And so because of a few greedy financial fat cats who lent money to people who had, at best, a slim hope of making their payments, we’re heading for a global recession where thousands of people will be put out of work and lose their homes. Thousands more around the world will die of poverty and hunger as the developed world pulls in its horns to look after No. 1.
In a way I feel reluctant to blame the Gordon Gecko types who triggered this mess. They were playing in a game with certain rules. They played hard, following the rules, in an effort to maximise returns for investors (and themselves). And look where we are - the bursting of an outsized bubble of interlocking debt. Clearly, the rules were not right and with the latest round of billions of dollars being injected into the system, governments around the world have given a clear indication that they have lost faith in the market (and the system). We have witnessed the end of unbridled capitalism. If you don’t believe me, look at the heart of capitalism - the US - where Fannie and Freddie and AIG, both massive, massive financial institutions are now owned by the taxpayer, making them effectively nationalised companies like in a good ol’ communist state such as Cuba.
But my feeling is that there is something more fundamental going on here. The world is now run on credit and debt (the lack of credit - as banks stop lending to each other for fear the debter will go bust - is the main contributing factor to the global recession). It has become natural for people to be in significant debt. There has been a huge growth in consumer credit, which has amplified the economic cycle and prolonged the recent upswing. In the US, consumer indebtedness is a massive 139% of disposable income, while in the UK it is even higher at 173%. The biggest debt we have is a mortgage and I guess, in a way, paying off a mortgage gives the individual a purpose in life. It is the cornerstone of liberal, capitalist, democratic system.
And yet the next generation, currently 13-28 year old Generation Y-ers aka KIPPERS (Kids in Parents Pockets Eroding Retirement Savings), have no interest whatsoever in saving, let alone make a pact with the devil and take on a mortgage. The current average credit card debt amongst Gen Y is $5,000 and rising. If they’re short, Mum and Dad fix them up and bail them out. But what happens when Mum and Dad don’t have a job any more, and see their Super halve overnight. I foresee great pain for Gen Y-ers, as they are forced to face reality and see that endless prosperity is not guaranteed.
As a result, Gen Y-ers, and consumers in general, will become far more financially aware and will demand simplification of financial products and services. Those banks that respond to this emerging need will be well placed to return to growth after the economy rebounds and enters the next upward cycle.
In a way I feel reluctant to blame the Gordon Gecko types who triggered this mess. They were playing in a game with certain rules. They played hard, following the rules, in an effort to maximise returns for investors (and themselves). And look where we are - the bursting of an outsized bubble of interlocking debt. Clearly, the rules were not right and with the latest round of billions of dollars being injected into the system, governments around the world have given a clear indication that they have lost faith in the market (and the system). We have witnessed the end of unbridled capitalism. If you don’t believe me, look at the heart of capitalism - the US - where Fannie and Freddie and AIG, both massive, massive financial institutions are now owned by the taxpayer, making them effectively nationalised companies like in a good ol’ communist state such as Cuba.
But my feeling is that there is something more fundamental going on here. The world is now run on credit and debt (the lack of credit - as banks stop lending to each other for fear the debter will go bust - is the main contributing factor to the global recession). It has become natural for people to be in significant debt. There has been a huge growth in consumer credit, which has amplified the economic cycle and prolonged the recent upswing. In the US, consumer indebtedness is a massive 139% of disposable income, while in the UK it is even higher at 173%. The biggest debt we have is a mortgage and I guess, in a way, paying off a mortgage gives the individual a purpose in life. It is the cornerstone of liberal, capitalist, democratic system.
And yet the next generation, currently 13-28 year old Generation Y-ers aka KIPPERS (Kids in Parents Pockets Eroding Retirement Savings), have no interest whatsoever in saving, let alone make a pact with the devil and take on a mortgage. The current average credit card debt amongst Gen Y is $5,000 and rising. If they’re short, Mum and Dad fix them up and bail them out. But what happens when Mum and Dad don’t have a job any more, and see their Super halve overnight. I foresee great pain for Gen Y-ers, as they are forced to face reality and see that endless prosperity is not guaranteed.
As a result, Gen Y-ers, and consumers in general, will become far more financially aware and will demand simplification of financial products and services. Those banks that respond to this emerging need will be well placed to return to growth after the economy rebounds and enters the next upward cycle.
Posts
