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LuckyOne

I Find The Attitude Towards Debt In Other Countries .....

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I stumbled across this little piece in the Financial Facelift section of Canada's Globe and Mail.

http://www.theglobeandmail.com/globe-inves...article1265403/

I am not sure that you would see a story or advice like this in the main stream media in this country :

In British Columbia, a couple we'll call Sam, a corporate manager who is 33, and Georgia, 32, on maternity leave from an administrative job, have a six-month-old daughter, a house and a small apartment building. Their real estate assets have a total value of $1,430,000. That's a good deal for a young couple, but Sam and Georgia have incurred total debt of $1,138,632, which is 8.3 times their gross annual income of $136,654. Debt service charges add up to 59 per cent of their after-tax income. With property taxes, the bill rises to 77 per cent of the family budget.
“This couple has parlayed debt into real estate that is producing a good return,†Mr. Moran says. “But if interest rates rise just [one percentage point], mortgage costs would consume all rental income. For that reason, they should consider downsizing their house. It is the safest course they can take.â€

I do not understand how people cannot see that the next few months are possibly the last chance for the over-leveraged to extract themselves from their self created mire. I firmly believe that markets always give you a second and last chance to correct an error before really punishing the greedy and the reckless.

This nice little bull trap is that second and last chance.

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Watching ITV news last night with the lovely Daisy McAndrew in Munich, Germany blabbing on about how Germany has got big problems because theyre too reliant on manufacturing and consumers wont take on enough debt to spend (ie, as much as us!)

Dont know if BBC and ITV are engaging in a race to the bottom, i know local ITV regions are lobbying to get license fee cash, so i guess any iota of independence and impartiality on ITV will dissapear soon.

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From the same source .......

This chap would be very welcome here ......

http://www.theglobeandmail.com/globe-inves...article1256288/

In British Columbia, a man we'll call Larry, 37, has built a career in management.

He has a gross income of $80,000 a year plus annual bonuses that range from $10,000 to $20,000, financial assets of $193,000 and a $40,000 interest in his company's pension plan. With no liabilities, he has net worth of $233,000.

Larry's life is clear of commitments. He rents, therefore there is no mortgage.

His bills are paid when issued and he shares expenses with his girlfriend. He is prudent – even a new car he bought recently is a good, used two-year-old compact model. “It's the newest I have ever had,†he explains.

“Am I oversaving and sacrificing the present?†he asks. “Should I buy into a real estate market that could drop considerably, and should I plan to retire at age 55 and then choose another career?â€

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[..]

I do not understand how people cannot see that the next few months are possibly the last chance for the over-leveraged to extract themselves from their self created mire. I firmly believe that markets always give you a second and last chance to correct an error before really punishing the greedy and the reckless.

This nice little bull trap is that second and last chance.

You'd think higher interest rates, taxes and public sector cuts are inevitable in a years time and this would drag house prices down...

but these things tend to play out over the long term, maybe we've had the impressive fireworks already?

(Besides weren't you the one who lost a packet on a private commercial property syndicate investment in the US? <_< )

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You'd think higher interest rates, taxes and public sector cuts are inevitable in a years time and this would drag house prices down...

but these things tend to play out over the long term, maybe we've had the impressive fireworks already?

(Besides weren't you the one who lost a packet on a private commercial property syndicate investment in the US? <_< )

Good memory.

I certainly did lose some money on a private commercial property syndicate investment in the US. It was painful but not catastrophic. It was one of my few illiquid investments that I was unable to sell in October 2007 (my sales in October 2007 were more because of circumstances and luck than skill) in the pop that we experienced after the first downdraft after the Bear Stearns funds folded in August 2007. That was the second chance that the market gave me and I took as much of it as I could.

I am still very underweight my property benchmarks at the moment but I am starting to look quite closely at a few options that are priced correctly (commercial properties with 10% cap rates, long term 75% LTVs at sub 7% with a good tenancy history and creditworthy anchor tenants). These criteria are getting close to being met in the mid-Atlantic states.

I cannot understand the pricing in residential markets so I would rather own property that I don't live in and rent property that I do live in until the valuation divide between commercial and residential is narrowed.

You could well be right on the timing front. As the thread about Japan shows, you can have a sharp contraction for the first year or two of a bust followed by a very long period of small falls. The big rockets may have already been used and now we are in for years and years of damp squibs.

