that is the right approach in these difficult economic times and we must not allow the old fashioned left to dominate the economic arguments now.

If David Cameron is going to join centre right leaders that is indeed timely. Good news for Britain.

We should stay on the track we were on and be on the side of the public. Some regulation and revision of regulations is necessary for a good capitalist system to work well. That does not mean however that we should react to the crisis in such a way that it makes the situation worse.

Nick - A number of factors come into play, but probably the most significant is the high risk lending encouraged by banks, the reassuring noises from lenders, and the comfort to the consumer of historically low interest rates. When your IFA and politicians all tell you it is a good bet, the average Joe is going to take up the offer. Now, interest rates have doubled (doubling interest repayments). I fail to see why my choice not to involve the govt or some church in my 16 year relationship should matter?

Ms Toynbee truly is vile!

He does a good 'serious' face three days after warning against complacency. Heir to Blair.

Look this is a crisis which has occurred as a result of good developments in the use of financial instruments and computing technology aimed at improving liquidity - but which has led to hyper liquidity at a time of maximum economic exposure and evolving appreciation of a recent boom in financial techniques, tools and instruments

i.e the crash has happened because of a number of things coming together:

1. Lax views by institutions to capital gearing because of the long run of growth
2. Lack of visibility on exposure, esp. given the soaring complexity in modern markets such as derivatives, FOREX, Futures etc. and their interrelationship. I.e poor clarity on capital flow more than one step away from arrangements

The time for action to avoid this has passed, everyone is now aware of the dangers. Governments can only hinder with heavy handed intervention now, but can only act to minimise damage until the dust settles. This means at the very least reassuring both business and the public but Labour are paralysed at the moment, not just because of internal fighting, but because the government are woefully under qualified to understand what is happening.

Then government need's to engage with the city on how to re-structure things. For me, it means agreeing limits for corporate exposure on both the primary and secondary markets regarding capital-raising products and instruments.

Surely the most interesting remark is from the man who was twice popularly voted in as Mayor of London, which includes the City and has such a major role in the UK economy. "Sadly I don't think this is the end of capitalism".
That Ken Livingstone is one of a large minority in the Labour Party that believes that somehow it would be desirable for Capitalism to end is neither interesting nor surprising, his view was always thus.

The fact is though that it is something that is countered by a large section of the Labour Party who either merely want a different balance or favour boosting other forms of non-govermental market activities such as through co-operatives.

"everyone is now aware of the dangers"

Perhaps, but as long as governments bail companies out and CEOs get nice big payoffs the risk/reward ratio is still very positive for those at the top.
Memories are very short when the carrot is a bonus check in 7 figures.

Matthew, I quote, "When economist Darryl E. Getter of the U.S. Department of Housing and Urban Development set out to answer this question, he discovered that the problem was often not chiefly financial, but rather marital: many of the American homeowners who fall behind in their mortgage payments are experiencing the economic distress occasioned by divorce or separation from a spouse………..

Getter specifically identifies divorce/marital separation as a "variable that represents changes in economic circumstances" likely to cause a default on home mortgage payments.

Whether looking at all households or just at those with "normal and unusually high" incomes, Getter finds unusually high default rates for home mortgages among Americans who are divorced/separated ……… (Source: Darryl E. Getter, "Contributing to the Delinquency of Borrowers," The Journal of Consumer Affairs 37.1 [2003]: 86-100.)

This was published in 2003 and based on earlier data. The recent and rapid increase in cohabitation is not considered. I believe my contention that it is really the increase in cohabitation which has precipitated the current mortgage/financial/economic crisis is a reasonable thesis which should be tested.

Regulation isnt in itself wrong. Its about controlling the worse excesses of capitalism. Its not Socialism to make decisions and amending the rules to avoid these problems. While moral hazard means in theory this will never happen again, the rules need to enforce that.

