Thursday, 27 December 2007

The Debt Disaster: Hopeless New Year?

Returning to a theme of earlier this year, I've been suggesting for some time that the Bible's injunctions against interest-bearing loans have a moral dimension which we are unwise to ignore. Over the 'festive season' the sub-prime mortgage disaster has failed to go away. Meanwhile, our own god of spending kicked in on Boxing Day, if the full car-parks at shopping centres were anything to go by.

Not surprisingly, articles in the press continue to warn of what is going to happen - and most people continue to ignore it.

From the Times:
Villains aplenty but few heroes in sad tale of debt tragedy
...there is little in the UK financial system so cynical and downright nasty as the US sub-prime mortgages that precipitated this crisis. Labelled Ninja mortgages – no income, no job, no assets – these were loans sold to poor Americans regardless of whether they could afford the repayments. Lenders did not care if they could meet the repayments. The whole idea was that the price of the properties would rise and that any repossession value would more than compensate for any bad debts.

Back home, while Northern Rock is proof that outwardly sophisticated financial engineering can bring down a company under the noses of the tripartite, it is difficult to envisage the sale of individual products as invidious as Ninja mortgages in the UK. Our home-grown scandalous offerings, such as split-capital investment trusts, were not callously designed using the premise that profits are best reaped from a built-in failure mechanism.

But there is no room in the current climate for complacency and there are areas of real concern; chiefly the sale of individual voluntary arrangements, a form of bankruptcy-lite, used by debtors as an alternative to insolvency. [...]

From the Guardian:

Shop today and pay tomorrow
By rights, this Christmas should not hold much seasonal cheer for consumers. There has been a credit crunch, a run on a bank and the housing market has finally come off the boil. No wonder a number of retailers have sounded fretful about the outlook for the all-important Christmas shopping season: sales yesterday were said to begin with heavy discounts to drag people through doors and on to websites. Shops always promise bargains, of course, but there are plenty of reasons for a debt-addicted and retail-obsessed nation to worry as economic times get tougher. Britain (perhaps unlike the United States) may not be about to enter a recession in 2008. But everyone, from the Bank of England down, fears that growth is going to slow, perhaps painfully.This has implications for the government as well as individuals. In November the current budget deficit was £9.1bn - a record, and well up on the same period in 2006. But families already saddled with big mortgages and stagnating incomes will also be hurt if growth slows and credit becomes harder to obtain. The annual Boxing Day shopping frenzy may leave a bigger headache than Christmas lunch. [...]

Discouraging Third World debt is something the churches have been doing for some time. It is high time we did the same nearer home.

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