Inflation Could Be The Answer...!

I at least agree to some of this, but I also remember the late 80's early 90's and the rising interest rate was THE KILLER punch.

Sure the banks lent too much.  Its not the borrowers fault.  If you needed to get on the mortgage ladder and needed 5x joint salary to do it, that's what you asked for.  It was up to the banks to make the decision on the risk.  The trouble is that little joe smith always loses out.  I mean, fo ra starter they had to pay for an 'insurance' policy for the money lent over 85% - a policy for the bank by the way, not the borrower!  Then if repossessed, the Bank cashes back what they can in an auction firesale, getting maybe half the real value back quickly.  Finally, the borrower is on the hook for the shortfall for life, with interest and costs on top I am sure. The dice were loaded.

Back to the interest rate thing...rising interest rates is what would have happened if the credit crunch pack of cards hadn't happened.  That way it would have been the worst off that paid the price and returned assets and a revenue stream to the banks (again, the banks just primed the engine).  But instead it was rising fuel costs which tipped the scales.  Most mortgages are on the same lowish level of lending they were a couple of years ago, but the cost of everything else went up and up.  I mean, a loaf of bread these days is nearly 2 quid, and a packet of crackers (flour and water) is over 1.  People got squeezed because of uncounted inflation - thats the real inflation that never seems to be reported in the goverment figures.  When month after month they reported <2% inflation, we all could tell different.

Now you have falling fuel prices but the retail prices on everything from crackers to strawberries will take much longer to come down.

Finally, I don't remember salaries jumping to catch up with inflation - I had to jump around in the job market to make that happen.  In a recession, companies cut costs wherever they can, and that meant they only paid more for new hires, not existing ones!

Anyway, we always talk in mortgage terms, because its what most of us can relate to.  But its all those other loans and investments that are causing this total lack of inter-bank confidence.  They loaned to businesses and speculators for all sorts of reasons, and those big loans didn't have the bricks and mortar assets behind them to fall back on, just a business projection which will now never happen.  I think those are dwarfing the mortgage issues.