Credit crunching to disaster

Almost two weeks without a blog. How have you survived? Extremely well by the looks of it as the hit count has barely moved in that time. A belated Eid Mubarak to everyone, this year I celebrated on 2nd of October and took off the 1st and 3rd for good measure. Last week was extremely busy, so busy that I was unable to blog.

I would like to put it down as a rarity but the signs are ominous - the GP Registrar year is going to be tough and I will have to cut down on the frequency of this blog as a result. Apart from the my surgeries, I'm having to spend a lot of time with my ePortfolio and tutorials in preparation for various assessments, and it is all taking up a lot of time. Take last Thursday for example: I had a 2 hr tutorial in the morning, followed by a video consultation assessment, then a lunchtime lecture, followed by an afternoon surgery and assessment. All in all I had 30 minutes for myself - it was like being back at hospital again, not good. With recent developments in mind, I'll be looking to blog at least once a week and try to do more as and when time allows.

First things first, in response to a comment left on my last blog by "Anonymous" (I think I know who it is - can you even pronounce anonymous?), yet again there was a report about how GPs are overpaid and under worked (blah, blah, blah) and to be quite honest, I am getting fed-up of having to defend GPs and whether they deserve or don't deserve their earnings etc. This time I would like to end this particular discussion with the words of Professor Steve Field, chairman of the Royal College of General Practitioners and leave it at that:

"The quality of care provided for patients should always be our main consideration and this demonstrates how GPs have stepped up to the plate to deliver improvements. Robust evidence shows that the QOF has been a success and that it has made a major contribution to raising standards by setting a universal measure of quality for patients, wherever they live. We refute any accusations that the targets are too easy.

The role of the GP is very different even from that of five years ago - we are caring for an ageing population, patients are presenting with complex and multiple conditions and we are providing many services in primary care that were previously carried out in secondary care. GPs are proving every day that they are up to this challenge, although we do acknowledge that PCTS have often lacked the will and capacity to develop local services in partnership with GPs.

The QOF is also helping GPs to shift the emphasis to health promotion and preventing illness in patients, rather than just patching up people when they're ill. By identifying those at risk early enough, we are having a dramatic effect in helping people change their lifestyles and improve their health through earlier access to treatment and specially targeted interventions such as smoking cessation - all of which can only benefit the NHS in the long run."

Moving on, and while I've been away, the so-called "credit crunch" has seemingly turned into a "credit disaster" with banks crashing across the world, the stock market falling and a global economic meltdown in the horizon being predicted. However, what does it all mean for us as individuals? How and when will the banking crisis effect us? For the answers I turned to Watford Man, a man who knows something about anything and everything, and as usual he didn't disappoint.

Since the last recession in the late 1980's, early 1990's, the economy in the UK has enjoyed a massive boom. A steady growth has seen people make loads of money, house prices have grown, consumer spending has increased and unemployment levels have decreased. Everyone was apparently in a win-win situation. Banks were de-regulated, which meant that chief executives and chairmen of British banks were allowed to do what they wanted with peoples investments, savings and pensions. Loans and mortgages were being handed out at record levels, seemingly to anyone, regardless of their credit rating.

In the US, subprime mortgages (mortgages valued at over 5 times peoples income, or in some cases up to 125% of the value of the property) were being handed out in their thousands. Regardless of whether people could actually afford the re-payments, they were able to become homeowners. "Everyone should be a homeowner," became a mantra for the US government. The companies that handed out subprime mortgages would then sell this debt onto bigger and more powerful companies at a certain rate, who would then sell to even more powerful companies and banks.

Everyone in the chain was making money, so all seemed well. Banks were coming up with their own mathematical formulas to justify their investments, and the risks got bigger and bigger. De-regulation meant that there was seemingly no accountability for their actions, as long as they continued to make money, everyone remained happy.

In the UK, as the interest rate began to increase from 2004, slowly but surely, more and more people began to struggle to repay their monthly mortgage payments. This was brought into sharp focus with the collapse and government takeover of Northern Rock last year. It had accumulated too much bad debt and was no longer able to afford charges to cover the debt with a drastic slump in profits. The collapse was the first warning sign for what was to follow.

In the US the situation is even worse. Banks and financial companies have offered thousands of subprime mortgages piling on bad debt on top of bad debt. Companies have sold these debts on to other large investors who have paid over the top for the debt, mainly because it was a US company meaning the investment should be safe! As more and more people have defaulted on their repayments, it has turned into a international crisis. The banks can no longer afford the debts they own and risk collapse and the government has to use taxpayers money to bail them out.

What the bad debt means is that everything is heading for a big bust. Unaffordable mortgages have led to a fall in house prices. Lack of spare cash has led to a downturn in consumer spending. Companies are having to lay of staff so that they can continue to run and pay off their debt and the recession looms closer and closer. The collapse of the economy will have an effect on all aspects of life. Larger number of unemplyed people means more disaffection, which will see an increase in social benefit claims and crime, putting more and more pressure on the welfare state.

The crisis means that banks no longer trust each other and refuse to lend money to each other, unless at extremely extortionate rates, and therefore a cut in the national interest rates will have no difference. For example, if my house is now worth less then what I paid (which is the likely situation at present), when I come to re-mortgage it, I won't be able to because of the drop in value. What will happen instead is that I will be asked to pay more to cover for the drop - and that is a real possibility if the situation remains as it is and worsens as is being predicted across the globe. The situation is even worse for pension owners or child trust fund owners, as their money has probably been used in bad investment and there is every possibility that they have been left with nothing.

The scary part of this crisis, is that no-one is safe. During the boom period, banks invested in each other across the world, it wasn't just limited to UK banks dealing with UK banks, or US banks working with US companies. Banks from the Middle East, China and other nations have all invested heavily and the whole global economy is at risk. I've said in the past that the banks should be allowed to collapse, but it doesn't seem a good idea if all the banks collapse on mass, leaving only a few to leave our savings with - we'll be sent back to the Medieval age and having to wheel and deal for our earnings and savings!

After such a large boom, a huge bust was inevitable. What is shocking is that it wasn't foreseen for so long. Until the banks trust each other again, the situtation won't change and that is where the national governments get involved. The UK government has just announced a £37 billion bailout of taxpayer cash into RBS, Lloyds TSB and HBOS. We, the taxpayers, will own upto 60% of RBS and 40% of Lloyds TSB/HBOS. The banks are being nationalised and the government will have a direct influence on how they are run.

This is just the beginning of the attempt to stage a recovery. It will be useless unless the whole world gets on board, which is why Gordon Brown recently met with 15 European leaders in an attempt to unify and sort out the financial crisis. All in all, even with my basic understanding, there are bleak times ahead and a situation that we will have to endure for the foreseeable future. In the meantime, hopefully the chief executives and chairmen of all these failing banks will be held to account for the recklessness and lack of foresight - but the chances are they will resign with big payouts without repercussion - doesn't seem fair.

What is most depressing as Watford Man pointed out last night, is that our generation will suffer the most. As someone who has recently started earning and developed a career, I won't enjoy the boom of the late 1990's, early 2000's for quite some time. Unfortunately, we missed out and now have to pay for the mistakes of the generation before us. Hopefully, the situation will remain cyclical and after the bust, things will improve once again and we'll be in a position to reap the benefits. Until then we have no choice but to grin and bear it and see how it all plays out.

Take care all,
Thoughts just flow, when do they have to make sense?