Debating the credit crunch

I am surprised that more people do not think that the general public are responsible. Many people have been buying on credit over the last few years, living for the moment and not worrying about their mounting debt. You might think that banks should not have made it so easy for people to get credit but it is up to the individual to realise that, if they can’t afford to pay the money back, then they are living above their means.

Owen Replies : I think this is absolutely right – individual borrowers have to be accountable for their decisions, although there are some vulnerable people who need more protection than most. Having said that, it is worth remembering that far more of the problems in UK banks have been caused by other institutions rather than by individual borrowers not repaying their loans. Just take a look at the latest staggering results from some of the big UK banks over the next few weeks.

Ask Owen is about providing impartial financial advice for those concerned about managing their money. The country is suffering a serious economic decline and with people concerned about increasing costs of living and fuel bills, teamed with worries about job losses and house repossessions, it is a daunting time; so if you have a question to Owen fill in the comment box below and he will answer.

Debating the causes of the recession

If the government hadn’t got greedy with duty on fuel and utility firms hadn’t put their prices up, the common people wouldn’t have had to turn to financial institutes to help fund their eveyday living. I had to got to one too to help fund a holiday for my children (the 1st holiday they’d had for 7 years I might add).

I’ve now had my hours cut and lost £120 per week. I’m a single mother to 4 kids, 2 of which are visually impaired. I have to rely on my eldest son to care for the whilst go out to work to eliminate childcare costs, but other things put te cost of living up. I can’t afford not to work, but the system encourages others to stay at home and claim benefits.

but with the current employment climate and companies going bust, there are no jobs for the peole who want to work

Owen replies : I do agree that the substantial increases in personal expenditure – petrol, energy costs etc – through the middle part of last year had a really tough impact on household budgets, but I do not think that has directly caused the current problems. RBS have this week announced the highest losses in UK banking history and a big chunk of that was the result of an acquisition (of a Dutch bank called ABN) which was clearly madness. The reality is that the increasing levels of unemployment are the result of many businesses having been badly run in the past and therefore unable to cope with the downturn. Having said that, there are still lots of jobs around, they are just harder to find than before. Good luck with your searching.

Ask Owen is about providing impartial financial advice for those concerned about managing their money. The country is suffering a serious economic decline and with people concerned about increasing costs of living and fuel bills, teamed with worries about job losses and house repossessions, it is a daunting time; so if you have a question to Owen fill in the comment box below and he will answer.

More Financial Questions on Base Rates

Why is it with current bank of England Interest Rates at 1.5%, the high street banks and building societies are charging 3% plus?

This is a question which is right at the heart of the current economic debate. The Bank of England is reducing rates in an attempt to stimulate an economy that is in recession and the banks are trying to price their loans in a way that they believe reflects the risks of that very same recession. I do not think this will be easily solved to be honest because if the banks will argue that they are being prudent to avoid any further worsening of the banking crisis. I do think initiatives like the loan guarantee scheme announced this week will help to ease up the system but they will take time to work through I’m afraid.

Ask Owen is about providing impartial financial advice for those concerned about managing their money. The country is suffering a serious economic decline and with people concerned about increasing costs of living and fuel bills, teamed with worries about job losses and house repossessions, it is a daunting time; so if you have a question to Owen fill in the comment box below and he will answer.

Financial advice questions : Investments

Cool site. Quick question : Now that the base rate is so low is there a safe way to get a decent return with your savings? I heard something on the Radio5 the other day about Equity Capital investments but didn’t get a chance to make a note of what the bloke was saying.
Rob

Good question Rob. Unfortunately if there was a guaranteed safe way to get a decent return on your savings, everyone would be investing in it! Every kind of investment carries some risk and we all have to weight up whether that risk justifies the return on offer. The real challenge of the last 9 months or so is that the risk of certain investments (including having more than £50k in a bank for example) has increased dramatically whilst the returns have gone down in lots of cases. Equity based investments certainly carry plenty of risk at the moment. At the same time, Government guarantees on bank deposits or Government Securities still represent a pretty low risk investment in most people’s eyes.

