End of Year Summary

'Positive results from a Negative Economy' is the way I am going to sum up the year for me financially. Although the Western economies are in a steep decline this does not mean that individuals cannot create a positive financial environment. I am pleased to be able to report that my goal of paying off credit card debt is now within reach (and don't forget I have paid NO interest on this debt for two years)The green graph above was my debt progress about ten months go. The latest version (pinky-blue below..) shows how I have been able to continue to shrink this debt down to a manageable size.
Some major factors in this have been a small bonus from work which I have used to clear debts, the massive drop in mortgage interest which has freed up more disposable income, and some online earnings which although not used directly for debt, enable me to spend some money without touching my 'off-line' income.
The whole picture is a demonstration of how, even when things are tight, we can still make a positive impact on our finances. The major reason I have been able to achieve this is through sensible budgeting and self-denial with the ultimate aim of having sufficient disposable income in the long-run to be able to save significant amounts of money. In order to do this I had to learn that a 'treat' now could have an unwanted impact (a lot like dieting...) in the long term. I also had to learn that having money in the bank AND interest-accruing debt, was a nonsense - paying off debt is a better investment than saving. However I also learned that getting 0% financing through a credit card helps enormously, but ONLY if you NEVER use the credit card to buy more 'stuff'. In essence I had to reach the point where getting out of debt was more attractive than all the things I could have by increasing my debt (along with the inevitable consequences).
I really hope my story help others, and rest assured when the debt is finally paid off, I will be posting about it at least one more time...watch this space

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Credit crisis

In these tough financial times there are many resources we can use locally, nationally and on the internet. There are services for debt consolidation, financial advice and Debt Counseling, and we can have little excuse for being uninformed about our options.
If your debt has reached a level which is difficult to manage, then there is a possibility that you may need some good advice. Resources giving advice like 'The Credit Cruncher' can be useful up to a point, but beyond manageable debt levels more professional advice may be required.
There are a number of options that people consider, firstly you might consider a loan to cover your debts or a consolidation loan bringing all your debts together - but unless you can get a very good rate, this may not be helpful. For more manageable amounts, a 0% for transfers credit card deal can be very useful for clearing credit card debt. When things get a little more serious, bankruptcy or an IVA might be advisable, but these options require detailed expert advice.
Many, many people have debt at some level, and different advice is available for each individual situation. Our advice is to trawl the internet for advice appropriate to your situation, but take on board opinion from a couple of different sources. Before taking any steps, it would make sense to find out what free advice is available locally as many places provide free advice on debt.

Less than ideal financing...

The latest offering from dNeero surveys is all about 'Payday loans', personally I was glad to have the chance to express some of my doubt about the effectiveness of this type of debt. My philosophy of budgeting and only spending the cash you have is severely challenged by schemes of this type.
To take part in the survey, click on the widget below and make your opinion heard too:




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Credit Card Sins

We all surely know that credit card debt is usually a very expensive form of debt, but are we fully aware of some of the tricks that the banks employ to maximise the revenue on their cards?

• First off, there's the way that they allocate your monthly payments. Let's say you have a 0% transfer deal which leaves you with $1000 at 0% on your card. You spend $200, and pay $200 back at the end of the month - you imagine that the $200 will be taken from your spending, but think again...the cheapest interest items will often get paid off first leaving the 'expensive' debt generating more income for the bank. Read the small print - many, many cards operate this way - use my philosophy: Get a 0% card for transfers for all your debt and NEVER use this card for purchases EVER....
• Cash withdrawal on a credit card will often attract far higher interest than the normal rate for purchases, add to this the cash withdrawal fee that you will be charged and Bingo, the most expensive way to borrow money ever! Charges will accrue immediately on withdrawal, leaving no breathing space, no interest free period. We have often seen interest charges in excess of 30% for cash withdrawals, and the best trick of all is that despite plummeting base rates, credit card interest rates are going up! (gotta get the money in from somewhere...).
• Beware of the current trend for offering lower minimum payments - if you're serious about paying off your debt, then having a low minimum payment is NOT an advantage. Low minimums are designed to keep you paying off your debt for decades... don't look at this as being a benefit! Also note that if you meant to clear your balance and accidentally underpay by just $1, you could be charged interest on the entire balance.

The banks will be using credit card debt earnings to shore up their cash flow after foolishly buying all those worthless sub-prime debts. Don't be the one to pay the price, shop around and pay attention to the APR, and read all the small print about how payments will be allocated. My stance remains that the best way to deal with credit cards is NOT to use them. If you must, use the 0% for transfers to pay off your debt (but don't spend on the same card). If you have a card that you spend on, pay off the balance immediately otherwise you are walking into a potential trap. The credit card is NOT your friend!

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Billions set aside for car industry

The Whitehouse has announced that $11.7bn is to be loaned to car manufacturers that can prove that they are viable. The loans are for a three-year term and will be provided within weeks of the announcement. Like the conditions attached to bank bailouts, executive perks are strictly banned - (I wonder how much could be raised by clawing back the executive payouts over the last five years??)
The money has been ear-marked from the £469 billion Troubled Asset Relief Programme so we can at least be assured that this will not add to the already soaring national debt.
This comes at the same time that the UK government is considering bailing out domestic carmaker Jaguar-Land Rover which is not even currently owned by a UK company. Business Secretary Lord Mandelson (sorry still can't get use to 'Mandy' being a Lord...) has said that a bailout, rumoured to be in the region of £1bn is a possibility. I am sure the Indian owners (Tata) are delighted to find that a foreign government are willing to hand them a cool billion...
In even more bizarre news, NASA are flogging off space shuttles and for $42m you can have one delivered - if you can pick it up yourself, the price tag drops to $36m - one careful owner, full service history apparently, but I'm not sure what insurance group..??

