Wednesday, Jun 13, 2007
Banks in danger of meltdown?
Times: News Article
Chance would be a fine thing, however we do of course note that all the banks without exception appear to have been involved in this pyramid selling and if HSBO is making a loss now, god forbid in the latter part of this year and early next when Interest Rates actually do start rising properly.
Posted by orwell @ 09:46 AM (161 views) Add Comment
16 Comments
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1. confused76 said...
I cannot believe what a race to the bottom!!! This sounds like the final act of the US housing market at the end of 2006:
"Mr Boulger said: “The only way they are going to get back to 15-20 per cent is if they offer some very aggressive pricing, which will force competitors to follow, which is good news for borrowers.”
HBOS also warned shareholders that, like other banks, it was being affected by increasing numbers of account-holders demanding refunds on unauthorised overdraft fees.
The company said that it still expected to meet market expectations of a 10 per cent increase in underlying profits this year to £4.15 billion.
Of interest:
— First-time buyers and other homeowners are now facing the highest mortgage interest payments for 15 years as the Bank of England’s four rate rises since last August hit borrowers hard
— First-time buyers, already struggling to get a foot on the property ladder thanks to soaring house prices, are now paying almost a fifth of their income in mortgage interest costs, the Council of Mortgage Lenders (CML) reports this morning
— A survey by the CML revealed that the average household buying a first home is handing over some 18.7 per cent of income to cover mortgage interest. This is the highest level since 1992, and sharply up from 16.3 per cent last year
— Those moving home and remortgaging are slightly better off, but still face the steepest interest bills for a decade and a half. Movers are paying an average 16.3 per cent of income to cover mortgage interest "
2. rich said...
"...the latter part of this year and early next when Interest Rates actually do start rising properly."
You say that with enough certainty for me to easily mistake you for an idiot. You should be more careful.
3. confused76 said...
Rich,
man, calm down...
I guess the Governor is the prize idiot, because he said so.
But then what "interest rates" are you dreaming about? the IRs that really count for the new mortgages (ie. the banks' mortgage offers) are going up at the rate of 0.1% per day in New York. The 10-year US Treasury rates (together with the risky debt spreads in the international market) are much more important to determine what folks will be paying in interests in this country than the wet dreams of Professor Blanchflower
4. Orwell said...
Why?
It has to happen. The mega debt that the country has borrowed has to be paid back and also the inflation dragon has to be tamed...I don't understand you?
Over to you Rich...?
5. Orwell said...
Rich,
Best read the BBC article below, which is very informative.... This was on radio 4 yesterday as well...
Interesting, though I agree that by no means guaranteed ... I predict IR's at 7.5 % by next year. They will simply have to get to grips with all this debt and inflation...
I also agree with the commentator on the BBC article, Philip Hoy...
"...I really don't think you need to go to such an extent to show that the wheels are about to come off the UK economy! If you add all the UK foreign debt together from all sources (government, personal debt and company debt) it adds up to £10trillion [CIA figures]. Thats actually greater than the £8trillion owed by the US. Ireland, Holland and the UK are in this position, and all have had booms prompted by extremely low interest rates in historic terms. We are now up to our armpits in debt and our total GDP cannot easily service the interest on our total debt, so it must be the case that interest rates rise to choke off the increase in debt. This will reduce the money supply that we have had due to increased debt and plunge the economy into serious recession. We will have a massive mountain of debt but will lose the means to pay off the debt. We are indeed doomed..."
Touche..
Couldn't put it better myself although I am surprised there is still one blogger on my article who seemed to think I might be wrong? Perhaps you are spread betting against IR rises? A bit suicidal if you are Rich... hope you have lots of 'capital'!
6. confused76 said...
Global rise in interest rates is unstoppable...
... beware borrowers!!! savers bonanza ahead!!
Chinese inflation at two-year high
http://business.timesonline.co.uk/tol/business/markets/china/article1923479.ece
7. Orwell said...
Confused...
I appreciate your analysis. Regrettably I am just a lawyer (and underpaid at that looking at the money the smoke make (inc. Rich?)).
What I don't understand is the bond market references. America was hit again last night, so what does this mean?
I need a mortgage of say £200k. Don't I just get the funny money from the BOE via the merchant and clearing banks etc...
Agreed I pay some commission to the banks, (up to 2%?). But what relevance does the bond market have?
In very simple terms please?
