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eric pebble

At Least Someone Is Saying It, But Who's Listening?

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Don't know about anyone else -- but I am increasingly p*ssed off at how NO ONE on the "mainstream" media is STATING THE OBVIOUS: Stupid property "prices" got us here [into an abyss] - and that needs to be ACKNOWLEDGED!!!

FT: This Crisis Demands Non-Traditional Solutions to Get to a Path of Quick Recovery

By Elena Panaritis

"There is general agreement that the financial crisis results from a variety of factors: an extremely low household saving rate in the United States; excessive public and private liquidity creation and a wave of cheap and easy credit which was directed into real estate speculation; proliferation of “subprime†mortgage loans to high-risk borrowers, interest rates kept too low for too long that further increased incentives to over-borrow; the failure of financial supervision and regulation. However, there is a much less obvious element that everybody is missing, that of a poorly defined and weak underlying asset namely real estate/property. Indeed, it is at the heart of the crisis. A chain is only as strong as its weakest link and the weak link here is the system used to define the asset of real estate/property in terms of use and cash flow, its supply, and pricing.

In this crisis, real estate assets were badly defined for the most part, making them less securely bankable and more susceptible to price manipulation and destabilizing speculation. That’s still true, yet no one is raising the issue.

Usually, economic crises result from bad regulation and over-liquidity in the financial markets (the first four of the five factors mentioned above). Economists usually address the demand side of the assets (i.e. how an asset is financed and the credit markets around it) (as opposed to the actual regulatory infrastructure that defines and creates assets to become securely tradable with reduced risk, that is, the supply side. In this crisis, the asset (real estate) was/is for the most part badly defined - and it is this side of the equation that needs to be examined rather than taken for granted.

The current economic crisis stems from the fact that the underpinnings of the market are either broken or rotted, and in some cases there are no underpinnings. That makes it a non-traditional crisis; what we are confronting is the direct result of inadequacies in upstream property rights. This crisis combines the original sin of badly valued properties with a financial system based on harmful, unproductive gambling and incentives to continue gambling. As a result, investors in mortgage-backed securities did not have enough, reliable information on the mortgage itself. They only had information on ratings of the derivative, but not of the actual underlying asset."

Read it all here: - http://blogs.ft.com/maverecon/2009/07/the-...isis-in-the-us/

Edited by eric pebble

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Eric, it was Blair and Brown's love affair with the Clinton administration! They looked on and copied what that 'ciger up yer tw@t' arsehole put through in the US i.e. forcing Fannie and Freddy to dish out loans to people that couldn't afford it. Yes some of those people got slightly lucky with their 'investment'....but the vast majority brought down a western economy. The Uk just copied the US model and our time will come...most likely in October 2009..

The depression will be in full swing by 2010.

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This is a Credit Bubble, the biggest previous in the UK was the South Sea Bubble (SSB)

+Credit has been given recklessly to students with no income, 100 year old morgagees infact everyone.

+Assets especially houses have appreciated accordingly.

This is much bigger than the SSB - 50%+ of the population involved against 30% and 125% loans against 90%.

The bust has now come and the banks are all bust - instead of folding they have all been supported by the government.

+This is a new thing - no comparable historical president exists.

What happens next, who knows, some possibilities we could have a bond crisis ala 1970's - trouble is the IMF (rich USA) cannot bail us out they are bust too and anyway the UK banks are so much bigger now that trillions would be needed , it's not good the BoE has put IR's to 0.25% a 200+ year minimum and is raw printing money euphomistically called quantitive easing.

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Don't know about anyone else -- but I am increasingly p*ssed off at how NO ONE on the "mainstream" media is STATING THE OBVIOUS: Stupid property "prices" got us here [into an abyss] - and that needs to be ACKNOWLEDGED!!!

....

The mainstream media caters for the mainstream people. They don't want to know and just want to scapegoat the government rather than look at their own feckless borrowing.

Stop reading it :D

(I notice you clip stuff from nearly all the papers)

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This is a Credit Bubble, the biggest previous in the UK was the South Sea Bubble (SSB)

+Credit has been given recklessly to students with no income, 100 year old morgagees infact everyone.

And 20 year olds earning £600 a month were given £400 overdrafts and they wanted more and when they didn't get it they just took the money.

The insanity has infected the vast majority of the population who now think it's ok to spend spend spend even if you have a low income.

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I am not sure whether credit conditions and property speculation are the chicken or the egg respectively.

My suspicion is that the global savings imbalances drove down returns on traditional assets causing people to look at increasingly leveraged and risky assets. Once returns on these types of assets began to be generated, increased lending took place as the system looked to be stable.

Like any pyramid scheme, it eventaully had to collapse under its own weight as there is no such thing as a perpetual motion money making machine.

My conclusion is that global savings imbalances are the cause of the problems that we now face and that everything else is just a symptom.

