Thursday, Mar 15, 2007
UK's sub-prime sector now outstrips US in relative terms
The Telegraph: Another crack in the wall
Anyone who thinks what is happening in the US cannot happen here - read this.
Posted by sold 2 rent 1 @ 08:40 AM (178 views) Add Comment
24 Comments
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1. japanese uncle said...
Seems like the inevitable has come over here after all.
Something wicked this way comes, as always from across the Atlantic.
2. Popalot said...
It was reading so well, until the last sentence. If both sides of the pond (to save idiots from themselves) cut rates the dollar will crash and the UK HP Boom will go catatonic making the explosion, when it comes, unprecendented.
3. tyrellcorporation said...
After all the bearish comment in the article we're left with this pearl (of shite!)...
'In the end, the US Federal Reserve can come to the rescue with rate cuts, and the Bank of England can do the same here.'
4. mrmickey said...
There there mummy will make it better with interest rate cuts
5. harold said...
'In the end, the US Federal Reserve can come to the rescue with rate cuts, and the Bank of England can do the same here.'
This won’t work because of something commonly referred to as "pushing on a piece of string syndrome" - i.e., the consumer, as in Japan in the 90s, is no longer willing, or able, to take on more debt no matter how much ‘funny’ money you throw at them via mortgage bailouts or lower IRs. We, like the Americans, are maxed-out.
End of the line for the Fed, I'm afraid. Time to abolish the unconstitutional bunch of crooks.
6. japanese uncle said...
Is Merding King a Tut Ank Amen?
7. japanese uncle said...
In the early 90's, merchant in this coutry showed cheaper products first. Nowadays, they recommend the most expensive first. From now this will be reversed. After all just ten years ago people were renting 14 inch TV rather than buying 42 inch LCD TV, reading books borrowed from libraries, rather than buying ones, going places on a bus, rather than wasting petro by driving on their own. Banks will ignore kids wanting credit cards. A pint will cost 1.50 rather than 3.20. A loaf of bread to 50p from 1.2. Unemployment rate will sadly increase up to maybe 8%, and so will the IR. It cannot be helped. That's life.
8. dohousescrashinthewoods said...
JU, can you elaborate a bit - sounds interesting so I'm wondering what your reasoning is?
9. japanese uncle said...
By the way is the FRB chairman's salary payable from the public purse? And what about Merding Kings generous pay? Are they on us? Of course. And they are still working virtually for the private interests of those big financial tycoons. This is the con of the century. The remedy should be: central banks must be nationalized and their governors must be elected directly by voters. Anyway it is quite good that millions of people are now aware of this con thanks to the Internet.
10. Paulos said...
I think this is the most convincing article for an HPC here that I've seen!
11. garch said...
Well this information obviously supports the bear case:
"This includes buy-to-let mortgages, but even allowing for differences in data, Britain's sub-prime sector now outstrips its American counterpart in relative terms."
Although this point shouldn't be ignored (supports comments Uncle Monty has made on the forum):
"In America, 29pc of all mortgages issued at the height of the bubble were 100pc loans - or even 105pc or 110pc, to pay for furniture. The craze has not gone so far in Britain, where the equity stake in half the lower-tier loans is 20pc or more, and prices have not been pushed beyond historic extremes."
12. japanese uncle said...
Clam down dear. That is just my hunch and there is not much logic in it. But generally speaking, exactly as Harold says "the consumer, as in Japan in the 90s, is no longer willing, or able, to take on more debt no matter how much ‘funny’ money you throw at them via mortgage bailouts or lower IRs". Psychology is single most important element in determing the economic climate. When everyone starts to think the economy will shrink rather than boost, economy will really shrink, after all macro economy comprises millions of micro economies whether corporate or individual, thus reflect their overal emotional attitude and behaviour (as everyone here is fully aware). When economy starts to shrink, the deflationary spiral will be in place, as people will be much more cautious about their future,stop spending, reducing the money in circulation, which is what happened in Japan. Last year I went to Tokyo after some years absense, to find that people look definitely shabbier than 10 years ago. A very tasty pasta in a restaurant would cost me just 2 pounds. They could not claim higher price as consumers simply could not afford. The matter is as simple as that. But of couse house price will be the most affected in such climate. Again my hunch tells 70% drop in house price here, simply because my absolute objective measure tells so. After all a garage should not cost more than 5,000 pounds whatever ridiculous price tage it may carry (such as 100,000 pounds) now.