Ask Owen is about providing impartial financial advice for those concerned about managing their money. The country is suffering a serious economic decline and with people concerned about increasing costs of living and fuel bills, teamed with worries about job losses and house repossessions, it is a daunting time; so if you have a question to Owen fill in the comment box below and he will answer.

Opinion Poll – What do you think about the current economic problems?

Questions from our Facebook group

There were a couple of points raised on our Financial Advice Facebook Group this week so I’ll address them both here and there

Here’s one for you : Can anyone explain why that Martin Lewis is still getting interviewed as a financial expert after the Iceland debacle? (http://www.insiders-view.co.uk/martin-lewis-money-saving-expert-or-money-grabbing-show-off/00180)
Peter Livingston

Peter, far be it from me to criticize another financial commentator – what can I say?! Seriously, though, no-one could claim to have seen the Icelandic collapse coming. It was quite incredible and emphasises how much 22008 really was a year of some horrible firsts in the financial services world. Let’s hope 2009 will be a bit calmer!

Sorry if this is a silly question but this is something I’ve always wondered…with the taxes in this country being what they are then surely the government can get everything for free as long as it uses British firms.

If it pays a million pound for a project it will re-coup a massive percentage of this in tax off the corporation it uses, off the pay to the workers the corporations employ, off the stuff these employees buy and even tax on the interest of any of the unspent money that ends up in banks.

Not trying to be satirical or anything, I am just wondering I am thinking correctly

William Coyle

I think, William, that you would be a great front man for one of those “Buy British” campaigns that we hear a lot about at the moment! I guess the honest answer to your question is that the first obligation of the Government – which is, after all, investing your and my money – is to spend that money with the companies which will deliver the best value and highest quality projects. Clearly, there are benefits in terms of employment and keeping investment in the UK if those companies are British, but they have to be efficient enough to get a good job done too!

Regards Owen

Ask Owen is about providing impartial financial advice for those concerned about managing their money. The country is suffering a serious economic decline and with people concerned about increasing costs of living and fuel bills, teamed with worries about job losses and house repossessions, it is a daunting time; so if you have a question to Owen fill in the comment box below and he will answer.

Questions & Answers From Our Financial Expert – 2009 Financial Predictions

Simon Smith on the Ask Owen Group Blog :-

The CEO of Barclays mentioned that he was apologising for his industry given the bad practice in the last year. Yet we are all have to suffer because they don’t want to lend to themselves.

When is it likely that the banks will start to lend again? 1 Year, 2 Years

Regards
Simon Smith

Owen Replies

I think this is a really difficult one. Think about it this way – the major banks have got into severe difficulty because of irresponsible lending, and now there is a recession coming.

Recessions are a time when banks lose lots of money through lending to people who do not pay them back so in normal times, banks’ risk decisions would be getting much tougher at a point in the Economic cycle like this and yet the banks are now being told that they should lend more. No easy answer on this, I’m afraid, but I don’t think lending will increase dramatically at any time soon.

Regards
Owen Woodley
Deputy CEO
Moneyway

Ask Owen is about providing impartial financial advice for those concerned about managing their money. The country is suffering a serious economic decline and with people concerned about increasing costs of living and fuel bills, teamed with worries about job losses and house repossessions, it is a daunting time; so if you have a question to Owen fill in the comment box below and he will answer.

Questions To Our Financial Expert – Financial Decision Making

Becki on the Ask Owen Facebook Group asks :-
 
Hi Owen
 
I am currently doing a University assignment about financial decision making and we have been given a case study…

Its about a listed company that are going to invest £50 million into the European market. I was hoping you could help me as I’m extremely confused about Investment banks…

What exactly do they do? and what services can they provide to a listed company in connection with the raising of additional finance? Any help will be very much appreciated and any information you provide me with I will continue to research so I have a better understanding.

