Who's to blame for the "credit crunch"?

Question

If the banks hadn't started giving out easy credit then fewer people could have gone for a mortgage. If fewer people had gone for a mortgage, then the house costs would have stayed low......Blah blah Blah....

I'm not an economist ,but I know what rhymes with "bankers" (U.K. slang).

Surely there's got to be a better system than the glorified "bookies"/ stock exchange that is the capitalist system?

Answer 1

What we have here in this country is a free market. The opposite is more state control, more Government taxes, more failed, ridiculous Government schemes, less freedom for the individual.  

Give me freedom every time then it is up to the individual whether he/she takes out a loan or mortgage, whether they buys shares etc.  

In other words, taking responsibility for our own destiny, not being constantly regulated at every turn by the Government/EU and the resultant mess in which this country now finds itself.

Answer 2

In my opinion the financial institutions are to blame and they're paying the piper now as they go under.  Unfortunately, they're causing a lot of grief for a lot of people who don't deserve it as they do.  I never understood the sub-prime situation.  The financial wizards are supposed to understand finance.  I saw this problem coming years ago and simply don't understand why the financial institutions didn't.  They loan money at a teaser interest rate and then they're surprised when the borrowers can't afford the full interest rates when the teaser ends.  What's wrong with this picture?  When the interest rates go up and the borrowers can't afford the higher interest, they default.  When you've loaned money like this on a large scale the defaults happen on a large scale.  What the heck were they thinking?  I sure don't know.  If I could see this why couldn't they?  They only thing I can think of is greed and short-sightedness.

Answer 3

The 'natural market low' that is the credit crunch is indeed a side effect of the free market, the daft thing is that Government (with it's eye on the polls) tries to intervene with very very limited success - it's a free-market, you can't manipulate it...

Propping up the market with over-extended loans and futile Government intervention is what has delayed this crash for probably about two years, therefore my estimation is that it will take two years to find it's natural equilibrium.

http://www.thecreditcruncher.com/2008/07...

There are pro's and con's with the market economy, but I firmly believe that this crash (although made worse with rising oil prices and static wages) has been largely made worse by politicians trying to stave of the 'natural low'. Politicians are only worried that the inconveniently timed credit crunch is going to affect voters, therefore we need to prolong the failing market until after the next election....this is 'playing politics' on a grand scale and with our money.

No there isn't a better system, that's why the West was so far ahead of the Soviet countries who stuck to the planned economy, but if you play with the market someone will get burned. Note how politicians are happy to vote themselves increased expenses and wages while the rest of us tighten our belts.

Some businesses including financial houses will go to the wall, some jobs will be lost, but at the end of the day, we will emerge leaner and fitter in a financial sense, and most people will not suffer too badly.

**in reply to your supplementary point, I do not at all disagree, the only difference is that the bets themselves can actually become what you 'bet' on**

Answer 4

The credit crunch is the result of the capitalist system. People thinking of innovative ways to make maximun profits by speculation and in the name of free trade. All these makes people to be greedy and unethical in their business practices. People become obsses with making more and more money without regards for professionalism and their dealings with their customers and regulators.

Answer 5

In this order,

1. The financial institutions- They're supposed to be the experts.  They knew they were overextending.

2. The government- It should have known better than to let things go so unregulated or checked.

3. The borrowers- A lot of them had to know that they were basically gambling and being greedy, but not all were.

Answer 6

When the history of this Credit Crunch comes to be written, almost certainly we will learn that there were 2 reasons behind the situation that developed.

Firstly, banks, greedy for growth and profits, became irresponsible lenders- providing loans to those who would have difficulty in servicing and repaying what was borrowed.  

Allied to this, loans for property purchase were too often given at 100% of property valuation- and sometimes above valuation.  Behind this policy, was the erroneous assumption that property would always rise in value and never fall- thus ensuring that the bank's loan was always fully secured.

Secondly, encouraged by the banks and media publicity, feckless borrowers took out loans they could barely service- because with rising property prices, they could get out later at sale, with a good profit.

Behind this was the assumption that the good times would continue to roll- that property would continue to rise in value, and that loans would always be cheap to service through low interest rates.

After all, property always rose in value and money was always cheap, wasn't it?  Wasn't it?  Well, actually, no!  Historically, property has risen, peaked and then fallen back- consolidating at a higher base than that from which the rise started.  As for interest rates, they had always gone up and down- as circumstances dictated.

None of this is news!  Stupidity is behind the present Credit Crunch- greed for an easy buck got in the way of common sense!