Should we be worried?
My headline is, of course, borrowed from most Guardian articles in G2 about things we probably shouldn't be worried about actually, but asking it gives urgency to a two-page filler about some statistics or a new report. But this time it's serious: should we be worried? Black Monday! Panic selling! Stock market rout! Steepest drop in FTSE 100 index in a single day since September 11, 2001! The "acrid stench of fear"! (That's a quote from yesterday's paper.) Chaos reigns in City! Biggest single cut in US interest rates in two decades fails to halt shares slide! Dow Jones, whatever that is, plunges 400 points, whatever they are, within minutes of the opening bell, whatever that is (actually, I can guess what that is)! Weakening economic outlook! House prices fall! Something called "subprime"! Credit crunch! High street downturn! Gridlock in money markets! We're all doooooomed.
I'm not making light of this. First, I don't understand economics, other than the stock market is based upon speculation, unit trusts can go down as well as up, and that the richest nation in the world is in big debt, and that's never good for the rest of us. I know what a recession is like, as I've lived through a few. I can certainly remember energy-saving measures and power cuts during the oil crisis 1973-75 (quite exciting for a ten year-old), the gloom of the early 80s and the negative-equity crisis of the early 90s. I always cling to the notion that the entertainment industry is always the last to shed jobs in a depression, but we know that EMI are streamlining 1500 to 2000 employees, and even the BBC is being squeezed to the tune of 1800, so perhaps the worst is happening already. What interests me in all this, is the way the media seems to be willing a recession upon us. House prices were bound to slow down eventually, and they finally are, but do you detect glee in the newspapers' reporting of this fact? I do.
Perhaps they're right to crow about it. Perhaps it's actually happening and in six months' time, house prices will have plummeted so far it'll be possible for first-time buyers to buy a house. I don't want to see City employees jumping out of skyscrapers, but if some of their million-pound bonuses are reduced, that might not be the end of the world. Most people live beyond their means, thanks to instant credit, and although that might mean plasma screens for all, it's a false economy. People have two cars, two houses, go on two holidays a year, and these aren't Lord Snooty-type hoorays, they're people you know. No wonder we all leave the lights on all the time. We've forgotten how to save money, how to economise, how to plan. (Being self-employed forces me to do my accounts for VAT every quarter and were it not for this, I might also have lost sight of my finances. I'm not exactly a whizz with figures.) The worst thing about all this economic downturn is that pensions become worthless, if they're not already, and savings become frozen, and it's ordinary people who get it in the neck.
Anyway, it hasn't happened yet. So I'm going out for a slap-up meal.
posted by Andrew Collins @ 5:30 PM
32 Comments
Contact
Andrew at
32 Comments:
I alluded to this once before on the ‘Rugby is for posh people’ thread (well that’s how I remember it). What really hacks me off when we get these regular ‘downturns’ is that we are seemingly at the mercy of a bunch of upper class twits, jumped barrow boys and people who are ‘big in the city’. People who meddle with our lives by trying to make a fortune for themselves primarily, from pissing about and shouting at each other on the stock exchange.
Yes I know public companies need to be able to raise money by offering stocks and share but I find the people who this responsibility is handed over to are, well… a bunch of shits. If a few of them toss themselves to premature deaths because they lose a fortune then I won’t lose any sleep. Tough Titty. I just hope the rest of us don’t suffer this time.
A reasoned and balanced post I think you’ll find!
The Mock-Turtle, speculative sobbing of the media - and I include radio, TV and newspapers equally - is driving me mad on this one. It can't seem to happen quickly enough for them.
I might have thought they were doing it purely to drive nails into Gordon Brown's political coffin, but he's been doing a good enough job of that himself since he got The Job. All that 'Prudence', and what's he going to have to show for it in the end? I almost feel sorry for him. Almost.
I don't understand economics either, but it seems as if the banks are suddenly panicking because they fell over themselves to lend an awful lot of money, at suitably high interest rates, to unsuitable people who couldn't really afford to pay it back* and now, amazingly, they're not paying it back.
But I may be wrong.
(*aka the sub prime market)
I don't know an awful lot about the business world, but it does seem that to get to the top in the City, you have to pretty much be an unscrupulous, cold-hearted machine.
With regards to newspapers almost willing a recession, I think it's just so they can say "we told you so" when it happens. It's something I've noticed more and more recently, especially in the sport pages. Player X signs for team Y, and the paper prints a snippet of their article from two weeks ago predicting such a move. However, said article two weeks ago was pure speculation, had not a hint of truth in it, and doesn't disguise the fact that 95% of stuff they says will happen won't. You don't get the same thing from the weather forecast do you?!
