To think it's depressing that everyone seems to think after this recession we should just return to exactly how things were?

[kake]

Does anyone else get this sense? What I mean is that everybody is lamenting this recession, quite rightly as it's awful, and I feel for everyone who has lost their job or is struggling.

But on the other hand there doesn't seem to be an acceptance that in some ways this has been at least a little bit caused by complete over-consumption in the good times and that we need to change our ways a little bit. Or a lot. When people talk about house prices especially, the consensus always seems to be that if there's any talk about a recovery that must be a positive thing, with the implication that we should be getting back to stupidly inflated house prices as soon as possible.

I find it depressing, as someone who didn't buy partly because we couldn't really afford it but also because we were really cautious and didn't want to overstretch ourselves. But now we're seeing a lot of friends who did somehow being rewarded as their mortgages have been slashed.

I'm also someone who wishes that taxes had been much higher for what I consider to be well paid people (and that would include my DH!) during the boom, so that there hadn't been such a disparity in income in this country then. It's a shame that higher tax levels in future will have to pay off debt not contribute to the national benefit! If I mention this to (well paid) friends they look at me as if I'm mad, although they are people who in principle I think sort of do believe in equality, just not if it affects their/our pockets. My view is that as satisfaction with income is largely relative (ie it matters more to people apparently that they get paid more than their neighbour than their absolute wealth), then if everybody is taxed more at higher income levels, then we'd all be in the same boat and it wouldn't make much difference.

But I feel like I'm STILL swimming against the tide, just when I would have thought more people would begin to feel like this. We have lots of friends who work in the banking sector for example who've been through a bit of a rocky time but now seem to be out the other side and better off than ever and sort of with no lessons learned!

It just seems ... so wrong! Or maybe I just got out of bed on the wrong side. And this post isn't as articulate as I would have hoped!

But wannaBe don't you find that the frustrating thing is precisely that government efforts are now going in to propping up those people who overstretched themselves? So responsible people (like Kake!) are sort of relatively penalised, for being responsible, and not too greedy (a bit greedy though, I admit)!

Kake/MrsFlittersnoop (and so many others) -I have endured the derision of famly and friends for not buying a house. They are not so mouthy now their home is falling in value and their mortgage debt and credit cards and car loans and overdrafts are still piling up and they are worrying about their jobs.

Don't worry. House prices are still falling and they are not going up any time soon. Buy one when it is cheap. If you have cash, keep it safe because soon RPI will go negative and even if your cash is earning zero interest you will be able to buy more and more with each pound of savings as prices continue to fall.

The financial markets are what I do all day and every day (which is why I come on MN to relieve the boredom) and they are in absolute turmoil. Do not believe a word of the assurances that politicians/bankers/business leaders are pumping out. It is horrific what is going on and Japan is where we should oook to see what happens next they have had 20 years of falling house prices and recession. Their banking system is still crippled.

I have no car either and live a pretty frugal life and I too laugh at the newspaper filler articles talking about frugal lifestyle to beat the recession It is what used to be called a normal life before they started handing out credit cards like confetti.

By the way, I am not having a go at people on benefits and on low income or who have had a crisis in their lives who have got themselves into debt (I work with a lot of people in that situation) and I absolutely blame the banks and the Govt for indebting so many vulnerable people.

"Things like TVs and electrical goods, mobile phones should be made to last so that they are not continually being disposed of." I agree with that to a point, but I do also think that there's still a large amount of must-have in there.

You don't need a new mobile phone every year. Or to pay 2£2/3/400 for one. But people do because they're cool/they don't want to be seen with some ancient brick for a mobile.

And so perhaps the answer is to not keep developing these gadgets at such an alarming rate, but to do that might impact on jobs so ultimately there's no answer...

The banking/financial services sector has been creaming off the most able graduates for the last 20 years. Young people who consider careers in teaching, academia or the caring professions are too often treated as utterly lacking in ambition. Public sector vocational jobs have been viewed as the last resort of the mediocre for most of my working life.

Absolutely MrsF. My uncle is a retired Oxbridge Prof and he's been talking for years about how demoralising it was to see students with passion and exceptional ability for their subject suddenly turn up in the City. Nowhere else could compete.

Biologist? No, banker.
Politician? No, banker.
Philosopher? Banker.
Historian? Banker.

wannaBe - I agree on mobiles. I had one that had a smashed in screen for years that worked just fine before I went into the shop and asked for the cheapest nastiest Pay-as-you-go Phone they had. The assistant was crestfallen. Mobiles reflect our entire celebrity, throw away, trashy debt ridden society.

I love my ancient mobile phone. It works and thats good enough for me! If I had an expensive one I'd always be worrying about losing it or being mugged.

There was an extremely interesting article in the Independent recently (sorry, couldn't find a link) about the recent surge in interest in studying economics at university, and some enlightening interviews with economists who are regarded as maverick thinkers.

The consensus appeared to be that for too many years, bright students have opted to study the subject purely as a means to enter the financial sector and make pots of loot. What is apparently needed is a cross-disciplinary approach incorporating Behavioural Psychology and Social Anthropology.

Good economists need to be polymaths who can think out of the box. We need to have a far deeper understanding of the "herd mentality" in order to understand how global markets operate.

MrsFlittesnoop - is this the article?

Do Economists Know Anything.

