Friday, 29 November 2013

I can see it coming!

Imagine you are on holiday, the bus picks you up from Eastbourne to go back to your hotel, and all the other passengers are coming back from a stag do and totally pissed, some laughing, some fighting and some sleeping. The driver leaves town and turns off towards the coast road, but on the way to the hotels takes a right and you realise they've gone off the main road and are heading towards Beachy Head, the suicide spot. You shout to the others and they don't know what you're on about and just say things like they love you, or who you looking at etc, so you ask the driver why he's left the road and he says 'Hey man, enjoy the trip', and turns out he's on LSD, as you see Beachy Head getting closer and closer, till the point the driver shouts 'Hey man, I can fly', and off he goes.

Now you would assume had the passengers been sober and the driver not on drugs had anyone taken the wrong turning towards a cliff they would be so pleased to be rescued before the event you may even have earned a medal, but this was a unique situation where anything you could do was impossible to help.

Back to 2006. I used to get a few letters every week offering me credit card, not just the bog standard but also some gold ones, and then more offering me a higher limit than before even though I'd never accepted one or used one before.  It clearly wasn't just me getting all these offers, they had dropped their restrictions and for reasons of their own wanted everyone to get into serious debt regardless of their individual circumstances. And the biggest debt of all, the mortgage, had gone the same way. The old rule of a deposit plus 3X annual income had gone out the window, and people could get over 10 times or simply lie about their earnings in a 'self certification mortgage' (imagine doing that for a job- 'Yes, I passed my medical/architect's/surgeon's exam'), and get whatever they wanted, and forget the deposit, and why not have another 25% on top for home improvements, you can manage it! Banks finished the job by themselves lending not the rule of seven, lending no more than seven times the total they had deposited (I learnt they only lent a seventh of the total in case more people wanted to withdraw money, but that was in the old days), and gone way over 40.

Clearly the hundred years or more the old rules had been in place had been for a very good reason, and those reasons could and would never change as people who borrow money tend to be because they don't have it, especially for non-property loans where they didn't really need it to buy a house but because they wanted something else now rather than save for it. Having deregulated these rules away the governments had (to me at least) opened up the lawless wild west of lending and knowing most people not borrowing for a house do so because they want something they don't really need and can't afford, the risks were obvious. Around that time a stockbroker warned the government of the same thing, apart from the economist Vince Cable, the only known example. He got sacked.

Two years later the debts failed and the entire system almost crashed, but was paid by our tax money which caused a recession which has lasted ever since. It never had to happen, if you broke the rules banking had used since day one because they were clearly required, there would have been no recession, all the banks would still be here, and the economy would be stable. They ignored the obvious risks and suffered the guaranteed consequences.

That is just a big and representative example. The example being (as proved by Gordon Brown, another economist and prime minister of the day, who said he didn't see it coming) the consensus is not always right, and certainly never means the majority know best. I saw the same for global warming well over a decade ago, they ignore the faults in that which are at least as great as the debt crisis, and as it takes a century or so to play out rather than a few years the damage will go on indefinitely, destroying the economy of generations before they finally decide there is no warming 'but it was worth the risk in case there had been', as they cycle harder to keep the lights on as they have no power stations left.

There is a massive lesson in there, one of the greatest you will ever learn. If even one person speaks out and may be ignored, if they are proved to be right at least they have said so and you will remember them. And the consensus (including the experts) were wrong. All of them.

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