I had coffee today with my friend from Hungary who says things there are not good. The problem revolves around how banks have drawn people into their debt net.
He likens it to drug dealers. Give them something cheap, just a taster, then when they are hooked, up the ante, charge them more, move them from hash to cocaine, then up the stakes again to crack or heroin.
This is basically what the banks have done to their clients.
When you first get a loan, its not usually very big, its easy repayments, because you haven't got any debt it's cheap and so you think hey, I'd really like that new whatever, and away you go. Various Ms.Lears assure me their friends all live from one credit card statement to the next with absolutely nothing to show for it.
And do you suppose all this is all in Florints in Hungary? Not a bit of it. It's in Euros and Swiss Francs, because that's how the banks can make extra money ( on the exchange rate) and in fact it would appear for the past few years they haven't even offered car loans in anything else. Can I have a Florint loan please? - no,non,nada, nul points.
The other thing he says ( quite rightly) is that nothing is going to change. Because the Banks have been bailed out ( and you can forget any pathetic strings attached) in another year or so things will be just as bad if not worse.
Compare this which what happened in the East in 1998. Korea, for example, let every dodgy bank go bust. Yes it was painful, but new banks appeared as if by magic overnight, and now Korean banks are amongst the soundest in the world. The economy picked up rapidly too. Contrast that with Japan which, 15 years on from its own bust, is still struggling with limping banks, and no improvement really in their economy over all that time.
The other thing that's scarey in the West is the propensity of banks to start pulling the plug just when things start to get better. The reasoning is they will be better able to get their money back. The reason the American banks are now talking tough ( we are gonna pay the TARP back) is so they can foreclose on some assets that they now see as being cheap, and allow their newly created distressed asset funds pick them up for a song. It's already happening in real estate - some commercial properties are being sold in the Sattes for 40cts on the $ on the cost to build them.
I did hear one quite nice thing. If you are a private client of UBS, they are offering you loans to 90% of value at 1.5% over Euro LIBOR. This means about 3.5%.
And the security?
So they will take your money and give you 90% of it back - and charge you 3.5% pa.
Nice work if you can get it.