This definitely looks like a credit crunch. Household secured lending has collapsed.Back in the good old days, bank lending to households was increasing annually by at least 8 percent. There were moments when that growth rate hit over 16 percent.
Imagine the plight of those poor loan officers who processed these huge increases in lending. They must have been working day and night, filling out those forms, and disbursing all that cash to their grateful customers.
With lending surging at such rates, would anyone be shocked to find out that loan officers didn't have to time to fully assess the creditworthiness of customers. Most of the decision making was done by computer programs who gave credit scores to potential borrowers.
Hard pressed loan officers, coupled with computerized decision making, doesn't sound like a reliable basis for adequate risk management. Is it any wonder that after ten years of this nonsense, we end up with a massive banking crisis?
16 comments:
A deliberate 'oversight' on behalf of the bankers. They didn't want to scrutinise their borrowers too much as 'liar loans' generated more yield and besides, property backed securities were as safe as ... er houses - weren't they ?
Message to our future leaders:
Ensure that all bankers are only rewarded in the form of shares in their own banks. Redeemable only after ten years of retirement/resignation. This should at least ensure the interests of the banks are put before fast buck making.
This is the core of the problem - people walked out of banks with loans that they really shouldn't have received.
Now banks are going into reverse. No one that needs a loan can get one.
pity the rest of us....
I worked in the lending arm of a major bank for a few months - it was eye opening.
The only problem my employers was with solicitors delays, they even had me give a free assessment to every existing mortgage customer (no matter their enquiry), telling them how much their house had gone up by and would they like to apply for an Equity Release Loan.
they where reckless vultures who said that they needed no regulation because all the risk of failure would fall on them.
Ha!
No surprise at all of course.
> Most of the decision making was done by computer programs who gave credit scores to potential borrowers.
GIGO!
Growth is close to zero, but it still hasn't shrunk. Imagine when that starts.
I wonder how much of these 'not properly checked' claims were fraudulent? And I wonder how many of the fraudsters have left the country with the money.
Cross-posting from Digg :-
Something very wrong with this blog post.
Aside from the lack of a reference to a source, the graph only goes to the end of 2007. It's 2009. What happened in between hmm?
Plus this represents the *rate of increase* in household secured lending, not the total amount. So we know that as of end 2007 household secured lending was no longer increasing, but it wasn't declining either. That doesn't sound like a collapse to me.
Ah wait, the scale isn't how I thought it was; not sure where the end of the graph is, mid way through 2008 maybe? It should be labelled.
Janougha
Thanks for the comments.
There is a source, it is marked in the lower right corner. It is the Bank of England. Actually, this chart comes from their inflation report. As for the scale, it is the three month percent change, annualized (basically multiplied by four). The chart ends in December 2008.
Alice
Next country to implode? You heard it here first: Canada. Was there over xmas, the equity withdrawal commercials were in high rotation with the sort of insincere cretin with false white teeth you only get in North America telling people to use their houses as cash machines.
"Vodka drinker said...
This is the core of the problem - people walked out of banks with loans that they really shouldn't have received.
Now banks are going into reverse. No one that needs a loan can get one."
Old adage - Never lend money to someone who actually really needs it.
If they don't need it they will be a much safer bet.
Lending targets for loan officers, that was always going to end in tears.
Alice, could you do a few more things on Ireland. In the past, you said some interesting things, but you have gone a little quiet recently.
Hi Alice, thanks for the reply. Knowing that is was from the inflation report allowed me to verify your graph. Here for other curious folk: http://www.bankofengland.co.uk/publications/inflationreport/ir09feb1.ppt
http://520book.blogspot.com/
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