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Why interest rates can't go negative

As the US federal discards convention and sets a 'range' for base rates instead of a specific target, one is left asking 'how low can it go?'. The range set is an astonishing 0-0.25%, enabling borrowing at an unprecedented zero percent.
On idea behind dropping interest rates to near-zero levels is to persuade people to spend. The thinking is that if people do not earn anything from their savings, then they will be less likely to save. However, this ignores the fact that when people have no confidence in their financial future, they are not likely to spend any more than necessary.
My feeling is that market confidence is so low that even at a 0% rate, consumers will not be rushing out to convert their precious savings into goods and services (assuming the average consumer has any savings which may be a myth anyway).
The low interest rate however, has the potential to make a difference to the banks' commercial customers which is surely the intention of the measure - the effect on tracker mortgages is merely a (very welcome) side effect. I am aware however that some banks are still charging 29%pa for unauthorised overdrafts on accounts for small businesses, so clearly it is not the small businesses that the measure is aimed at but the big fat corporations who have the politicians in their pockets. Is this an economic or political decision? I'll leave you to decide...
So the question remains - what happens if interest rates go negative? Simply put, anything on deposit could then have a charge applied to it - so...anybody with any money would immediately withdraw it from a deposit account and place it in a current account, or take it home and put it in the mattress or place it in a foriegn bank. The money available to the banks is already depleted, that's what the credit crunch is all about - setting a negative interest rate would more or less clean the banks out and leave them gasping for air. Borrowing money at negative interest would become a way to earn money - once more there would be such a clamour to borrow money that the banks would be cleared out in no time - and because the borrowers would be looking to make money rest assured they will be spending NONE of it!
This is my submission then, interest rates cannot under any circumstances go negative or pure chaos will ensue and the banks will all go to the wall.

Popular Questions:
Will we all end up broke?
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Sub-prime mortgages to blame?
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Christmas Bonus

The Credit Cruncher strives to bring you ideas that help to promote your business at a time when, more than ever before, competition determines which companies will survive.

The Gallery Collection is offering saving on Corporate Holiday Cards this year, not only that, they have a fantastic free offer to go along with the cards. The collection is not at all limited to Christmas cards, but includes cards for every occasion including all-purpose cards and birthday cards which extends the range that corporate cards are normally limited to. What if you started sending birthday cards to your best clients, how special would that make them feel?

Back to the Christmas cards then, there are a staggering 225 different designs on offer. This amount of choice means that your clients are less likely to receive the same card from several suppliers, you will stand out from the crowd, your card will be pretty much unique. What's more? They are sponsoring free downloads of Charles Dickens' "Christmas Carol" - this alone makes the site worth a visit. Charles Dickens is my very favourite author and I believe I have read pretty much every book he wrote. Christmas Carol is a classic (as all his books are...) that needs no introduction, introducing characters that live on beyond the confines of the story in 'Scrooge' and 'Tiny Tim' to name but two...

All cards are helpfully categorized, so that you can quickly drill down to look at just cards with established works of art, or cards with a religious theme, or wildlife cards - this way you can choose a card that is appropriate for your industrial sector. A famous work of art for a design company, wildlife for an environmental engineering company, patriotic cards for armed forces, and emergency services - something for everyone. Each card comes with a range of greetings in several languages and you can even include a customized greeting to make the cards more personal. Don't feel limited to Christmas Cards because this site represents good value for cards for all occasions.

Has the automobile had it's day?

Don't get me wrong, I love cars, I enjoy driving and have been driving for more than 25 years - yet I have only really owned cars that were convenient - apart from one that I bought for my wife, other than that, the other eight cars I have owned were cars of convenience rather than ones I had researched and hunted down for their particular characteristics. This is simply because I have always understood that automobiles make very little economic sense.
The standard family cars deteriorates and depreciates rapidly, not only that but they cost a packet to run - very few people can genuinely afford to run the cars that they have...
In the world we now live, the amount of transport options shows up cars as being both dangerous (it has long been acknowledged that planes are safer than cars), and as grossly detrimental to the planet itself. In the long term the hydro-carbon powered vehicle is unsustainable however attached we are to the concept.
This is the mindset we must adopt to put the proposed bailout of the auto-industry into perspective. The bailout of financial houses is one thing - arguably both political and economic at the same time. In contrast, the proposed bailout of one specific industry whilst ignoring all others is purely political, there are no economic merits to sustaining a commercial industry which cannot sustain itself.
There is a justifiable fear that job losses and impact on the economy will cause many knock-on problems in related industries, but the question has to be posed: where does this intervention end? At some point we will have turned ourselves into the thing we in the West believed we had triumphed over after the Berlin wall fell - and economy controlled not by the free market, but by the bureaucrats in government. For those in the US, those of us in the UK can tell you what sort of cars you can expect from a nationlised auto-industry. Gentlemen, we give you the Austin Allegro:


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Mortgage safety net announced

Gordon Brown used the Queens speech to launch a new scheme aimed at helping those who will face unemployment in the coming recession. A government-sponsored mortgage-payment break enables families to stave off repossession for up to 2 years by deferring payments. the only limit is that your mortgage is less than £400,000 which will cover 90% of the population.
This, after news that 75,000 homes could be repossessed next year in the UK, that's 30,000 more than expected figures for this year.

The details will be worked out between individuals and their banks, but the scheme is only a deferral of payments to a later date, so there will hopefully be little chance to exploit the scheme for personal gain, though no doubt some will try!
The announcement came out of the blue, so some of the finer detail is as yet unclear, but eight major banks have signed up to the new Homeowner Mortgage Support Scheme.