It is a very good article and I have been fruitlessly arguing the same thing for years in academic circles. I liked this quote on Keynes:

" Keynes was "more than economist". He believed that he was set on earth for the purpose of saving liberal civilisation from extinction. Keynes was the ultimate British sceptic, rudely, gloriously provocative. He began his career as a philosopher, later pondering the difference between risk and uncertainty. At best, economists could prepare us for uncertainty. "We do not know what the future will bring," he once told a group of bankers, "except that it will be different from any future we could predict."

The problem is that economics is no longer seen as a unruly and uncertain social science but a rational mathematical science and that is essentially why we have ended up in a mess in financial markets. I have a PhD in Statisics and Econometrics but I have also worked at the sharp end of real markets and they do not work anything like the economists say they do.

The really imporant part of economics is the understanding of non linearity and feedback in a complex system such as the global fiancial markets and how that interconenects with the real economy. I know that my economist friends are not even out of the starting blocks on understanding how and why bubbles and crashes occur in markets.

MrsFlitter, I do agree with you on this one! I think economics fails to take into account the 'human factor' and human emotions/instincts/irrationality/fears actually drive our world, including financial markets, far more than we give credit for. Economics works as a paper theory only really, in real life, the human factor skews things hugely and overridingly. IMHO.

YANBU!
We are another family that has savings, not debt and we are being penalised for being sensible with our money. Hopefully all our hard work saving will put us in a good position to buy a decent house one day - if all the "quantative easing" doesn't inflate our money away to nothing.

But at least we have more working years ahead of us, unlike the poor pensioners who now have no income from their investments and no way to replace them and are completely stuffed (especially if we get rampant inflation).

We have an interesting perspective as we left the UK for several years. It was quite a shock to come back and find that a "normal" lifestyle now included buying a new sofa every couple of years, daily lattes from Starbucks, disposible fashion, stag/hen dos in Prague or Ibiza... Well, you get the idea. Everyone has been trying to live like the celebrities in magazines (WAGs appeared when we were away too, which I don't think was a coincidence). And it was all paid for on credit. It's just so bonkers, from an environmental point of view, as well as financial.

But what is happening with all the stuff that is being purchased on credit. Are people eventually paying off their car loans, credit cards etc or are millions going bankrupt?

Surely people have to pay for their lifestyles at some point?

ABetaDad - I think you will find this article interesting.

MrsTittleMouse - How exactly are you being penalised for having saved?

Can't speak for MrsTittlemouse but I feel just a little bit potentially 'penalised' as we saved and didn't over-reach ourselves to get a huge mortgage. Now, the people we know who did do that have got more money in their pocket as their interest rates have gone right down. Our rent has stayed the same and our savings are not making interest. So it makes you wonder whether it would have been better to have thrown caution to the wind! It is also possible if you have a mortgage to take a repayment holiday (not for everybody though I know) and there are a lot of efforts going in to propping up the housing market, and saving people from repossession. If my DH loses his job (possible) then we will not get help with our rent, or be able to take a holiday, as far as I know.

I meant mortgage holiday at the end there! We are not taking a holiday regardless!

CoteDAzur - thanks for that. Unfortunatley what Mr Xi and so many other forgot is that in times of financial market stress all correlation coefficients tend to 1 reagardless of his formula. All markets tend to fall at the same time, all debts tend to default at the same time when the global financial system is frozen. In other words the benefits of portfolio diversification catastrophically fail in times of stress.

The other formula that led us into this mess was the so caled VAR (Value a Risk) formula. Banks wrongly assumed they could sell their enire holdings of financial assets in 1 day in all market conditions. Therefore they wrongly calculated the amount of capital they needed to hold and the potential losses they would face in the event of a market dislocation. We know some markets for complex assets are always very illiquid so to pretend they were not is sheer managerial negligence.

I was involved in putting risk management processes in large investment banks and commodity traders a decade ago and I cannot believe how many basic common sense rules they have ignored, forgotten or never learned. It really is not rocket science.

That is Mr X. Li of course.

We are being penalised for having paid off our mortgage and saved. We are not gaining from the low interest rates as we have no debt. We are gaining little interest on savings. We are paying more for all the things that have gone up such as food, petrol, foreign holiday. DHs salary has gone down due to no bonus (and no he does not work for a bank).

We are most definitely worse off.

I believe the point is that the formula itself can't be trusted to hold true anyway, even in times of boom.

I also studied Econ (at MBA level, not PhD ) and worked in asset management, first on the sell side as analyst and then on the buy side as fund manager. I agree with you that reality is quite different than what we learn with mathematical certainty, especially re assumptions of perfect information. Personally, I found the lessons on Game Theory to be much more useful than those on Macroeconomics.

Re feelings of being penalised by low interest rates:

You need to look at interest rates in real terms - i.e. interest rate - inflation.

Say, when interest rates were at 4%, inflation was 5%. So you were actually only making 1% in real terms. (I'm making up the numbers as have little interest in UK economy so don't know correct figures)

If indeed we see deflation (negative inflation) in the UK this year, that means your money has increased in value in real terms although interest rates have been near zero - you buy more with 100 pounds than last year.

You can't seriously say petrol prices have gone up, by the way.

To be honest CoteDAzur it was a pretty crap point that I made in any case, as it's not like we have such massive savings that we were making much money anyway! I think it's more that I'm a bit grumpy that homeowners seem to be getting so much help but that sounds a bit mean so was maybe trying to divert attention away from my twisted nature. But that's also a fairly crap point as if I do really believe that house prices will continue to fall (I think I do) I shouldn't even really care that much about what help homeowners are getting! Right, think I'm making less sense than ever, off to get DD from CM on that note so that she can join the revolution!