Monday, December 29, 2008

Credit Crunch: Hype? Apocalypse? Opportunity?

Confused ramblings on a year ending in recession.

The media constantly tell us about the credit crunch and it's effects. But when I stop and think about it how has it effected my family this year? The big one is house prices - though there is some evidence that ours may have retained its price. Either way, we're not planning on moving house for several years. Demand for housing remains in a nation that continues to grow and where families continue to break down. The "need" has not gone away and so there's every reason to think prices will rise again. For now, confidence is lacking.

Our mortgage is on a fixed rate which means we've not benefitted from the change in interest rates - but many people will have. Food is cheaper than it was six months ago, as is petrol. VAT is also a bit lower though 2.5% is only worth a few pence here and there. In addition to which suddenly we're all thinking more carefully about our spending, and so probably spending less - which is bad for the economy but good for your bank account. We have more money but less confidence.

Clearly some people have lost their jobs but businesses do fail and the fall of Woolworths and Zavvi is hardly a shock to the system. Sentimental as the testimonies about Woolworths were on the BBC last month we all stopped shopping there a long time ago and started buying from the ever-widening range at the Supermarket, and the CD/DVD Shop model looks deeply outdated in the age of Amazon and downloads. I don't want to trivialise that and unemployment is devastating whatever the cause. If we needed to sell our house tomorrow we'd have a problem but most people probably weren't planning to do that anyway - and if we did sell for less we'd also buy for less. For the sensible with some savings there hasn't been a better time to be a first-time buyer in a while... yet who has the confidence to do it?

I'm thankful for the biblical and common sense approaches to money I was raised with, though I make no claims to have always lived prudently. I'm thankful for the two years of earning nothing post-Uni and seeing God's provision which remind me that my salary comes the same way. I'm thankful for having only taken a fraction of the mortgage we were offered 18 months ago. I worked in a high street bank a while back, an industry that has breathed on the basis of crazy credit and is now suffocating. God could take my current job away - either by Christians stopping being generous or just because he has the right to decide! You'd expect that my wife's job as a teacher is fairly secure but no grounds for complacency.

Something has gone badly wrong as we've turned to worship money, the bottom has fallen out of that market - but the problem of enslavement to idols is that when one fails we merely generate another... exposure of folly, failure of what we once thought was unstoppable is rarely enough to prompt a change of heart. Short-lived doubtless, for investments go up as well as down...

In the mean time I hope the last six months is a reminder to me that what we have comes from God and is not to be presumed upon nor handled recklessly... Bishops can cry: “It is unfair and irresponsible of the Government to put pressure on the public to spend in order to revive the economy" but where was that prophetic voice ten years ago? Where was The Money Course? Could it be that we rode the wave too and silently enjoyed the prosperity... Hopefully, better late than never, the church can be a prophetic voice to welcome and help the financially afflicted. If the church will not be a community where people sacrificially meet one anothers needs then the world is truly without hope.

Looking into 2009, the single biggest factor for our household is the impending arrival of maternity pay and the extra mouth (and associated costs) of a baby - but the credit crunch didn't really play any part in that change in circumstances. If I'd not read a paper, news website or watched 24 rolling news in the last six months I'm not sure I'd either think we were in recession or that it's that great a disaster. Maybe the thing that's actually happened is a slight shake in our confidence in self and money. Could the Credit Crunch amount to an exposure of human idolatry, that needs to now be met with a flood of grace.

14 comments:

  1. You ask who has the confidence to be a first time buyer... well I just bought a flat! Anyone want to suggest whther fixed rate or tracker would be better for the mortgage?!

    Interesting thouhgt about whether we would actaully be that aware of a recession without the continual reminders on the news.

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  2. I think we all know quite a few people with jobs at risk or lost as a result of what's going on. Most of the pinch will be felt later on though, as a later generation will have to pay for all our borrowing.

    It is overplayed though, and with governments considering reverting to printing more money, now may not be the worst time to sink some money into property.

    Not that I have any money though, although I'm also not in debt.

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  3. Joblosses are a problem - and probably made worse by all the talk of recession... businesses fail every year... And Woolworths was going to go out of business sooner or later.

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  4. It depends on your income. If you have space in your income to flex higher, when interest rates rise, then a tracker would allow you to reap the benefits of a lower rate. If you don't have the safety in your income, then get a fixed rate. For some quite good advice look here: http://www.moneysavingexpert.com/mortgages/

    Sociologists have been studying the effect of media coverage on human behaviour for decades. Good examples are the Mods and Rockers coverage in the 60s and 70s. Everyone was sure that there was a big fight going on. The truth was that there was a bit of a scrap but it was hyped up a lot. The conclusion in the light of this, is that the media is incredibly powerful at moulding what we think. Having said that - in the case of the recession there are many factors, not just consumer confidence, or things that are influenced by the media. For example, how willing banks are to lend to other banks and companies, or the more mathematical indicators that tell us if a company is profitable, which determine more directly our investment in it, than the telly.

    And I think it's worth saying that while there are bits of truth, in the various bishop's remarks about the situation, they don't actually seem to know what they are talking about. They were involved in the same short-share dealing that they first released statements condemning. And the recession isn't just caused by moral failure. It's part of the cyclic nature of the free markets. That's just the reality of it. Brown was wrong, he hasn't solved boom and bust. It's a natural efficiency function of the system.

    I'm getting a little concerned with all these naive and uninformed sermons and opinions from the church, where suddenly the vicar/speaker/bishop is an expert on economics. This is an incredibly complex situation and the causes are multiple and while they include short-share dealing and moral failure it would still be happening anyway. So to start pointing the fingers at various things in a definite way is very unwise.

