Wednesday, Apr 18, 2007
Easy Credit Explained - UK Relevant
Money Week: Who will be caught out by easy credit next ?
A very good Insight article, for those of us who still may be puzzled how the Credit Bubble has built up, i.e. know nothing about economics but know that something is not quite right with out economy.
"It’s a process that starts slowly. The early ones nervously join the game and achieve the objective of buying a house they can’t afford with money they haven’t got. As the value of the property they couldn’t afford to buy with money they didn’t have goes up, the mortgage provider suddenly has a margin of security. As long as the value of the property increases at a greater rate than the payment of interest they cannot afford, then all the sub-prime borrower needs to do is periodically re-finance the mortgage. Their equity grows from nothing to something, it is a miracle of alchemy."
3 Comments
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1. tony marshall said...
I count myself as someone who understands economics, but it's still a delight to read such a well set out explanation - maybe because it makes me feel better to find that someone in a position of influence sees the situation in the same simplistic way that I do – that Emperor just aint wearing any clothes!
I wrote a short story that’s on the Wiki (called Higher, Daddy, Higher!) - if anyone’s interested, see http://www.housepricecrash.co.uk/wiki/User:Tony_Marshall. If anyone’s a good artist (perhaps in the style of Quentin Blake..?) then it would be great if we could add some illustrations – maybe then someone else might take an interest.
2. enuii said...
Cracking article right the way through to the end, if you read it make sure you read it all!
3. fahrenheit451 said...
Thank you "andrew - ealing".
Absoutely fabulous article, here we go round the merry go round.
What happened to "Learning from your Mistakes".
It just proves that it is an inherent human traint to meddle. I thought the motto "If it ain't broke, don't fix it" was understood by all, oh of course politicians excluded. Everyone "knows" what is required for a stable growing, healthy, blah de blah, economy. So why not just put it in gear and leave well alone, mess with it just to keep yourself in a job is the last resort of the inherently unsuccessful and paranoid. Roll on the 25th Century Star Trek Utopia, but watch out for the Klingons, Ferengi, Borg and all the others.