Dire Flanders Article: The Truth About Uk Debt

[bmf]

Really dreadful article about how expensive housing makes us all rich from Flanders:

http://www.bbc.co.uk/news/business-17398014

Why not head on over and mock her and by extension Oxford who think she is good enough to pass their PPE course.

[R K]

Really dreadful article about how expensive housing makes us all rich from Flanders:

http://www.bbc.co.uk...siness-17398014

Why not head on over and mock her and by extension Oxford who think she is good enough to pass their PPE course.

It might be helpful if you could point out where and how Broadbent's analysis is wrong and why you think the article is really dreadful?

It's certainly true that most of the focus on the b/sheets, whether household or govt or banks, tends only to look at the 'debt' and not the 'assets'.

Perhaps it's the nomenclature that's the problem? Or is political? Or economic schools? or something else.......

[19 year mortgage 8itch]

He should have a word with his boss,

“House prices are a matter of opinion whereas debt is real.”

[Game_Over]

What a load of b*llocks.

Debt is not even the problem

The deficit is the problem.

We could default tommorrow then what?

The government would be forced to spend only what it could raise in taxation

And 50% of the state would have to be dismantled.

This is the situation the Greeks are in.

They can't pay their debts, but they don't want to default because that would mean having to live within their means.

[billybong]

He should have a word with his boss,

“House prices are a matter of opinion whereas debt is real.”

+1

That sums up the majority of the article.

Then there's another apt one - "he (ok she as well in PC 2012 ) who pays the piper calls the tune" which seems to sum up the tune being played in the article.

Edited March 16, 2012 by billybong

[bmf]

It might be helpful if you could point out where and how Broadbent's analysis is wrong and why you think the article is really dreadful?

It's certainly true that most of the focus on the b/sheets, whether household or govt or banks, tends only to look at the 'debt' and not the 'assets'.

Perhaps it's the nomenclature that's the problem? Or is political? Or economic schools? or something else.......

My apologies. I should have written more.

I just found the article to be typical of pro-housing "wealth" in that it argues it's ok to have very high debt because the housing "wealth" balances this out. The argument made seems to ignore the fact that the BoE have been printing like lunatics to keep rates low to avoid a housing crash which will then make UK banks insolvent. It also ignores the inflationary effect of QE, an effect which is certainly putting a drag on any recovery.

The assumption that housing will be sold on at these prices is IMHO a pipe-dream. Therefore the losses are real even if we avoid a nominal loss through a soft default which we pay for through inflation and devaluation of savings.

Households' total wealth, including housing, was worth eight-times annual disposable income at the end of 2010. That's above the 25-year average, despite everything that happened in 2008-10.

Not real wealth if we are counting remortgaging or equity.

Here's the most striking statistic: UK-owned banks have lost 15 times more on foreign mortgages, since the crisis started, than on mortgages in the UK.

Spain and Greece couldn't print their way out, but printing isn't a free lunch.

Here's the argument: first you had a structural fall in the real interest rate, long before quantitative easing. This, alongside very limited new supply of housing, pushed up UK house prices, because it made it easier to make money renting property, and made it easier to service a higher level of debt.

Those higher prices (and lower interest rates), in turn, led households to need - and obtain - higher mortgages, to go with the higher price of a house. But, as I said before, the rising value of houses meant that overall, the household sector was getting better off.

No real wealth is generated in this loop. Except for compound interest payments to banks.

Likewise, had it not been for the Bank of England's record low interest rate policy, bank losses on UK housing over the past few years would have been considerably greater.

Slipped in at the end. No kidding.

I do find Flanders to be very light on her feet when it comes to criticising Labour's policies.

I'm heartened to see most of the comments with positive votes are slating high house prices.

[billybong]

Here's the argument: first you had a structural fall in the real interest rate, long before quantitative easing. This, alongside very limited new supply of housing, pushed up UK house prices, because it made it easier to make money renting property, and made it easier to service a higher level of debt.

