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Banks not lending - Allan (6th Mar 2009 - 01:46:55) Am I missing something here?. The Govt of the day has propped bank(s) up to a tune of megabucks so that they can "lend "at the same levels as 2007. The banks are now coming under fire for not lending at those levels from Gov. ministers, press,et al. Was it not wanton lending by the said banks in 2007 and before that got them in the situation they are now, so why would it be prudent (sorry) for them to repeat? I should be very grateful if any reader of this post who is more aquainted with the intricasies of the matter could explain it. I accept the fact that I may just be thick, but could somebody please confirm or otherwise

Re: Banks not lending - Chris (6th Mar 2009 - 12:34:32) I am no expert but I understand that the original problem apparently stemmed from too much high risk lending based upon a massive supply of savings and investments fom Russia and the far east. It was high risk because banks were lending beyond a borrowers means (125% mortgages, 10x salary), secure in the knowledge of rising asset prices (property etc.) if borrowers defaulted. The supply of money dried up when the original investors saw the impending collapse of collateral asset values the money was being used for, such as the property (commercial and private) being purchased with the investments. Banks did not indulge in further lending for fear of losing more money plus they ran out of cash when they were forced to pay back the original investors from Russia and the far east but at the same time could not recover the risky loans that they had made in the west. Much of the money invested in the banks by the government recently is being used to shore up reserves that were lost in this lending/investment cycle. That's my understanding but I am sure there's lots of other mitigating circumstances and facts that explain the situation.

Re: Banks not lending - Chris (6th Mar 2009 - 12:47:45) Meant to add that the economy will apparently be boosted when sensible lending occurs so that people can buy property and other stuff again like cars. The £75bn currently being manufactured by the Bank of England is also being "sold" to the banks with interest applied so that they can lend that on as well.

Re: Banks not lending - Stephen (6th Mar 2009 - 14:15:24) Most banks are near bankrupt due to investments that everone can now see were stupid. They also are reticent to lend to other banks as any might do a Lehmans at any time. At the same time, the worlds economies have overheated, have expanded faster than resources (viz oil price through roof) and are now contracting (oil price through floor). Take the 2 factors together, businesses and individuals face reduced revenues (from the recession) and difficulty financing their deficits (e.g. rolling over their overdrafts). That creates a perfect storm as banks are too scared to lend due to consumers spending less and asset prices collapsing. At the same time, consumers spend less because asset prices are collapsing and they can't get credit. Business invest less as revenues reduce and lending dries up, so other businesses that supply them go bust and the employees get made redundant. So it only ends when govt rides to the rescue, stops the banks going completely bust, makes banks lend again and even prints money to circumvent bank and individual's hording cash. As one public figure put it: what's right in the long-term (saving more) is wrong in the short term (downward recessionary spiral). Govt therefore has to act in a counter-cylical way, lending & spending when others are saving, then repaying when the economy has moved back from the precipice. We'll be paying for this decade's extravagence for many future decades to come.

Re: Banks not lending - Sue W (6th Mar 2009 - 22:04:33) I am no money expert, and see things much more simply. Why not offer savers - after all there are more savers than borrowers a higher rate of interest than is on offer, put their money into the banks that are in a better situation to lend to those who wish to borrow. Yes they would not make the same % rake off as before, but as us small businesses know some profit is better than none!! Cut your cloth accordingly. On our recent holiday, all we could get on the TV was CNN, and they had a piece on 'Europe'. Germany was 2.5% down, France 2.25% and Italy 1.8%. Germany was hit the hardest because of its type of production and Banking industry. They had a 'specialist' from a USA university (from Germany) talking on how the German people perceived the present state of economy. She said that on the whole the German public did nothing wrong, it was none of their doing, they were prudent, didn’t borrow too much and were now paying the price for others greed!. Funny that their manufacturing had grown on the back of other countries i.e. Britain, Europe and USA buying their high value, high spec over priced goods.!! Their market has dried up - but it seemed that they were more than happy to supply 'stupid' people, bank the profit and now have products that people do not want. There is a big lesson in that!!

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