The original text of a particularly useful quote, attributed to Maslow’s Psychology of Science, is apparently:
I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.
Such would appear to be the case with our glorious Bank of England, as they slashed yet another 0.5% off the base rate making it a paltry 0.5%. It matters not, it seems, that all their previous incremental cuts totalling about 4.5% made no difference to our financial ills, they insist on soldiering gamely on with the same strategy regardless, as if the difference between 1.0% and 0.5% is going to make a blind bit of difference.
Having looked at mortgage rates (about 5%) and, in particular, loan rates (about 7.5%), it appears that the only group affected in any significant way by the Bank of England’s hammering on with the same tactic is the country’s prudent savers whose income from interest has been slashed to almost nothing. It is the savers who are playing the part of the nail and being beaten senseless. What appears to be happening is that the banks, the very reprehensible idiots that got us all in to this current appalling mess, are widening their margins. Loan rates were up around 7.5% when we were actually able to earn a noticeable amount of interest. The banks’ loan rates do not seem to be shifting downwards but their interest rates on savings sure as hell are. Having lost all the public’s money, they first add insult to injury by saddling that very same public with a gigantic tax bill to bail them out. The public has had to pay them to lose their money, for Lord’s sake. They further tighten the thumbscrews by giving us no returns whilst essentially maintaining their charges to us. Finally(?), they stick the boot in by having the effrontery to use chunks of our bail-out money rewarding their own abject failure with outrageously large pay-offs thinly disguised as pensions. Nice one!
On the other side of the coin, I have no sympathy with the currently fashionable grumble that conditions for obtaining a mortgage are unreasonable. I’m hearing that factors such as three times salary are available but, horror of horrors, only if one has managed to save a reasonable deposit (e.g. 10%). Far from being unreasonable, this used to be the norm "when I was a boy". Indeed, three times salary used to be seen as generous, available only when conditions were very buoyant. If you can’t save a deposit when you aren’t paying a mortgage, how the hell does one expect to be able to make payments on it. The trouble is that a generation has been raised to expect greater than 100% mortgages with factors as high as a ridiculous six times salary. Strewth! No wonder the financial world went barmy.
Be that as it may, all that’s really happening now is that savers are being unreasonably penalized. Savers make up a significant chunk of the spending public but their spending power has been seriously reduced. Consumers can’t do their bit bit to spend their way out of a recession when, as now, they are left with no disposable cash.
Penalizing the prudent to help out the imprudent seems not only a particularly outrageous strategy but one that is doomed to failure.