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50sQuiff

Can The Uk Survive A Real Hpc?

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So we've all been speculating for months now, trying to figure out where the next leg down is going to begin. The Baltics? Europe like the 1930s? DrBubb made a greatl call on Dubai before they defaulted. Hugh Hendry says China. Greece is a one-way trade. But none of them look like fitting the bill so far. Perhaps the only reason we can't figure this out, is because the answer is Britain?

It's not tulips or Mississippi swampland we're talking here. The City of London is the vortex at heart of the global credit ponzi and when this housing market capitulates, it could be game over for our state-owned banks. Our public finances are in such diabolical shape, there's no hope in hell we can bail out Lloyds and RBS again when this bomb finally goes off.

And when we try to mount bailout part II, as CDS speculators are launching a full-frontal assault on our shores, the gilt market is going to cave. I didn't fully understand the implications of this until a few weeks ago, when I spent an unpleasant evening drinking with a smug, complacent ****** from RBS - apparently taking time out from shooting up healthy corporations with debt-skag. I asked him what his single main concern for the future of RBS was, and he answered in one word: "Gilts". He said RBS has a terrifying exposure to UK government bonds.

When RBS and Lloyds go down, Britain goes down, right? We're talking Roosevelt-style bank holidays at that point, surely. As I see it, the top line is:

* All these massive commercial real estate deals have gone south, but they're still being marked to fantasy on the balance sheets

* State-owned banks have massive exposure to toxic UK sub prime and 'prime' mortgages on grossly overvalued properties

* Santander has taken on the mantle of writing up toxic mortgages, and the entire Spanish housing market/banking system is a ponzi scheme

* Barc, Lloyds and RBS all have massive exposure to the PIGS

* The state owned banks have massive exposure to Gilts

* The Great British consumer is ready to capitulate, even at 0.5% bank rate

* Public Sector job cuts are on the way

Could it be us?

Just a cheery thought for the evening.

Edited by 50sQuiff

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If the UK goes under the whole financial system will collapse.

RBS and Lloyds/HBoS cannot be saved by the taxpayer, the bailout is a bluff and the hope is it won't be called. Trouble is if there is an asset price crash ie house prices the banks collapse and won't be solvent. The propping up of the housing market is critical to this.

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Relax. It's covered.

Simultaneous QE by USA UK & Euroland*

*NB EU QE will subject to (the usual) delay

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When RBS and Lloyds go down, Britain goes down, right?

They are still limited liability companies rather than the government, even though the govt owns most of the shares. I don't see why the UK government has unlimited liability for them. There is no government guarantee in law to protect the banks.

So if they go bust, they go bust and can be run in administration whilst the depositors are protected up to the £50K limit and the shareholders and bondholders get wiped out. Hopefully Fred the Shred pension gets wiped out as well.

VMR.

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Bloke from UBS on R4 this morning (before 8am) talking about Spanish banking crisis. All very bearish. But then he said Britain's banks had made great strides in steadying themselves since 2008 and all would be OK here. I almost spat out my tea.

Problem is, as you put it so articulately 50s Quiff, that the UK is too big to fail. That doesn't mean it won't fail but it means it'll be GAME OVER when it does. That's why we haven't seen the housing bubble deflate. The bubble is so big, it's a potential bomb.

From where I'm sitting it looks like the UK govt/BoE are trapped between scylla and charybdis. If they let it go pop, it'll be a wipeout. If they keep QE-ing, the bond market will crucify us. Is there a third way?

I'm beginning to think cash ain't king in a global debt holocaust... Buying a house - any house - for outright cash is looking attractive again, regardless of any looming HPC (convincing Mrs Mugwump of the need to sacrifice dream house for average house after waiting several years for HPC is the problem!)

Is there any way we can see 1%+ interest rates/20-30% housing market correction in the UK without a total systemic wipeout? The cash machines almost ran out in 2008. Second time around, would the govt be able to prop up the economy with promises of a 2nd bail out before the economy crashed? I doubt there'll be much of a window to extracate your sterling, even if it's on instant access.

One of the notable things about this forum is that we're always i) head of the curve and ii) expecting things to happen faster than they actually do.

Maybe this time it'll be different... :ph34r:

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So we've all been speculating for months now, trying to figure out where the next leg down is going to begin. The Baltics? Europe like the 1930s? DrBubb made a greatl call on Dubai before they defaulted. Hugh Hendry says China. Greece is a one-way trade. But none of them look like fitting the bill so far. Perhaps the only reason we can't figure this out, is because the answer is Britain?