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I stumbled across this little piece in the Financial Facelift section of Canada's Globe and Mail.

http://www.theglobeandmail.com/globe-inves...article1265403/

I am not sure that you would see a story or advice like this in the main stream media in this country :

I do not understand how people cannot see that the next few months are possibly the last chance for the over-leveraged to extract themselves from their self created mire. I firmly believe that markets always give you a second and last chance to correct an error before really punishing the greedy and the reckless.

This nice little bull trap is that second and last chance.

These sorts of bets, arent totally illogical from the borrowers side. If it comes off, you can end up with a huge asset if property prices rise, which you could sell for a huge profit, downsize, and never have to work again.

If you lose, and property prices go down, the banks get the loss. Life is all about risk.

Bad bet from the side of the banks though. They should loan such that no matter what happens they get their money back. Mortgages should be covered by a valuable asset, ie a house, with a large equity cushion, such that the borrower takes the losses on any fall in price, up to a certain level.

If banks that broke these basic rules were allowed to go bust, then those borrowers wouldnt be able to take this huge bet at the risk of others. They would first need to save to acquire the equity to take the bet. Then they can gamble at their own expense, rather than at the expense of others.

Hope it works out well for them, and the banks.

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These sorts of bets, arent totally illogical from the borrowers side. If it comes off, you can end up with a huge asset if property prices rise, which you could sell for a huge profit, downsize, and never have to work again.

If you lose, and property prices go down, the banks get the loss. Life is all about risk.

Bad bet from the side of the banks though. They should loan such that no matter what happens they get their money back. Mortgages should be covered by a valuable asset, ie a house, with a large equity cushion, such that the borrower takes the losses on any fall in price, up to a certain level.

If banks that broke these basic rules were allowed to go bust, then those borrowers wouldnt be able to take this huge bet at the risk of others. They would first need to save to acquire the equity to take the bet. Then they can gamble at their own expense, rather than at the expense of others.

Hope it works out well for them, and the banks.

You are absolutely right.

Any system where there assymetry in risks and rewards amongst participants is doomed to fail.

We have seen it happen between lenders and borrowers, employees and employers, employees and taxpayers etc etc.

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Watching ITV news last night with the lovely Daisy McAndrew in Munich, Germany blabbing on about how Germany has got big problems because theyre too reliant on manufacturing and consumers wont take on enough debt to spend (ie, as much as us!)

Dont know if BBC and ITV are engaging in a race to the bottom, i know local ITV regions are lobbying to get license fee cash, so i guess any iota of independence and impartiality on ITV will dissapear soon.

I saw that, could not believe my ears...

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[...]

You could well be right on the timing front. As the thread about Japan shows, you can have a sharp contraction for the first year or two of a bust followed by a very long period of small falls. The big rockets may have already been used and now we are in for years and years of damp squibs.

But interestingly, a number of factors would point to a sharp contraction:

- an inevitable rise in interest rates

- an inevitable rise in taxes

- an inevitable fall in public spending

All focused in 12-18 months time...

The only alternative course I can see is severe sterling devaluation, loss of sovereign AAA rating and inflation?

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These sorts of bets, arent totally illogical from the borrowers side. If it comes off, you can end up with a huge asset if property prices rise, which you could sell for a huge profit, downsize, and never have to work again.

If you lose, and property prices go down, the banks get the loss. Life is all about risk.

Bad bet from the side of the banks though. They should loan such that no matter what happens they get their money back. Mortgages should be covered by a valuable asset, ie a house, with a large equity cushion, such that the borrower takes the losses on any fall in price, up to a certain level.

If banks that broke these basic rules were allowed to go bust, then those borrowers wouldnt be able to take this huge bet at the risk of others. They would first need to save to acquire the equity to take the bet. Then they can gamble at their own expense, rather than at the expense of others.

Hope it works out well for them, and the banks.

Actually the banks have some pretty strong levers in a lot of countries to get their money back even if the mortgage isn't covered by the sale proceeds of the property after repossession (sp?)...

... at its simplest level if you have ever defaulted on a mortgage you will find it very hard to ever get another one...

...right through to personal bankrupcty (sp?) - which bars you from several professional jobs and you won't be allowed a regular bank account...

... the penalties and stigma of debt default (outside of a limited liability company structure) are greatly underestimated by the people on this site IMO

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