Credit Crunch - Can't Help But Think The Media's To Blame...

[Alcsl]

What would happen if the media suddenly stopped featuring all these stories on the 'credit crunch'? It seems no matter where we look these days there's a story telling you to cut back, sell your car, etc. because it's the credit crunch. Yes I agree that we should currently watch our spending perhaps a little more in the 'current climate', but I can't help but feel that the real reason everything's falling over currently is because the media are pushing this so very hard everyone can't help but listen.

National media over-promoting the credit crunch = scaremongery = people tightening purse strings = less sales in retail = knock-on effect to the trade = general employee cut backs = higher unemployment = people tightening purse strings = less sales in retail = general employee cut backs = higher unemployment = .....

and so on until everything gets even more messy.

My feeling is that if the media focused on something else for a while, people could get a little more confidence back, remain prudent, but at least continue with their lives as close to normal as possible. It just seems the more the media feature the credit crunch currently in the news, the less people seem willing to spend in general, and that is affecting most people in some way via the knock-on effect. The latest tactic - trying to scare people with the headline 'gas to increase by up to 70%', the story to explain in more depth that figures actually represent 10 year forecasts... It's all about selling papers.

Does anyone else share this feeling?

Al

 

[directmarketingadvice]

The media's job is to get your attention and hold that attention. So, they focus on things that are shocking and emotive.

So, we're all going to be broke and then we'll get stabbed to death by some 14yo hoodie...

A real reflection of what's going on in the UK is that tens of millions of people got up this morning and went to work... and, while at work not much happened... then they went home to their loved ones and watched TV ... or had sex... or drank a couple of beers... or all of those things at the same time...

However... that doesn't mean the credit crunch was created by the media. It's more down to the banks realising they've loaned too much money to the wrong people and that this is a bad idea.

Steve

 

[tlewis]

I agree, the media's focus on all the bad stories is making things worse. And people are starting to feel it. I was just talking to a guy who runs a hardware store and he says they'll not bother opening on a Saturday if it continues like it did last Saturday - no customers for nearly 3 hours.

 

[Gillie]

Arrrggghhhh how many threads on this place will discuss this in so many different places!!! Each day someone sets up a new thread, and I am getting lost as to which one is worth reading!

The media merely report newsworthy items or salicious gossip, which incidently the credit crunch is NOT! The media does have some strange power, but making the banks not lend to each other ... ner, even Murdoch aint that good!!

 

[Alcsl]

C'mon Gillie, you know my threads are always worth a read!

 

[MartCactus]

What would happen if the media suddenly stopped featuring all these stories on the 'credit crunch'? It seems no matter where we look these days there's a story telling you to cut back, sell your car, etc. because it's the credit crunch. Yes I agree that we should currently watch our spending perhaps a little more in the 'current climate', but I can't help but feel that the real reason everything's falling over currently is because the media are pushing this so very hard everyone can't help but listen.

This is a classic case of shooting the messenger.

The credit crunch is the inevitable result of too many years of lax lending. Inevitably the lenders have to loosen criteria more and more else they have no more people to lend to. Eventually they become so slack that they are lending to many people who cannot pay it back, and the credit crunch ensues.

We've had many years of boom financed by borrowed money. Now its payback time.

No one was blaming the media when house prices were booming, there was wall to wall "get rich quick on property" shows on TV etc and levels of borrowing and debt were rising out of control. But as soon as there is a slowdown, everyone wants to blame the media for reporting it.

 

[tlewis]

But even when things were good they were anticipating the slowdown, house prices have been about to drop for ages.

 

[Gillie]

But even when things were good they were anticipating the slowdown, house prices have been about to drop for ages.

Bloody hell they can't do right for doing wrong now!!

They merely took the figures gained from estate agents and surveyors as well as lenders, reported them in the news and are now the baddie, yet if they hadn't reported it and suddenly it just hit people, they would still have been in the wrong!

