In response to Dr.S.G.Subbuswamy's comments : what you are remarking upon is unguarded aspiration which drives many of us. Sadly, when we want more, materialistically speaking, out of life and the big finacial behemoths say "Yes" to our whims we are placed at their mercy.

Edward Clifford, Ammanford, Carmarthenshire,

The credit crunch is the inevitable outcome of the unsustainable credit expansion that preceded it. It is a failure of the central banks and not the markets.

Dara, Dublin, Ireland

To add to my comments below, if the government fails to act, it risks sending the government into a downward spiral. The Japanese government failed to act quickly enough 20 years ago and ended up falling into a period of deflation which it found hard to break out of.

Nick, London, UK

Greenspan should not have lowered rates to 1% but that does not mean rates should not be lowered now. This is a different scenario and the economy needs helping. The aim is to bring a softer landing rather than bring a complete cataclysmic crash that no rate change could bring. The effects of the credit crisis will be felt more severely than at present, outside of the banking sector in time to come and rate cuts now will help to ease the pain of many of the anti-banking commentators below.
The BOE acted indescively in September allowing Northern Rock to "suffer" when it should have been offering funding. In Germany and Spain there are several banks regularly being funded by the ECB, if it wasn't for this these banks would go the same way as Northern Rock.
Rates in Europe are already 125bps lower than in the UK, hence why the ECB is reluctant to cut rates. The UK has lower inflation and is more at risk to the credit crisis. UK rate cuts are a must.

Nick, London, UK

Isn't it about time we realised that we are responsible for ourselves and cut down our credit requirements ? We have been indulging in a spending spree based on credit, buying things we did not really need, and now we find we cannot find the money for essentials such as homes.
I feel interest rates should go up, encouraging people to stop sepnding and start saving.

Dr.S.G.Subbuswamy, Billericay, Essex

Sorry, but I think this article is plain wrong when it comes to finding solutions to the credit crunch.

The only proper solution is a complete unwinding of indebtedness. If this means that banks go under and we have a recession then so be it.

The alternative is to just let the problem get even worse - like giving a junkie more drugs.

I would like to see homeowners who risk being made homeless helped. Their properties should be re-possessed but they should be allowed to carry on living there via a government owned company which buys the properties at their true market value. In effect this converts them into council houses.

In this way the financial loss is shared between the homebuyers and the banks - and we do not end up with lots of empty unsaleable properties.

Toby, Winchester, UK

Funny how nothing is done to stop an asset bubble on the way up. But as soon as the bubble pop's, then taxpayers cash must be used to prop up the imprudent speculators/investors/traders.

Let the market find the true price!

simon, Harrogate,

There is nothing wrong with immigration if it is managed, but that
criteria has passed this incompetent Government by.
The result is: they have hurt deeply their core voter; who will not forget at the next election. Now is the time for the opposition to sing the song " Things can only get better."
I wonder what Labour's little helpers will say when the voter at the
door says: you have doubled my income tax and increased the competition for my job; which has reduced my pay and hit me with a plethora of stealth taxes.

A Walton, Leicester, England

The so called "credit crunch" is indeed the result of a failure; however the failure was the failure to stop house asset price inflation bordering on hyperinflation.
This failure was a result of too low interest rates through using a cpi inflation measure which understated inflation and which did not include housing costs.
Anyone with common sense, or unfortunately in hind sight if no action is taken ,will realise that reducing interest rates will only repeat the same mistake ; only next time the consequences will be even more severe.

James, NI, UK

I can't see why so much emphasis is being put on rate cuts as the appropriate means to address the credit crunch. The ECB approach seems to be spot on, ie permitting the broadest (loosest) basket of eligible collateral for borrowing from the central bank. This is the most precise method for targetting the liquidity crisis - an ALM crisis. If the crisis morphes into one of rapidly accelerating lending losses (ie mortgage forecloses in a falling housing market) then the blunter instrument of rate cuts should be used aggresively.

Justin, NW8, UK

The article suggests government backed direct intervention as lender of last resort in the mortgage market to overcome market failure. This is a very controversial suggest to make at this point in time.

If there isn't enough credit to satisfy demand for mortgages then property prices need to adjust downwards. A credit boom resulted in a property price boom; a credit crunch should result in a correction.

if the banks need money they should ask shareholders and not the tax payer!!!

Costas, Cyprus,

Whether or not we make ships etc anymore is not evidence of economic weakness, all economic activity is relevant, the acid test is does the given activity satisfy a demand, if it does someone or a group of someones will pay for it. The currency derives its strength or otherwise from confidence in the system and its sustainability.
Globalisation means not every country needs to be involved in heavy industry in the same way that it wasn't necessary in an earlier age for every town to have its own car plant.
People need to understand the dynamics of the modern economy and cease lamenting the passing of an earlier age which for the majority meant a hard and shorter life.
The economy's current difficulties are the end game of a long period of growth, the economic cycle is very much alive and kicking despite the claims of Gordon Brown to have consigned it to history.