I dont go in anyway with the mental woman on Newsnight last night calling for the end of capitalism and I dont understand how any serious commentator can possibly come to such a conclusion.

Its worrying when apparently the only person who knows what to do about this is Gordon Brown.

One thing I'd like the Tories to say clearly is that once the credit cryunch is over and things get back to normal, that the Competitiion Commission will be invited to enquire into the HBOS-Lloyds merger. Osborne didnt quite get there last night and its important for him to get across that the credit crunch does not mean carte blanche for everyone to do what they want.

Interest rates have been kept too low and the money supply has increased. Get the Bank of England out of monetary manipulation. Let the market decide interest rates.

James Maskell I agree entirely with your point that the HBOS Lloyds merger must be carefully examined with regard to "competition" - and I use the " advisedly as a "superbank" of this size is hardly competitive!
It will be all too easy once the eye of the storm has passed for it to be forgotten about so the Conservatives must keep up the pressure.

I would expect a comment like that from Motor-Mouth Caroline Lucas MEP

Just hearing on the radio that Darling has stated that "competition rules have been waived" to allow for the HBOS/Lloyds takeover.


Nick - can you explain to me exactly why cohabiting couple are more likely to default on their mortgage payments?

"One thing I'd like the Tories to say clearly is that once the credit cryunch is over and things get back to normal, that the Competitiion Commission will be invited to enquire into the HBOS-Lloyds merger. Osborne didnt quite get there last night and its important for him to get across that the credit crunch does not mean carte blanche for everyone to do what they want. "

I think that is far too weak. The highly likely impact of the merger will be to substantially reduce competition and the prospects of competiton at the retail end. The FSA concluded that HBOS did not merit public intervention (ie not likely to collapse and have a knock on effect on the stability of the banking system). While things are to say the least, very tough, this should not be an opportunity to make harmful structural market changes without proper scrutiny. The promise of a future CC inquiry is really not useful - it would not be possible for it to be an investigation into a merged HBOS/Lloyds, only the banking sector as a whole. Given that the CC has provisionally ordered BAA to divest, having a commitment to a CC investigation in the future would itself be likely to have the regulatory effect of maintaining doubt about the sector well past the current crisis and not just for HBOS/Lloyds management but the whole sector.

In order for the deal to get "steamrollered" through, Hutton needs to issue an SI and have it passed by positive resolution in Parliament to add to the list of public interest concerns meriting intervention. This would have to be broadly drafted rather than simply focused on the present merger (ie something along the lines of public interest in maintaining integrity and security of the banking system).

Osborne should get briefed to debate any SI strongly and not to get rolled into being seen as opposing in an unprincipled way or just letting it happen. The use of intervention notices and creation of new public interest categories has to be strictly policed by the Opposition - the point of the regime was to enshrine in Statute the very valuable Tebbit doctrine (from his time at the DTI) which took competition issues away from political control other than in the most exceptional cases (the only current public interest issue in the Statute is national security).

If the merger goes through on the nod, in reality it will have strong potential to be highly damaging to long term consumer interests and this means it cannot be right to blithely allow it to be cleared on public interest grounds without properly addressing the specific application of public interest to the actual detail of the deal.

Clearing on public interest might ultimately be the right decision, but we must make sure that the public interest is properly debated and defined and that the measure is not used as just the first of a campaign of attacks on capitalism (although it would be ironic if Hutton, boo boy for Guardianista lefties, was the one to open these floodgates).

Capitalism is going to have a torrid time for a while now. It's not only people like Polly Toynbee (you wouldn't have expected anything better from her) but also the words and actions of the Bush government and some suprising statements from McCain.
In the short term I would expect a much tougher regulatory regime to be put in place in both the US and here. I hope politicians don't overdo this for the sake of short term popularity. Stifling regulation will be just as damaging in the longer term.

This is a trap, Cameron should steer well clear.

There is going to have to be more regulation because tax payers are footing the bill and therefore need their interests defending.