So, should we be worried? Well, Andrew, you're a broadcaster, I'm a student, I doubt it'll affect us that much, but there will be plenty of people it will affect. Heads will roll, prices will change, but if you believe the papers, yesterday was a complete emergency/disaster day, and I thought to myself, well, it was so disastrous that I knew absolutely nothing about it until this morning.
It's glorified gambling if you ask me - with somebody else's money.
Economics are quite possibly my worst subject, and I would place Greco-Roman wrestling and the musical heritage of Slovakia above it in the list. However, if this downturn in fortune at the top means that people at the bottom could finally get a mortgage on a place which is actually within their budgets, then let's welcome it.
Really Oldnathan, what is this, the Eighties? Next you'll be saying 'Yuppies out!'.
It's not the fault of those working in the City, it all stems from that US mortgage thing doesn't it?
We've been riding high for too long. What goes up must come down, if it seems too good to be true, then it probably is, etc.
Anyway, who'd want to work in the City. Being shocking with figures means I certainly couldn't do it. I'm glad there are those that can. I don't wish them any ill will. They suffer like everyone else.
Thankfully, I'm in magazines, which always do well in a recession, so I hope I can weather whatever storm approacheth. My mortgage is fixed at a low, manageable rate for five years and I've got no debts.
As for those who have...good luck to you.
Yes I am smug.
I met someone who works in the City once. He was nice enough. Certainly not cold-hearted. But I wouldn't have swapped places with him for the world: he set off from his house at some ungodly hour every morning in order to get into the City and be at his desk early enough to get a jump on whoever it was he had to get a jump on, and he seemed to be working his arse off doing a job that wasn't even worth trying to explain to a layman like me. That's why they are "something in the City" - because we wouldn't understand it if they told us what they actually did. It's an arcane world, seemingly without anything physical at the end of the day to show for it, and much money is earned there. We can't blame the people who do it - they're not all millionaires, as much as I would like to think they are. This bloke wasn't.
On a side note, Andrew Martin wrote a terribly smug piece about the coming recession in G2 today. He seemed to infer that it was a good thing as it would wipe the smile off the faces of home-owners. I now feel very wary of getting into an I'm-alright-jack frame of mind about it. Magazines do indeed flourish in recessions, but the huge companies that own them are not exactly charities, are they? And recessions hit huge companies and huge companies look for ways of making savings. And savings can mean human beings who work for them, even in magazines.
Not that there's going to be a recession.
I love the phrase 'slap up meal'. it makes me think of Eddie Hitler and his mixed grills.
Yes, I'm under no illusions, it could all quite easily come crashing down for me. I'm just hoping it won't.
Well, does anyone know what the starting salary for the average british graduate is? Not just anyone, but someone who has just completed three years of university?
Its £13,800.
And the average cost of a first time buyer house?
Its just over £250,000.
Houses are completely unaffordable for the vast majority of people in their twenties. A crash in the housing market is one of the few things that would really help.
I hate the way the housing market has gone. (Isn't the average price of a house in London now £300,000?) It seems to me to be a combination of greedy estate agents and building societies regularly lending money to people who simply cannot afford it. If it slows down and prices come down, it will take us all back to reality. (Regular viewers of Property Ladder, which will surely be taken off air soon, will know that, after a year spent doing up a house, Sarah Beeny will often say that if the couple had done nothing, the house would have risen by the same amount, "because of the market." Maybe not any more.
If anyone can get hold of the issue before last of the London Review of Books there's a fantastic article by the novelist John Lanchester called Cityphilia which analyses and explains the workings of the financial markets in reasonably straightforward terms.
One interesting point he makes is that new graduates joining major city firms generally start on basic salaries higher than those earned by the heads of department at the universities they've just left. This struck him (and me) as wrong.
I think it's important to make the distinction between those who work in the city and make the serious money (and potentially suffer the serious losses) and those of us who are affected by what happens to share prices through no fault of our own other than having to work within the existing financial system.
I have an ISA that may eventually turn into some form of pension (having made no other provision) and an interest only mortgage that means I pay back the whole lump sum from another ISA - which needs to grow at a certain rate to reach the right level over the next 15 years or so.
If share prices crash these ISAs lose significant value. Fortunately I have 15 years for the situation to remedy itself so I'm keeping the panic at bay.
Similarly a crash in house prices may help first time buyers (for whom I have nothing but sympathy - I would have had no chance if I'd been trying to get on the ladder now) but doesn't do a whole lot of good for those of us who had to buy when the market was at its height and therefore have large mortgages to repay.
The people who get off the train at cannon st with me in a morning don't seem like orges. I think we're all been complicit in the exessive growth in the economy in our small ways (I know, I know cue huge avalanche of financial sob stories). Life is hard for some people but cheap credit has been taken up alot of us, the sub prime is just the american version.