    We shouldn't be opportunistic at the expense of actually finding out what is going on. Nobody believes that the system (capitalism) is breaking down, we still believe in it.

    Listen, the real problem is modernism, the recession is a big distraction for the church. Let's work out better arguments and ways of interacting and engaging with modernism.

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  5. "I'm getting a little concerned with all these naive and uninformed sermons and opinions from the church"

    Which probably includes us bloggers...

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  6. I've read quite a lot of stuff, that even my pretty basic grasp of economics can tell is bit over the top.

    A lot of what the Bishops say is over simplistic. For example in a press release from a very well known Christian organisation they said this, "The Archbishop of Canterbury criticised the greed and lack of regulation that have led to the current global financial crisis, and the Archbishop of York asked why action for the poorest is deemed too expensive when hundreds of billions of dollars have been found to bail out the banks...Rather than supporting the institutionalisation of greed with vast public expenditure why can’t we resist the urge for always wanting more and live within our means?"

    This is a mistake for two reasons. 1. It is over ambitious to claim that its about greed and lack of regulation. Claiming that you know that this is the cause is a hasty generalisation. This means that it's harder to believe other things that you say.
    2. Not giving a fiscal stimulus package (bailing out the banks) would lead to more poverty, hardship and suffering. It would also mean that international charitable giving would drop significantly.
    3. If you let the banks go down the tube, you end up paying more (as a state) to sort out the mess. It's a hard economic fact that it's cheaper to keep the bank doors open than it is to sort out the mess if you don't.

    If you want to actually find out what is happening I suggest you try and read/listen to Lord Brian Griffiths.

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  7. "His perspective on the causes of this crisis are a combination three things: excessive public borrowing with the ratio of debt to household income now standing at about 150%; Banks turning into lending shops, the lack of relationship between lender and borrower, and failures to check people’s ability to pay; and, thirdly, the failures of world governments to regulate what is going on in investment banks."

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  8. Tom - I'm with you entirely and I agree with your observations. Not bailing out the banks would have been a disaster - in the same way that people need to keep spending money (which as I blogged, most of us still have) - though some future adjustment in banking practices would be wise I reckon. The bank I worked for really had become a lending shop with aggressive sales targets.

    Inevitable that the solution wasn't going to come through in soundbite media and you're right that people too easily speak above what they're qualified to which is corrosive pride. Best Christian speaker I've seen in this (though not on the topic) was Carl Trueman who declined to comment on a controversial topic because he'd not studied it. Take humility for us to shut up and let those who do know speak.

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  9. Tom, Dave - I think you're missing some key things here. It's not simply the bishops who are saying that greed is a huge element to this, its commentators like BBCs Robert Peston. We should always take note when the pagans see sin so clearly.
    Secondly businesses do go out of business all the time, but this time they're directly linked to other peoples failures - in this case banks. When big businesses go it makes the headlines but when small businesses go - people can lose literally everything. Expect divorces to be at a record high this coming new year.
    The aid point made by the Archbishop of York may be simplistic but that doesn't make it wrong. The fact is that in order to protect our standard of living we were willing to get into debt to the tune of £400 billion and rising, more than 100 times what we spend on the poor and that's just the UK. What does that say about us?
    Lastly Tom is right that boom and bust is inherent in the system but surely as Christians we are right to point out that borrowing what you don't have to buy what you don't need is not right, that making the foundation of our economy debt and consumerism is foolish. And Tom people do believe that the form of capitalism we have had is not just breaking down but broken, and a new form of capitalism could emerge - see RObert Peston's article on the new capitalism (http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/12/the_new_capitalism.html)

    So while this crisis may not yet have affected a charity worker who owns a home and has two incomes, people who have more debt than income and who then lose that income are going to see things differently.

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  10. Phil - I agree greed is a big part of it particularly the way greed has become a virtue in the last wait...A high st bank's poisonous "don't wait have it now" slogan was surely inconceivable decades ago.

    I don't doubt that some of Woolworth's collapse is due to other peoples greed but a lot of it is down to all the consumers who long since stopped shopping there... just as dead churches should die so should dead businesses, surely?

    I'm well aware this could knock on my door sometime.

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  11. I agree Woolies was doomed sooner or later, but the timing - busiest time of the year was shocking. As a retailer, businesses going under in December means January and February will be incredibly hard. Most shops go from loss to profit only in December.

    So I'm not arguing to keep bad businesses open for the sake of it, but in many cases this time we'll find good businesses go under because banks will no longer offer them credit unless guaranteed by the taxpayer.

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  12. It's undoubtedly a mess on a national scale... I suppose my reflection is:
    1. This is what happens, things do go up and down. So recovery will happen in the end but...
    2. Shocking how arrogant and greedy and ignorant we were as things continued to get better year on year for a decade...
    3. The scale of that might make this one harder to get out of - but it was a pretty big crash last time too (though I was pretty young in the late80s/early90s so I don't really know)
    4. I wonder if we'll learn anything from this, or whether 3-4 years from now we'll all be back where we were enjoying growth again, as in love with money as ever before...

    Oddly todays figures again say houseprices have gone up where we live despite the fall nationally... Up 6% in the last year, as opposed to the 15% fall nationwide...

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  13. I agree with your reflections but my biggest question would be about the 1st one. How we will recover? Most likely by doing again what got us into the mess, unless we learn some lessons.

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  14. I'm no economist but I don't know if there is much way out of the cycle - there will always be rich and poor - money in my pocket is not in someone elses...

    I guess it's what we do with the inequality - and whether we'll practice community and generosity with it, as the first century church did to meet the needs of those who had lack (2 Cor 8 etc).... or whether we just let the rich get richer and the poor get poorer (or the poor get more in debt...)

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