Get defined on the wrong side of this one at the 52% will evaporate.

Let's hope there is another Eurobond / Sarbanes Oxley moment in the States to further enhance London.

The lacks regime has allowed banks to indulge in derivative trading so complex and intertwined, that the board members of many large financial institutions simply have no idea what they are worth, and they can unravel very quickly.

And what is Cameron doing? Stepping in and arguing against regulation.

This is the meat of what Ken Livingstone said

"The good news is, there'll now be a realisation - even George Bush sees this now - that we need international regulatory mechanisms that will ensure, for example, that these people and operations actually pay tax. There'll be a realisation in Britain that while it's certainly useful to host a world financial centre, it has to rest on a solid, genuinely productive real economy."

What is there to object about that, even on the right?

I just heard Darling's soundbite on 5live about central banks injecting liquidity into the market as "an example of what government can do"

I thought the BoE was supposed to be independent these days?

Maybe someone could make an argument that 'city bosses' could pay higher tax, but if 'passing leftie' seriously thinks that THAT is all that is needed to get us out of the situation we are in now, or even that it could have made a difference LAST year or the year before, then he/she is just demonstrating the ignorance OR inability to accept what it is that has produced the 52% in the country today!

'passing leftie' and his/her friends need to turn around and look inside their own household, AND acknowledge the greed and dishonesty of their own senior managers, in PCT's and quangoes etc: AND the general mismanagement of the public's money! But of course DIVERSION is a better tactic - for the moment!

The fundamental problem is that we (and the Americans too) have been indulging in a debt fuelled binge for the last several years. It is evident from both the balance of payments deficit and the increase in personal debt, that we have, as a nation, spent around 5% more than we earned since the year 2000. Numerous and expensive holidays, an unnecessary new car, a new kitchen and splitting up with your “partner” to live in two houses rather than one (unmarried couples are far more likely to split than those married) are all forms of self indulgence and, if fuelled by unsustainable debt, are a pathway to disaster. Unfortunately the coming disaster wills not limited to the feckless but also spread to the decent and hard working since the economy has been expanded to unsustainable levels and will now have to contract, leading to widespread unemployment.

Are the Banks guilty? Yes, they should never have lent money so irresponsibly and they should have understood their own business far better.

Is the Government guilty? Yes, it should not have allowed the money supply to expand so rapidly and pumped up the economy with a massive and unsustainable rise in public expenditure.

Are the people themselves responsible? YES, or at least those who have behaved fecklessly and irresponsibly.

The last message is going to be quite difficult for politicians to put across!

What is Camerons solution to these problems ? He doesn't have any he,s saying nothing and has gone into hiding, keeping his head down because he doesn't want to upset his mates who are the ones who caused this mess in the first place.

Osborne came out of the bunker yesterday and would not say when questioned by Mr Paxman on newsnight that it was unacceptable for these speculators to carry on making millions and the situation worse and then he dodged the question on more regulation to stop this happening in the future.

These are the leadership team of the future , god help us !

Lets get a real leader who has some solutions and the guts to stand up to these greedy selfish mob !!

Surely the consolidation in the banking sector will necessitate some form of additional regulation to protect competition, at the very least.

Although I was not persuaded by many of Simon Jenkins' arguments yesterday (Guardian) I thought his intro raised an interesting question:

"Who are they? Where are they now? They said it could not happen again. They said they were masters of the universe. They had conquered history itself and had that wily monster quivering at their feet. There would be no more crashes, no more recessions, no more booms and busts, just moonbeams and rainbows and jam for tea.

If the mistakes that have collapsed the world's financial markets had been made by statesmen and had led to war, there would be corpses swinging from lampposts. If they had been made by generals, they would be falling on their swords. If they had been made by judges or surgeons or scholars, some framework of professional retribution would be rolling into action. But those responsible for our finances can apparently vanish into the forest like Cheshire cats, leaving only gold-plated grins. Not for them a Hague tribunal or a Hutton inquiry. They are not just good at shedding risk - they shed blame."