Those higher prices (and lower interest rates), in turn, led households to need - and obtain - higher mortgages, to go with the higher price of a house. But, as I said before, the rising value of houses meant that overall, the household sector was getting better off.

Doesn't that just sum up the whole continuing deceit of the VIs, the politicians and the media outlets etc...

That is FTBers etc etc need higher mortgages for houses to be "affordable".

In taking that "argument" they're accepting and even encouraging debt pushing up house prices further and implying that house prices won't become truly affordable.

Edited March 16, 2012 by billybong

[zugzwang]

Flanders is the BBC's resident sunshine propagandist and counter-weight to Robert Peston. Her glass is always half full. I guess having spent your formative years climbing on and off the likes of Ed Balls everything else life throws at you must seem like eating foie gras to the sound of trumpets.

Broadbent is a Vampire Squidster. Nothing more needs to be said, really.

[juvenal]

Flanders is the BBC's resident sunshine propagandist and counter-weight to Robert Peston. Her glass is always half full. I guess having spent your formative years climbing on and off the likes of Ed Balls everything else life throws at you must seem like eating foie gras to the sound of trumpets.

Broadbent is a Vampire Squidster. Nothing more needs to be said, really.

Good 'un...

[(Blizzard)]

Don't worry about all that debt. Don't worry about the all the extra interest payments, or the extra rent.

It's bad, ok, but it doesn't matter. It doesn't matter, yeah, because the same shops and houses that we have always lived in, you know the ones built over the last few centuries?

Yeah that's right, the ones that pretty much haven't got any better or worse or changed in any way?

Well they've done really amazing things in the last decade, right, amazing things. They've done nothing, and, er, it's amazing,

and it's made us all rich, right.

No-one really knows how, but it's true, and, er, it doesn't seem like it, but we're all rich..

'Cos, er, if we sold those houses and shops, yeah, ok, we can't sell them, because we need them, and no-one can afford to buy them anyway,

but if we could, and we did, right,

then we could wipe out all the debt.

Well, y'know, pass the debt to someone else, but that's the same thing, right?

I know, but, well the debt would be someone else's problem, and, er, other people aren't part of the economy.

Right? Look it's economics, it's really really complicated. You wouldn't understand.

[eric pebble]

Doesn't that just sum up the whole continuing deceit of the VIs, the politicians and the media outlets etc...

That is FTBers etc etc need higher mortgages for houses to be "affordable".

In taking that "argument" they're accepting and even encouraging debt pushing up house prices further and implying that house prices won't become truly affordable.

That is FTBers etc etc need higher mortgages LIAR LOANS for houses to be "affordable".

[EvilEdna]

Don't worry about all that debt. Don't worry about the all the extra interest payments, or the extra rent.

It's bad, ok, but it doesn't matter. It doesn't matter, yeah, because the same shops and houses that we have always lived in, you know the ones built over the last few centuries?

Yeah that's right, the ones that pretty much haven't got any better or worse or changed in any way?

Well they've done really amazing things in the last decade, right, amazing things. They've done nothing, and, er, it's amazing,

and it's made us all rich, right.

No-one really knows how, but it's true, and, er, it doesn't seem like it, but we're all rich..

'Cos, er, if we sold those houses and shops, yeah, ok, we can't sell them, because we need them, and no-one can afford to buy them anyway,

but if we could, and we did, right,

then we could wipe out all the debt.

Well, y'know, pass the debt to someone else, but that's the same thing, right?

I know, but, well the debt would be someone else's problem, and, er, other people aren't part of the economy.

Right? Look it's economics, it's really really complicated. You wouldn't understand.

Thanks for that - really cracked me up. What do they take us for? God it makes me mad.

[The Knimbies who say No]

Here's another interesting fact: the median loan-to-value ratio on a new mortgage didn't go up during the "boom" years - in fact, for most of the 1990s and noughties it was falling.

That's consistent with the idea that rising house prices caused bigger mortgages - not the other way around. According to Broadbent, there isn't even much evidence that "mortgage withdrawal" - loans taken out on the basis of rising property values, were used to fund extra consumption.

