Sunday, October 26, 2008

Vive La Recession

Unless you've been living in a cave you will surely have heard plenty about the meltdown of the housing market and the subsequent collapse in the world's financial institutions (by the way, if you have been living in a cave then well done on your sound financial acumen in avoiding the housing bubble). I'm lucky in that I am not overly affected by the financial maelstrom: I don't have a mortgage (and there are no house-buying plans on the horizon), I have a job that is relatively safe (famous last words...) and I my outgoings are meagre. I can therefore look at things in a somewhat disinterested light.

Much has been made of the irresponsibility of the banks - how they were lending money to anyone like it was going out of fashion, without checking their means of repayment, and then repackaging those "toxic" loans into complicated investment vehicles to be shunted through the banking system. Now their profligacy has come back to haunt them and they expect to be bailed out by the long-suffering taxpayer. All this has already been aired ad nauseum and I have nothing new to add. However, as the famous saying goes, "it takes two to tango".

The bankers were not lending out money to fictitious people they had made up (at least not most of the time) - they were lending to us consumers. As a demographic consumers are pretty much everyone, and collectively we had agreed to become intoxicated by the dream of being able to have it all, and to be able to get it now on credit. We lapped up endless TV programmes about moving house, getting on the housing ladder, upsizing to a larger home in a more well-to-do area, investing in a second holiday home in France, etc, etc. Never mind the fact that we were taking out ridiculously large mortgages often in excess of 6x our gross annual incomes. It didn't matter as credit was cheap and we didn't think it would be otherwise. We were enticed by super mortgages with low introductory rates, uncaring that the rates would change after two years. We could only just cover the repayments with no thought of contingencies should things take a turn for the worse.

Yes, the bankers had a part to play in the whole sorry story, but for consumers common sense seemed to take a holiday and we revelled in our gluttony. Our interminable keeping-up-with-the-Jones's made us blind to the most elementary principles, not just of economics, but of life generally: don't buy what you can't pay for. Owning your own home isn't a god-given right, it's a luxury you have to work hard for and earn, so I find it hard to muster much sympathy for people who over-extended themselves because they watched too many episodes of Location, Location, Location and became obsessed with Kirstie Allsopp.

In that sense the current financial crisis is probably a necessary evil as we seem to be unable to live within our means then this may force us to learn some frugality and good old-fashioned thriftiness (which, back in Scotland, is among the highest compliments you can bestow upon your fellow man). People keep complaining about, for example, the price of gas to heat their homes, but they have only to put on an extra jumper to drastically reduce their consumption (I wasn't heating at all well into October and probably wouldn't be still if my mother hadn't returned - admittedly as we get older we do feel the cold more and those in need ought to be helped). So vive la recession I say, because it looks like it's the only way we'll learn some common sense.

1 comment:

Jean-Marc Knoll said...

Aren't you a cheerful soul! Remind me to not contact you if ever I am feeling low...