"This is a Trap " ( Man in a shed)

God an honest person !!

Who can possibly feel sorry for banks?

The real issue is that they (and companies in other sectors) are allowed to become far too large, as a result when they screw up the effects are dramatic.

Rather than create an even bigger monstrosity the competition rules should be tightened so that no one group can control more than 10% of any market. Then we could truly leave them to go to the wall if they deserve it.

The way we are going, we'll have one bank in 10 years time which will dictate everything and as a result will have no option but to regulate (badly as usual no doubt)

"What is there to object about that, even on the right?"

Some of us don't consider the lack of regulations to be a problem, we consider it to be due to government intervention and the money supply.

Much of this is due to Government intervention - lax interest policy especially by Greenspan.

The BoE is hampered because under EU influence it is shorn of its regulatory functions.

I am not sure that the logical answer is more government regulation except at the margin.

Gezmond007 @1151 asks where Cameron and Osborne are now. This is the worst crisis to hit Britain since 1929/30 andf thety are footling around with no policy and nothing but some rather off-target philosophical musing .

Cameron should be demandikng the recall of parliament to table a motion of "No confidence". That would smoke out the Labour dissenters and possibly get rid of the Brown cabal.

We HAVE no government right now and the Tory party does nothing about it. It is its constitutional duty to ACT!

There's only one thing worse than unregulated financial markets and that's government regulated financial markets.

Well when you've got a potential president in waiting like John McCain who needs reckless banks to take down the world economy. God help us all if he gets elected.

And btw, it was the undoing of a very good piece of legislation - Glass-Steagall, that is at least in part why some of the Investment Banks are going down now.

This is the transcript from the Today show yesterday -

LAUER: So if we get to the point middle of the week as we heard in that report where AIG might have to file for bankruptcy, they're on their own?

McCAIN: Well...quote, "on their own"...we have to - we cannot have the taxpayers bail out AIG or anybody else...this is something we're gonna have to work through -- there's too much corruption, there's too much access, we can fix it, I believe in America - we can have a 9/11 commission such as we had after 9/11, 'cause this is a huge crisis and we can come up with fixes and we can make sure that every American has a safer future and that is to make them know that their bank deposits are safe and insured.

Wow, what an ideological bunch. Thank you for mkaing me laugh. The global banking sector is caught with its trousers down because of greed and irresponsibility, it's somehow the fault of "too much regulation"! These supposed arch-capitalists soon come running cap in hand to the taxpayer when things turn bad.

As some economist stated this morning

Whats happening at the moment isnt a "crisis of capitalism" - its capitalism doing what it does best - it may seem imperfect, and 'unfair' but its the best system there is.

We have a choice:

Capitalism, along with it's inherent imperfections or a 10 year waiting list for a Trabant

Catocon , thats absolute rubbish , So you think these leeches will regulate themselves.

They are greedy parasites who care for no one but themselves who should be locked up and then the key thrown away .

There's possibly 40,000 people with families etc about to lose their jobs and you come out with this C--P ! and what does Cameron and Osbourne say ? absolutley nothing !!

Your unbeliveable !!!

"Rather than create an even bigger monstrosity the competition rules should be tightened so that no one group can control more than 10% of any market."

I'm sure Mr Murdoch would LOVE any government that introduced that rule and dismantled his media empire. Bye Bye to the supermarkets. There goes Microsoft AND Apple. Oh no, time to dismantle the utilities, BT, Virgin Media, BA, BAA, all the Train Operating Companies, Stagecoach, the national cinema chains. Village pubs. WH Smith and Menzies (and any independents in small villages and towns). The oil majors.

I think there's probably a good consulting role for you in Venezuela if you call up Uncle Ken.

Oh it was the left wing papers that led the charge against the city?


Surprised you think the Mail is a leftwing newspaper.

david1: I would describe The Mail as a populist newspaper.