Come on people pretend to be grown ups for a while here ... if you really don't want to believe the press, go find out the information from elsewhere ... its what the press do in the first place and this information has been out there for a lonnnnggg time!!

 

[tlewis]

It isn't about not believing the press. To repeat what SteveGibson said, the media focus on things that are shocking and emotive. They over emphasise the negative, and when all people read is negative economic news they lose their confidence and start spending less.

 

[directmarketingadvice]

But even when things were good they were anticipating the slowdown, house prices have been about to drop for ages.

Not in the media I was following.

Instead, it was "property is a great investment, house prices always go up".

e.g. think of all the property programmes on TV.

Steve

 

[MartCactus]

But even when things were good they were anticipating the slowdown, house prices have been about to drop for ages.

So they were right?

If the media causes economic problems then why no crash then they were talking about it ages ago?

Historically average house price has averaged about 3.5 times the average salary.

Once they get over 5 or 6 times average salary, it seemed quite likely they would fall. As they went past 7 times, it seemed very likely. Eventually the inevitable happened.

If more people had listened to the warnings that some were making we might not be in such a bad mess at the moment. Instead many people borrowed absurd amounts to buy houses that really weren't worth the money in the naive belief that
1) house prices only go up (which any knowledge of the past shows is tosh)
2) if they don't buy now they'll never be able to buy (which again, any look back historically would have told them this was tosh).

Some people believed that "this time its different". They went on about interest rates being low, employment being high etc etc.

I heard similar justifications for absurd share prices during the dotcom boom. When someone says "this times its different" it almost certainly isn't.

 

[theguvnor]

One thing is for sure, the major house builders never saw it coming. The just saw the gravy train going on and on.......you would have expected them to have a finger on the pulse somewhere along the line.

 

[telemax]

The media do have a part to play, reading the British media you would think the end of the world is nigh. We are all going to starve in the recession and then get stabbed by feral kids on every street corner.

Yes times are going to get harder, so every one will have to pull their belts in and work a bit harder. Yes 20 stabbings in London are terrible but in a city of 10 million surely we have more chance of dying falling down the stairs.

The media make everything into a hysteria

 

[Gillie]

Ok, so for those who have missed this one recently, here is a full explanation of what the credit crunch is ...

The credit crunch refers to a sudden shortage of funds for lending, leading to a resulting decline in loans available.

A Credit Crunch can occur for various reasons:

* Sudden increase in interest rates (e.g. in 1992, UK government increased rates to 15)
* Direct money controls by the government (rarely used by Western Government's these days)
* A Drying up of funds in the capital markets

The recent credit crunch was driven by a sharp rise in defaults on subprime mortgages. These mortgages were mainly in America but the resulting shortage of funds spread throughout the rest of the world.
1. US mortgage lenders sell many inappropriate mortgages to customers with low income and poor credit. It is hoped with a booming housing market, the mortgages will remain affordable.
2. Often there were lax contols in the sale of mortgage products. Mortgage brokers got paid for selling a mortgage, so there was an incentive to sell mortgages even if they were too expensive.
3. To sell more profitable subprime mortgages, mortgage companies bundled the debt into consolidation packages and sold the debt on to other finance companies. In other words, mortgage companies borrowed to be able to lend mortgages. The lending was not financed out of saving accounts, for example.
4. Many of these mortgages had an introductory period of 1-2 years of very low interest rates. At the end of this period, interest rates increased.
5. In 2007, the US had to increase interest rates because of inflation. This made mortgage payments more expensive. Furthermore, many homeowners who had taken out mortgages 2 years earlier now faced ballooning mortgage payments as their introductory period ended.
6. This cause a rise in mortgage defaults, as many new homeowners could not afford mortgage payments. These defaults also signalled the end of the US housing boom. US house prices started to fall and this caused more mortgage problems. For example, people with 100% mortgages now faced negative equity. It also meant that the loans were no longer secured. If people did default, the bank couldn't guarantee to recoup the initial loan.
7. The number of defaults caused many medium sized US mortgage companies to go bankrupt. However, the losses weren't confined to mortgage lenders, many banks also lost billions of pounds in bad mortgage debt. Banks had to write off large losses and this made them reluctant to make any further lending, especially in the now dangerous subprime sector.
8. The result was that all around the world, it became very difficult to raise funds and borrow money. The cost of interbank lending has increased significantly. Often it was very difficult to borrow any money at all. The markets dried up.
9. This affected many firms who had been exposed to the subprime lending. It also affected a wide variety of firms who now have difficulty borrowing money. For example, biotech companies rely on 'high risk' investment and are now struggling to get enough funds.
10. The slow down in borrowing has contributed to a slowing economy with the possibility of recession in the US a real problem.

