The moral effect of bailing out borrowers

I worked for fifteen years in the City to make enough to retire in my forties.

That's not a huge amount. I never got a mega bonus. I earned a bit more than middle managers in British Telecom, but often not much. But by dint of moving out of London and living fairly carefully, I've managed to go freelance and run my life the way I want to, without having to earn a wage.

Now I could of course have done what Gordon Brown seems to want us to. I could have said: This is not enough. I NEED a bigger house in a posher area. I NEED a bigger car. I NEED a second house and I even need to pay £3.50 for a pint of Greene King IPA. So I'll borrow, and I'll carry on working till I'm 68, so that I can reflate the economy, and when the chickens come home to roost, I'll depend on the government to stop the banks repossessing my house. And you know? It would have worked.

We had an unsustainable boom. Now, the concern is how do we make it happen again.

The problem is the moral hazard of rewarding stupidity. If we bail out the borrowers - if we insist that mortgage rates must be lowered to help the borrowers - if we insist that the banks must lend to businesses on the brink of going under - what are we doing? We're saying - spend, spend, spend, the government will sort out the bill.

Conversely what we're saving to savers is simple. Don't bother.

So Gordon Brown, you are on notice.

I am going to spend my savings. I am not going to work. I am going off on holiday. Saving the British economy is not my business.

I am not going to earn money, because I don't need to. I am not going to lend my money to banks at 1% and then pay tax on that to bring my total income to about half a percent. I am not going to stick money into the stock market.

No, I'm going to spend it having a good time. Having a good time at cheap prices. And having a good time somewhere else, because in the UK it rains, it snows, it's cold, the hotels are too expensive and the service economy doesn't have any service left in it.

And just try to bloody tax me on the income I'm not making.

Now this is an extreme attitude and actually as editors and PR people know I'm continuing to write articles, and I have a novel coming out this spring, and I haven't given up entirely. But if every saver in the UK is now feeling like this - and I think many of them are - how are we going to increase the savings ratio? Which is one of the major structural changes that needs to be made in the economy if it is to recover on a long term basis.

We have reached the point at which no one thinks it is worth saving.

• after Equitable Life, the stock market collapse, and the collapse of a number of occupational pension schemes, who trusts pensions as a savings vehicle? Besides, if you are one of the lower quartile of private pension savers, there's evidence that suggests you will be worse off, because means testing means you will only have managed to replace the minimum income guarantee - effectively you've paid for something you would have got anyway.
• after the 2001 tech collapse and now the 2008 stock market collapse, no one trusts the stock market with their savings.
• and now we have banks collapsing, and property prices collapsing. Which leaves tins of baked beans as possibly the only alternative to keeping your cash under the mattress.
  
• Worst of all, why bother putting money in a bank to get a measly 1%?

Yet look at a number of issues and the government still expects us to save. We ought to be putting money in our pensions, we are told. Oh yeah? We ought to be saving for our old age. We ought to be saving for care homes when we're old.

Well, there's something wrong with that strategy, isn't there? When you punish the savers and then you tell them they ought to save, which of those policies is real and which is moonshine?

Independent still doesn't get the web

I tried to put a comment on an Independent article today.

It required me to create an account.

It required an email address "so we can send you important information."

No opt-out. No definition of what is important information.

Some people for instance think it is important that I should know about their willingness to marry me. Mainly Russian women.

Some people think it is incredibly important that I have access to the important information of where to buy the cheapest Viagra.

And some people want to send me interesting adverts for ski holidays. Oh, that was the Daily Telegraph.

For the record; I hate snow, don't ski, and have no desire to sit in a chalet with a load of Daily Telegraph readers.

The Independent also states that "by law" I am "required" to give my date of birth.

What law? Is the Independent now a pornography site?

By the way, this is a newspaper whose journalists frequently write about issues such as, er, liberty, freedom of information, why we shouldn't have a national citizen database, and why we shouldn't have identity cards.

Well, would some of the journalists like to try talking to their database administrators?

Interest rates and savings

I can't help thinking that everybody is trying to solve the wrong problem.

We have an economy with several structural issues. Most of these arise out of an asset price bubble that has now definitely burst. Let's summarise the two main problems.

• The savings ratio is way too low to support investment. Households have incurred huge levels of debt.
  
• Banks see high risk, and are disinclined to lend.

Okay. You don't think it's worth saving money. What's the answer? I'm going to reduce the interest rate. Look! You didn't think it was worth saving money when you could get 7 percent in the bank! Now the interest rate is one solitary per cent! It's worth it! Isn't it....?

Try the next one. Dear Mr Banker, you do not want to lend money to Mr Not Very Gainfully Employed, a self-certifying self-employed man with previous bad debt, on a house that is worth 15% less than it was last year and will probably be worth another 15% less this time next year.

I tell you what. Instead of charging him 7%, why don't you give him a 2% tracker mortgage. There! Doesn't that make it all worth your while?

This economy actually needs high interest rates to solve the structural problems. Instead of which, we have low interest rates driven by the politically perceived need to restate the bull market 'com'era, dov'era'. And low interest rates which, by the way, keep driving sterling down. (As a Brit living half the time in France, I've certainly noticed it.)

I can't help thinking we'll see interest rates up again - and I suspect, when it happens, it will be very sudden.