The rise in house prices won't change because too many people (even people who post here) are tied into the escalation of prices. Even nice liberal people enjoy the unearned growth in their home value and although they may not admit it would be pissed off if it went down. Remember if you think houses are too expensive you can always sell it for less! The Bins getting emptied and house prices are the only things that most people would march on parliament about and the government knows this and so the house market will be protected at all cost.
House prices won't collapse and this is why.
I am the owner of a Buy-to-Let property (a one-off that I regret bitterly) and this 'investment' has decreased in value by c£5-10k. I rent it out and have to sub the shortfall by £100/month. I am severely pissed off by it, believe me.
AND YET... if property prices were to 'collapse' (when they say that they mean 20-25%), I - even as a PISSED OFF buy-to-letter - would buy another property and rent that out cos the 'yield' would more than make up for the loss I have suffered on my current flat, especially with interest rates being on the way down.
Now, there are many many rich, professional buy-to-letters poised ready to snap up these flats, should the 'collapse' happen. And high demand = rising prices, as we know. So those 'waiting' 1st time buyers should go for it now, not wait for a 'collapse', that won't likely happen anyway, and if it does it'll be short term and frantic.
Interesting perspective, John, but I still can't see why you think first time buyers should buy now, and not when the prices come down?
I'm a first time buyer whose completion date is in two weeks... it's been an economical nightmare and for me and mine to move into a modest one bed flat, the damage is £230,000, not taking into account solicitors fees, valuation costs etc...
And now I learn that in 6 months I could probably buy the same space for 75% of the current cost... it's slightly annoying.
Sorry Five-Centres I was forgetting that people who were purely motivated by personal gain was an 80s fashion thing. They all cleared off when the Tories got chucked out didn’t they?
Thank Christ our money markets are now run by philanthropists and do-gooders for the good of the nation eh?
I think John's post highlights again the problem with houseprices in that people on the ladder just want unearned easy money. Why is it pain that you have to invest in your own property? Why is this unearned income largely untaxed? Until we All decided to grow up and address complicated problems with complicated (and hard) solutions it will roll on and on. We need a comprehensive housing policy in Britain that's about quality homes for everyone not just those that own their own. Sadly this would mean "buy to let" "investors" would get angry at loosing a few quid they didn't earn and so Labour, the tories and even the liberals wouldn't touch it with sh*tty estate agents sign.
BLTP. No Government - whatever persuasion - will intervene in the social housing policy you are hoping for; it's all about 'market' and that's why the Labour Govt policy is to build more homes. They won't bar buy-to-letters.
AC. The reason a 1st time buyer should buy now is that it's a buyer's market and they could snare a bargain without facing competition and gazumping etc. Shop around and you can make an offer 10% less than asking price and get lucky. Furthermore, interest rates are coming down so if you can afford now you'll be at the top of your interest rates for 2-3 years and it'll get steadily easier.
Swineshead. Your home won't be 75% of price in 6 months time, for reasons I have stated, but if it is it won't be for long. Anyway, the sooner you are on the ladder the better.
Andrew's original point is valid - the papers LOVE the idea of a crash. I think it's cos these journos are bitter, poorly paid and jealous. And they live in London where prices are really daft. There is no news to be had in a moderate slowdown where 10% of value is knocked off by vendors accepting offers on the asking price. That's too dull.
The LRB article mentioned above by Steve Lake is still available on their website.
http://www.lrb.co.uk/v30/n01/lanc01_.html
Growing up in South East Essex many of my peers have gone on work 'in the City'. Those that have been successful have generally spent most of their 20s working stupidly long hours but getting extremely well paid for it. What they do/did (some have effectively retired) and what its contribution to the greater good is, I couldn't say.
My cousin graduated a couple of years ago, and her starting salary as a city somethingorother was one and a half times that of her mother, a classics professor.
Everyone I have met who is something in the city has been personally unpleasant in some way. My most memorable exchange with a city trader:
CT: So, what do you do?
Me: I work for a charity
CT: Great job market at the moment, charities. Lotta money to be out of them. Take 'em for all you can, mate...
Of course these people won't get it in the neck too much come any recession, just a few less spectacular lunches and a smaller car.
Jon
Should we be worried? Yes, probably, because it's all about confidence.
There may be a recession for 'real' reasons, i.e., economic activity slows down because the money supply (what we all borrow/spend/invest) dries up, because we are all poorer due to a real cost in the non-avoidable living expenses (mortgage/rent/energy/food etc). Or, we could have a shorter depressed economic period where everybody is more cautious, perhaps over-cautious, but in any case battens down the hatches.
The rub is that corporate and consumer behaviour (the latter case), can provoke the real recessionary activity of case one, where the economy "collapses" (copyright 1965-2008 Daily Mail/Express).
