Wednesday, Nov 28, 2007
Similar to 1929
The Telegraph: China wins from credit crunch fallout
In the 1920s, individual Americans went on a binge, buying shares on margin - that is, borrowing as much as 90 per cent of their cost. In October 1929, when the US stock market started to fall, these investors were forced to liquidate their holdings to pay back what they owed. The downward financial spiral helped to precipitate the Great Depression.
Between 2002 and 2007, banks were buying bonds on margin - borrowing more than 90 per cent of the cost to pay for their investments. In August, when parts of the bond market collapsed, the spectre of 1929 began to haunt the world's major banks.
Posted by sold 2 rent 1 @ 11:00 AM (469 views) Add Comment
3 Comments
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1. voiceofreason said...
"The International Monetary Fund calculates that UK house prices have risen 50 per cent more than they should have in the past decade.
Vincent Cable, acting leader of the Liberal Democrats, says banks have been guilty of irresponsible lending by offering mortgages of up to six times salary."
By golly, do you think these are linked in any way ?
But surely, shortage of supply, immigration, demographics, divorces, 3m more houses needed .... ?
2. Hotairmail said...
Link takes you to page 3. Worth reading from page 1.
On page 2 it says...
"Wu Xiaoling's reward for her shrewd financial stewardship is a modest government salary of around £250 a month."
Says it all really.
3. Aaron_m said...
Even if/when we get out of this credit crunch, and banks are pricing risk correctly, we have to have a good think about subprime borrowers. Whether for houses or cars or anything of that sort, I simply don't believe that subprime people should be allowed to borrow the money. If they succeed in paying the loan, then they have been ripped off; if they fail, then they are in big trouble. So it's a lose-lose situation to borrow at a high rate.
I propose that it simply be illegal to charge a member of the public a rate of more than say, 3%, above the base rate. We could allow more flexibility for shorter loans perhaps. The reality is that subprime people should just rent or save up - they can rent and buy at the same price as anyone else, so why should we allow them to waste loads of money on interest? It would be better for them, and for everyone, if they just saved up and got their finances in order before borrowing.
This solution would have the obvious moral benefits, but as an added bonus should put a brake on crazy lending and ultimately keep asset prices at a sane level.