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Credit Crunch

The Credit Crunch was a financial problem that happened towards the end of 2008 and continued for a while. There are various reasons why the Credit Crunch occurred, but the end result was a recession, a slump, the type of thing politicians deny is happening and then later say they knew it was going to happen and anyway it was the other party's fault.

Banks are nervous creatures at the best of times, and sometimes they exhibit a phenomenon which could be called "bank irrationality", where they make cats on hot tin roofs look positively calm and collected. In the end, banks got so edgy they stopped lending money to each other, and so... CRUNCH! The financial world ground to a halt.

The preceding period had been an era of "living in fantasy-land" a bit like the time just before the 1929 Crash. But in 2008, the preceding time had the following features:

* Waging of futile wars by the USA and the UK (and a few other countries who were daft enough to fall for the propaganda). Wars are expensive (as history will tell) and should only be fought as a last resort. Instead, these were based on national pride, false premise, unnecessary scaremongering, and some kind of bizarre "revenge motive" which was largely misplaced. These wars went a considerable way to busting the economies.

* Lending money to people who couldn't afford to pay it back. This was euphemistically called "sub-prime lending" or "sub-prime mortgage" etc. Banks were, strange as it may seem, were allowed to lend more money than they had actually got. And, they were still being taken seriously even when they lent it to people who would be unlikely to be able to pay their debts. (A "prime" lending is where you lend a fiver to your best friend while you look after their snazzy watch. A "sub prime" lending is where you lend a fiver to a tramp clutching a bottle of alcohol, and hope that next week the same tramp will be on the same street corner and will somehow repay you in full).

* Selling-off of dodgy debts. Once a "sub-prime" arrangement has been made, the next piece of folly was selling it off to someone under the pretence that it was real, or worth something, etc. This, and the fact that these things were badly labelled, meant that there was a desperate uncertainly of the amount of "toxic debt" in the system, which then resulted in further irrational panic, which the market was already in a mood for.

* The false assumption that the bank could just repossess someone's house and sell it, without any consideration for the fact that it wouldn't sell so well if a great many other houses were also being repossessed and resold, and without any notion that property prices may fall as well as rise.

* The Bank of England sold off its gold reserves. But worse than that, as it was pre-announced WHEN the gold was going to be dumped, causing the price to crash. Only later, during the time of war, did the price soar, which was a bit unfortuitous, as the gold had already been sold off at the lowest point.

It has to be pointed out that the Credit Crunch occurred towards the end of a very bleak time for Human Rights. The elected dictator in charge of the United States at the time had already started on the route which the Third Reich had pioneered, including a concentration camp, torture of prisoners of war, having scant regard for civil liberties, and various other things which the perpetrators might yet find themselves on trial for in Nuremberg or The Hague. Note that The Geneva Convention applies to countries generally who have signed it, and there's no squeezing out of it by redefining (or respelling) words such as "murder" and "torture". During the time of misrule in the USA, the UK was going through a bad patch, being presided over by someone whose powers of persuasion were such that he could convince anyone of anything anytime, including such things as the idea that one of the countries in the Middle East had "weapons of mass destruction" and could inflict a nuclear attack on the UK within 45 minutes. Although this may seem laughable now, at the time it was actually taken seriously, possibly through mass-hypnosis of the population?

Essentially, most of the Credit Crunch was the result of bad lending in the United States, with some of the blame also going on the United Kingdom, but Western economies in general were involved, especially if they were of the "spend today, hope tomorrow" mentality.

The world went through an adjustment after that time, and it was the inheritors of power who were left to clean up the mess.

For us affiliates, it would have been easy to assume that Bank Irrationality was confined to the way some financial organisations made extravagant demands and claimed that their logos had to fit the current fad and style "because of the FSA". However, it later transpired that the banks were actually behaving irrationally in other respects too. If they'd been running a shop that way, they'd have been put out of business long ago, but somehow because they were banks, they seemed to be regarded as a protected species by the financial equivalent of the World Wildlife Fund! So, for example, customers liked Woolworths and knew that Woolworths was a prosperous shop. Yet, the banks put the interest rate up, and when they couldn't pay, they pulled the carpet out from under them. Woolworths having GONE, their suppliers Entertainment UK were left without support, and they went too. This caused Zavvi to go into administration. This is not as if businesses were falling like flies, but more as if they were falling like dominoes.

Although many worthy and competitive cut-price places were pushed to extinction, so much so that there is now an Ex-Shopping Portal at this site, the Credit Crunch was not across-the-board, and the higher-end shops continued and weathered out the storm. For example, John Lewis did well even when other places were failing. Also, the Crisis was not global, and it was noticed that there was No Credit Crunch in Panama, a tax haven which still had rich people who were still rich, and poor people who were still poor, but none of the sub-prime living-beyond-ones-means which had undone some notable world economies.

Also, look at how prices are rising in the shops! This is Inflation! Don't let THEM tell you it's not happening. It is. There is inflation. It's worse than they pretend it is.

As a Libertarian myself, it's seldom that you'll hear me say "Well done to the Government!", but I must admit to being impressed at the way the British government bailed out a few ailing banks, and even reimbursed people who had invested in banks in Iceland. However, I was less impressed when they reduced the Bank of England interest rate so drastically (in order to help the debtors pay up) that it caused the currency of Britain to fall against other world currencies. Previously, the Great British Pound Sterling £ (GBP), had been one of the greatest currencies in the world, and yet with the cut in interest rates, it slumped, even against the already-failing US-Dollar. This was a slap in the face with a wet fish for the people who had been sensible and SAVED UP their money! It was also impressive that the regime that had mucked up the USA was deposed and replaced with a much more reasonable setup. It's to be hoped that reforms come quickly enough to save the world economy from a long-term disaster.

If you have savings, for example because of wise financial management in the past, you may be interested in savings accounts. The strategy recommended is to spread the money around between various trusted banks, so as to limit the amount in each to only £50,000 (based on the UK Government guarantee). Some countries have different amounts guaranteed. A more maverick approach is to invest in the Bank of Mattress, although if you do that, you are responsible for your own guarantee and security arrangements!

Essentially, the best strategy in the Credit Crunch is to "ride out the storm". Don't panic. A Siege Mentality may be appropriate, but there is no need to get uppity about it. It is likely that the worst of it may be over, and the lowest-point was in June 2009, after which things started to improve.

Then again, if the government starts to panic and imposes draconian measures, such as increasing the tax rate from the already ludicrously high 40% to a preposterous 50%, then it will be that anyone not chained to the ship will be jumping overboard. Squeak... splosh!

The UK was the slowest economy to recover from the credit crunch. Although the USA had been initially to blame for starting it, the UK ended up suffering for longer. Essentially there's a good reason for this: The USA replaced its disastrous leadership in a timely fashion with something less bad, whereas the UK continued with a "lame duck" government until at the last gasp it was finally ousted.

The Credit Crunch is now also known as the Global Recession.