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House Price Crash Forum


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Everything posted by Methinkshe

  1. At this point I have to offer the concept of discontinuity - and it isn't mine, just repeating others' words of wisdom. In a linear world, the aeroplane takes off from its destination, flies for a few hundred miles and then lands. That is considered the norm. But we are beginning to recognise that we don't live in a linear world, we live in a Mandelbrot (fractal) world and occasionally an aeroplane takes off and halfway through its journey it stalls. At that point all possibilities come into play. Will it plummet to the ground? Will it make a soft landing on a convenient alternative runway? What will happen at the stall-point? Yes, it will conform with fractal expectations but God help those who are stuck with linear expectations. That's where we are now, economically. I'm not putting any money on a soft landing.
  2. To the extent that markets represent broad human sentiment, yes, the markets are taking control. Governments try to influence, but just ask George Soros how he managed to to make billions when the UK eventually had to admit that the ERM was a one way put for investors and was forced to withdraw. Markets always win in the long run because they represent real thinking, however much governments like to think that they can control them. Governments operate on wishful thinking. And when wishful thinking meets the real deal, guess which wins?
  3. What I find quite exciting and definitely interesting is the rapid spread of information. The world has never before been in a position where information can be divulged so fast and so far. - to those who are willing to hear. The banks are faced with a situation that has never before occurred in human history - rapidly transferable knowledge. My personal take is that it will cause specualtive bubbles to unwind much faster than has historically been the case, and that means that intervention is likely to be less successful and that markets (which after all only represent a conglomerate of human sentiment) will be more powerful than ever. Governments, Fed, B o E don;t stand a chance against the internet - or so it seems to me.
  4. Quantities are irrelevant - gold will find a price. The point is that a gold standard underpins the promise that is still to be found on any banknote - I promise to pay the bearer..etc etc. When confidence and trust have been blown apart, as far as I can tell, it will take something more than trust to underpin a promissary note. Historically, gold is the obvious standard. Not saying that it couldn't be anything else, but gold inspires long-term confidence in a way that, say, tulip bulbs do not.
  5. Rather harsh? That's an understatement if ever! This is the visible sign of the shackles of serfdom that is the Student Loan System. To whom you owe money you are a servant, and if it is to the goverment who operate a system of deduction as opposed to repayment, you are a slave, at the mercy of every change in interest rate, repayment rules, or any other rule the government may choose to impose. I have been advising my 18 yr old daughter with 3 good A levels that on no account should she encumber herself with a student loan even if it means forgoing a place at university. I stand by my advice.
  6. I'm not convinced that the US$ doesn't have a lot further to fall, although I agree with you that it will take all the major currencies with it (see my post here - #600.) Could China end up holding a substantial quantity of US$ denominated debt worth little more than 15 cents on the $? And if so, where does that leave China? That's what I am trying to reason through. The only tentative conclusion that I have been able to arrive at is that it will take a global resolution to return to a gold standard to reliquify a bankrupt world.
  7. Oops! That was careless of me! I plead newbie status. Never mind, perhaps he'll explain why he's a dollar bull.
  8. Hey, RB, you seem to have a longer and broader view than most, a view with which I concur, btw. What happens in China when the $ goes into freefall (which isn't exactly unlikely) and the Chinese are left holding great chunks of the US's debt?
  9. I've heard of BTLetters who have built up a portfolio of dozens of properties by using the inflationary gains on property 1 to provide minimum deposit for property 2 which in turn provides deposit for property 3 etc etc. To build a portfolio, all properties are mortgaged and remortgaged to the hilt. Great when property prices are rising but when they start to fall it's negative equity all the way. These BTLetters are just going to turn in the keys leaving their lenders with a very nasty default headache...........