Credit Crunch in the UK

1. UK mortgage lenders did not lend so many bad mortgages. Although mortgage lending became more relaxed in the past few years, it still had more controls in place than the US.
2. However, it caused very serious problems for Northern Rock. Northern rock had a high % of risky loans, but, also had the highest % of loans financed through reselling in the capital markets. When the subprime crisis hit, Northern Rock could no longer raise enough funds in the usual capital market. It was left with a shortfall and eventually had to make the humiliating step to asking the Bank of England for emergency funds. Because the Bank asked for emergency funds, this caused its customers to worry and start to withdraw savings (even though savings weren't directly affected)
3. As a result of the credit crunch, the UK has seen a change in the mortgage market. Mortgages have become more expensive. Risky mortgage products like 125% mortgages have been removed from the market.

Right so thats the background ... as for the UK housing market ...

House prices are falling due to a few reasons; shortage of mortgage finance, the ratio of house prices to income, unaffordable houses for the first time buyer, certainly lack of supply is one argument that does not follow as Japan has found out to its cost (google and read about that one!), also the Uk housing market is one of the most volatile in the world, always has been. But yes some (and I dont mean the media, Halifax etc - the UK largest mortgage lender) are also now predicting falls till the end of this year minimum.

 

[KidsBeeHappy]

It isn't about not believing the press. To repeat what SteveGibson said, the media focus on things that are shocking and emotive. They over emphasise the negative, and when all people read is negative economic news they lose their confidence and start spending less.

But why do they do this......
Because it's what the readers/viewers want to see & hear.
(ever see cars slowing down on a motorway to examine the car crash on the other side......... Unfortunately the GB GP tend to enjoy disaster and drama a lot more than good happy stuff!)

 

[MartCactus]

But why do they do this......
Because it's what the readers/viewers want to see & hear.
(ever see cars slowing down on a motorway to examine the car crash on the other side......... Unfortunately the GB GP tend to enjoy disaster and drama a lot more than good happy stuff!)

Its the old adage that dog bites man isn't news, but man bites dog is.

The main thing is that I don't believe the slowdown has much to do with press coverage. We've had a debt binge, the hangover was inevitable. The well run companies would have saved some cash in reserve during the good times and will survive. The weak will fail. That is how capitalism is supposed to work. This is capitalism in action.

To expect the press not to report the quite alarming deterioration in the economy would be asking them to censor the news.

 

[Chris@Crane]

I wouldnt say the media is to blame, although they are probably making people think its worse than it is

although I know very little about it, Im only 17

 

[telemax]

But why do they do this......
Because it's what the readers/viewers want to see & hear.
(ever see cars slowing down on a motorway to examine the car crash on the other side......... Unfortunately the GB GP tend to enjoy disaster and drama a lot more than good happy stuff!)

Absolutely correct, the Brits love it. I spend 9 months of the year in Canada, inflation up, unemployment up, interest rates on hold, economy a hairs breadth from a technical recession. It's almost a mirror image of the UK.

However the Canadian press isn't shouting it from the rooftops, sure it's mentioned in the finance pages and maybe fifth or sixth on the newscasts but there isn't the same wholesale hysteria, I have never found out why us Brits love doom and gloom so much

 

[Logan]

thats what i am talkn about!

