The destruction of people's lives - the end result of decades of greed.
10/10/2008

For those who haven’t yet grasped the scale of what’s to come Jeff Randall spells it out. The “scale” of the problem is here. Fill in the details for yourself. What he means by the phrase " that is about to be inflicted on people who least deserve it" is that prudent people who have not overborrowed nor lived extravagantly will suffer along with the reckless. Christina aka Cassandra. =========================== TELEGRAPH 10.10.08 Debris from the City and Wall Street will destroy innocent lives It is hard to comprehend the scale of pain that is about to be inflicted on people who least deserve it, says Jeff Randall, but at its heart will be unemployment It was the age of credulity. For a decade or more, Britain and America put their faith in a westernised version of a Melanesian cargo cult. It was as though millions of consumers expected to accumulate the riches of dreams through little more than positive thinking and negative saving. With the aid of "sophisticated" finance – ie, unbridled borrowing – simple folk were able to mimic the lifestyles of higher orders in the hope of becoming like them. Those who proselytised for this hocus-pocus have much explaining to do. They told us that the economic seasons had been banished in favour of an eternal summer of prosperity. In mistaking a mountain of debt for a mine of gold, they encouraged a reckless chase of unaffordable gratification. After the attacks on New York in 2001, the then US Treasury Secretary, Paul O'Neill, advised the Senate: "Each and every American should know that by continuing to work and spend, they are doing their part to restore our nation and our economy." At a stroke, parsimony became a tool of sedition. In Britain and America, leaders boasted of fundamental stability and sound money. The jiggery-pokery of financial engineers, we were assured, was good for us. In 2003, Alan Greenspan, then chairman of the US Federal Reserve, told a government committee: "What we have found over the years... is that [financial] derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn't be taking it to those who are willing to and capable of doing so." Greater regulation, he said, "would be a mistake". For millions of unknowing punters, fear was removed from the equation. Bling went the strings of household purses. Mortgages, it seemed, contained the magic to deliver not just homes but the cargo of high rollers. With no deposits, no questions, 125 per cent of collateral, five times income, make that six, why miss out? Shopping like the stars became a leisure activity. Contrary to Mr Greenspan's assertions, however, risk had not been transferred. It had been souped up. Sub-prime wizardry had increased the system's gearing. Borrowers and lenders were propelled towards a crash. That happened a year ago when credit was crunched, along with the rest of us. Amid all the banking gobbledygook about collateralised debt obligations, tier-one capital ratios and structured investment vehicles, it's hard to comprehend the scale of pain that is about to be inflicted on people who least deserve it. Debris from the implosion of parallel universes in the City and Wall Street is about to destroy innocent lives. For millions who have been toiling on the "hedonic treadmill" – a need for ever higher income merely to sustain wellbeing at a constant level – there will be the challenge of coming to terms with a sharp decline in living standards. But how sharp? And for how long? And for how many? Such is the extent of upheaval that some respected forecasters have simply given up making predictions. Mike Gerrard of Grant Thorton, a leading accountancy firm, says: "Faced with the current crisis, it is impossible to predict the level of personal bankruptcies and home repossessions next year." At the heart of the darkness will be unemployment. It is inconceivable that we can plough through this mess without widespread job losses. Gordon Brown enjoys boasting about record numbers in work, always omitting to mention that an unprecedented rush of immigration has swollen the population. Britain's capacity to cope is about to be severely tested. The jobless numbers jumped by 81,000 to 1.72 million between May and July. Trade unions and industry leaders agree that the figure will be at least two million by next year. Unemployment tends to be a "lag" indicator, ie, employers hang on to workers long after conditions have begun to deteriorate. But with seams splitting, many companies are about to let rip on redundancies. For so long the piggy bank of homeowners who enjoyed spending more than they were earning, housing wealth is being smashed. House prices in Britain dropped by 1.3 per cent last month, with more than £25,000 wiped off the average home over the past year. Eating the house is no longer on the menu. With many sellers still in denial, and refusing to slash prices, the market has all but ground to a halt. Over the summer, traditionally a quiet period, estate agents on average were conducting fewer than five transactions a month. Offices are being closed and staff laid off. For some, it will force an uncomfortable conversion from lies and Hips to pies and chips. In America, 16 per cent of homes are "under water", leaving about 12 million households owing more than the value of their properties. It's not yet that bad in Britain, but history tells us that as negative equity rises, so do the rates of mortgage arrears, defaults and repossessions. As bricks and mortar are dumped on the market, house prices fall further, prompting another round of what bankers call "de-leveraging", a panicky reaction by distressed borrowers to cut debt: it's a circle of despair. British mortgages that have been in arrears for three to six months jumped from a low of 55,800 in the second half of 2003 to 87,700 in the first half of this year. In the same period, repossessions in England and Wales rose from 4,000 a quarter to more than 15,000 – and the graph is still pointing upwards. In 1992, at the bottom of the last housing slump, there were 75,000 repossessions. Next year could be as bad as that, possibly worse, as lenders scramble to secure some of the cash they should never have lent. Bankruptcies have been running at more than 100,000 for the past two years and are not expected to fall below that in 2009. Another pointer to a collapse in solvency is the charging order. It is a legal process, allowing creditors of unsecured loans that are in default to tie that debt to an asset owned by the defaulter. In many cases this will be a residential property. These jumped from 9,689 in 2000 to 97,026 last year. With the FTSE-100 index down to 4,310, below where it was when Labour came to power 11 years ago, many pensions and savings schemes are in tatters. Thousands of house owners with endowment policies due to pay out next year will discover that the sum they receive will fall short of the amount owed. If all this seems gloomy, that's because it is. Spectacularly so. Trust in paper assets has been dissipated to the point that the cost of insuring a default on US Treasury bonds, ie, Uncle Sam going bust, has risen fourfold since the start of 2008. The unthinkable is being thought. Goodbye credulity, hello austerity.

 
 
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'Behold, I am coming quickly (suddenly), and My reward is with me to render to every man according to what he has done.'
Revelation 22:12

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