Not everyone will buy these arguments.

This is very stupid.

Flanders/Broadbent is saying that First Plus, Picture loans etc just didn't happen. Why doesn't she/he look at the First Plus adverts specifically targetted at people to use them to fund consumption "combine all your credit card payments into one lower monthly payment" on youtube.

Surely a dropping LTV ratio is exactly consistent with crazy mortgage lending Northern Crock's 125% etc. I don't know if it is a common misconception, seems bleedin' obvious and I can;t say I've met many people who think that LTV rose during the boom years. Hardly an 'interesting fact'.

Edited March 17, 2012 by cheeznbreed

[frederico]

Thanks for that - really cracked me up. What do they take us for? God it makes me mad.

I think articles such as this (I haven't read it), give more of an idea of how you should view the authors knowledge rather than your own.

I once read part of the nationwide house price report thingy, written by their chief economist or someone (6 figure salary at least). I can honestly say that I have an awful lot more knowledge and experience of the housing market and economy than he did.

The OBR report is another one, what you have to realize, is that these people really do not have a clue, but get to pontificate by knowing more than their peers and sounding confident.

[erranta]

Good 'un...

Nah - 'corny'

(cos they is force fed - like the illuminati-Masonic cult force feed us with crap in all media)

All those trio of persons mentioned passed through the NWO recruitment and brainwashing centre of Oxford Uni

Nim-zowitsch (Jewish speaking chess grand master - one of best ever book read by 99% of other grand master chess players)

Nim-by

NIM - O.E. niman “take” (cf. O.Fris. nima, M.Du. nemen, Ger. nehmen, Goth. niman; see nimble).

The native word, replaced by Scandinavian-derived take and out of use from c.1500 except in slang sense of “to steal,” which endured into 19c.

etc

Applies to The City and their black 'n Whites (MET/Corporation of London) monopolistic, gaming, stealing, 'boards'

~(OX= tic,tac, toe - spot 'tactic' as in police tactics = TTT Mason TAO

(yorky rite = puddings (> = fire of london = 'pudding' lane > esther " Sausages")

[bmf]

Nah - 'corny'

(cos they is force fed - like the illuminati-Masonic cult force feed us with crap in all media)

All those trio of persons mentioned passed through the NWO recruitment and brainwashing centre of Oxford Uni

Nim-zowitsch (Jewish speaking chess grand master - one of best ever book read by 99% of other grand master chess players)

Nim-by

NIM - O.E. niman “take” (cf. O.Fris. nima, M.Du. nemen, Ger. nehmen, Goth. niman; see nimble).

The native word, replaced by Scandinavian-derived take and out of use from c.1500 except in slang sense of “to steal,” which endured into 19c.

etc

Applies to The City and their black 'n Whites (MET/Corporation of London) monopolistic, gaming, stealing, 'boards'

~(OX= tic,tac, toe - spot 'tactic' as in police tactics = TTT Mason TAO

(yorky rite = puddings (> = fire of london = 'pudding' lane > esther " Sausages")

Again, no idea what erranta means. But I would pick up on the PPE side. It must be embarrassing for Oxford. So many PPE graduates who are intellectually sub-standard. Flander's article is a real muddle. A GCSE essay after an interview with someone from the BoE. Milliband is incoherent. Clearly you can be very average and still get through Oxford. This is damaging. It makes me question Oxbridge candidates. Are they smart or another PPE like graduate?

[Bloo Loo]

"Here's another interesting fact: the median loan-to-value ratio on a new mortgage didn't go up during the "boom" years - in fact, for most of the 1990s and noughties it was falling.

That's consistent with the idea that rising house prices caused bigger mortgages - not the other way around. According to Broadbent, there isn't even much evidence that "mortgage withdrawal" - loans taken out on the basis of rising property values, were used to fund extra consumption.

Not everyone will buy these arguments."

WTF has LOAN TO VALUE to do with affordability?

didnt her very own BBC report in 2003 that LIAR LOANS were required to even get a loan?

