Northern Rock were lending recklessly but in doing so encouraging borrowers to borrow recklessly. On the day the crap hit the fan with them I recall vividly people phoning into a radio station I was listening to on a long drive, stating how they had been attracted by NR adverts for 100% mortgages but once sat in front of the branch "advisor" had been tempted by stories of how their proposed property would increase by 7 or 8% per annum and so borrowing 110% was not reckless but financially advisable, after all in two years time you'd have equity in the house !

Some callers spoke openly of adding ten grand to what they really needed to pay for furniture, carpets etc, one caller went out and bought a new car on the excess mortgage cash - they were only just starting to realise that they had bought a carpet and a sideboard on 25 years finance, and they'd sold the car last year but would be paying for it for the next 22 years.

You cannot blame individuals for such poor financial decisions as the majority of adults don't even run a household budget let alone deal in financial markets or even stop to think when signing up to a mortgage - you can however blame the lenders who are the self proclaimed experts (or so they thought) for actively luring in people into the honey pot trap of free money.

The reason that we have controls on financial organisations is to save ourselves from their greed because without it they'd sign up all sorts of gullible people without a second thought for their welfare just so long as the "advisor" (who is nothing of the sort) gets his/her bonus this month.

No one was so gullible as to think they were getting the money for free. They just think they "deserved" a flashier lifestyle. To suggest they needed protecting from themselves (except for some disabled people) is frankly socialist nonsense.

NR had become (in my opinion) an unethical selling machine long before they crashed. I moved a mortgage away from them (at cost to myself) because that was my opinion and they disgusted me. I find it hard to believe others hadn't formed such a view.

Back to the question of austerity, Aaronovitch I today's Times makes a good argument that the only people who can't see that Europe's anti-austerity movement has failed to gain popular support are the British Labour party who seem intent on self-destruction.

Some years ago a small rural town in Spain twinned with a similar town in Greece.

The mayor of the Greek town visited the Spanish town. When he saw the palatial mansion belonging
to the Spanish mayor, he wondered aloud how on earth he could afford such a house.

The Spaniard replied: ‘You see that bridge over there? The EU gave us a grant to construct a two-lane bridge, but by building a single lane bridge with traffic lights at either end, I could build this place.’

The following year the Spaniard visited the Greek town. He was simply amazed at the Greek mayor's house: gold taps, marble floors, diamond doorknobs, it was marvellous.

When he asked how he’d raised the money to build this incredible house, the Greek mayor said: ‘You see that bridge over there?’

The Spaniard replied: ‘What bridge.’

No-one suggested that they were getting it for free, but by over selling their mortgage products in an orgy of greed they failed to provide any sort of test for applicants being only interested in lending larger amounts than needed secured against assets that they seemed convinced would never devalue, that was their failing, not the borrowers failing, if someone promises you that you can afford to borrow more than you thought you'd ever be approved for then many will go for it and trying to pretend that the whole of the UK population are chartered accountants and will apply their own stress tests is frankly ridiculous, they won't and they didn't and were led by the nose by the greed of the sales staff.

NR were not always like that, I took out my first mortgage with them in 1982 when I lived in Newcastle and they left me with the impression that they were doing me a huge favour in lending me £9400 to buy a one bedroom flat, I virtually had to crawl on hands and knees and beg for the mortgage even though I was in a decent salaried job, I left the office after filling in forms for nearly an hour so that they even knew which day of the week I changed my underpants, the Gestapo would have probably required fewer details than NR did - that all changed when the bankers and their pals in government decided to trust them enough to release the reins and almost let them self govern, NR became a bank and the selling vultures took up roost.

I recently had a few valuations on my property with a view to selling. What one of the valuers told me was interesting. He said that a lot of the banks, if investigated properly, would be guilty of mortgage fraud. Forget people knowingly getting themselves into massive debt, the banks were actively encouraging it with reduced deposits and the promise of big returns in short timescales. When banks were sending surveyors out to give places a risk assessment and make sure that the value of the loan and the value of the property added up, in most cases they would just tick a box on a sheet without even going inside the property. Banks were more than happy to give 100% mortgages on property values that were totally unrealistic and with no risk assessments carried out.