On capitalism, Israel, Iraq war, supporting Ken Clarke for the leadership it does not take predictable views.

Posted elsewhere in the wrong place

Some interesting comments from
http://www.businessweek.com/magazine/content/08_39/b4101000869093.htm for the full article
Crass stupidity bordering on fraud
"Most financial calamities aren't like natural forces beyond control, Greenberger says. "These are predictable events." Predictable events, of course, are more likely to be prevented with sound rules and stiff enforcement. "...

"Today, Bear, Lehman, and AIG have untold amounts of outlandish derivatives on their books. It could be years before anyone untangles what they're worth."....

"Greenspan adds: "I've been extraordinarily distressed by how badly the most sophisticated people in the business handled risk management. But the question is: If, protecting their own resources, they can't do it, who's going to do it better?" (Well, maybe regulators who don't have big bonuses at stake would be less likely to get carried away by the euphoria.) "

Interesting comments that US main regulation-buster never wanted to de-regulate banks (but I do accept this may have stifled innovation,) and the acceptance of fraud the last time this happened but nobody is using the word at the moment in this crisis.

We had a regulatory system that worked and had prevented a major bank failure in Britain since the mid-19th century - until 1997, when it was messed up by the financial genius, G Brown. Don't let any Tory (or Polly Toynbee) ever forget that.

Why doesn't Cameron come out of his philosophising Ivory Tower and DO something ? That's what the Leader of the Opposition is paid to do.

Why isn't he getting parliament recalled and gettin a Motion of 'no confidence' passed ? Too lazy - too laid back ?

Am I the only person here who thinks we are being let down?

Anyone know whether tere is any truth in the rumour that Gordo is very pally with the Chairman of Lloyds and that there may be a donor connection?

+ Angela Merkel is hardly one to talk, she didn't exactly let free markets play their role in the Commerzbank takeover of Dresdner Bank....not when China Development Bank had a higher CASH offer on the table...pure German protectionism.

I think Cameron needs to bring clarity to the whole financial sector in this country. The public need to be aware that if a bank takes risks and becomes insolvent it can go bust. Now if an institution has become too big to go bust then it seems to me the competition regulators have completely failed. So personally I think Cameron should as one of his first acts force the breakup of these mega banks.

By properly enforcing competition regulation so that a financial institution can only grow so big then there is no longer a worry about it going bust if it is reckless. I appreciate this may make these institutions ripe for takeover by foreign banks but I suggest that is blocked as it always would have been in the past. The fact is that the government of this country have forced everybody to use banks therefore the government of this country owes the people of this country security with these banks and whatever it takes to make them secure and not cost the taxpayer is what is needed and if that affects profits or the free market, tough.

Voreas - the government has backed banks, it guarantees savings. The fact is HBOS got taken over because short selling by hedgies has busted the share price and destroyed their credit rating thereby making it impossible for them to finance at a reasonable rate.

By your logic you'd have let it go to the wall and the government would have had to guarantee all deposits thus costing the taxpayer more?

Angelu Basu, I agree with you. My problem was not knowing exactly how to say it, not being very good at economics. Will an SI get the job done properly though? Given the lack of parliamentary scrutiny of those Im not so sure.

Its all well and good getting Osborne to argue a SI even if it seems a little bit soft, but if he wont even argue the case of what to do after this, its meaningless him being briefed to do anything. Osborne should be doing this of his own volition and shouldnt be told "Perhaps we should come up with a plan for what we would do were we in office?". The Conservatives should have a short number of highly researched and well thought through ideas that will have specific benefits in bringing Britain back out after this passes. Britain should be sprinting out of this not limping, which sadly I fear will happen.

Britain knewm this was coming. The world saw this coming and yet sat on its hands and did little. The Conservatives are still sitting there. The PR video about not being complacent seems really bad right now, as if his mind is on the achievement of power rather than solving the major problems this country faces.

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