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My conclusion is that global savings imbalances are the cause of the problems that we now face and that everything else is just a symptom.

You can look at it from a number of different angles - and come up with a slightly different analysis. But in the end, I think it's quite simple. The Moneylenders deliberately fuelled the property/real estate/housing "market" with stupid, ridiculous, and, above all, fraudulent loans [for residential AND commercial property] - KNOWING that they were thus "increasing" the value of their "salaries" & "bonuses" - AND the "value" of their own "property portfolios"....

It was, of course, completely inevitable that this pyramid/ponzi scheme would collapse - but the canny ones cashed in and got out well in time - and they are at present sunning themselves in great luxury many miles away from the rest of us who are paying the price via taxes and decreasing incomes....propping up the entire financial system that has been completely shattered by the scam.

As I have always said - this was the Greatest Fraud of ALL Time.

Edited by eric pebble

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"and the weak link here is the system used to define the asset of real estate/property in terms of use and cash flow, its supply, and pricing."

Just yield in other words. ;)

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You can look at it from a number of different angles - and come up with a slightly different analysis. But in the end, I think it's quite simple. The Moneylenders deliberately fuelled the property/real estate/housing "market" with stupid, ridiculous, and, above all, fraudulent loans [for residential AND commercial property] - KNOWING that they were thus "increasing" the value of their "salaries" & "bonuses" - AND the "value" of their own "property portfolios"....

It was, of course, completely inevitable that this pyramid/ponzi scheme would collapse - but the canny ones cashed in and got out well in time - and they are at present sunning themselves in great luxury many miles away from the rest of us who are paying the price via taxes and decreasing incomes....propping up the entire financial system that has been completely shattered by the scam.

As I have always said - this was the Greatest Fraud of ALL Time.

I agree with your assessment of the role of the money lenders (the don't deserve a capital letter in my view) in this situation.

I also fear that we cannot effectively legislate or regulate against greed and stupidity. Each new set of rules ends up being undermined by the stupid and the greedy eventually.

We have seen quite a few financial blow-ups so far. If I look for a common thread, it seems to be the need to reinvest transfers of wealth from the consumers of things to the producers of things.

As savings pools grow, the pool of remaining available productive assets shrinks and speculation grows. Once the speculative bubble bursts, assets get repriced and excess savings can be invested for reasonable returns again. Eventually people forget the past and bubbles grow again which eventually burst.

Maybe I am being too naive but I do not think that you can effectively overcome greed and stupidity and I think that we are doomed to repeat the cycle of bubble and bust for as long as there is an uneven distribution of natural resources and efficient productive capacity globally.

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Maybe I am being too naive but I do not think that you can effectively overcome greed and stupidity and I think that we are doomed to repeat the cycle of bubble and bust for as long as there is an uneven distribution of natural resources and efficient productive capacity globally.

People spend BY FAR the most on housing.

The Mortgage System was left WIDE OPEN for the Liar Loan fraudsters to operate in...

Yes - there will always be greed & stupidity --- but the opportunity to Scam the System involving HUGE SUMS OF "MONEY" could not have been greater than they are via the housing market & mortgage system.

THAT could and should have been cordoned off with the right regulation and supervision making it impossible to happen.

It was left WIDE OPEN. The Biggest Spend area was left WIDE OPEN to the fraudsters. They couldn't have asked for more... :angry:

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People spend BY FAR the most on housing.

The Mortgage System was left WIDE OPEN for the Liar Loan fraudsters to operate in...

Yes - there will always be greed & stupidity --- but the opportunity to Scam the System involving HUGE SUMS OF "MONEY" could not have been greater than they are via the housing market & mortgage system.

THAT could and should have been cordoned off with the right regulation and supervision making it impossible to happen.

It was left WIDE OPEN. The Biggest Spend area was left WIDE OPEN to the fraudsters. They couldn't have asked for more... :angry:

I agree.

Even though we can't legistlate or regulate to prevent 100% of the impact of greed or stupidity doesn't mean that we shouldn't try.

Borrowing money to pay for shelter is probably the largest financial transaction that most people will undertake in their lifetimes. I am surprised at how little regulation and legislation there is to protect people from their own stupidity and others' greed.

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Don't know about anyone else -- but I am increasingly p*ssed off at how NO ONE on the "mainstream" media is STATING THE OBVIOUS: Stupid property "prices" got us here [into an abyss] - and that needs to be ACKNOWLEDGED!!!

Eric, before you give yourself a heart attack, realise that this type of boom and bust is about as old as free markets.

There are many superb books written on the subject, try reading a couple of these:

Galbraith - A Short History of Financial Euphoria

Galbraith - The Great Crash 1929

KindleBerger - Manias, Panics and Crashes

MacKay - Extraordinary Popular Delusions and the Madness of Crowds.