It was the year before the crash precipitated by Lehman Brothers Collapse, but what we know as the credit crunch started on the 9th August 2007 according to Google. Northern Rock went bust on the 14th September 2007, so a few weeks after the chickens had come home to roost.

NR made a commercial decision on risky lending. It failed. What was reprehensible, as I said at the time, was Gordon Brown rescuing NR. He should have protected their depositors, sold their loan book and had it wound up asap. That would have sent a strong message out. Instead for political reasons (employment in the NE, I assume) he chose to prop it. It should have been seen to have failed and its name immediately expunged.

At the time that it happened there were probably several other banking CEO's on the phone to him on the hour saying "I think we need to talk Gordon", Northern Rock didn't happen in isolation, they were just the ones to go out in the first round of musical chairs.

Anti-austerity was always a hopeless doctrine.

The idea you can spend your way out of major debt it, quite frankly, ridiculous.

It's a bit like defaulting on a loan and then asking your bank to give you another £5,000.

The last two houses I bought pre-2007 (in fact one of them April 2007) had the usual building society survey paid for by me and done by what I presume was someone qualified by the BS to do so, when I asked the vendors if they'd spoken to the surveyor on both occasions they never saw a surveyor let alone invite them in, the building society "survey" was obviously just a kerbside cursory glance to make sure there was a property at that address, or possibly not even that.

Totally agree reference 'surveys'. It is simply something done to confirm to the bank that the property is worth roughly what is being paid. There is no real benefit to the buyer, who normally pays the survey fee.

The survey on my flat told me it was about 350 years old and in a converted hall in a rural setting. Which I could pretty much tell from the moment I looked at a photo of the place.

It isn't ridiculous. To reduce your debt you need a growing economy. To reduce spending when the economy isn't growing or is in poor health is economic illiteracy.

To start with, there are 2 issues here - the economic crash and government debt/deficit levels.

In order to reduce the latter you first have to fix the former.

In order to fix the former (a financial crash) you need to increase public spending in order to make up some of the drop off in consumer spending. Otherwise the economy shrinks, and if you decrease public spending you are actively taking money out of the economy.

That's why the Bank of England was desperately printing money to put INTO the economy.

Then, when the economy is relatively stable and growing you can deal with any debt/deficit issue. Through a combination of progressive tax rises and carefully planned public spending cuts over a long time period.

To cut public spending and increase a consumption tax during the recovery from a financial crash that severely affected consumer spending is economic battery.


It's the equivalent of being made redundant and looking for a job but saying you'll cut your costs by selling your car and so make it much harder to find a job.

Just to add to the above, one of the most effective ways of very quickly bucking up a downturn in the economy happened in the early 90s when the (I guess) Tory government set a 100% Corporation Tax relief on capital investment.

That one very simple, easily administered thing led to a huge increase in turnover to any company who supplies anything in the production cycle to any other company, overnight businesses who had clung onto old uneconomical machinery suddenly had an opportunity to replace it with a discount against their next tax bill and of course the businesses that supplied them probably had a corresponding increase in their Corporation Tax on their increased profits the following year, like most taxation issues the dry world of accountancy often does not predict what the knock on effects of policies actually are - we saw this one immediately in a sudden resurgence of sales especially in the spring quarter when the tax year deadline approached and businesses wanted to offset a tax liability for some useful asset investment.

The argument for austerity doesn't make sense in a fragile economy, with huge private debt.
If both the public sector, and the private sector are both paying down debt at the same time, then banks stop lending money, and, money stops circulating into the economy causing it to shrink - which is what's happened in Greece.

In the UK, we've just been lucky so far that we've been able to print currency to keep ourselves afloat. In reality, as soon as interest rates rise and, demand for oil catches up with the current over supply and oil prices start to rise again, and the grave reality of our economic situation will hit home and, we'll probably be in a worse position than the Greeks.
Currently our debt is 80% of GDP, when you factor in all the private debt its 900%. This won't be repaid, either the bubble bursts, and our living standards plummet, or we write off a huge amount of private debt, and break up the too big to exist banking system and restore some balance and reality to our economy.

complete rubbish there was never a question of mortgage default bringing NR down. They simply couldnt borrow money in the market when banks stopped lending to each other so their revolving credit failed to revolve.