It's not tulips or Mississippi swampland we're talking here. The City of London is the vortex at heart of the global credit ponzi and when this housing market capitulates, it could be game over for our state-owned banks. Our public finances are in such diabolical shape, there's no hope in hell we can bail out Lloyds and RBS again when this bomb finally goes off.

And when we try to mount bailout part II, as CDS speculators are launching a full-frontal assault on our shores, the gilt market is going to cave. I didn't fully understand the implications of this until a few weeks ago, when I spent an unpleasant evening drinking with a smug, complacent ****** from RBS - apparently taking time out from shooting up healthy corporations with debt-skag. I asked him what his single main concern for the future of RBS was, and he answered in one word: "Gilts". He said RBS has a terrifying exposure to UK government bonds.

When RBS and Lloyds go down, Britain goes down, right? We're talking Roosevelt-style bank holidays at that point, surely. As I see it, the top line is:

* All these massive commercial real estate deals have gone south, but they're still being marked to fantasy on the balance sheets

* State-owned banks have massive exposure to toxic UK sub prime and 'prime' mortgages on grossly overvalued properties

* Santander has taken on the mantle of writing up toxic mortgages, and the entire Spanish housing market/banking system is a ponzi scheme

* Barc, Lloyds and RBS all have massive exposure to the PIGS

* The state owned banks have massive exposure to Gilts

* The Great British consumer is ready to capitulate, even at 0.5% bank rate

* Public Sector job cuts are on the way

Could it be us?

Just a cheery thought for the evening.

They are trying to manage the market downward (in real terms) at a rate slow enough for the banks to stay afloat.

The banks are making zillions with QE, liquidity schemes and the low interest rates, but are having to adjust other aspects of their balance sheet as they go.

This could go on for years, a slow transfer of wealth from savers to the banks to stop the feckless pulling the banks under.

It's robbery. No more, no less.

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The OP reads like one of those Hollywood action scripts where the small band of heroes, outnumbered and on their own, realise that the only chance they have of survival, of winning, is to go to the heart of the beast and kill the leader of the enemy... no matter how well defended he is...

All we need now is a fit bird with a sweaty heaving chest and we will be sorted.

Yes, if the UK goes under then large parts of the World will... then again, many parts of the World will realise that they no longer owe us anything... and that defaulting on UK debt hurts us more than them...

The UK, probably more than any nation, needs the illusion of banking and currency to continue.

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They are trying to manage the market downward (in real terms) at a rate slow enough for the banks to stay afloat.

The banks are making zillions with QE, liquidity schemes and the low interest rates, but are having to adjust other aspects of their balance sheet as they go.

This could go on for years, a slow transfer of wealth from savers to the banks to stop the feckless pulling the banks under.

It's robbery. No more, no less.

Wont work,

The herd is already spooked, those closest to danger are heads up and ears twitching, granted gentle grazing is still going on in the centre, by those blissfully unaware.

Soon the tension will become unbearable for those closest and they will begin to move away, first walking and then trotting.

More of the herd will become aware that something is wrong and then suddenly an explosion of fear will ripple across the herd and they will all charge forward, many not knowing why they running, but run they will because that is thier nature and thier destiny.

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I read recently that total secured lending on UK dwellings is around 1.25 trillion. Now assumimg that 50% of UK houses have debt secured against them then around 15 million houses owe 1.25 trillion. Now if those 15 million dwellings are valued at 170k each (rough average house price as at April 2010) then the total value of mortgaged properties is around 2.55 trillion or around twice the value of mortgages secured against them. This suggests that the UK could in theory withstand a 50% fall in house prices without the total value of dwellings being less than the total debt secured against them.

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...I spent an unpleasant evening drinking with a smug, complacent ****** from RBS - apparently taking time out from shooting up healthy corporations with debt-skag. I asked him what his single main concern for the future of RBS was, and he answered in one word: "Gilts". He said RBS has a terrifying exposure to UK government bonds.

.....

A friend recently left RBS. I ask her about the company's problems. "Oh the government will bail us out again". That is the "corporate culture" of RBS.

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* State-owned banks have massive exposure to toxic UK sub prime and 'prime' mortgages on grossly overvalued properties

That is a bit worrying. State owned banks overloaded with guilts. Like a doggy businessman who has lent himself so much money that he can't pay it back

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I read recently that total secured lending on UK dwellings is around 1.25 trillion. Now assumimg that 50% of UK houses have debt secured against them then around 15 million houses owe 1.25 trillion. Now if those 15 million dwellings are valued at 170k each (rough average house price as at April 2010) then the total value of mortgaged properties is around 2.55 trillion or around twice the value of mortgages secured against them. This suggests that the UK could in theory withstand a 50% fall in house prices without the total value of dwellings being less than the total debt secured against them.

