[frugalista]

frugalista, on Nov 16 2006, 03:08 PM, said:

Fine, can you lend me £50000? I can't ever repay it but surely you won't mind.

frugalista

Point is, retail mortgage lenders like Halifax etc. are not actually the people putting the money up when you apply for a home loan. They are merely the last in a chain of intermediaries. At the other end of the chain is a hedge fund investor. If that investor thinks the next batch of borrowers is likely to default, they are going to stop funding mortgages.

And there's your crash.

frugalista

[?...!]

what, on Nov 16 2006, 02:43 PM, said:

Too many important people have too much too loose.

1) The Buy to Let Journalists of the BBC
2) The Buy to Let Editors of all the major news papers.
3) Tony Blair, how many properties does he own.
4) The BOE and their buy to lets
5) Gordon Brown.

It is easy to avoid a house price crash.

Just manipulate the CPI figures and hey presto inflation is really low, and people can continue to borrow.
The government has done it for a few years now and not one demonstration not one protest.

Boring thread lets kill it now.


Lets say I am a fund manager I have borrowed $6 billion in Yen from Japan at cost of 1.2% I use this money to buy sterling on the FX markets.

I then use this sterling to buy a $6 Billion mortgage backed security. It contains 13,000 mortgages. It yields 5.84% or $350 million. Lets say I bought it from HBOS in 2003 for example.

Every year I take the $350 million in sterling from the security and convert it to Yen on the FX markets to repay my Yen denominated debt servicing of $72 million. Pocketing an annual difference of $278 million.

Now if the interest rates in Japan rise this will eat into my profits. If people begin to default this will eat into my profits. If the pound gets weaker this will eat into my profits. If Yen gets stronger this will eat into my profits.

Lets say I constantly run complex models to try and evaluate the risk of each of these events.

I may be able to sell my security for more or less than the $6 Billion I paid for it. Depending on world markets and how they affect my profit margin.


Bearing in mind that mortgages are sold in high street banks almost purely so they can be formalised into securities and sold on to the likes of fund managers.

I can sell it whenever I like, for whatever I want, to whoever I can. It is just a contract to hold a liability in exchange for a yield.

If I decide I don't want to hold mortgage back securities and other fund managers agree, the market value of such securities would fall, demand would wane and high street banks would have less incentive to grant such large numbers of mortgages. Because the sale of mortgage backed securities would be less lucrative.


Who has more power over the property market?

A fund manager or a BBC journalist with 3 BTL's?


Now Citigroup has assets worth about $1.2 trillion they probably have 50 - 150 similar sized funds. Does Gordon Brown have more power than their CEO?

That's just 1 bank.


Why do people insist the government can save the market from a crash? It's because they don't know shit.



.


EDIT: Frugalista's got it.

This post has been edited by ?...!: 16 November 2006 - 03:51 PM

[JustYield]

?...!, on Nov 16 2006, 04:42 PM, said:

Boring thread lets kill it now.

...

Who has more power over the property market?

A fund manager or a BBC journalist with 3 BTL's?
Now Citigroup has assets worth about $1.2 trillion they probably have 50 - 150 similar sized funds. Does Gordon Brown have more power than their CEO?

That's just 1 bank.
Why do people insist the government can save the market from a crash? It's because they don't know shit.
.

Man, you're on fire today.

[Pluto]

?...!, on Nov 16 2006, 03:42 PM, said:

Boring thread lets kill it now.
Lets say I am a fund manager I have borrowed $6 billion in Yen from Japan at cost of 1.2% I use this money to buy sterling on the FX markets.

I then use this sterling to buy a $6 Billion mortgage backed security. It contains 13,000 mortgages. It yields 5.84% or $350 million. Lets say I bought it from HBOS in 2003 for example.

Every year I take the $350 million in sterling from the security and convert it to Yen on the FX markets to repay my Yen denominated debt servicing of $72 million. Pocketing an annual difference of $278 million.

Now if the interest rates in Japan rise this will eat into my profits. If people begin to default this will eat into my profits. If the pound gets weaker this will eat into my profits. If Yen gets stronger this will eat into my profits.

Lets say I constantly run complex models to try and evaluate the risk of each of these events.

I may be able to sell my security for more or less than the $6 Billion I paid for it. Depending on world markets and how they affect my profit margin.
Bearing in mind that mortgages are sold in high street banks almost purely so they can be formalised into securities and sold on to the likes of fund managers.

I can sell it whenever I like, for whatever I want, to whoever I can. It is just a contract to hold a liability in exchange for a yield.