8. george monsoon said...
Something relevant, that has been COMPLETELY overlooked is the fact that in 1992, there were more "stay at home" mothers, partners, wives, girlfriends, who did not have an income and mortgages were rated on one annual wage, not two.
15 years on and these days it is almost unheard of for one partner to stay at home, even mothers are working at least part time to make ends meet and I bet almost every mortgage today, is taken out on the strength of two wages (just to be able to afford the quarter million mortgage on that end terrace in Dodge City)
Shove that in your afordability model and see what the real story is!
9. disciple said...
People tend to get divorced rather than stay together, unlike the 70s & 80s, so there are a lot of people living on their own rather than sharing a property. This is the main reason why flats are so popular than houses and why there appears to be more of a demand for property. Think of cars with just one passenger and the enviroment, this is another reason why there are more cars on the road.
Also the population is getting smaller. Women on average are giving birth to 1.7 children in their life time. You need at least two to break even! The baby boomers are starting to retire, this generation is the biggest, so as they start to sell their shares and other assets (like property) there will be a glut of these assets waiting to be snapped up. The only problem is that the other generations won't be able to buy them up, because they won't have enough money to do so, because the younger generations are a lot smaller. The reason that the UK has about 60 million people is because of the baby boomers plus migrants. For example about 40years ago there was 55 million people, today its only 60million. A 5 million increase in 40 years! This pokes fun at the suggestion that the population is increasing and property is not keeping up with supply. When the baby boomers die out there will be a big population hole to fill.
What all this means is that evrything is out of balance, so something big is coming. A property crash is not something you need to be thinking about, but survival. But don't worry this might not happen for another 30 years.
10. mrmickey said...
I agree George you've just got to look at the increase in traffic on the roads all the extra social workers and ethnic awareness officers created in the last 10 years to keep the middle classes in jobs.
11. mrmickey said...
Demographics is another good point, the indiginous population of Europe is in effect dying off with birth rates falling, the topping up of the population with immigrants from mostly third world countrys is leading to social problems and the rise of the far right. A falling population is not the sign of a healthy economy.
12. japanese uncle said...
The volatility in the financial market today is unfathomable thanks to the monstrous growth of derivatives geared to hedge funds/private equities, etc., which has been largely untested. Savers must be extremely selective and cautious about the choice of banks, as I repeatedly mentioned. Heaven forbid!
13. george monsoon said...
disciple.. what about in 30 years? do you have a theory with any subjective evidence?
14. Sherlock Homes said...
worst case scenario, London the number 1 economic capital of the world will be underwater, New York will follow,possible rise of x metres of sea water after all we have been warned it is happening, 30 years is a fair estimate i say, , best case scenario, the worlds leaders and its crashing civilizations realise the earth is not an infinite resource and through wise and thoughtfull planning will not spend more than they have , will not want more than they need and perhaps those lucky enough to survive the crash will tell the stories to the children whilst wandering aimlessly over the savanna nibbling on seed heads and speculating about who has the best cave in the sweetest location, hohoho
15. fahrenheit451 said...
hi george & discipline ...
Just to help (add fuel to the fire) this is a repeat of an earlier post.
=====
OK some boring statistics, (i.e. lies, misdirections, etc.)
UK Population has grown from 5.6m (1750), 38m (1901), 55m (1970), 60m (2005).
And the land area has not changed, but cities & housing have expanded.
see: http://www.optimumpopulation.org/opt.more.ukpoptable.html
Now compare this with other countries:
http://en.wikipedia.org/wiki/Demographics_of_Europe
=====
16. fahrenheit451 said...
The earlier post was ...
http://www.housepricecrash.co.uk/newsblog/2007/06/blog-oh-yeah-x-pay-this-is-just-a-rental-society-in-the-making-4498.php
Sorry discipline ... but ...
The only fault with the argument that "When the baby boomers die out there will be a big population hole to fill." is that they will have had their children as well, it used to be 2.4 children per family, but then there are many who have left it too late due to building up a career, and others who have gone for 4+. amongst our friends I suppose it averages about 2 and a bit, but then we've joined the wageslaves in not finding enough time to enjoy a healthy family life.
Our grandparents came from families of 6 or 8 children, but mortality was high and WW2 took its toll of my "potential" aunts and uncles. Many of the modern illnesses were just natural causes and heart problems had not been discovered, etc., blah ...