Media is just trying to boil it up and i do not know why!

Maybe speculators are trying to burn the estate market in the UK to buy more houses than sell a few years later and make a huge profit

who knows

 

[MartCactus]

thats what i am talkn about!

Media is just trying to boil it up and i do not know why!

Maybe speculators are trying to burn the estate market in the UK to buy more houses than sell a few years later and make a huge profit

who knows

Oh come on... the TV channels have been pumping up property for the past 5 years or more... daytime TV is full of this property porn... idiots doing up houses to make loads of money etc etc.

Its inevitable when something becomes priced far higher than most people can afford that the price will fall significantly.

TV is just reporting what is happening. There is no conspiracy.

I can't believe this thread. On the one hand they are being accused of talking the market down even when it was rising. If that is the case, why didn't it fall then? Could it be that what the media report has very little effect on the market.

I still see people prepared to spend silly money on houses - they watch the chubby bird on location location location and think that they are second class citizens if they don't own a house - fortunately though the banks won't lend them the silly money to do it. In a few years these people will look back and be thankful they weren't allowed to borrow it!

 

[Gillie]

thats what i am talkn about!

Media is just trying to boil it up and i do not know why!

Maybe speculators are trying to burn the estate market in the UK to buy more houses than sell a few years later and make a huge profit

who knows

Yeah right!!

Speculators made it ALL happen!

Reminds me now why I shy away from these threads!

Banks have cocked up, simple as, no conspiracy theories, no underhand motives .. sheer greed did it ... so yeah lets blame the media firstly for inventing it, then lets blame speculators ...

The media merely report on the news it thinks we want to hear about, yes they might be doom and gloom merchants, however, its on record that this was suggested quite a few months before they even thought about it ...

 

[Dawg]

Which begs the question: Don't some people talk out of their speculums?

 

[Chippie]

As instructed by the learned Gillie, I will copy my recent "thread starter" here!

What are your opinions on the so called credit crunch? Is it as bad as is being painted in the media or is it just hype?

The only reason I ask is that we are in retail and so far this financial year (Nov - Oct) we are 17% up. June was our 2nd busiest trading month ever and this month we are 18% up so far on July 07. Great you may think (I think so!). However, 2 of my staff have approached me in recent days and said the same thing, namely, "isn't it quit this year, the credit crunch must be hitting everyone hard". Now they work at the sharp end of the business and should have an accurate perception of the real picture. So, is this the story generally? Is the hype worsening people's perception of the economic climate or are things genuinly as bad as the media would have us believe?

What crunch???

 

[Alcsl]

Just been speaking to the chap that owns the local car dealership, and he says he's had a great July sales-wise!

????

 

[Gillie]

Ok, just so that you don't say its media hype and before its general knowledge ... the US of A is about to have another hit which will filter over here ... hopefully just a tad ... but watch out over the next few months. And as they say on DD ... that's me out!

 

[An Oasis]

A few observations about the media in general.

They react late
They sensationalise because that sells (not sure who to but it supposedly does)
They should have enough resources to be at the forefront but lag behind

A few observations about people who listen to the media again in general.

Sad or lazy
Can't be bothered to become informed

My very brief take.

I rarely listen to the news because...it has nothing news worthy to actually listen to, it is all second rate ill informed regurgitated politically manipulated tosh, why? Why give away anything useful. When was the last time you actually heard general info via the UK news that you acted upon?

 

[An Oasis]

Banks have cocked up, simple as, no conspiracy theories, no underhand motives .. sheer greed did it ... so yeah lets blame the media firstly for inventing it, then lets blame speculators ...

I'd like to correct you there old pal. They didn't cock up...the lie by which they exist has come to haunt them. It has happened before in ye olden day when the established banking families pulled the plug on the insurgents. This time no one pulled the plug they just got so carried away with the level of profits coming in no one was brave enough to say STOP!

