Not only is the gadarene rush to lower and lower bank rates liable to
perpetuate the recession for years ahead - as it did with Japan in
the 1980s - but it will also hit savers particularly hard, something
that some have already noticed and done something about.
Today the Chancellor is trying a bit of arm-twisting on the banks
telling they must reduce mortgages by 1.5% in line with the cut in
bank rate. There’s no “must” about it for the financial institutions
cannot lend what they haven’t got. That’s what they have been
trying for the last 10 years and look what’s happened!!
The cannier savers have already removed their savings from savings
accounts and put them elsewhere. This is money that the banks cannot
lend and to get funds they will have to pay more. If they pay more
to savers they cannot cut mortgage rates. If they don’t pay more to
savers they won’t be able to lend as much on mortgages So it is the
rate of savings that will determine mortgage rates not some window-
dressing by Brown or Darling.
The current policy will ruin Britain’s prospects despite the media
being in full cry , backed by Brown-Darling, against savers. The
media, particularly, must learn the basics of economics and that the
banking system is not a social service
Hard cheese if you want a mortgage.
perpetuate the recession for years ahead - as it did with Japan in
the 1980s - but it will also hit savers particularly hard, something
that some have already noticed and done something about.
Today the Chancellor is trying a bit of arm-twisting on the banks
telling they must reduce mortgages by 1.5% in line with the cut in
bank rate. There’s no “must” about it for the financial institutions
cannot lend what they haven’t got. That’s what they have been
trying for the last 10 years and look what’s happened!!
The cannier savers have already removed their savings from savings
accounts and put them elsewhere. This is money that the banks cannot
lend and to get funds they will have to pay more. If they pay more
to savers they cannot cut mortgage rates. If they don’t pay more to
savers they won’t be able to lend as much on mortgages So it is the
rate of savings that will determine mortgage rates not some window-
dressing by Brown or Darling.
The current policy will ruin Britain’s prospects despite the media
being in full cry , backed by Brown-Darling, against savers. The
media, particularly, must learn the basics of economics and that the
banking system is not a social service
Hard cheese if you want a mortgage.
xxxxxxxxx cs
On a personal note I have halved my savings in one bank and bought
other securities at greater interest rates and - as well - the
possibility of capital profit. I am thus helping British industry
but am reducing the amount the bank can lend.
===========================
TELEGRAPH 7.11.08
Savers will pay a heavy price for the Bank of England’s desperation
Savers will pay for the Bank of England’s increasingly desperate
attempts to bail out overextended borrowers, most notably the
occupants of Numbers 10 and 11 Downing Street. This week’s cut in
base rate by a third to its lowest level in more than half a century
is merely the latest evidence of that trend.
By Ian Cowie
The authorities are trying to dig their way out of a deep hole
created by a decade of spending more than we earned – even if that
means destroying the real value or purchasing power of what savers
prudently set aside. No wonder the stock market reacted to the 'good
news’ of Thursday’s rate cut by knocking another 260 points off the
FTSE 100 which stands nearly 9pc lower than it did when Labour came
to power more than 11 years ago.
Before considering the paradox of why the market reacted in the
opposite way you would expect to a dramatic reduction in the cost of
credit, let me share some really good news with you; or at least 14m
members of Nationwide. Britain’s biggest building society will
announce a sharp increase in the 'mutuality gap’ on Monday. That’s
the difference between banks, which are owned by shareholders, and
building societies, which are owned by their members, expressed in
terms of cash in customers’ pockets.
Former members of Halifax, Alliance & Leicester, Woolwich – and,
worse still, Northern Rock or Bradford & Bingley – had better look
away now. It is never this column’s intention to cause unnecessary
suffering. They gave up ownership of these former building societies
in return for shares which are now worth a fraction of their value at
flotation – or nothing at all. As the sceptics warned at the time;
windfalls don’t keep.
By contrast, Nationwide will announce next week a sharp increase in
the £300m it distributed to members during the first half of last
year in the form of higher returns to savers and lower costs for
borrowers. While the building society very properly refuses to
comment, my spies in the industry indicate that the payout during the
first half of 2008 will be more than 15pc higher at about £350m, with
total payouts of £700m pencilled in for the full-year.
True, this is only an average of £50 a year each for Nationwide’s 14m
members. But that’s a lot better than the financial equivalent of a
poke in the eye with a sharp stick, which is all that the former
owners of Northern Rock and Bradford & Bingley can look forward to.
And, of course, there are wide individual variations within those
averages. Setting aside several million current account holders, the
biggest depositors among Nationwide’s 11m savers and the biggest
borrowers among its 1.5m homebuyers stand to gain most – and could be
several hundred pounds a year better off – because the building
society does not have to pay shareholders before it sets its rates
for customers.
Those figures illustrate an often-forgotten fact that I like to point
out here from time to time. There are about six savers for every
borrower in Britain, although you might not guess that from the way
rate cuts are usually reported. The explanation is that borrowers
make more noise than savers because they tend to be younger and more
photogenic.
Homebuyers struggling to meet mortgage payments are easier for TV and
the tabloids to cover than pensioners fretting about their savings.
Oh, and borrowers are wildly over-represented in news rooms for
reasons that need not detain us here.
That’s why rate cuts are usually reported as good news. But the
reality of the mathematics cannot be eluded forever; no more than we
can borrow our way out of debt. All the government can do is delay
the day of reckoning and probably make a bad situation worse. That is
what the stock market was warning us with its adverse reaction on
Thursday. When the silent majority realise how much this week’s crowd-
pleasing rate cut may cost them, it will prove the opposite of popular.
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