If you only read one of those books, read "The Great Crash", it's only £5 from Amazon.

http://www.amazon.co.uk/Great-Crash-1929-P...1675&sr=8-1

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As savings pools grow, the pool of remaining available productive assets shrinks and speculation grows. Once the speculative bubble bursts, assets get repriced and excess savings can be invested for reasonable returns again. Eventually people forget the past and bubbles grow again which eventually burst.

In other words, it was caused by inflation! More money than value in the (global) economy.

It seemed clear that there was far too much money sloshing around when George Soros was able to beat the government of the time (betting correctly on them not being so destructive as the present one doing whatever it takes). I don't know what the solution to that is, but it's certainly not QE.

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Look the system has failed simply because the powers that be have encouraged us, and led us to believe that we can have everything we want today...it worked well for a time, their plan of spending our futures today....the future has arrived and the bill is outstanding and will still have to be paid back with interest....can/will we be able/contented to pay the price for the foolish and reckless?

On the whole you do not borrow, spend, work and pay, you work, save then spend. ;)

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snip

Like any pyramid scheme, it eventaully had to collapse under its own weight as there is no such thing as a perpetual motion money making machine.

My conclusion is that global savings imbalances are the cause of the problems that we now face and that everything else is just a symptom.

some say, the scheme has stopped collapsing....it would be odd for a house of cards to remain standing when the bottom layer is blown away by a large gust of fraud, overvaluations and insovency at the banking level..

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In other words, it was caused by inflation! More money than value in the (global) economy.

It seemed clear that there was far too much money sloshing around when George Soros was able to beat the government of the time (betting correctly on them not being so destructive as the present one doing whatever it takes). I don't know what the solution to that is, but it's certainly not QE.

My very non-traditional definition of inflation is when the growth rate in the market value of all assets in an economy exceeds the growth rate of the economy.

By this definition, we have seen massive inflation in first world nations in the last decade or so accompanied by exceptionally lax monetary policy.

Authorities have had to revert to QE and fiscal stimulus because interest rates were way too low during the bubble phase so trational monetary policy was ineffective in dealing with deflation (based on my definition above) once it took root.

Monetary policy has been targetting the wrong thing.

Edited by LuckyOne

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On the whole you do not borrow, spend, work and pay, you work, save then spend. ;)

There's no way the Moneylenders are going to allow that........ Far too sensible. And there's no profit in it...

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'Badly defined' is missing the point; real estate property is presently defined and outlined as a theft.

Which is why it keeps destabilising the system

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There's no way the Moneylenders are going to allow that........ Far too sensible. And there's no profit in it...

Ironically, the savers can profit from the borrowers...they can buy their toys, gadgets or anything else they have borrowed money for and have grown bored of at a fraction of the original cost...they will be using it while the borrowers will still be paying for it. ;)

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I agree.

Even though we can't legistlate or regulate to prevent 100% of the impact of greed or stupidity doesn't mean that we shouldn't try.

Borrowing money to pay for shelter is probably the largest financial transaction that most people will undertake in their lifetimes. I am surprised at how little regulation and legislation there is to protect people from their own stupidity and others' greed.

People make stupid financial decisions all the time. These include excessive borrowing via credit cards and loans, failure to save for old age (via pension fund or otherwise) in addition to property related financial lending. There are now fairly good rules about being informed of total cost of borrowing and consequences of defaulting on the loan. Short of living in a dictatorial state I'm not sure what can be done to protect people from their stupity beyond requiring responsible lending practices from banks, etc.

However if you consider the gains from property ownership over say the last 30 years, I think that many people wish now that they had had the opportunity to be 'stupid'.

Responsible lending, based on the individuals ability to service the debt, is all that is required. Then let the market take care of itself. It will always do a better job than the government.

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....

Responsible lending, based on the individuals ability to service the debt, is all that is required. Then let the market take care of itself. ....

These two sentences contradict one another.

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People make stupid financial decisions all the time. These include excessive borrowing via credit cards and loans, failure to save for old age (via pension fund or otherwise) in addition to property related financial lending. There are now fairly good rules about being informed of total cost of borrowing and consequences of defaulting on the loan. Short of living in a dictatorial state I'm not sure what can be done to protect people from their stupity beyond requiring responsible lending practices from banks, etc.

However if you consider the gains from property ownership over say the last 30 years, I think that many people wish now that they had had the opportunity to be 'stupid'.

Responsible lending, based on the individuals ability to service the debt, is all that is required. Then let the market take care of itself. It will always do a better job than the government.

The way that things have turned out in the last 30 years might have very little to do with the way that things turn out in the next 30 years.

This is the crux of the problem.

People are conditioned to recognise patterns. They think that the last 30 years will be repeated without understanding how value (price vs income multiples) and inflation (rising inflation might not devalue the real value of mortgages if we enter a period of deflation) could crush their debt laden "buying" decisions.

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