  10. I wish cg would come back. The links he provided were really informative and he had a real grasp of the wider implications of HPC. I've been rereading "The Great Reckoning" which although it was written in the early nineties, explains the mechanisms by which a full-blown global financial crisis could be triggered by a HPC. Here's an excerpt explaining one of those less-widely considered mechanisms - only bear in mind that the figures used applied back in the early nineties and could be far worse now. Additional Liabilities Banks and S & L's are not the only real estate investors, of course. Even many of the ostensibly uninsured lenders and owners, like insurance companies and pension funds, cannot lose in a big way without transferring their liabilities to the Treasury through the Pension Credit Guarantee Board. The PBGB has been running in the red almost from its inception. It insures £800 billion in pension benefits that are indirectly ties to real asset values - as well as to the health of the corporate economy. There is more. The Treasury is also exposed to another $800 billion in guarantees of mortgages through agencies such as the FHA, Freddie Mac, Fannie Mae, Ginnie Mac, the VA, the Farm Credit System, Farmer Mac, and the Federal Home Loan Banks. Even Sallie Mae, the student loan agency, is a major holder of home equity loans - with $35.5 billion in loans outstanding as of 1989. Sallie Mae was an exception in one respect. It had sufficient capital to cover 2.9 per cent of its obligations. Most of the other government sponsored credit agencies had capital bases so thin that they would have been insolvent had they been thrifts. Practically without exception, these government sponsored credit agencies are lending at below-market standards, with as little as $1 of capital supporting $160 in loans. For an excellent in-depth study of the frightening risks of government-sponsored enterprises, see "A State of Risk" by Tom Stanton. Many agencies fail to document their loans adequately, or even maintain their books. The FHA, for example, was not fully audited for ten years because of the lack of a usable accounting system. The FHA was said to hold $17 billion in mortgage losses in 1990. Ginnie Mae was hit by the defaults of seven companies that were servicing more than $10 billion of mortgages. Its losses were mounting. This was even before a downturn began. A hint of things to come was provided by a GAO audit of the Farmers Home Administration. It found a 40 per cent default rate. A downturn could spread such massive defaults through the government's loan and loan guarantee programs. It is hard to see how such losses could be easily absorbed in the budget. The full logical implications are psychologically unthinkable. A 50 per cent drop in residential real estate prices could bring the US government to the brink of insolvency. The very idea seems preposterous. Yet if you work through the numbers, it is hard to imagine how even the federal Treasury could fund the guarantees that it has given. Anyone who thinks about the true financial condition of the US government must be frightened... The Largest Put Option of All Time In effect, the US Treasury is like an insurance company without reserves. Congress has gambled the good credit of the country by writing trillions of dollars of coverage against the fall of real estate prices in the United States. If real estate continues to weaken broadly or very far, the consequences could be more serious than most investors have imagined. The avalanche of losses could create a mismatch between current obligations and assets unprecedented since US Treasury paper sold for less than fifteen cents on the dollar in the eighteenth century. To put it another way, the government is like a highly leveraged futures trader who has bet everything on the proposition that a certain price will rise. If the market goes the other way, as we think it will, the power of leverage could be brought into play to create losses of an unimaginable kind.
  11. I seem to recall reading somewhere recently that the new European Constitution that our politicians are just about to sign us up to, and which isn't really a Constitution therefore we can't have a referendum, (lying b******s) allows for imposition of Exchange Controls if The Council of Europe see fit.
  12. It has to do with sentiment. When property prices are rising, people feel richer, so even if they don't actually MEW the cosy feeling people get from watching their equity increase translates into freer spening on the High Street. Of course, the reverse is also true. When property prices start to fall, people begin to feel jittery and rein in their spending. Doesn't matter whether the gains or losses are illusory, the sentiments still prevail.
  13. Hey, Stonethecrows and Cgnao, cool it! Isn't the truth a bit of each of what you are offering? At least, that's what I, as an ignoramus, am picking up. I like both of your posts and from what I am able to discern, both have merit. Prepare to make road-kill stew (okay, rabbit stew) but also convert savings into gold and make sure you are not dependent on any bank for day to day living. That's why my preferred option, if the opportunity is ever given me, would be to buy a small farm and go for self-sufficiency which would also include a few gold sovereigns and cash under the mattress and hopefully some more instantly tradeable assets and skills. But I'm looking ahead to the worst case scenario fallout. Must be a born pessimist.
  14. No, I missed it. These threads move so fast that I haven't worked out how to keep up. Would you be ever so kind and give me a link? I'd be so grateful. Sorry to be so helpless.
  15. There's going to be a lot of BTLetters who have invested as an alternative to pension fund who will be badly hurt. Imagine how it must feel to have watched as traditional pensions failed, then to try BTL to provide for one's old age and find that that also failed. It's a recipe for jumping off a very tall (unlet) office block.
  16. I'd wait until farm repo's made buying a small farm possible and then I'd set about protecting the perimiter against urban desperados and getting all the extended family together and hope we could grow enough food to live on. Does that sound like worst case scenario? Well, that's where I'm looking.
  17. Heh! Tulip bulbs! That was one of the most illogical speculative bubbles EVER! Looking back I still find it difficult to rationalise how anyone could have invested so much in a single tulip bulb! Correction: just remembered Tracy Emin and an unmade bed!
  18. I've been dipping in and out of this site for approx 12 months and have only just joined. Since the sub-prime mortgage crisis hit the headlines I have noticed that the traffic volume has increased enormously; thread turnover is so quick that if you don't log on for one day you're pages behind on threads, and recently I often have difficulty accessing the site. I assume it's something to do with server and volume of visitors, but that's only a guess because I'm a computer illiterate. It occurs to me that when the herd realise that HPC is for real, this site will be inundated. Will the server (or whatever) cope?