Campervanman, it doesn't work like that though - house prices are marked at the margins. In other words, with the 50% fall, there will be hundred of thousands of people in -ve eq and/or can't keep up repayments.

It doesn't matter that there are many more millions who are safe, because they sure as hell won't give their £100,000s to those who are heading for bust.

The entire housing stock doesn't operate as one unit.

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They are still limited liability companies rather than the government, even though the govt owns most of the shares. I don't see why the UK government has unlimited liability for them. There is no government guarantee in law to protect the banks.

So if they go bust, they go bust and can be run in administration whilst the depositors are protected up to the £50K limit and the shareholders and bondholders get wiped out. Hopefully Fred the Shred pension gets wiped out as well.

VMR.

If people have (wisely) spread their exposure to up to 50k per bank account, then the government is sitting on deposit guarantees of well over a trillion pounds. Do you think the shareholders' capital will cover that, considering the banks were leveraged up 30+ times?

IMO, the government isn't trying to save the banks out of choice, it is that saving the deposits of a failed bank is far more expensive. Propping up a failing bank is the lesser of two evils, in the hope that they won't have to fund the deposit guarantees.

If my above assumptions are correct (I think they are - please tell me otherwise though), then guaranteeing deposits in banks with such high leverage is a ticket to sovereign bankruptcy, should we have another banking crisis.

Edited by Traktion

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They are trying to manage the market downward (in real terms) at a rate slow enough for the banks to stay afloat.

The banks are making zillions with QE, liquidity schemes and the low interest rates, but are having to adjust other aspects of their balance sheet as they go.

This could go on for years, a slow transfer of wealth from savers to the banks to stop the feckless pulling the banks under.

It's robbery. No more, no less.

I agree, downward rate needs to be very slowly managed, and anyway as we have seen its slow on way down as sellers often reluctant to accept lower prices, and some buyers give in because so little for sale.

Making me nervous with STR money... truth is though we would buy if we could find suitable house at realistic price.

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As much as I would love to see an HPC reoccurence I just don't see it happening.

It would be absolute mayhem to let the housing market crash and when I say crash I mean anything above 20% falls. To be honest I don't see +25% falls anyway.

There are far too many average income homeowners, stuck in massive amounts of housing debt. What will happen to these people? They will get re-possesed if interest rates rise or if there are no more government bail-outs. The properties will end up at auction as the banks will need to get rid of them to recover what they can.

If people are forced to sell up in a downward market they will lose any equity they had (thinking of 2007 prices here, where little deposits were needed). On top of that they will owe the banks money. How will they afford to pay the banks back? They will probably claim bankruptcy, leaving the debt with the banks again.

The banks aren't out of trouble by a long way. They have had to rely on the government, and I believe the government will prop them up again to stop the above from happening.

We've already been told by the BoE that low interest rates will be staying low for sometime.

Can you really see the government letting an HPC occur? Or will they try and ramp up the market and hope us first time buyers cave in and buy?

None of us expected the printy printy that went on post 2007. None of us would realised the extent the system would go to to prop up the market.

Now please give me hope in explaining how this time will be any different?

My partner believes the coalition government might let the housing market correct super quick-ish, as they can blame it on Brown and Labour. Once that's out of the way they can actually try and rebuild the country, with hopes of getting re-elected in 5 years time.

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The current one is on-going, not over....

True... make that another wave of defaults.

BTW, in the above, the bank assets could be auctioned off to other banks (as in any liquidation) to try to bridge the gap between the asset prices (loans etc) and their liabilities (deposits). The government would still have to make up the difference though; if the banks start falling like dominoes, as many have similar exposure, then it could quickly get rather desperate.

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Can you really see the government letting an HPC occur?

You assume they have a choice... It all depends on whether or not more QE causes IRs to rise/a sterling collapse. If the market won't support more QE, then we'll see an HPC. Question is would the implications of a UK HPC be so great that the market would rather accept QE than see it happen?

If the US, Eire etc have all seen their housing bubbles burst without a total total meltdown, why can't we? Is the UK's bubble different (this time)?

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It would be absolute mayhem to let the housing market crash and when I say crash I mean anything above 20% falls. To be honest I don't see +25% falls anyway.

Ireland and US house prices down 30+% and still dropping. Another 20% in the fall in the UK would be comparable

Is Ireland and US in absolute mayhem?

VMR.

Edited by VeryMeanReversion

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As much as I would love to see an HPC reoccurence I just don't see it happening.

