The perils of cheap money

Banks in the UK paying a nice round return (0%) on most of their accounts; National Savings cutting its rates and taking its inflation-beating certificates off the market. What's the beleaguered saver to do?

Well, he/she can always turn to the investment pages of the weekend newspapers, because they're up to their old tricks again. Yes, the folks who cheerfully touted the attractions of Icelandic banks even as they careered over the precipice are at it again. The location of the favoured institutions has changed: ICICI is still there from pre-crisis days, but now it's been joined by Bank of Baroda. I know abolutely nothing about either of these fine institutions, but that's precisely my point. You tart your money about for the highest rate, and as long as you don't put more than £50,000 into any one institution you've never heard of, you've nothing to worried about, because the Government (or rather the taxpayer) will be there to bail you out if it all goes T.U.

These money pages really are the apotheosis of the moral hazard that Mervyn King used to fret about until someone told him to pipe down. It's highly irresponsible of the "upmarket" newspapers to encourage this kind of behaviour.....

....but not as irresponsible as this. On another page of this past weekend's Sunday Times, an array of professional investors were asked for their best current money-making wheezes. One that the paper really liked -- because it highlighted it at the top of the article -- was a suggestion to buy distressed real estate in the US or maybe in Spain, and finance the purchase with a Yen-denominated mortgage!

Look, I'm a former investment banker. I understand this trade; I can see that it has an awful lot of moving parts. Maybe I'm underestimating the readers of the Sunday papers, but I'm wondering how many of them will see the risks inherent in something like this. This is the sort of trade that professionals may be able to recommend to sophisticated investors as a bit of "juice" in a diversified portfolio. It shouldn't just be dangled in front of regular savers who are mostly looking for alternatives to bank deposits.

I suppose there will be no harm done, because no individual could put a transaction of this sort together without taking professional advice. Still, as with touting the Bank of Baroda and its ilk, you wonder just what the editors of these money sections are trying to achieve. The longer we stay in today's cheap money regime, the likelier it is that people will be tempted into something much riskier than they realise; and it won't be the Sunday papers that have to bail them out.