Steve Koerber's Old Blog

Remuera's house sold name since 1998 – 021864166

What caused the credit crunch?

Posted by Steve Koerber on October 14, 2008

President Bush and others think they have a solution to the credit crisis currently gripping the world.  They are improving liquidity by ensuring that banks have access to money.  What will the banks do with this money?  Have a look at this video and you’ll see what President Bush wants the banks to do with the money.

http://www.theaustralian.news.com.au/video?vxSiteId=cd95922d-84b7-4f90-a0b8-c8f50ecd733d&vxChannel=frontPagePicks&vxClipId=943763&vxBitrate=300

I support lending money for business expansion if the borrowers have a sound business plan.  I support lending for housing, if the buyers need a house and can afford the repayments.  I (sort of) support lending for cars if the buyers need a new car and can afford the repayments. 

My concern is the lending for cars comment.  I think that comment is the essence of the problem and the reason for the credit bubble that is bursting. 

Take yourself back to the 1960s and 1970s.  Twenty plus years after the end of the great depression, my parents (and probably yours) saved their hard earned dollars for several years before they bought a nice car.  Pre-crunch America (and the world) got so used to buying cars on credit that it became the “norm”.  Now even the President has forgotten that the best way to buy a car is to pay cash for it!  And he’s hoping that the citizens of the whole world will keep putting themselves into hock so that he won’t be remembered as a failure.

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