  19. A lot of BTL was fuelled by pensions collapse (which was due to Gordon's robbery of pension funds in 1997). Many people of my children's age (18 - 30) have decided that saving for a pension is not a good idea, having watched how people just entering retirement have been robbed of their life savings. Even my newly married 25 yr old son, just had first baby, was about to purchase a BTL property (they already own a property they live in) in preference to saving for a pension, until I directed him to this website. I feel sorry for kids who are trying to look to the future in terms of providing for themselves, who have seen what has happened to pensions, and who then opt for BTL without recognising the problems associated with that. Thankfully, my son is now quickly informing himself of BTL downside.
  20. The shorthold tenancy is one of the less well recognised drivers of BTL. It is near enough impossible for a would-be tenant to get anything but a 6-month shorthold. This is one of the factors that made BTL so attractive to investors - no problem with sitting tenants depressing resale values.
  21. Wrong. In Cornwall in 1996 I could have bought a 5-bed house in 5 acres land, including indoor swimming pool and lots of outbuildings for £136,000. A few weeks ago the same house sold for £850,000. In 1996 entry level salaries (18 yr olds with good GCSE's) were IRO 8K. Now they're about 12K. Do the maths.
  22. Me too! I've just resurrected The Downwave from the back of my book cupboard along with Beckamn's follow-up book Into the Upwave and also Davison and Rees-Mogg's books, Blood in the Streets and The Great Reckoning. It's a good twenty years since I last read them, but I've just started re-reading The Great reckoning and although they all expected the Sceond Great Depression to occur late eighties or into the nineties, seems to me that their predictions could apply to current financial conditions - i.e. they got the message right but the timing wrong. Guess they just didn't believe that there could possibly be another cycle of reflation left in such a heavily indebted system.
  23. An excerpt from Robert Beckman's book The Downwave "A collapse in the international and domestic banking system could occur at any time, without warning. It is my firm belief that an international banking crisis similar to that in the 1930's is not a matter of 'if' but simply a matter of 'when'. To understand how and why, a bried acquaintance with the way the system works would be useful. At the root of banking is the 'fractional reserve' system where money can be created by the banks. Banks in Britain (along with those in most other countries, supposedly under the watchful eye of the Bank of England, the Federal Reserve, or some other central bank) may not only lend the money they have on deposit, but may also lend several times that amount. How many times depends on the existing fractional reserve requirements. For example, suppose the reserve requirement is 33 per cent. That means a bank can lend £2.00 for every £3.00 on deposit. If the reserve requirement is 25 per cent, then the bank can create £3.00 for every £1.00 on depossit. If the reserve requirement is 10 per cent, the banks can lend £900 for every £100 on deposit. You can now begin to see how the system may have some built-in perils. But the fault is not with the system, but the way it is operated. The prospects and stability of the banks revolve around 'solvency' and 'liquidity'. When the system is solvent and liquid, it is considered sound and stable. When the system becomes illiquid, soundness and stability are threatened. When the system become illiquid and insolvent, the consequences are ususally disastrous. Solvency involves matching the total of banking assets against the total of banking liabilities. As long as the assets of a bank are as great as its liabilities, the bank is solvent. Liquidity involves current assets, as opposed to aggregate assets. A bank is considered liquid if its cash on hand equals current liabilities. If, suddenly, all of the bank's depositors showed up at once and wanted teir money back, if the bank could meet all of those withdrawals, it would be liquid. If it could not, it would be illiquid. As a result of the fractional reserve banking system, all banks are illiquid. Banking involves confidence. As long as depositors believe the bank is solvent, only a few of them are likely to want their money at a given point. The bank, though illliquid, will continue, and remain solvent. However, if it is suspected that the bank may become insolvent, a sudden rush of depositors could force it to sell investments at a loss, or suddenly write-off bad debt, in which case illiquidity can lead to insolvency. When a financial institution becomes insolvent in Britain, its banking licence is withdrawn and it must close." Does anyone know what are the current fractional reserve requirements for banks?
  24. Autumn Crashes "There is a tendency for major crashes to occur in the Autumn, especially October. September 18th 1873, October 29th 1929, October 6th 1932, October 18th 1987, October 13th, 1989. Of the fifteen largest one-day declines in the Dow-Jones average since 1928, ten fell between September 24th and November 11th." Extracted from The Great Reckoning by William Rees-Mogg and James Dale Davison, first published in 1992
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