If I decide I don't want to hold mortgage back securities and other fund managers agree, the market value of such securities would fall, demand would wane and high street banks would have less incentive to grant such large numbers of mortgages. Because the sale of mortgage backed securities would be less lucrative.
Who has more power over the property market?

A fund manager or a BBC journalist with 3 BTL's?
Now Citigroup is worth about $1.2 trillion they probably have 50 - 150 similar sized funds. Does Gordon Brown have more power than their CEO?

That's just 1 bank.
Why do people insist the government can save the market from a crash? It's because they don't know shit.
.
EDIT: Frugalista's got it.

Yes, the government are merely pawns of the money lenders.

How many times have you heard Brown pander the city money lenders? City this, city that...it's almost as though any activity outside the square mile is hardly worth talking about.

[frugalista]

I don't really know what I'm on about though. But someone over at the PFJ (Grizzly) works in the City and completely agrees with this analysis.

frugalista

[flatnose]

?...!, on Nov 16 2006, 03:42 PM, said:

Boring thread lets kill it now.
Lets say I am a fund manager I have borrowed $6 billion in Yen from Japan at cost of 1.2% I use this money to buy sterling on the FX markets.

I then use this sterling to buy a $6 Billion mortgage backed security. It contains 13,000 mortgages. It yields 5.84% or $350 million. Lets say I bought it from HBOS in 2003 for example.

Every year I take the $350 million in sterling from the security and convert it to Yen on the FX markets to repay my Yen denominated debt servicing of $72 million. Pocketing an annual difference of $278 million.

Now if the interest rates in Japan rise this will eat into my profits. If people begin to default this will eat into my profits. If the pound gets weaker this will eat into my profits. If Yen gets stronger this will eat into my profits.

Lets say I constantly run complex models to try and evaluate the risk of each of these events.

I may be able to sell my security for more or less than the $6 Billion I paid for it. Depending on world markets and how they affect my profit margin.
Bearing in mind that mortgages are sold in high street banks almost purely so they can be formalised into securities and sold on to the likes of fund managers.

I can sell it whenever I like, for whatever I want, to whoever I can. It is just a contract to hold a liability in exchange for a yield.

If I decide I don't want to hold mortgage back securities and other fund managers agree, the market value of such securities would fall, demand would wane and high street banks would have less incentive to grant such large numbers of mortgages. Because the sale of mortgage backed securities would be less lucrative.
Who has more power over the property market?

A fund manager or a BBC journalist with 3 BTL's?
Now Citigroup has assets worth about $1.2 trillion they probably have 50 - 150 similar sized funds. Does Gordon Brown have more power than their CEO?

That's just 1 bank.
Why do people insist the government can save the market from a crash? It's because they don't know shit.
.
EDIT: Frugalista's got it.

Not bad for a chimp with a bat.

[Panda]

?...!, on Nov 16 2006, 03:42 PM, said:

Boring thread lets kill it now.
Lets say I am a fund manager I have borrowed $6 billion in Yen from Japan at cost of 1.2% I use this money to buy sterling on the FX markets.

I then use this sterling to buy a $6 Billion mortgage backed security. It contains 13,000 mortgages. It yields 5.84% or $350 million. Lets say I bought it from HBOS in 2003 for example.

Every year I take the $350 million in sterling from the security and convert it to Yen on the FX markets to repay my Yen denominated debt servicing of $72 million. Pocketing an annual difference of $278 million.

Now if the interest rates in Japan rise this will eat into my profits. If people begin to default this will eat into my profits. If the pound gets weaker this will eat into my profits. If Yen gets stronger this will eat into my profits.

Lets say I constantly run complex models to try and evaluate the risk of each of these events.

I may be able to sell my security for more or less than the $6 Billion I paid for it. Depending on world markets and how they affect my profit margin.
Bearing in mind that mortgages are sold in high street banks almost purely so they can be formalised into securities and sold on to the likes of fund managers.

I can sell it whenever I like, for whatever I want, to whoever I can. It is just a contract to hold a liability in exchange for a yield.

If I decide I don't want to hold mortgage back securities and other fund managers agree, the market value of such securities would fall, demand would wane and high street banks would have less incentive to grant such large numbers of mortgages. Because the sale of mortgage backed securities would be less lucrative.
Who has more power over the property market?

A fund manager or a BBC journalist with 3 BTL's?
Now Citigroup has assets worth about $1.2 trillion they probably have 50 - 150 similar sized funds. Does Gordon Brown have more power than their CEO?

That's just 1 bank.
Why do people insist the government can save the market from a crash? It's because they don't know shit.
.
EDIT: Frugalista's got it.

