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Wednesday, September 17, 2008

Black Wednesday

I can still clearly recall sitting in the Conference Centre in Harrogate on Wednesday 16th September 1992 as interest rates soared into double figures. I was a lowly civil servant and had just remortgaged to the extent that my finances were stretched to the very limit. I went into the hall to listen to the debate and pretended that it was not happening.

Sixteen years later we are facing another difficult financial situation though of an altogether different nature. Not only are thousands of people facing negative equity situations but large numbers are coming off fixed rate mortgages and facing up to significantly increased repayments. Repossesions are rising inexorably.

Despite falling house prices, getting onto the housing ladder is not an option for many simply because of the non-availability of credit and the risks associated with jumping into that market. At the same time there is a shortage of affordable homes to both rent and buy.

People are facing rising energy, food and fuel bills, whilst hopes of things getting better become more and more remote with the failure of each financial institution. The collapse of Lehman Brothers has led to a 40% fall in the share price of HBOS and London's FTSE 100 Index closed at its lowest in three days amid forecasts that the credit crunch could see more than 100,000 jobs shed by the UK's financial sector over the next year.

Meanwhile, insurer, AIG, is to be forced to raise $14bn in collateral after being downgraded by all three of America's ratings agencies. The insurer's share price fell by more than 30% in early New York trading today amid fears that it would be the latest casualty of the credit crunch. They need to find somebody to lend them as much as $75 billion to stay afloat.

This is much worse than Black Wednesday and there is no sign of any end to it. I am not aware of a comparable economic crisis to draw lessons from. Clearly there are global forces at work but there is still action that the UK Government can take to try and help those who are affected by it.

I am sure that the Labour government are doing their best but I, for one, do not have much confidence in their ability to help especially as they seem to be spending all of their time talking to themselves.
There have been a number of "Knock On" effects that have caused this economic situation; the government allowing house prices to boom, with mortgage lenders lending up to 125% the value of the house, even though those house prices were inflated. The price of oil being another factor, that’s had an effect on the economy.

Regarding Lehman Brothers collapse, we’ve had a bank collapse in the UK, Northern Rock, and judging by the news this week, the Nationwide Building Society is having to bail out a couple of smaller building societies in the shape of the Derbyshire and Cheshire Building Societies. On the news this morning, Lloyds and HBOS are looking to merge, the FTSE 100 index has gone under 5,000 and Alliance and Leicester have agreed to be taken over by Spain's Banco Santander.

When the current Labour Government came into power back in 1997, the economy was in pretty good shape. We have had boom time over the past 10 years or so, unfortunately, the then Chancellor, Gordon Brown chose not to put money away for a rainy day, in fact he sold around half of the countries gold reserve 415 tons in May 1999, when gold was a mere $215 oz. what’s more ironic he ignored advice not to sell, in addition we did have money in the bank so there was no need to sell this gold at this time, within the past couple of years, gold prices have reached the $1,000 oz.

We also haven’t seen the UK switch to the Euro, so British Companies that trade abroad and practically all companies do so; they have the double whammy of having to exchange Stirling to Euros or Dollars when selling these goods, and having to buy raw materials in either Dollars or Euros. British Companies now also have to buy their power form foreign owned utility companies, I understand there only one British owned utility company left.

British companies have been bought out by European Competitors, asset stripped and left for dead – manufacturing industry in the UK has seriously gone down the plughole.

We are in a very difficult economic situation, the fact that the Government is in a state of disarray with a growing minority of MPs calling for a leadership election doesn’t give the financial community much to be confident about.

As regards Gordon Brown, if I may be permitted to quote Oliver Cromwell:

“You have been sat too long here for any good you have been doing. Depart, I say, and let us have done with you. In the name of God, Go!”

G. Lewis
Bridgend Lib Dems
.... it's all gone quiet over there!
Some might point to a Premier League sponsorship curse: Northern Rock (Newcastle), XL (West Ham) and now AIG (Manchester United).

One can joke about it now, because the US federal government overnight (our time) guaranteed AIG's continuance by virtually 80% nationalising the company.
Is F. Little suggesting a correlation between sponsorship of premier division football teams and economic instability with those firms?

Any comments regarding WRU referees with "SpecSaver" adverts on their shirts, any possible correlation there?
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