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Four fantastic credit crunch myths
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The credit crunch, global financial crisis and recession fill the news every day, but should you believe everything you read? Find out as we delve into some credit crunch myths
The term “credit crunch” might not have been familiar to most of us 18 months ago, but you must’ve been pretty lonely during that time if you haven’t heard of the financial phenomenon by now.
Since August 2007, when it started to become clear that the problem was turning into a global crisis, investment bank Lehman Brothers has collapsed, the UK property market has plummeted more than 19% and the number of unemployed soared to almost two million people.
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These are all significant and serious stories, but how much of an impact has David Bowie had on the number of times you eat out each month?
And is the credit crunch to blame for you getting knocked back on your latest loan application?
Find out as we look at four credit crunch myths.
Myth 1: David Bowie's ‘back catalogue bonds’ started the credit crunch
He is known as a trendsetter, but did rock legend David Bowie cause the credit crunch craze?
Back in 1997 Bowie decided he didn’t want to have to wait for the money he would get for royalties over the following 10 years.
So he created “Bowie Bonds”, where he got the money upfront from investors, and in return they got a good, guaranteed income from the royalties Bowie would’ve received otherwise.
Is it a coincidence that banks altered their traditional practice – borrowing from investors like us, and lending it out to others, at around this time?
Like Bowie, banks decided there was a better way to make money than waiting 25 years for a homeowner to pay off their mortgage, so started selling the loans on elsewhere as “securities”.
Northern Rock was the market leader in the UK for this kind of thing.
It didn’t help that banks started buying these loans as well as selling them, dropped their lending standards and started giving too much to people who were unlikely to be able to pay it back.
And banks have been selling bonds for centuries, so it seems a bit of a stretch to blame it on the Bowie.
by Martin Pegan, 1 February 2009