As far as I can see, this is the first real policy of substance that will really help individual families to come forth from number 10 Downing Street since the start of the crisis. Never mind tiny tax windfalls and 2% off VAT, this looks to me to be a real policy which will have far-reaching positive effects.

I can't help wondering though, if it means that we should stop paying mortgage protection insurance?
Surely the insurance companies are not going to be delighted to learn that the Government is going to arrange for the underwriting of 90% of UK mortgages...

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The Good Consumer

An excellent 'tongue in cheek' Youtube Video which is a little too close to the truth for comfort, thanks to bonfireofthebrands.com

The plan revealed

Following on from plans to bail out banks and borrow up to the hilt (well possibly 50% of GDP anyway...) we now know that from 1st December there will be a drop in VAT to 15%.
WHY?
On the surface, this is to stimulate economic activity but the reality is that this will make little difference apart from a small impact on Christmas shopping. For those who are already feeling the pinch, they are struggling with their fuel bills and food shopping, clothes for the kids... Will any of these things become cheaper? Yes - junk food, sweets, biscuits cakes.... genius!
Any essentials such as wholesome foods and children's clothing are already tax-exempt - electricity and gas are only taxed at 5%. What items from the shopping basket have rocketed in the last year? Fuel costs and food in the supermarket...
How long will this measure last? 13 months - right up to the next election by any chance?? and then what? Already there are denials that there is a proposal to hike VAT up to 18% after an election. So how on earth will they fund the shortfall in taxes raised? There is talk of taxing the super-earners in 2011 (once again after the election), but these people have been so far forewarned that they have plenty of time to cook the books before this tax kicks in. The clever accountants will have already formulated a strategy to make sure that this tax raises next to nothing.
What conclusions can we draw?
Simply that these measures are politically-motivated at a time when we really need politicians to forget their differences and genuinely try to help the country (and the world for that matter) out of an economic mess. What we need is a leader who can cut through the dross of political jousting and get to the heart of the matter - sadly I know of no-one with the qualifications for the job. I have always been one to wholeheartedly believe that no-one who craves leadership should actually be given a position of power. Unfortunately we have a system that dictates that whoever wants it the most and is prepared to sell everyone down the river to get it, will be our Prime Minister.

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The cost of economic rescue

Governments around the world are listening to Gordon Brown's ideas of how to borrow and spend our way out of financial crisis, but the real cost will be in the long-run.
Normally, the boom and bust economy model allows for a relatively short 'bust' period which may lead to recession like the situation we find ourselves in now. However for some time, government intervention has been staving off the inevitable instead of letting the market take it's natural course.
Now there is no guarantee that things would have been any better if they had left it alone, but there will now certainly be a cost to pay for the short-term fixes that will be put in place. National debt is set to rise to unprecedented levels and that means just one thing, these debts will have to be paid.
How do governments pay off their debts? TAX TAX TAX - oh yes in a couple of years we will ALL be paying the price of this bailout with increased income taxes and maybe even VAT. By all reports there is likely to be a package of deferred tax rises announced very shortly by Gordon Brown at the same time as he is announcing the short-time tax-cuts. What does that mean for the general populace?? Well, just when you think you've survived the worst of the recession, you will be clobbered by huge tax hikes - and the danger? The thing that is confusing is that the bailout is supposed to raise expectations and rebuild confidence to encourage spending - the likely tax announcements are going to have exactly the opposite effect - I for one will be holding onto every last penny to make sure we survive not only the recession, but the years of excess taxation which will follow it.

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Selling a house in the current market

Now may not be the ideal time to be selling your house, but there are a number of approaches which differ from the norm that you might be able to take advantage of, if you are in the position where you really must move.
There is the option to sell and lease-back over either a long or short term, and there are two reasons that I can see that you might want to do this:

1. If I needed to Sell My House, but I had not yet found my ideal new property. This would be a short-term leaseback scenario where I could effectively rent my own home back whilst looking for a new home.
There is an advantage here in the current climate in that property prices are dropping so the 'ideal' property could be cheaper by the time you buy it than when you sold your own property.

2. The second scenario is that you need to sell your home and you are concerned about the approaching threat of negative equity in a falling property market. You will effectively be swapping your mortgage for rent, and be able to hopefully realise some capital out of the deal if you are not already in negative equity.

If you need to sell and you are having trouble finding a buyer in the conventional way, you can take solace in the thought that there are organisations out there in the current economic climate that will be willing to guarantee to take your property off your hands.

G20 seeks financial recovery

A number of measures will be tabled at the G20 summit in Washington which will hopefully serve to boost ailing economies world-wide. This will be centered around tax-cuts and public spending to boost regeneration.
Whether this type of tinkering with the economy can have a significant outcome remains to be seen, I am sure that the 'confidence trick' of being seen to be doing something, is as least as important as whatever 'something' ends up being done...
Certainly there is no doubt that the right sort of public spending can help to retain jobs and boost the economy, but I honestly don't see a small tax break as having any real effect.

Interesting to see China amongst other nations included at the summit, but puzzling that it centered around George W Bush when he is very much on his way out of office. Nevertheless Gordon Brown has taken his chance to raise his profile internationally.