John Lewis, London, UK

Would you lend a gambler who has run out of cash your precious housekeeping money for another roll of the dice? I truly hope not.

Tony, Cambridge, England

Here we go again...yet another 'economist' calling for a cut in the interest rate. Which is sure to weaken Sterling thus cause inflation to soar even further.
The reason for this credit crunch is incredibly simple, the Fed panicked post 9/11 cutting the rate to a silly 1%. Don't these economists and so-called experts ever learn from history...

cww, suffolk,

I find it a bit bemusing to blame 'greed' and 'incompetence' for the failure of 'some'. And even more bemusing when David Smith suggested cuttig the Bank rate to help lower money market rate. Under normal circumstances, Libor may go closely in tandem with the Bank rate. And I don't believe traditional cure of lowering interest rate will have much impact. Each lowering of interest rates will leave central bankers with less ammunition though they may store more ammunition to fight back inflation. I think there is a more systemic failure and that should be explained. Not human emotion!! Consumers in the West were born with a belief that man or woman can live like ones without producing as a result of their economy's massive reliance on service sector. After all what does Britain manufacture in the past two three decades? Long period of cheap oil and cheap money, both of which I believe is the result of govermnets' intervention, are the real culprits of this mess.

Watwungyi, London,

Do we really want to lend the last of the housekeeping money to the gambler who has run out of cash for a last roll of the dice? I truly hope that those who control the public purse will realise what that risks.

Tony, Cambridge, England

More of the same medicine that got us into this mess in the first place eh? Is this all the savants of the banking and media world can come up with? Old Heath was right: a one golf club economic policy.

This time it's different my friend. The Greenspan put is history, and you have run out of options other than hyperinflation. Admit it. Also admit that your inflationist policies represent a war on savers, whose real rate of interest is becoming negative. Saving and investment are apparently passe in your brave new world of finanical engineering and chicanery.

Oh and by the way, why is it tacitly assumed that central banks have sufficient funds to bail out the private sector? When they do run out of funds, there is always the printing press I suppose.

It looks like game over as far as the current prescriptions are to be effective. As we head towards a Japanese style liquidity trap we can only wonder at the abject stupidity of it all.

Frank, London, UK

Elementary economics - which you know better than I, David:

When, as at present, credit is scarce, demand is brought into balance with it primarily by raising interest rates. This is a mortagor/mortagee relationship, detached from the BoE and other central banks and, in particular, from the Bank Rate. If this is reduced, mortgage providers increase their offtake - as we can see happenning already, with the LIBOR level. Any benefit to beleaguered borrowers is indirect, and thereby slow, through enriching the greedy banks and building societies, and their greedy shareholders, who caused the problem, which enables them to lend more.

There is a case for cutting Bank Rate, but it isn't to help homeowners; this requires different, more direct measures.

Finally, 'rescuing' Northern Rock was blatantly wrong when it was done and becomes ever more clearly a critical error, that will nonetheless be compounded by generosity with taxpayers' money to its Labour-voting shareholders.

Noel Falconer MEcon, Couiza, France

Cut the real rates of market funds and get them down to 5% and below. Fine now would you like me to tell you what will happen after that. If they do not wait and allow enough growth to bleed out globally the advantage of our lower rates will be correspondingly neutralised by the effect upon our currency and it's subsequent effect upon our exposure to inflation. In other words we tried to save a few and hurt everybody. That's the first reaction to the action proposed. However, there will be a second action and it's this . Who actually owns the capital in this country ,the govt ? No ,people like me own the capital amassed from a lifetime of sound economic decisions and what do we do with that capital ? Do we keep in a country that will have negative real rates ?No , capital goes where it is appreciated ,that is ,attracts a real rate of return. That means the second reaction to dropping rates at this time before global growth/inflation drops is that money will exit the UK.

SC, Preston,

David, I agree completely with your comments - I am similarly convinced that the BoE will not act agressively enough while Mr King is in place. If the government does start to take mortgage assets on how does this sit with forced nationalisation of NR - very badly I suggest. The Gov took NR into public ownership because of taxpayers' interests - rubbish - NR has a quality mortgage book and owed less than 25p in the £1 - was there a prospect of the BoE not being repaid - only if the UK economy fell off a cliff (and for people uncertain of high the cliff is this would be a worse recession than the 1930s)

Rob M, Melksham, UK

More win win wishes.
Let capitalism rule, why should a damaging flood of cheap credit be defused by inflationary reaction of printing money and reduced interest rates.
It's my money that will be devalued when the real looser should be the issuers of such risky debt. They took the accolades and the bonus and now they must take the hits too.

We seem to be penalising the prudent and rewarding the profligate.