Mortgages werent affordable then, so people were "forced" to lie and lenders to definitely lie to investors...and when the lying became embarrasing, they dropped costs, income criteria and even how many strangers could "enjoy" their purchase with amazing financial "products"...right up to 125% loans, 100% IO and buy with a friend/builder/Government.

and just what did people do with their MEWS?

Buy the arguments?...they are not even arguments to buy.

[The Knimbies who say No]

"Here's another interesting fact: the median loan-to-value ratio on a new mortgage didn't go up during the "boom" years - in fact, for most of the 1990s and noughties it was falling.

That's consistent with the idea that rising house prices caused bigger mortgages - not the other way around. According to Broadbent, there isn't even much evidence that "mortgage withdrawal" - loans taken out on the basis of rising property values, were used to fund extra consumption.

Not everyone will buy these arguments."

WTF has LOAN TO VALUE to do with affordability?

didnt her very own BBC report in 2003 that LIAR LOANS were required to even get a loan?

Mortgages werent affordable then, so people were "forced" to lie and lenders to definitely lie to investors...and when the lying became embarrasing, they dropped costs, income criteria and even how many strangers could "enjoy" their purchase with amazing financial "products"...right up to 125% loans, 100% IO and buy with a friend/builder/Government.

and just what did people do with their MEWS?

Buy the arguments?...they are not even arguments to buy.

Interesting you and I highlighted the same passage, which I thought is near unequalled in stupidity and ignorance, even by the sanctified standards of the MSM. Unbelievable that this sort of rubbish can see the light of day in a 'serious' news source, nevermind published by a senior member of staff within the organisation.

It is often said, but I would not expect this level of fundamental misunderstanding from high school children.

[rantnrave]

I think articles such as this (I haven't read it), give more of an idea of how you should view the authors knowledge rather than your own.

I once read part of the nationwide house price report thingy, written by their chief economist or someone (6 figure salary at least). I can honestly say that I have an awful lot more knowledge and experience of the housing market and economy than he did.

The OBR report is another one, what you have to realize, is that these people really do not have a clue, but get to pontificate by knowing more than their peers and sounding confident.

Agreed. When someone's starting point is that today's house prices are reasonable, you know that any economics they spout is going to be drivel.

[Josieful]

Stephanie Flanders has a very poor track record and is lucky to still have a job. Some of her gems have been

"There are no signs of inflation"

"Greece will get nowhere near default"

"I expect petrol prices to fall heavily in 2012"

The only decent part of her blogs -which are very rare these days, how many holidays can you have?- are the comments section and some of the comments which have the most votes on this post are very good and I recommend them to readers and not the blog itself.

[bmf]

Stephanie Flanders has a very poor track record and is lucky to still have a job. Some of her gems have been

"There are no signs of inflation"

"Greece will get nowhere near default"

"I expect petrol prices to fall heavily in 2012"

The only decent part of her blogs -which are very rare these days, how many holidays can you have?- are the comments section and some of the comments which have the most votes on this post are very good and I recommend them to readers and not the blog itself.

Agree on the comments. I posted this in large part because of them. I found it interesting that people are voting up items that follow HPC sentiment. I recall posting things on bbc blogs about 3 years ago and getting attacked by rabid lefties that Labour was great and the state should spend more and that there were no problems. How times change. Too little too late though really, for the UK. And even then people who post in forums are many times more politically "active" than the average UK subject.

[(Blizzard)]

"Here's another interesting fact: the median loan-to-value ratio on a new mortgage didn't go up during the "boom" years - in fact, for most of the 1990s and noughties it was falling.

That's consistent with the idea that rising house prices caused bigger mortgages - not the other way around. According to Broadbent, there isn't even much evidence that "mortgage withdrawal" - loans taken out on the basis of rising property values, were used to fund extra consumption.

Not everyone will buy these arguments."

...

To be honest, I think the article is beyond parody if you read it as intended.