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Credit crunch advice

One of the main themes of conversations at the moment is how to survive the credit crunch and the coming recession. Everyone has their own ways that they have found to promote frugal living and as I have been doing this seriously for a couple of years already, I think I am well-placed to offer some advice.
Here are my hints and tips:

1.Look after the pennies - it's an age-old adage but one I have been forced to use as the bedrock of my financial planning. I don't smoke or drink to any degree, I hardly ever go out for meals or entertainment (such as films or clubs) these days, so where are the savings to be had?
Take a look at the smaller expenses, the snacks you buy on a daily basis, the regular outgoings that you don't really use (gym membership etc..). Imagine the money that you spend this way in a month is sitting in your pocket as a lump sum - does that feel good?
I have a simple strategy for coping with impulse buying including snacks (I have a very healthy appetite), my strategy is that I don't carry any money, therefore I can't impulse buy! If I feel the need to supplement my (home-made) daily lunch, then I make a special trip to the supermarket and buy cheap snacks in bulk packets to make sure I get the best value for money. This usually has to wait for the weekend because I just don't carry ANY money on a day-to-day basis.

2.Make a budget - if you do only one thing after reading everything written about saving money let it be a BUDGET. You cannot seriously engage with your finances without getting busy with a spreadsheet whether it be in EXCEL or an a scrap of paper. List ALL your monthly outgoings that you are aware of - every regular payment and include anything that you can think of even haircuts and anything else that involves money leaving your pocket or bank account. Balance that against your net income for the month and calculate the difference - hopefully this will leave you some spare 'disposable' income - but in the event that it doesn't - get busy with the red pen and strike out any stuff that you don't need - even if you thought you needed it, ask yourself if it's worth going bankrupt for and I bet the answer is no!
If you still come up short, and you have a mortgage, get in touch with the mortgage providers straight away and start a dialogue with them. If on the other hand you have come up with an amount you can work with, this is the money you can spend - this and no more!

3.Don't spend twice - This is the favourite trick of the optimist - if they have a disposable income of £50 for this month, and see just what they always wanted in a shop for £49.99, the temptation is to say 'I can afford that' without remembering to stop spending the £10 a week that the budget usually allows for. The easiest way to cope with a tight budget initially is to deal in cash. Have your monthly disposable income in your pocket and you will be completely aware when it has gone! I would recommend this as a way of doing weekly shopping too - take your shopping budget in cash to the supermarket and calculate your spend on the way round, this is by far the best way to discipline yourself to stick to a budget.

4.Pay off your debts - this should be a priority, and if you have not allowed for paying off debts (not just minimum payments) in your budget, then you must allocate some of your disposable income to actually reducing your debt. I recommend keeping track on a spreadsheet (or even a graph) so you can see your debt coming down - this will encourage you when it all gets a bit much (see how I made a graph of my debt). When you are finally debt free, all the money that was going towards this will then suddenly become disposable income. Until you are debt free, my advice is not to even think about 'saving for a rainy day' - I would pump everything into paying off the burden of debt and think about how I can invest some of my income later. The only time this is not advisable is if you can make more interest on an investment than you are paying for interest on your credit. This includes 0% interest deals - all 0% interest for balance transfer deals are time limited, often for 12 months - you should really be making good use of this interest-free period to pay as much off your card as you can afford. If you are not making use of it in this way, you are just putting off the inevitable and no advice I can offer will help.

These are the thoughts that occur to me now, by no means are these exhaustive, I'm sure I will be able to come up with more, and I really feel I can expand on the o% interest credit cards as these have been the main vehicle that I am using to be debt-free by before the end of next year. Feel free to suggest your own money-saving ideas in the comments.

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How the credit crunch affects us

We know from the news and media that some banks are in trouble and some mortgage houses have had to be bailed out, but I hear many people asking how the credit crunch will affect other aspects of the financial infrastructure in ways that might have an impact on the wider populace.

The initial impact that I have experienced first-hand has been in the mortgage market. For first time buyers, a new mortgage not only entails more stringent rules (a good thing..) but the cost of the 'product' itself has become more expensive even if you are just renewing (blatant profiteering..). Since the base rate went down, you will also notice that many tracker mortgages have been withdrawn because the lenders have less scope to make a profit.

Now, you might wonder how credit card balance transfers are shaping up in the credit crunch, and you might be forgiven for thinking that the 0% credit card for balance transfers is doomed. It transpires however, that this is not the case, and what is actually happening is that charges are sneaking in 'under the wire'. In the small-print, you will now notice that handling fees are increasing and transfer fees are now less likely to be capped. The good news is that good deals are still available, my advice is that you really need to compare credit cards small-print to make sure you are getting the best deal.

Housing market update

Property agents remain optimistic in the face of dropping house prices and a lack of house sales that shows little sign of relenting as we approach the end of the year.
Britain's foremost house-builder Taylor Wimpey has reported a 27% drop in house sales since the summer, and it's order book is 40% down compared with 12 months ago. RICS (Royal Institute od chartered Surveyors) figures for sales from estate agents shows an average of less than 11 sales per surveyor in the last three months the lowest figure ever recorded. This figure was 11.5 in September and 12.7 in August.

Note that the industry is gauged on the results of the surveyors figures - do you think that's because they cannot rely on the estate agents themselves to tell the truth??

There are several factors that are affecting the current housing market:

• Market uncertainty - where prices are perceived to be falling there is a reluctance on the part of the buyer to spend now, also a reluctance for the buyer to think about selling.
• Job uncertainty - with the recession just around the corner, most people will be thinking twice or thrice about making a financial commitment which could be jeopardised through job-losses.
• Credit uncertainty - there is no doubt that credit will become harder to obtain, with more people being turned down for mortgages, some products being withdrawn form the market and mortgage companies mercilessly jumping up the price of a mortgage with no justification.

