Monday, 19 January 2009

Is more credit really the answer?

Robert Peston writes on the BBC website, talking about the latest plans to encourage banks to start lending again:
"The paradox is that the Government wants to make more credit available to reduce the severity of a recession that was caused by a decade-long, crazy lending binge."
How right he is.

My first job before starting university was as a summer temp with one of the big high-street banks. One part of that job was helping with the credit scoring system that decided whether or not a customer was allowed to have a loan.

And the lending department were jolly strict about it. If there was the slightest chance the loan might not be repaid - it wasn't given.

So what went wrong?

One question is, why was money lent to people who couldn't pay it back?

But personally, I don't think that the banks are 100% to blame.

Why did people borrow money if they couldn't pay it back? Is it not irresponsible to borrow if you can't repay?

This morning on Richard Murphy's blog, I found an article in which he quotes John Sentamu, the Archbishop of York, who points out that one factor which caused the credit crunch was - greed.

Credit was so easily available, people were wheedled into borrowing what they couldn't repay, because they wanted more than they could afford.

So I don't think more credit is the answer.

I think that people should be taught not to borrow what they can't repay.

And the banks shouldn't encourage them to do so.

There's fault on both sides.


No comments:

Post a Comment

Please post your comments here. This blog is fully moderated. Any spam or malicious comments will not be published.