Thursday, 11 December 2008

The econonic crisis and savers

There was a very good column by Natalie Haynes in Friday's Times about how people like my partner and myself are being shafted by the Government's current policies to get us out of the recession. As the strap line says,
"I earn virtually no interest, but inflation is 4.5%".
There are far more savers than people with mortgages in this country, and the Government is purposefully doing all that it can to stop people from saving; by getting them spending, they hope that the economy can be kept going. However, the banks need the money from savers to be able to give out loans. Therefore, if people spend rather than save then the banks will have less money to give out as loans.

More than that, it is exceptionally unfair. People who have been carefully saving have low rates, whilst people who may have over-extended themselves are being bailed out. House prices have far been outstripping wage increases for more than ten years, something the Government has seen fit to do nothing about. And that, unfortunately, has directly led to the current financial crisis.

"But", I hear the Government cry, "This is a worldwide recession, and the problems in this country have been caused abroad, particularly in the US." Unfortunately, that excuse does not cut any mustard with me. The same bad practices that caused the problems in the US - mortgages for more than four times salary, 100% mortgages with no deposit, falsified salary claims, and, perhaps most importantly, the parcelling up and selling on of debt - were all present in the UK system. The Government did nothing, despite many people (especially Vince Cable) having warned of the problems for some time.

As Natalie Haynes says, it is terrible that people are being faced with loosing their homes. It is also terrible being thrown out of a rented home without notice (see my earlier posting). A year or so ago, BBC Breakfast had an interview with a woman who said that she could not afford her mortgage payments if interest rates went up even a quarter of a percent. If that was the case, why, oh why, did she get a mortgage? If it was that unaffordable, if she that little leeway, then it made absolutely no sense. Yet the people who carefully saved are paying to help her out. Gordon Brown seems to care little for us.

I can see some justification for helping people like her. However, there is one group who do not deserve any help. These are the speculators, the people with more than one mortgage should not be helped. Yet, by lowering interest rates, we are helping them.

Back in the crash of the late eighties, a friend's father had seven properties scattered around, all in negative equity. He despaired of his situation, but at the end of the day he had taken the risk. No-one forced him to overextend himself, and it was greed that caused him to do so. There can be an argument for helping out families and home owners, but people who have treated it as a business should not be helped. Indeed, they have been a major factor in creating this bubble.

The low interest rates for savers badly effects one group whom the Government has previously professed great interest in - the pensioners. Many rely on the interest on what little savings they have to live, and those values have been decreased massively. The Government has claimed that the reduction in VAT will help them, but the things many pensioners spend money on - like most foodstuffs - do not carry VAT, and VAT on heating fuel was already at 5%, and is therefore unaffected by the change from 17.5% to 15%. Of course, as crisps and confectionery are not at the 0% rate, perhaps the Government thinks that pensioners live on crisps?

So, Mister Brown, please help savers as well as home-owners.

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