 

[RSQU]

And are we forgetting good ole 'Black Gold', 'Texas Tea' - skyrocketing in price. Rumour has it the same speculators who caused the credit crunch are the same lot buying into Oyel.

 

[Chippie]

Just been speaking to the chap that owns the local car dealership, and he says he's had a great July sales-wise!

????

Well I have to say that our business is also automotive based and all of my contacts in the motor trade, ie. car dealers are having an appaling time. They can't sell anything and have cars coming out of their ears! That's virtually without exception, and those that aren't that bad are only "ticking over". Luckily we don't rely on them, in fact although we are in the same sector we don't do business with car dealerships on a direct level at all. However, after years of pressure selling and poor after sales service and slow payment to suppliers etc etc, I just think they're finally getting their come-uppance and I think we'll see a few disappear over the coming months/years!

 

[Dawg]

And are we forgetting good ole 'Black Gold', 'Texas Tea' - skyrocketing in price. Rumour has it the same speculators who caused the credit crunch are the same lot buying into Oyel.

And does 'rumour' have any credence? Or is it just 'simplifying life'?

People seem to use the term 'speculator' as something bad. There is an economic argument that speculators inject liquidity into the market, which, in a credit crunch, is very useful.

 

[The Panda]

Bloody hell they can't do right for doing wrong now!!

Gillie, are you saying we should believe everything we read in a newspaper or see on the news because they say so. There is no doubt that headlines sell newspapers and the newspapers do their best to make a fairly simple thing turn into something mind blowing.
You only have to look at the recent Madeleine McCann stories. Every headline made to read differently than was actually happening and incidentally the one and only reason why I stopped buying newspapers. I will never buy one ever again.
The biggest crunch this countries people are having is that they are 100% depressed. Taxed up to the hilt. Skinned alive the second they go out of the house. "You can't do that", "You can't do this". Don't drink that. That's a £60 fine for parking there, that's another £60 for smoking in the van. I do believe there is a problem out there, but its the banks and not the general public. People can't get loans for mortgages. Well, as much as I feel sorry for them it had to happen. House prices have spiralled upwards for so long now and mainly on the backs of people making vast profits. A house should be bought to be a home, not a giant piggy bank. If people have lost money from buying a home then so long as they don't intend to sell then they have not lost anything. To those that buy property to make a killing I have no sympathy. If you put all your money into stocks and shares and loose it all then why should any one have sympathy for them and so it is the same for the house profiteers and the banks. Greed has done this, but only to the greedy and only the people that were making good money are the ones bleating. The ordinary man on the shop floor, nothing much has changed apart from the price of petrol and food. He still picks his monthly wage up and still does nothing more spectacular with his life other than buy that new plasma tv he saved up for 2 years for. We all have our own views on the subject and mine may well be a very simplistic view but for what it counts its my view. I see no help from the government to the small people. No capping of gas and electric prices. No capping petrol pump prices. No tax rebates, nothing, but I do see governments helping out banks and loaning billions elswhere and I bet a lot of wealthy people that have lost a few million get some sort of compensation. All this whilst Joe Bloggs looses his modest home and no one gives a fig. So Golden Brown, take note, its not the economy that people are voting your MPs out over. Its your apparent total lack of concern over whats happening and more importantly, lack of action.

 

[The Cube]

I agree that the so called 'Credit Crunch' is a bank issue, but to say that money was loaned out to the wrong people is nonsense. Nobody can predict the future, if they could they would work at banks and there wouldn't be a 'Credit Crunch'... EVER! Peoples circumstances change over time and this be the reason so many people are in debt. But I also know the media does not help the situation.

Credit Crunch is a man made FAD - and fads come and go. As far as gas and oil prices go, the FAT CATS who run these fuel companies should have 'absorbed' the rising costs as an ethical thing to do to their loyal customers. They make far too much money as it is!