Ultimately the slow-down in the property market will harm the mortgage houses, so it would make sense for them to make the market more attractive to new customers. It seems however that the attitude of lenders is that they will exploit the clients they can get, rather than pass on benefits of lower interest rates.

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Trying to talk the crisis down

Anyone who knows about economics knows that it is common to try to 'talk' markets up and down as demand can respond to confidence with or without substance. I have seen countless comments on the web implying that the media is 'talking up' the coming crisis and making it worse, but I have to say that the truth as I see it is that industry and Government have been combined in talking the crisis down in an attempt to keep things on a even keel.
I refer you to the following articles which have already been reported:

CBI predicts 'shallow' recession - in which the CBI try to convince us that this recession will only be a blip.
Paulson predicts recovery by the end of the year - in which the US treasury try to pour some very expensive oil on troubled water...

Whether recovery is from the credit crunch or the recession, recovery by the end of this year was NEVER on the cards as far as I can see... On balance, the media have had their part in creating a monster, but if a monster recession is indeed on the way, then they are fully justified. On the other hand if industry and Government have encouraged an "it'll be alright" kind of complacency, then maybe some fingers should be pointing back at them.
One thing is for sure, the media did not make the current financial crisis - we can put the banking sector and possibly even Government firmly in the dock for that particular inquiry.

If we want to know the truth about what is happening take a look at the growing employment figures, the drop in the GDP and the corresponding giant cut in interest rates, the falling markets, the drop in retail sales, the drop in the housing market - if I go on I might be accused of talking the crisis up, so I will balance it with this: There is no huge panic as long as you make budgets for your expenditure, stick to them and amend them according to any change in your income. There is no mystery, if you don't overspend you will come through the crisis unscathed, however that alone does not mean that there is no crisis.

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Bank Rate Cut to 3%

The Bank of England has just announced a Base Rate cut of 1.5% down to 3%. Mortgage lenders are already saying that they may not pass on all of the cut to their customers which makes you wonder how they can justify such a declaration, but we are well aware that they make up their own rules safe in the knowledge that the taxpayer will bail them out. The Chancellor Alistair Darling has gone on record to say that banks should pass on the benefit and Lloyds TSB has said that C&G mortages will drop by the full 1.5%, HSBC, Barclays and Nationwide have not yet confirmed a reduction but tracker mortgages will benefit immediately. In contrast the European Central Bank has reduced its base rate of interest by 0.5% to 3.25%.

This size of this cut in the Bank of England Base rate (the rate at which it lends to other banks) is no doubt in response to the unexpectedly large drop (0.5%) in GDP just reported for the third quarter of 2008, as a 1% base rate cut was being mooted before the GDP figures were announced. The move will ease some pressure on industry and free up some cash to generate economic activity both on the commercial and the domestic front, but only if the mortgage companies allow borrowers to have a decent amount back instead of ring-fencing it to make good their dreadful howlers that got us into this situation in the first place.

The consensus is that the coming recession will be deep and prolonged with house sales already suffering, and a drop of nearly 25% being reported in vehicle sales last month, dropping the base rate to 3% leaves little room for future cuts of this magnitude.

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Queen questions the Crunch

HM Queen Elizabeth II visited the London School of Economics yesterday and had a question for economics professor Luis Garicano:

Why did nobody notice?

The professor replied that everyone seemed to have been relying on someone else - which is probably about right. He went on to say that everyone thought they were doing the right thing, which seems a little kind on those that mis-sold mortgages in the sub-prime market unless you argue that they thought the right thing was to raise as much commission as they could regardless of the consequences to their clients. But to be fair, even these sharks would not have been aware of the effects of their actions, even when it got to the stage of the major banks buying these value-less mortgages.
The queen rarely allows herself to be quoted on current affairs of any kind, it shows concern for the nation, but the chances are that her own money is safe... Her verdict on the current financial crisis: "awful"...

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Keeping ship-shape in the current economic crisis

A lot of people are anxious to know how the recession and the credit crunch will affect their lives and what they can do to minimise the negative effects. the one piece of advice that can be applied to households and businesses alike is to run a tight ship - make sure you are as efficient with the money that you do have, as you possibly can be.
For the business that means cutting down on waste, maybe even trimming off excess labour - many contractors are finding themselves surplus to requirements recently. Businesses will need to be ultra-competitive, prepared to take a drop in profits in the short-term in order to maintain the business in the long-term. The crucial thing is to have control of the money that is going out of the business and patch up any leaks...
For the household, again controlling outgoings are the key and having a realistic budget is a major part of the strategy that will keep your head above water during the crisis. The vital thing is to remain flexible and match any drop in income with a corresponding drop in expenditure. Shop wisely and put a stop to compulsive spending, move any debt onto a 0% for transfers credit card and put as much as you can afford to paying off the balance.
Of course, not all businesses will be in decline, there will always be those that respond well to an economic slump. Capital-rich investors can add to a property portfolio as the housing market slumps, but I would wait a couple of years for the market to bottom out. Thrift-related business such as eBay trading will no doubt benefit from the inevitable bargain hunting and corresponding need to convert goods into cash quickly.
One surprising development has been the upturn in home brewing - seems that there is a growing trend to spend a night in with some home-brew replacing an expensive night down the pub...

