[Gilps]

Originally Posted by Paul James

I guess quite a few of you have been following the fortunes of various global economies and asking how our answers here in the UK shape up in comparison with other countries. I know I have as I'm seriously concerned about the effects this depression is going to have not just on us now but on the generations to come who have the backwash of this tragedy to pay off.

So a few questions that it would be interesting to hear your comments on:

Why, given that people in the street were expressing concerns over the ludicrous extension of all forms of credit from years back didn't the government foresee this inevitable crash?

Because Gordon Brown didn't want to scare of the wealthy investors. They've been pulling his strings for years and he's been scared stiff of them taking their money abroad. The tax incentives given to the mega rich over the past few years are disgraceful.

Originally Posted by Paul James

If as they keep suggesting there was no way that they could have forseen it doesn't it present the frightening prospect that the government is totally economically inept?

Totally. Whilst much of this crisis is global, much of GB's policies have led to the problems being worsened for the UK.

Originally Posted by Paul James

Why were the banks allowed to go unregulated for so long? Will it not now be essential to regulate how they function in the future?

They've gone unregulated becuase of the huge sums of money they were playing with. GB has seen private equity investment as being the cornerstone of UK growth and hasn't wanted to do anything to cause that investment to go elsewhere. Now that the bubble has burst I think he'll have no choice but to introduce regulation.

Originally Posted by Paul James

Why were £billions thrown recklessly at the banks, particularly RBS which we now own around 70% of without any insistence on executive powers being given?

I reckon history will prove this to have been a disastrous mistake. It was an ill-thought out knee jerk reaction. GB missed a golden opportunity to force the financial institutions to fall in line. It became apparent when the BoE reduced interest rates by 1.5% and Darling had to summon the heads of the banks to Downing Street to ask them nicely to drop the mortgage rates. It was all spin. Has he done it since following further rate cuts? No he hasn't because they'll tell him to sod off. A few have dropped a bit but not one of them has passed on all the reductions, especially Northern Rock who we apparently own in entirety.

Originally Posted by Paul James

How much further do you believe the banks will need to be baled out using our money?

Quite a bit I reckon. I don't think the full scale of the problem has been identified yet. The banks are blaming the problems on lending to the home owners but the real problem lies with the billions that were lent recklessly to the private equity markets, and as share prices collapse and companies go to the wall, the banks' exposure could be massive.

Originally Posted by Paul James

Is the horrendous credit situation entirely the fault of the banks for encouraging the lending or does blame in part fall on those who took on the credit knowing in all honesty that they could never pay it back?

I think that the banks' problems are down entirely to the banks. They've got involved in areas they didn't understand, they've packaged and marketed dodgy loans as securities, and then conned themselves by passing these toxic securities around as investments. They've got so wrapped up in making ludicrous amounts of money that they've lost sight of reality. Nobody forced the banks to lend the money.

Originally Posted by Paul James

Is the concept of established businesses relying heavily on credit to be able to function fundamentally flawed?

Yes and no. Before Christmas my company needed to extend it's overdraft. Not because I had managed anything badly but because a couple of customers fell behind settling invoices. The amount owed amounted to over £30k. This was over and above our normal £60k of trade debt. Without I could not pay suppliers and could not continue trading. The bank didn't have to extend their lending to me, it was their choice. They chose not to. If they had then we could have traded through the problem.

Originally Posted by Paul James

Is it fair that those who have lived responsibly and invested hard earned savings are getting such poor levels of interest having played no part in the financial meltdown?

To answer this then you need to remember how banks make their money. They earn interest from LENDING money to borrowers, charged as interest. To get the money to lend out, they have to get investors to lend it to them. The only way they can do that is by paying them interest, which they do at a lower rate than they lend it out. The difference is the profit. Ultimately they don't really care what the interest rate is as long as the difference between the lending and borrowing rates remain the same. They still make the same amount of profit if the gap remains at 2% if the rates go up or down.
And that's banking in it's simplest form. The problems for the banks have not come from the high street activities of borrowing to lend, but form the greedy investment parts of the banks to earn a fast buck.

Originally Posted by Paul James

How do we justify forcing the banks to start lending again when irresponsible lending/borrowing has been the root cause of our situation? Doesn't it potentially just restart the same cycle?

It wasn't lending to UK mortgages that has been the root of the problem, but the lack of lending to mortgage borrowers is now impacting the UK economy.

Originally Posted by Paul James

Do you believe that this will be the biggest financial depression in history?

Yes

Originally Posted by Paul James

How can we encourage people, particularly the younger generations, to return to a savings ethos rather than a massively credit based one? Isn't it imperative that this happens?

I don't think so. As long as the loan and the interest gets repaid then what's the problem. A mortgage is just a secured extended loan. We don't tell people to save for 18 years before buying their first home.

Originally Posted by Paul James

What will the true unemployment figure be at the trough of this depression? Is 3 million a conservative estimate? Should we include in the figures people who are in further education on courses that will never fit them for wark afterwards?

A few months ago I forecast 2 million for then end of 2008. I was right. I can easily see this getting to 3 million by the end of this year.

Originally Posted by Paul James

Is it right in the current employment crisis that a contract for new railway equipment went to a Japanese company rather than being used to protect jobs and cashflow in the UK by using a UK contractor?

UK contractors were invited to tender for the contract. The Japanese bid was more attractive. We have to accept that we now operate in a global economy.


I try hard not to just blindly accept what is put out on the news and in the press. I think after all this is over and the post mortem is carried out, it will not be as cut and dried as it appears at the moment. I really do hope that all the facts come out and that those responsible for this mess are held to account, although I somehow doubt it.