It would be absolute mayhem to let the housing market crash and when I say crash I mean anything above 20% falls. To be honest I don't see +25% falls anyway.

There are far too many average income homeowners, stuck in massive amounts of housing debt. What will happen to these people? They will get re-possesed if interest rates rise or if there are no more government bail-outs. The properties will end up at auction as the banks will need to get rid of them to recover what they can.

If people are forced to sell up in a downward market they will lose any equity they had (thinking of 2007 prices here, where little deposits were needed). On top of that they will owe the banks money. How will they afford to pay the banks back? They will probably claim bankruptcy, leaving the debt with the banks again.

The banks aren't out of trouble by a long way. They have had to rely on the government, and I believe the government will prop them up again to stop the above from happening.

We've already been told by the BoE that low interest rates will be staying low for sometime.

Can you really see the government letting an HPC occur? Or will they try and ramp up the market and hope us first time buyers cave in and buy?

None of us expected the printy printy that went on post 2007. None of us would realised the extent the system would go to to prop up the market.

Now please give me hope in explaining how this time will be any different?

My partner believes the coalition government might let the housing market correct super quick-ish, as they can blame it on Brown and Labour. Once that's out of the way they can actually try and rebuild the country, with hopes of getting re-elected in 5 years time.

To a degree, I agree - they will keep bailing out the banks for as long as it takes. At some point 'QE+' or some such will kick in as the rule book gets thrown out of the window, which will be direct funding of the government by the BoE. After that point, who knows what will happen? If there is essentially whole sale nationalisation of the banking system, they may as well consider radical reforms in the process.

Where I don't agree, is that they will be able to stop prices falling. IMO, there are enough people who are smart enough to realise that low interest rates can't last forever, can't get any lower, and repayments will rocket should they go up. Interest rates could head up rapidly, should inflation start to get out of control too.

BTW, NI prices have crashed by about 40% already, regardless of government intervention. There is only so much they can do to prop prices up and then the rest of the help the government can give is just saving the banks.

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You assume they have a choice... It all depends on whether or not more QE causes IRs to rise/a sterling collapse. If the market won't support more QE, then we'll see an HPC. Question is would the implications of a UK HPC be so great that the market would rather accept QE than see it happen?

If the US, Eire etc have all seen their housing bubbles burst without a total total meltdown, why can't we? Is the UK's bubble different (this time)?

Once practically all government bonds are owned by the BoE, followed by failed bond auctions, I would imagine there would be monetary reform. The UK defaulting (or the BoE buying gilts directly) would send shock waves around the world and I can't imagine any of the (currently proposed) sticky plasters appearing as sufficient then.

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As much as I would love to see an HPC reoccurence I just don't see it happening.

It would be absolute mayhem to let the housing market crash and when I say crash I mean anything above 20% falls. To be honest I don't see +25% falls anyway.

There are far too many average income homeowners, stuck in massive amounts of housing debt. What will happen to these people? They will get re-possesed if interest rates rise or if there are no more government bail-outs. The properties will end up at auction as the banks will need to get rid of them to recover what they can.

If people are forced to sell up in a downward market they will lose any equity they had (thinking of 2007 prices here, where little deposits were needed). On top of that they will owe the banks money. How will they afford to pay the banks back? They will probably claim bankruptcy, leaving the debt with the banks again.

The banks aren't out of trouble by a long way. They have had to rely on the government, and I believe the government will prop them up again to stop the above from happening.

We've already been told by the BoE that low interest rates will be staying low for sometime.

Can you really see the government letting an HPC occur? Or will they try and ramp up the market and hope us first time buyers cave in and buy?

None of us expected the printy printy that went on post 2007. None of us would realised the extent the system would go to to prop up the market.

Now please give me hope in explaining how this time will be any different?

My partner believes the coalition government might let the housing market correct super quick-ish, as they can blame it on Brown and Labour. Once that's out of the way they can actually try and rebuild the country, with hopes of getting re-elected in 5 years time.

And I agree, it is the only way to provide a sustainable platform for a recovery.

Our wage costs are too high to be competitive because accomodation costs are 50% too high.

HPC will happen, it cannot be 'controlled' however hard they try, and I hope they dont otherwise it will just add more to the public debt.

Yes there will be a couple of million people in -ve equity, but only if they move. And whether they can afford thier payments or not is a non argument as far as the actual value of the house is concerned.

Yes some will go bankrupt but these will mostly be the t*****s who got us into this mess in the first place and given that they are that stupid would probably have ended up bankrupt sooner or latter anyway.

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When do you think all this will kick off?...I need to plan my diary. ;)

after the holidays

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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