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Property Market recovery in 2013

The Centre for Economics and Business Research (CEBR) has predicted house price recovery up to 2007 peak prices in 2013, with the market expected to bottom out around 2010 at the level previously predicted by Graham Beale of the Nationwide (25%). This in the face of the Council of Mortgage lenders' recent advice that short-term house price predictions were futile. I am inclined to agree that we don't know enough about the implications of the coming recession to predict what will happen to house prices. Widespread company-closures and job-losses could well have an impact on the property market, and we are not in a position to predict how sharply the economy as a whole will suffer. For now I am going to stick to my wild prediction of last month...
Currently there is a resistance by sellers to accept the drop in house prices and that is no doubt why we have such a huge amount of unsold properties currently on the market with little chance of being sold in the next 6 m0nths - they are basically over-priced. Anyone who has observed the way in which house prices rocketed in the between 1990's and 2000 must accept that propertu prices have been over-inflated by a tremendous amount.

In other news, some US sources are reporting a surprise upturn in the housing market, but there is no reason to think this is anything other than a freak short-term occurrence.

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UK reports decline in GDP

The UK treasury has reported a decline in GDP that was even greater than expected at 0.5% for the third quarter of 2008 (July-Sept). Economic observers expect that this will be followed by an equal or even greater decline in the last quarter of 2008, which will see us entering recession for real. This will fulfill the criteria of official recession which is defines as two straight quarterly drops in GDP.
This has lingered for a while with the Republic of Ireland already having announced recession a few weeks ago. It is likely that it will be the end of February before the UK announces official recession conditions, and there is every chance that by that point, much of the rest of Europe will be recording drops in GDP.
GDP or Gross Domestic Product is a calculation of the total economic output of a nation including goods and services.

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Credit Crunch Latest

Bank Of England Governor Mervyn King publicly warned of a recession in the UK, the first public figure to make such an announcement, acknowledging that the UK economy faced a 'long slow haul' ahead to redress the problems that we are currently faced with.
In contrast Gordon Brown and Alistair Darling have avoided the use of the word 'recession' even though such an event is blatantly staring us in the face. This is what Mr King had to say:

"A recession looms because the credit squeeze came at a time when disposable incomes were falling due to rising energy and food prices... taken together, the combination of a squeeze on real take-home pay and a decline in the availability of credit poses the risk of a sharp and prolonged slowdown in domestic demand."

In the US, Treasury Secretary Henry Paulson has said:

"Clearly, we're going to have a number of difficult months ahead of us in terms of the real economy,"

in a TV interview yesterday, in contrast to what he was saying a few months ago claiming that the crisis would be short-lived and expecting a recovery by the end of the year. If we were expecting politicians to be consistent, we would be disappointed - However, we're a bit wiser than that...
This comes just a week after the announcement of a Government investment of $250bn in US banks. The Federal Reserve has $540bn ear-marked for bank-rolling....

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Guaranteed House Sales

Innovative property company SecureASale have re-launched their website helping to put some security back into the London housing market. SecureASale offer a ‘Sell House Fast’ service taking your property immediately off the market for 90% of it’s market value, often completing the transaction within a week. This might be a life-saver for you if you need to stop repossession from going ahead on your property.
If I were in this predicament, Secure a sale would buy my house quickly allowing me to stop the uncertainty of falling house prices and slow property sales. An added bonus with this service is not only the cash transaction, but there are no fees to pay as SecureASale take care of all the conveyancing and solicitors fees as part of the service – this really is a hassle-free option for those that need to sell to relocate for work, or for some other reason.
This could really make an impact on property sales in the London area and would be of huge benefit in other areas if the company were to expand its’ operations nation-wide. SecureASale are set to give a realistic option to those who need to shift their property in what is otherwise a fairly stagnant market.
In my estimation with the likelihood of falling house prices for some time to come, 90% is a good deal – if you don’t sell your house within 2 months you might well have to drop the price by 10% anyway. I don’t see any recovery in house prices for a few years to come.

Gordon plays his hand

Gordon Brown plays to his strengths and his latest moves to encourage Europe to stand behind their banks have played a major part in the recovery of the stock markets, but is the stock-market a realistic indication of economic well-being?
There are two major problems facing the Western Economy, on the one hand there is the collapse of the 'market' as share prices plummet, on the other there is the major recession just around the corner. Only one of these problems has received what could turn out to be a temporary reprieve.
How was this done? In fact it was quite literally a confidence trick... a bluff (that will hopefully work) to show the world that we are in charge of our own economy, but the chips on the table are all ours...
In a very real sense this 'trick' is much-needed to counteract the over-playing of doom and gloom that has affected the markets. The markets have done what they do best, they have over-reacted, the big gestures by all the leading Governments will help to inspire confidence in the markets alone - this should arrest some of the loss of confidence in the Western economies around the world, but it will not avert recession, the best we can hope for is that it takes some of the 'edge' of the worst of it.
Don't get me wrong, I am against market intervention in principle, but if you are going to do it, you have to do it big and right now Gordon is going for it - only time will tell if it will be enough to prevent a meltdown in the stock-exchange. He is now leading from the front and has the confidence in his economic beliefs to take the rest of Europe with him.

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Big Chill hits Iceland

A political stand-off has begun between Britain and Iceland after Iceland nationalised three of it's banks leaving a cloud of uncertainty hanging over subsidiary banks in The UK. Gordon Brown moved swiftly to guarantee ALL private deposits regardless of whether they exceeded the £50,000 ceiling. Less certain is what will happen to the public money on deposit with Icelandic banks. Over 100 local councils, 96 police authorities and countless charities are thought to have funds at risk, and the UK government is making use of fraud legislation to 'freeze' the assets of Icelandic companies in response.

So far the Icelandic government have kept quiet about whether they will repay the public money owed to UK local councils, and unless there is a move to reassure depositors soon, the whole situation threatens to get ugly. The problems are due largely due to the outrageous growth of Icelandic banks fueled by foreign debt, a debt which dwarfs the domestic economy. Iceland will now be looking to borrow from Russia to preserve it's now fragile economy. Meanwhile the domestic currency, the Icelandic Krona is in free-fall.