All this is doing is putting off the inevitable and making the results ever more damaging - to the public not the banks.

Tom Taylor-Duxbury, Ludlow, UK

As a UK taxpayer I do not see why my taxes should be used to maintain an over inflated housing market either through the government purchasing mortgage backed securities at risk of default or providing mortgages. One of the reasons the banks are reigning in mortgage lending and standards is because 1) they know the market is on a cliff edge and 2) because they aren't offloading risk to other investors. Why should the government take on the risk that no-one else wants? The housing market needs to be allowed to return to equilibrium, not supported at artificially high levels by the taxpayer.

PJ, London,

Harry In London is spot on, there is far too much, not too little, credit swilling around and this 'crunch' is a consequence of normality returning. New Labour plc and its 'independent' stooges in the BoE have had a decade to correct this and done nothing.

Well, now the correction is kicking in big time and house prices will return to sensible levels. Job losses when they come will be in those areas, predominantly finance and retail, that have been engaged in selling credit or goods that have been purchased using credit.

Paul, Coventry,

If the lenders are short of funds for prospective borrowers, surely interest rates should rise rather than fall, to bring supply and demand into balance.

Peter, Simon's Town, South Africa

The reason for the downturn in lending is that at last the banks have realised that unless they are careful they wont get their money back. It is simply a consequence of lending money based on overvalued properties. If the government lends money instead, they will lose an excessive proportion through bad debt. Attempting to maintain high property values will be popular with property owners but is the wrong solution.

Ken, Sydney, Australia

We'd all like to find a cure.Somehow I think it will be easier to find a cure for cancer than solve this economic mess out.

stephen hulton, eure, france

Where to begin with this "spend and hope" nonsense? David Smith repeats the mantra of "market failure", but all we really have is a sharp repricing of risk. If people are too stupid to read history books and realize it was all too good to be true, why should we worry if the correction is a bit sharper than most people would care for?

tom legassick, dunedin, new zealand

Obviously David is another property owner staring at falling prices. Interest rates must not go down, it would fuel inflation, which is already well about the nonsense CPI measure and also not ease credit, because the banks are not lending money willy nilly and would not start to lend to every Tom, Dick and Harry even if the interest rates were down to 1%.

Fingers have been burned and hopefully lessons learned. Cheap credit has led us into the mess and will certainly not get us out of it.

Bob Travels, Stevenage,

My goodness banks are a powerful lobby. If I get into financial trouble, then too bad. But banks get into trouble, then the government rushes to bail them out. Not a new point, I know, but why are the government reacting if "hard evidence suggests the economy has weakened only slightly"? This happened in the 80s, mid 90s when I worked in the City and now in the mid-noughties. Banks need to feel real pain or it wont take to much imagination to realise that it will all happen again circa 2018, and taxpayers will have to bail them out. Again.

Shauno, London,

It might help if government stopped using incorrect measures of inflation and debt,The CPI means nothing and all that PFI debt off the balance sheet cant help all of the old financial relationships have become decoupled and now make no sense.
This government have not helped by encouraging borrowing to record levels.

mitch, Wolverhampton, England

The problem is not the lack of credit. There is enough of that in the economy already. And proposing the Government provides it because no one else will is very last resort.

When would you stop lending additional credit - when the average terrace is £1million?

No, the problem is asset prices. They need to fall.

harry e, London,

The gains of immigration are "hard to quantify" but so are the downsides. I live in a area which has an increasing black population, and now a gang problem. Recently a young man was stabbed to death. It takes a particularly perverse intellect to claim the 2 are unrelated (just look at the photgraphs of all the young men stabbed to death in London). And our long cherished freedom of speech has been sacrificed so that we do not upset immigrants. That compromises our ability to make rational decisions and ultimately democracy. Hows that for an untangable?

Shauno, London,

Wrong,wrong,wrong,wrong. It is critical for the markets and the economy to suffer real pain to change behavour and expectations. We are dangerously addicted to debt and have to find a way to get out of our habits- this will not be achieved by a slowing down of the inevitable unwinding of an unsustainable bubble. The sharper the pain the more likely the long term gain. The bank of England has one main remit only and that is to watch out for inflation- I fail to see how any of the above are consistent with this ojective.

David your speaking to too many bankers.

franc petersen, london,

Funny how in a financial downturn, the financial institutions and financial journalists plead for massive government intervention (like lending loads of taxpayers money at silly rates to finacial institutions or buying worrthless mortgage backed securities or cutting interest rates). But in the good times, when stocks markets are hitting new highs every day (thpugh easy credit) or properties are hitting higher valuations, then the very same financial institutions \ financial journalists want virtually no government intervention. I don't see banks agreeing to cut back on bonuses \ high salaries in exchange for taxpayers money to bail them out. So where's the quid pro quo, what do taxpayers get for bailing out follish banks who made foolish investment decisions.

Peter Jones, Bristol, UK