However, this part is interesting because it's really an argument that it was the housing market that caused the problems.

They are dead wrong that the rising value of houses somehow makes debts easier to pay.

At best rising house prices are a zero sum game. People at one end of the chain get money which has to be earned by the people going in.

In reality, the distorted incentives this creates penalise productive activity and reward unproductive activity, so you get less of the former and more of the latter, which destroys the economy. You also have other second round effects such as reduced labour mobility, higher prices for everything that uses land anywhere in it's supply chain (which is everything), and a reduction in foreign investment .

Rising house prices make it harder to pay off debts, not easier. They might make a few individuals richer, but that money is a transfer from other people in the economy and the second order effects make the economy as a whole and most people in it, poorer.

I have always been of the opinion that some of the national debt reflected these losses caused by the housing market, and some reflected losses due to the banking industry (which is another, less transparent form of rent-seeking).

However they claim that this debt was primarily created by the increases in house prices which might be true but is not mainstream opinion.

Edited March 17, 2012 by (Blizzard)

[Bland Unsight]

Well they've done really amazing things in the last decade, right, amazing things. They've done nothing, and, er, it's amazing, and it's made us all rich, right.

...

Right? Look it's economics, it's really really complicated. You wouldn't understand.

Way back in the day there was a great Harry Enfield/Paul Whitehouse sketch with two drunk blokes sitting at a pub in a crap boozer repeatedly saying, "My house, is is my 'ouse, but my home, is my 'ome", over the fadeout you get some fake BBC credits and a voiceover saying "If you would like the free empty cigarette packet with the word bum written on it that accompanies this series, send a self addressed envelope to BBC Television Centre..."

People are trying to revise what happened. What happened in the UK is that the banks borrowed short and lent long. The US property bubble burst and the liquidity in the wholesale funding market that had allowed UK banks to borrow short disappeared and hence UK banks were insolvent. The house price collapse that then started up would have demonstrated that aside from the issue of being insolvent they were also going to quickly make such enormous accounting losses that they would be clearly, even on the casual inspection, nothing but a big net liability without the ability to generate any profits.

To play devil's advocate you could argue, on the behalf of some over leveraged home owner, that as there was a spread between the effective interest rate that the banks paid to fund all this lending and the rates that they lent at, the home owner could have reasonably assumed that the bank were doing something to deal with this borrow short/lend long risk, and not just passing all the difference on to employees and shareholders.

The Flander's piece is disgraceful, an attempt to hand around the blame on the basis that "things are more complicated than they look to you" whilst completely ignoring the fact that crashes started this, crashes are still happening all over the world and the UK market still looks accident prone, to say the least. I wonder if 5 years down the line the net assets/liabilities graph will look so friendly. Pretty sure there are nominal falls round here. With inflation still running at a non-trivial clip, its certainly falling in real terms right now. Bonkers to not even critique the Squid's argument in light of the possibility that we may see some acceleration in the deflation of our bubble.

[billybong]

Why did we have a financial crisis? And why has the recovery been so slow?

Ask any normal person these questions, they would probably blame the banks. But then world-weary "experts" - policy makers and commentators - would usually step forward, to put them straight.

"The banks made mistakes", these wise heads will say, "but really it's all our fault, for running up so much debt. We all had a binge, and now we have to pay."

It's an excellent morality tale, which chimes well with the British tendency towards self-flagellation.

There's just one problem. It's not really true.

In a nutshell, that's the argument that Ben Broadbent, a member of the Monetary Policy Committee has made, not very convincingly, in a new speech.

Amended - to be more accurate.

Edited March 17, 2012 by billybong

['Bart']

I just found the article to be typical of pro-housing "wealth" in that it argues it's ok to have very high debt because the housing "wealth" balances this out.

In such a situation, wouldn't everyone have to sell their asset (houses) to pay the debt?

And which debt would they be paying, their own private debt or the public debt?

Very selfless of them if it was the public debt.

Where would they all then live? And who would they sell their property to? Russian oligarchs? Martians?