Thank you very much

Becki
 
Owen Replies
 
Becki, good question. In reality, investment banks do lots of different things from investing directly in companies all the way through to advising companies on how to float on the stock market to raise finance which the investment bank will sometimes “underwrite” (i.e. buy up the shares themselves if other investors do not come forward).

There is, I am told a good general book on the subject called “Investment Banking Explained: An Insider’s Guide To The Industry” by a guy called Michel Fleuriet. Might be worth a try?
 
All the best

Owen Woodley
Deputy CEO
Moneyway

Ask Owen is about providing impartial financial advice for those concerned about managing their money. The country is suffering a serious economic decline and with people concerned about increasing costs of living and fuel bills, teamed with worries about job losses and house repossessions, it is a daunting time; so if you have a question to Owen fill in the comment box below and he will answer.

Questions And Answers From Our Financial Expert – Questions from our Facebook group.

Finally Today two answers to questions posted on our Financial Advice Facebook group.

Pete Livingston from Facebook :-

50 billion dollars?!?!?! And the most aptly named man since Peter Crouch. Can things get any worse? http://news.bbc.co.uk/1/hi/business/7784925.stm

Owen Replies

I agree, Peter. I think this news is simply breathtaking. I think the risk now is that the authorities will conclude that the only answer is to put in place loads more regulation in the financial sector. I think a greater quantity of regulation that would be a disaster for customers in the end, but this kind of case makes it very clear that the quality of regulation needs to increase dramatically. I simply cannot comprehend how a high profile hedge fund could have got away with this.

Ian Wilson from Facebook :-

I know it’s impossible for anyone to say for definite but we do seem to have a lot riding on the economy picking up this time next year…what do you reckon?

Owen Replies

Ian, what I reckon (and I am sorry to say it) is that 2009 will be one of the toughest for a very long time. The simple fact is that we have never seen a crisis quite like this. In the past, recessions and economic problems have been largely national whereas for the first time, we are seeing a crisis which is truly international. As a result, people are going to be losing jobs in the UK for reasons which have started a very long way from here – the US car industry is a case in point.

Interest rates had to come down and will continue to do so I am sure, but there is only so far they can go and therefore, as Barak Obama has said, the central banks are running out of ammunition to tackle the problems. Of course the sun will shine again, economically speaking. I just think it is going to rain for quite a while first.

Regards
Owen Woodley
Deputy CEO
Moneyway

Ask Owen is about providing impartial financial advice for those concerned about managing their money. The country is suffering a serious economic decline and with people concerned about increasing costs of living and fuel bills, teamed with worries about job losses and house repossessions, it is a daunting time; so if you have a question to Owen fill in the comment box below and he will answer.

Questions And Answers From Our Financial Expert – Retail Sector

As our American friends head into Thanksgiving I am reading a lot about \”Black Friday\” this year.

Is it really that important for us that their retail sector has a good christmas? Or is it just a confidence thing. I suppose the way things are going any crumb of comfort will do.

Adam Jones

Answer from Owen

Unfortunately, we are now living in a truly global world – something which I think has really been demonstrated for the first time as a result of the credit crunch. Recessions used to be contained within individual economies whereas now they spread across borders. The result is that where a bad Christmas on the US high street would once have not been much of an issue for the rest of the world, it is now.

I think the US car market is a great example. Companies like Chrysler and GM are not suffering directly because of the credit crunch. They are suffering because they have been badly run with unsustainable working practices for a very long time and the economic downturn is now exposing that fact. The result, in part, will be job losses in the UK, so we should all be hoping for an upturn in the US economy sooner rather than later.

Regards
Owen Woodley
Deputy CEO
Moneyway

Ask Owen is about providing impartial financial advice for those concerned about managing their money. The country is suffering a serious economic decline and with people concerned about increasing costs of living and fuel bills, teamed with worries about job losses and house repossessions, it is a daunting time; so if you have a question to Owen fill in the comment box below and he will answer.