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Starting a pension

In these troubled financial times, there are those who have been asking if this is a good time or a bad time to start a pension. I would that it is ALWAYS the right time to start a pension. Over the full term of the pension, the ups and downs of the stock market should really iron themselves out.
If you are over twenty, then you should consider a pension, most UK employers are now obliged to offer a pension scheme that can easily be transferred when you change jobs (stakeholder pension). Many employers actually contribute to the scheme too - if this is the case, then YES - it's a no-brainer, take advantage of any company scheme that offers to contribute to your pension.
Even if they don't contribute (there is no requirement for them to), it should be very easy for your employer to arrange your contributions and take care of the tax issues.
The only circumstances where you don't need to think about a pension is if you are working on a casual basis and will continue to do so, or likely to earn vast amounts that will enable you to make your own financial arrangements for your future.
My final bit of advice is this: don't go half-measures - if you decide to do this, make a real go of it to make sure you end up with a decent income. If you just 'dabble' and don't really put a significant amount in, then you will have wasted all your money.
Consider this (UK citizens only...), if you DON'T put money aside for your pension, what will happen? The state will provide you with income support up to a set level. If you only put a small amount into your pension, you may find that all you have done is to take the onus off the state to look after you, and you may well have only provided enough to just keep you above the level where the state was going to support you anyhow! So...either do it properly and set yourself up for a decent retirement or don't bother because the state is obliged to look after you.
The days of great employers offering fantastic pension plans are very quickly disappearing, it is up to you to sort out your own future now, the government has come half-way by making stakeholder pensions available to all - the smart people will take full advantage.

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Best buy balance transfers

Most credit card comparisons involve a combination of interest on purchases and interest of cash withdrawals, minimum payments and the like - when it comes to 0% balance transfer credit cards the only significant comparison is how long the deal will last for.
The 'norm' is to offer 12 months, so be aware of those who are only offering something less than the full year.

The 'Top Dog' spot has been fiercely contested, with Virgin money offering the longest period of 0% on balance transfers (I know because I used this particular offer myself...). Capital One then came along with a deal that lasted up to 16 months, snatching the number one slot.

Virgin credit card have now reacted by matching the 16 month deal - this goes to show that the market does not stay static for long and it's always worth doing a Credit card comparison to check what deals are currently on offer. Be good to yourself, get your finances in the best possible shape right now so that you are in the best position to survive the crunch.

A $700bn bill becomes an $800bn bill

Some relief has been expressed (at least politically) about finally getting the so called 'rescue-package' through the House of representatives. This bill that was originally a 3-page document has developed into a 451 page document and somehow been passed. These are the things that worry me:

• Easily-frightened politicians (there is an election just around the corner) have rejected an easy to understand 3 page document on the grounds that it was too much of a burden on the tax-payer.
• The Senate turn this document into a 451-page mega-bill in a matter of hours adding $110bn to the tab to make it more appealing to Joe Public.
• The House of Representatives totally 'buy' this with only one man who previously voted for the three-page bill admitting that the 451 page version was NOT the same as the bill he had backed and voting against it.

We are meant to believe that this massive document has been digested and understood and voted on in all good conscience a couple of days after it had first been written, with no re-writes or re-drafts, straight through... I hate to sound so negative, but this makes no sense to anyone without a hidden political agenda, in fact it stinks... The US Governing body has just voted NOT to spend $700bn on the grounds that it is too much, then turned around with a YES vote for the $810bn plan a matter of days later without surely having had the requisite time to make an informed judgment. Draw your own conclusions, leave me a comment....

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Recession or Depression?

As at the time of writing this article, neither the UK or US economies are officially in recession according to the precise definition, but already people are asking if this will be like the Great Depression of the nineteen-thirties.
The difficulty in answering this question is that there is not apparently a precise definition of an economic depression, and it is one of those terms that can only be applied in retrospect. In other words we won't really know if we are in a depression until it's over and then it will be up to historians to decide if the crisis can be compared with the Great Depression.
Paradoxically, the 'Credit Crunch' tag was already established even before recession had struck, the only definition we have for 'A Depression' is a prolonged recession, therefore we can compare the period of the thirties recession when this recession is over, but that is going to be the only tangible measure.

Employment figures are certainly a feature that will be common to both recessions, but the abject poverty, sickness and hunger that characterised the Great Depression can hopefully be avoided, and of course one must bear in mind that this came at a time of World War which thankfully is not the present situation. However the similarities that will be evident are bound to be unwelcome and could well include a near-collapse of the stock exchange, huge job losses and real economic uncertainty. What is apparent is that the current safety nets are breaking and hence the moves by Governments to try and establish new safety nets - judging the level at which to fix these nets is a gamble and we will only know the consequences when it is all over.
In conclusion then, terming a recession a 'depression' is a job for historians, we must continue as individuals to operate good budgeting and housekeeping to ensure that we stand the best chance of surviving financially intact. The fact that we are entering recession is quite bad enough without having to consider how deep a recession it will eventually become. Rest assured it will be quite bad enough!

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Now is the time for mutuals..

