Debt, debt and more debt

If like me you are fed up with the bits of useless information and excuses that permeate from Wall Street well you are in the right place. I won’t waffle on how life is hard and the derivatives sold are complex and that whatever happens I expect a bonus. The truth is this near collapse in our financial system is all about debt, Government debt, company debt and personal debt. We have all taken on huge amounts of obligations as easy credit was thrown around with no regard to when it would be paid back for after all let the good times role. We could always max out the credit cards and at some stage look at re-financing the house because it always goes up in value and the bank and finance houses are falling over themselves to lend, even if I don’t have a job I could always get one of those liar loans no job no income loans, interest rate may be a bit higher but some how I will get by. Then in summer 2007 the roof caved in the credit crunch began and the rest we know is history.

But let’s look at the fact in the United Kingdom we are more indebted than our American cousins mainly because we were fed the line that house prices never fall they always rise. So with no deposit some of us bought 110% mortgages because the lenders factored in that the house would rise in value, never mind if you can’t pay back the mortgage. So the fallout in credit lending in the UK shows we are in debt to the tune of £1.46 billion pounds that’s £32k owed by every adult in the UK no wonder that so many of us are filing for bankruptcy and IVA’s it’s a real worry and we should all be concerned for as unemployment rises so do the debts.

Our governments are bailing out the banks and allowing them to reward failure by paying out record bonuses, but the real problems we are seeing is sovereign debt by governments are not being paid as in the case of Greece the country is bankrupt it has lost its AAA credit rating and has asked the rest of Europe to bail it out. If you looked at the crisis as it unfolded we saw that Iceland had in fact become the first nation to be hit by bad debts and the subprime fallout but Iceland had been sold billions of dollars of worthless CDO’s by Wall Street banks, Greece on the other hand was advised by Goldman Sachs and others how to defer big state deficits for later years to satisfy EU rules, it was business as usual whilst the debts built up in the investment vehicle set up by the banks. However the advisors mis-read the markets and as the World’s economy soured so did the investment, the Euro came under pressure and Greece was forced to admit its debt but also had no money to govern and run the state. Civil disobedience is now the norm in Athens as millions of people see pay frozen, pensions not keeping pace with day to day life, also urgent government programs are now cancelled as the government is forced to austere plans for survival. Greece is not alone rumour has it that Spain and Portugal are next. But have we thought just how our governments would survive once credit ratings are reduced from AAA to junk? The US and UK would be in dire straits with no one to borrow from as the Chinese dump US and UK holdings it would be chaos. The US government has already drawn up plans how to deal with civil disobedience in the streets as they face up to grim reality it could be coming to a main street in America real soon.

The English Premier Soccer league the richest in the world? But how many of the teams are on borrowed time. Chelsea have announced that the hunt for a new home has been postponed as the recession hits fans and revenues. Portsmouth Football is in the process of being wound up for unpaid tax bills and perhaps the biggest name in world football Manchester United is £715 million pounds in debt. I find this hard to stomach with so many people trying to make a decent wage and a footballer can pick up £100k per a week for kicking a ball and yet they want more despite clubs being mortgaged to the hilt. Portsmouth has shown that not even the mighty premier league can continue paying huge salaries based on some flawed business model.

Figures for 2007-2008 show the total debt of premier league clubs as being £3.4bn – 56 % of the total across Europe. I believe the clubs are at a crossroads and simply cannot continue banking on TV and Champions League money, you cannot pay over 50 per cent of your turnover on player salaries something has to give and as in Portsmouth’s case its survival in the premier league. They have been docked nine points for going into administration and surely must start the 2010 season in the Coca –Cola Championship. The other clubs you have been warned.

And by the way did I say the Banks are still not lending!!!