What I say is as business owners we should now diversify our services (I know I have) to accommodate the lull in business. Sit it out and hope for the best. I don't think this country could handle another recession due to high feelings of the workforces and people I speak to on a daily basis.

We could all just sit at our computers feeling bad and typing this drone - but come on people - chin up and let's muster on!

 

[Gillie]

Gillie, are you saying we should believe everything we read in a newspaper or see on the news because they say so.

Since when did, "they can't do right for doing wrong mean" you should believe everything you read in the papers??

Stop misquoting me, you are now doing what you accuse the newspapers of doing ... overstating, and trying to hype it up!!

 

[Chippie]

Since when did, "they can't do right for doing wrong mean" you should believe everything you read in the papers??

Stop misquoting me, you are now doing what you accuse the newspapers of doing ... overstating, and trying to hype it up!!

Calm down, calm down! Think blood pressure!

 

[Gillie]

Calm down, calm down! Think blood pressure!

Oh beware, I am very very calm!!

 

[Strategist]

Exactly - the current situation in the UK is ALL the fault of a certain BBC economics reporter whose completely negative and downcast broadcasts are responsible and nothing else. I have been saying as much ever since the culprit's ugly face starting appearing on our screens. The man in question has a big chip on his shoulder because he's not earning millions running a PE or Hedge Fund in the City. Consequently, he's taking out his venom on all of us.

 

[The Panda]

Since when did, "they can't do right for doing wrong mean" you should believe everything you read in the papers??

Stop misquoting me, you are now doing what you accuse the newspapers of doing ... overstating, and trying to hype it up!!

My apologies Gilly. I did not mean to misquote you.

Just to add,
This quote from Mr Golden this morning.
""People are worried every time they go to the petrol station for fuel and worry about the costs... These are concerns that are happening in every other country.

First time I have actually heard him mention the word people.
He must have read my post before giving this address.
Now show us some action Gordon. Actions speak louder than words.

 

[Glottenham]

These people are total ******* - look at Redwood etc - born again free market jerks. We do this (business) to survive in this world as it is - but its also the mechanism of force that is bringing the planet to the brink of the most serious carbon related warming event for several millenia. A system, an order tha is a poison towards our home. Thats the reality of the situation regardless of what pathetic rubbish these headcases come out with..and the extreme free market hands off, anti regulation, fundimentalist , the "purity of the market" weridos, were very much resonsibly for the severity of the credit crunch and the subsequent collapse of the world financial system and the resultant economic collapse.

The reality is that people like John Redwood, Thatcher, Cameron, Brown, etc are very very very seriously insane scum. Pathogenicly perveted idiots that need to be given Extasy/MDMA in the right setting in order for these people to heal...alternatively, (kinda my prefence) a punnishment treatment of a full does of LSD and then to be shot in he private parts and released in a busy shopping centre to entertain the masses. That would be great fun!

Jah Bless

 

[DarrenAtkinson]

Economics is all about confidence so when the media start reporting on credit crunches and the dreaded "R" word (that'll be recession) confidence plummets. The media have a responsibility to report the facts, but tabloid scare stories do not help!

 

[directmarketingadvice]

to say that money was loaned out to the wrong people is nonsense. Nobody can predict the future,

Would you agree that banks make decisions about who they'll loan their money to?

Would you also agree that some people are turned down for loans?

In which case, does that mean the banks believe they can "predict the future"?

No, it means they can come up with estimates of risk based on a number of different factors (e.g. someone's income, their debts, the value of their home if they're a homeowner) and, from those estimates, they can calculate what level of interest they'd have to charge so their expected return from that loan gives them a decent profit.

IMO, their mistake was to assume 2 things were virtually certain to happen:

(1) the economy would continue to grow

(2) house prices would continue go up

But, once they saw what happened in the USA, they realised that their assumptions were too bold/reckless and have cut back their credit.

(plus, of course, they've got less money to play with/borrow against now that a lot of their investments went tits up)

Steve