What I can tell you for sure, as I am looking for a new job at the moment, is that the current lack of confidence which may or may not precede a genuine recession is turning off the jobs market like a tap. Except for Sales jobs, because everybody wants sales. Companies are in a difficult final quarter anyway, and no-one wants to take a risk with investment be it in kit or with people.
Purely as an illustration, I will tell you that I had an interview booked which was cancelled yesterday with 30 minutes to go - the HR manager came out and saw 3 of us, and basically apologised but said, 'of course, you'll understand, you know how it is "now"'. I dare say that this pattern will be repeated elsewhere.
So I would say that financial short termism and over-dramatic media panic are informing irrational decisions, because without the people on board, the work won't get done and (insert own example company here) will struggle to fulfil it's plans anyway (although it will bear down on the existing staff in the meantime - good luck).
It would be great if the government and the city between them would provide some kind of rational, factual confidence inducing leadership, instead of flogging this helpless, wet, wringing of hands 'it's not me guv, it's the "others"/"the market"/"the americans"/"etc"' dead horse that they're trotting out.
Really - they behave like Catweazle witnessing television and electric light for the first time, referring to arcane financial measures with a mixture of wonder and fear.
I could go on, but I won't. All I've left to say is to those of you in work, make sure you keep it that way, and for the tempted, don't be smug, because (a) it's never attractive and (b) pride comes before a fall.
I was laughing on the other side of my face this time last year, but I'm not now.
I read this morning some commentator saying that a recession will do Gordon Brown good, as voters will be more likely to vote for a prudent ex-chancellor when money is tight than a hooray from Eton, come the general election.
As long as it keeps ID cards at bay, I'll put up with any recession.
Yes, but you would think then, that as an ex-'star'-chancellor-turned-PM he would come up with something much better in terms of financial/politico leadership. But no.
Also, he is, and was not, prudent. In the last three years, the PSBR has gone through the roof; and so far the money spent on Northern Rock (according to the Telegraph) would pay for...
The entire NHS for more than seven and a half months, or,
Britain's Armed Forces for 18 months, or,
A cut in VAT from 17.5 to 6.5 per cent for a year, or,
The removal of fuel duty for two years, or,
The suspension of corporation tax for a year, or,
50 new state-of-the-art hospitals, each with 1,200 beds, or,
208 new academy schools.
One day the Treasury (e.g. all of us) might get some or all of it back, but there are no guarantees.
Prudent? No. A guy that whinged and whined for 10 years to get his hands on his next door neighbour's toys maybe.
The competence of the man as PM and formerly Chancellor can be seen on a daily basis; he even makes Cameron look semi-plausible, perhaps his one unique achievement.
I'm not a fan of either of them.
Eek, Office Pest, I seem to have inadvertently come across as a Gordon Brown fan! I was merely referring to popular perception of the man within the electorate (and thus fanned by the media). You're right, of course.
All of this media talk of a recession is just playing into my hands - "It's all the media's fault" will probably be engraved on my headstone. From the rise of glue sniffing 13 year olds through alcopop ladettes to .. you name it. What starts off as a localised blip becomes a national epidemic/travesty within 3 banner headlines and a hard piece to camera. What happened to ignore it it will probably go away soon? It worked with my acne all those years ago.
NB Andrew - I'm glad to see you are taking your fiscal responsibilities seriously but don't forget your Self Assessment tax return must be submitted by 31 January to avoid a fine.
Sorry AC, did not mean to jump down your throat; having bad day, week, month, year so far.
And these jokers wind me up.
Still, 'things can only get bitter' hm.
Just like everybody else, I don't know what the cost to the economy might have been if the government had acted differently over Northern Rock. But I do know that most of its critics would have whinged even if it had done whatever they are now saying it should have done.
A belated best of luck to Office Pest. I was a victim of "globalisation" (i.e. the exploitation of cheap foreign labour) three years ago but am on the brink of starting full-time back with the same company. (The fact that I've barely worked in the interim is largely my own fault.) I don't think many people think they've got a job for life these days, but I'd certainly advise anyone not to believe they've got a job for more than a couple of months. It's not good for your health, and perversely it's not good for the economy, but it's good for your bank balance.
On a related note if any London types would like to invest in a nice 3 bedroomed detached house with a garage and a reasonable garden (in Hull), it's yours for £140k. No chain, quick sale preferred.
JohnB, thanks for the reminder (are you Adam Hart-Davis posting under a pseudonym?), but my tax returns were done last year, and all I have to do is remember to send off the cheque. (Ah, Jan 31 - such a nice way to begin the year when you've overspent over Christmas and the 2008 work has not yet really started to come in.)
AC: On the subject of nasty jan bills. I always look forward with joy to train fares going up the first day back at work, when you're brassic from Dec.
ID cards.... *shudder*
*renews passport*
Post a Comment
<< Home