Stop Blaming Borrowers For This Crisis

Harvey Jones takes a look at who is really to blame for the credit crunch.

It is widely accepted that the credit crunch is partly our own fault - yes, yours and mine - for being greedy, and borrowing and spending too much in the good times.

Commentators talk as if we all spent the last decade frantically maxing out our credit cards and plundering ever more equity from our super-sized mortgages.

In other words, we got what we deserved. So everybody don your hairshirts and feel really, really bad about yourselves, and be glad the crunch has come along to flay some collective sense into us.

Repo rethink

There is a shred of truth in this caricature. We did, after all, borrow £1.35 trillion on mortgages, loans and credit cards, more than our GDP of £1.33 trillion. And we can't push all the blame onto the banks, we're adults, we're the ones who put our thumbprints on the credit application forms.

But most of the borrowing was on mortgages, secured against our largest and most solid asset, and the strange truth is that most of us could afford it.

In 2007, just 27,100 properties were repossessed, a meagre 0.23% of the UK's 11.8 million mortgages. Just 12 months ago, less than 0.5% of borrowers were more than six months in arrears. This suggests that right up until the crunch, the huge majority of people were able to service their obligations.

That doesn't strike me like a nation of debt junkies collectively gasping for every last fix of credit.

Play your cards wrong

There were some lending obscenities, of course. Sub-prime got out of control. Northern Rock should never have got away with offering 125% mortgages, and mortgage brokers shouldn't have flogged them to desperate first-time buyers in such huge numbers.

But I don't blame the FTBs for that, they were simply desperate to get on the property ladder before it was whisked away for good.

My point is that in an apparently healthy economy, with employment strong and a Chancellor who had repeatedly claimed to have ended boom and bust, people were taking a rational decision to borrow money at historically low rates, mostly using it to buy a rapidly appreciating asset.

Many suspected that we were investing in a house of cards, but you couldn't be sure of this at the time.

Of course, a good number abused easy credit, but the vast majority didn't. If the banks hadn't decided to convert themselves into high-stakes casinos, we might - might - still have enjoyed the long-predicted soft landing.

Triple-A rated bad guys

It wasn't you and me who sold dodgy mortgages to cash-strapped US citizens, then chopped them up and flogged them off as mortgage-backed securities to gullible institutions across the planet.

Neither did we honour this junk with a AAA grading (that was the ratings agencies). We'd never even heard of credit default swaps, until they popped up to plague our lives.

And I don't think the general public can be blamed for the disastrous failure of Gordon Brown's tripartite regulatory system. Or the repeated failures of the Financial Services Authority to protect consumers from predatory financial services professionals.

We're the ones who have been lumbered with unlimited liabilities by our profligate bankers and inept politicians, so don't try and dump the blame on us as well.

The blame game

So why are so many people willing to blame the supposedly greed-addled public for what has happened to the economy?

Partly, I would argue, it's the surprisingly Puritan nature of the British character. We knew we'd pay for the good times in the end, but still allowed ourselves to enjoy the boom while it lasted. And now we feel bad.

Plus we also despised the vulgarity that easy-money spawned, whether it was a yummy-mummy ploughing her brand new Chelsea tractor down a crowded street to drop Jemima off at her fee-paying school, or some in yer face upstart flaunting his cash in Burberry cap and gold chains. See, I didn't use the word chav.

These social caricatures really annoy us, perhaps because we're more likely to encounter them than, say, Sir Fred Goodwin, Adam Applegarth or Gordon Brown, or any of the faceless investment bankers that got us all into this mess.

But these vulgar stereotypes aren't to blame for bringing the global financial system to its knees.

Do they mean us?

The public's biggest sin in the boom years was to forsake saving for tomorrow, particularly in pensions, in favour of spending today. But again, I would blame commission-hungry financial services spivs, weak-kneed regulators and Gordon Brown's multi-billion pound pension tax raids before pointing a finger at the public.

Most people are financially rational, and adapt to the prevailing circumstances. Witness the way people have switched from spending the spare equity in their properties, to paying it down.

But they need guidance, and a little encouragement to be responsible, and in that, bankers, insurers, central bankers, government ministers and regulators have failed miserably.

They're the ones who should be flagellating themselves into a frenzy of remorse and repentance.

The strange thing is, none of them seems the least bit sorry.

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