How is it that building societies have become victims of the credit crunch?
It is simply because they are now banks having de-mutualised themselves in the rush to become financial houses able to borrow money. The traditional building society was owned by the depositors since their money was the only cash reserves that the society had. They could only lend out money that was on their books and were not allowed to borrow from banks - in fact they were not allowed to go into debt. Since the eighties, we have been cashing in our good old building societies and turning them into banks. The members have been only too keen to let go of thier assets in return for some good hard cash and really who can blame them?
Now the chickens are coming home to roost with the unthinkable happening - building societies having behaved like banks investing in the sub-prime market, going into debt and finally going bust. Rest assured if your money is in a mutual society it is as 'safe as houses' (pun intended).
Meanwhile, the UK government's own new bank, Northern Rock has proved so popular with investors (after all it can't go bust now it has been nationalised..) that it has been asked to withdraw some products as the other banks see it as unfair competition. More mess created by this crazy interventionalist action. Northern Rock is now seen as THE place to put your money at the expense of other banks simply because it has performed so badly that the government has seen fit to underwrite the whole business - pure madness!

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$700bn rescue package approved by senate

The Senate has added $100bn to the $700bn Bush administration credit crunch rescue package, the House of Representatives will get a second chance to approve the new package. The added measures include improvements to deposit insurance (Ireland have already guaranteed ALL bank deposits, and the UK is considering increasing guarantees from £35k to £50k). This improvement to the bill is seen as a measure that helps to protect the individual rather than big corporations and the fat-cats. In the UK, it has been said that the new £50k protection actually covers 96% of the population as it is only the remaining 4% that have anything like £50k sitting in the bank. Of all the measures proposed, putting insurance in place to cover individual bank deposits is the main one that will restore confidence to the root level of the economy. Bailing out fat-cat companies that have made a professional error of judgment is not high on the agenda of the people...

$700bn rescue bid fails

The US House of Representatives shocked the nation by rejecting a revised draft of the $700bn Bush rescue plan, even allowing for the addition of safeguards to prevent fat-cat profiteering.
Stock markets plummeted at the news thus demonstrating the nature of the gamble that the Bush administration are proposing to take with the people's cash....
Nevertheless the feeling is that in some form or other the bill now has to be passed in a situation that will become a self-fulfilling prophecy if it fails. Failure to get this plan off the ground could easily lead to a catastrophic market collapse far worse than if no-one had ever suggested the plan in the first place - what a ridiculous paradox to be in... a real damned if you don't, damned if you do scenario created by self-serving politicians. We, the taxpayers of course will be the ones to foot the bill whichever way it goes - George Bush will be well out of the firing line by the time the pigeons come home to roost, having feathered his nest and undergoing lucrative lecture tours.
The irony is that any half-intelligent economist must recognise that trying to buy your way out of trouble is a huge gamble, and messing it up is unforgivable on a major scale - so who is it that is advising the Bush administration to go down this route? My guess is that we are looking at those who are politicians first and economists second (or maybe third, fourth.....), the market can smell fear and a bluff and right now the much mooted $700bn stinks more and more every day! Yet it must be dressed up to look attractive otherwise the whole smoke and mirrors plan will push us into a realm where no-one wants to go.

I never envisaged that this website was going to become a political soapbox, and personally despise party politics with a passion, but I am beginning to believe a new theory. I always have thought that religion and politics were incompatible, I have recently formed a new opinion about politics: ECONOMICS AND ECONOMICS SHOULD NEVER BE MIXED.

Popular Questions:
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Santander to buy B&B assets

Santander have stepped up to buy part of the Bradford & Bingley group to add to it's recent purchase of Alliance and Leicester - Santander already acquired Abbey in 2004, and has formulated plans for Abbey to take over the network of Bradford and Bingley high street branch offices.
Banco Santander are the largest bank in Spain, Bradford and Bingley have been one of the institutions exposed to the credit crunch particularly due to their involvement in the buy-to-let market which has suffered a collapse over the last year or so.
Meanwhile the Benelux governments (Belgium, Netherlands and Luxemburg) are trying to formulate a plan to rescue ailing financial house Fortis, early reports suggest that this will cost over 11bn Euros.

Credit Crunch latest news

The two big stories of the day span the Atlantic as both are about Government intervention in the financial markets. In the UK, the Government has agreed to nationalise Bradford & Bingley, one of the many former building societies who re-invented themselves as a bank. This adds to the Governments growing portfolio of financial houses along with Northern Rock. Financial commentators believe that the three institutions most exposed to the credit crunch have now been secured ie:

• Northen Rock
• HBOS
• Bradford and Bingley

The debate still rages whether financial instituions who have made critical errors of judgement should be saved or whether they should take the consequences of their actions by going bust like in any other industry.

The same attitude has been adopted in the 'States with the belief that throwing $700bn at the problem will magically restore consumer and market confidence - for what it's worth, I think this is the biggest gamble the world has ever seen, and I don't like the odds one bit.
In actual fact neither of these deals (the US rescue package and the Bradford & Bingley) has been totally worked out, but apart from the niceties, the deals will certainly go ahead. Good to see at least the financial fat cats will have their outrageous bonuses capped, but I would like to see some of these people falling on their sword and admitting their own incompetance for allowing this crisis to come about. In fact this should be part of the deal - anyone with executive powers in any financial house that benefits from the public purse should be forcibly removed from their leather-clad offices before a cent is released.

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First EU country to enter recession

The Republic of Ireland today became the first EU country to slide into official recession since the start of the Credit Crunch.

The GDP (Gross Domestic Product) in Ireland has shrunk in two consecutive quarters as reported today. GDP dropped by 0.5% in the first quarter of 2008, and a drop of 0.3% has been reported for the second quarter - Technically an economy has to record two consecutive quarters in order to be officially in recession.
It is expected that Germany, Spain and the UK will also succumb to recession before 2008 is out. A great many people believe that the Credit Crunch is a recession, today's news should serve to draw out the distinction between a squeeze on credit reserves and an actual slow-down in the economy.

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