Put the flames out > ! great post, thanks

[still_renting]

frugalista, on Nov 16 2006, 03:08 PM, said:

Fine, can you lend me £50000? I can't ever repay it but surely you won't mind.

frugalista

I have been thinking about this and surely it is just a numbers game-

lend 50000 to enough people and then reap in all the interest payments from the outstanding loans

dont worry if the odd borrower defualts its just small fry compared to the huge amounts of money being made from those decent borrowers that can and will payback... in fact then you can afford to write off some bad debts without eating into your profit too much... just make sure you lend to as many people as possible.

I'snt that happening anyway - banks encouraging borrowing and lending to as many people as possible - why do they care if a few default... the rest will pay :-)

The banks will win in the end....(oh and the government)

[PropertyGuru]

?...!, on Nov 16 2006, 03:42 PM, said:

Boring thread lets kill it now.
Lets say I am a fund manager I have borrowed $6 billion in Yen from Japan at cost of 1.2% I use this money to buy sterling on the FX markets.

I then use this sterling to buy a $6 Billion mortgage backed security. It contains 13,000 mortgages. It yields 5.84% or $350 million. Lets say I bought it from HBOS in 2003 for example.[snip]

Fabulous post. Probably the clearest explanation of the moneygoround I've ever read. Read it and weep, Bulls. Here come da crash.

[JustYield]

still_renting, on Nov 16 2006, 05:22 PM, said:

I have been thinking about this and surely it is just a numbers game-

lend 50000 to enough people and then reap in all the interest payments from the outstanding loans

dont worry if the odd borrower defualts its just small fry compared to the huge amounts of money being made from those decent borrowers that can and will payback... in fact then you can afford to write off some bad debts without eating into your profit too much... just make sure you lend to as many people as possible.

I'snt that happening anyway - banks encouraging borrowing and lending to as many people as possible - why do they care if a few default... the rest will pay :-)

The banks will win in the end....(oh and the government)

Yeah it's just numbers on a screen, innit.

[dog]

what, on Nov 16 2006, 02:43 AM, said:

Too many important people have too much too loose.

1) The Buy to Let Journalists of the BBC
2) The Buy to Let Editors of all the major news papers.
3) Tony Blair, how many properties does he own.
4) The BOE and their buy to lets
5) Gordon Brown.

It is easy to avoid a house price crash.

Just manipulate the CPI figures and hey presto inflation is really low, and people can continue to borrow.
The government has done it for a few years now and not one demonstration not one protest.

The UK housing market is a dead man walking and only gods can bring the dead back to life. Your 'important people' are not gods.

People get hung up on economic theory but, in the final analysis, house prices are determined by prosperity. By that fact alone, house prices in the UK are destined for the abyss. Because the prosperity we are seeing at the moment is not based on 'steady state' wealth creation, our poverty tomorrow will be inversely proportional to the size of the party today. We have lost our industry and this week we had a report in the daily Telegraph that the UK knowledges economy is in decline. Millions of jobs have been transferred to non wealth creating jobs.

[frugalista]

still_renting, on Nov 16 2006, 04:22 PM, said:

I have been thinking about this and surely it is just a numbers game-

lend 50000 to enough people and then reap in all the interest payments from the outstanding loans

Yes, that's correct. The interest rate is higher than lending to the government (the borrower of last resort) precisely because of the default risk.

still_renting, on Nov 16 2006, 04:22 PM, said:

dont worry if the odd borrower defualts its just small fry compared to the huge amounts of money being made from those decent borrowers that can and will payback... in fact then you can afford to write off some bad debts without eating into your profit too much... just make sure you lend to as many people as possible.

I'snt that happening anyway - banks encouraging borrowing and lending to as many people as possible - why do they care if a few default... the rest will pay :-)

That's right, but no-one knows how many will default. What if 5% default (not impossible even with just a mild recession) and you have to repossess thousands of properties at a loss?

Bad news if you yourself borrowed a huge amount of money to lend in to the mortgage market (as many hedge funds have).

frugalista

[haggis]

Debt fuelled 'prosperity' is where we are now.

It's naive to mistake this for production fuelled prosperity - you know, where people work and add value to the economy.

Wages haven't kept pace over the past 10 years. Debt has accelerated.

That's your 'miracle' economy.

[Milkshock]

frugalista, on Nov 16 2006, 03:06 PM, said:

Your argument is

CPI manipulated to be low, therefore interest rates too low, therefore no house price crash.

If it is as simple as this, why didn't governments of the past (which had direct control of IRs) avoid the house price crashes of the past?

because they were following a different political dogma at the time?

[sam]

Interesting title to this thread, i put it to you that even if there are people who think it will not happen(and there are some poor sods that think that way), they still have no home to go to.