13. monty said...
Was that South Sea Mortgages? An who says investment bankers lack a sense of humour? :-)
14. japanese uncle said...
I am glad that they had the decency to slightly alter the name to Southern Pacific. Anyway majority of investors do not care as they do not read history, making little difference.
15. mrmickey said...
South sea morgages very funny "plus ca change"
16. paul said...
So JU, you think we're heading for Japanese-style deflation? I have to say I agree.
This is what happens when the government refuses to acknowledge soaring (mortgage interest) inflation to bring cheap-credit fuelled asset price booms back into line. Either the MPC raises rates to tackle the true cost of living or the people end up having much less money to spend creating a deflationary spiral.
We've rather naiively thought that because it happened in a country far far away from here, a long long time ago that it could never happen in blighty.
Unfortunately, markets don't change that much and we will all repent at their (the MPC's) leisure for many years to come.
17. dohousescrashinthewoods said...
I can see the case for deflation for these reasons:
- Cheap credit creates lots of money supply.
- Money supply causes inflation.
- Lenders now tightening criteria because of the burns from bad debts - "won't lend".
- The capital markets having a decreased appetite for MBS, so lenders can't recycle money as quickly - "can't lend".
- (add in the unwinding carry trade)
- Lenders less willing and able to lend means less money supply.
- Less money supply means deflation.
On the plus side, each quid of savings is worth more. On the minus side each quid of debt is worth more too.
Does this mean the government is going to have to man the printing presses to generate more money to counter it?
Which would mean that mean that Gordon's policy of squeezing public sector salaries could backfire..
18. japanese uncle said...
Yes, indeed. Plus influx of immigrants workforce always works to reduce salary standard, thus causing deflationary trend. I have reluctantly to mention that the next stage in such development should be certain element of haterid between the lowest layer of workforce whose jobs are directly threatened by those immigrants.
19. talking rot said...
I like "In the end, the US Federal Reserve can come to the rescue with rate cuts, and the Bank of England can do the same here."
US and UK populations are carrying a lot of debt. If a heavily indebted nation cuts interest rates, doesn't the nation's currency drop which is likely to cause inflation to rise and so interest rates to rise too. Am I missing something?
20. C'mon Correction said...
TR - Yes, the currency will drop and after a lag we will start importing inflation like crazy, so rates will have to go up again.
Cutting rates is not possible here in the UK for a long time, fact. We're more likely to see 7+% than sub 5%.
21. george monsoon said...
I love this site. Although there are huge gaps in my jigsaw, The way the financial world works is beginning to become clear. Unfortunately this clarity of vision allows me to see the knifes edge upon which the whole world economy now sits!
As for all these strange terms like Sub-Prime... Deflation.. etc... all I can say is YAY for Wickipedia..! :O)
22. Weycresto said...
Back in November 2006 the FSA asked the banks to predict the effect of a 40% fall in house prices on their balance sheets.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article638405.ece
I wonder when we will get the results!
23. geed said...
Weycresto
Indeed, it often wise to remind ourselves of prior posts.
99% of the article explains in depth why the UK will react much in the same way as the US housing market. The last sentence in this article is at odds? The sentence is a statement with no substance just like this one....
"In the end, the my employer can come to the rescue with a 50% pay rise, and the everyone working in the UK will recieve same here."
hurray!
24. Nazza said...
Man you guys need to chill..
House price are going to crash within the next 1-2years. So when is a good time to buy a house for first time buyers?