A Theory

[oracle]

what did you study? just interested.....

<{POST_SNAPBACK}>

BEng (hons) Electronic engineering.

...and bloomberg and advfn relentlessly for the financial stuff

Edited September 6, 2005 by oracle

[khali]

good for you khali,I'm sure most of the folks on this site will agree with you in principle,but unfortunately you've left out the bit about timing the market.

..let's face facts,you got lucky.Would you have been able to do what you did on that salary NOW?..nope.

The thing is,most folks don't know they got lucky,they think they've all inherited some new skill.ANY fool can make money in a bull market.If you threw darts at cards with share names on you could make money.

the real skill lies in how to make money in a falling or static market,which is something most BTL haven't experienced yet.

I survived and profited from the dotcom crash,and it took a lot of hard work and research to learn the rules of the game.most of my peers threw in the towel but I studied.

<{POST_SNAPBACK}>

I knew I had to purchase when I did ('99), the boom was already underway in many parts of the country, but didn't actually reach the area I bought in until 2002ish. For that reason, I wonder whether my area will be particularly slow in accepting the slowdown? I'm seeing some evidence of 'new prices', and open days at new builds, but on the whole, the asking prices are still absurd. I'm contemplating making a nuisance of myself around some local EAs by putting in really absurd offers for property, based upon what money could buy around here 6-7 years ago.

If I had FTB now, I'd be looking at Oldham or thereabouts.

Edited September 6, 2005 by khali

[MongerOfDoom]

The bank is the system. What is the difference? Another way of looking at it is that they have lent the same $1m 9 times to create the asset of $9m (the money lent out).

If I lend you my car, I can not lend it to someone else as well, can I? To equate this, it is like me lending my car to you, but knowing that you only want to use it on saturday. I know you are out all day during the week, so I sneakily lend it to other people for all of the days of the week except saturday. This is a deception. Banking is also a deception as they make interest on the same money several times simultaneously.

The car analogy nearly works. However, it is a bit more as if the first borrower of the car asked to keep it in your garage on weekdays and to be paid 'interest' for the priviledge (i.e. you pay him). He would obviously know that the car might depreciate a bit with use by others (AKA inflation). He would not be deceived.

You could make the analogy a bit better by having the person who first borrowed the car give it to someone else (as a present, in exchange for a house, gratification, or whatever) and promise to pay you back over 10 years by supplying you with various car parts. The person who got the car from him would then keep it in your garage in exchange for something else.

Most depositors believe their money to be safe in a bank vault, or at worst to be lent out once against an asset such as a house. They do not believe it to be lent against 9 times to fuel a credit card binge.

I think there might be a bit of a misunderstanding here. A bank only gets to lend out any deposit *once*, and even then not all of it. They can only lend it out again if a previous loan ends up back with them as a deposit. Obviously, a borrower would probably not deposit money they just borrowed but someone they paid with the money would.

I don't think there is a difference in principle between secured and unsecured lending as long as the interest rate differential is appropriate.

BTW, how would you ensure that banks only lend out money 'once' as you put it? If you insist that banks have a 100% cover for their deposits then they could not lend any money taken as a deposit at all! They would have no motivation to accept deposits except if they were paid to do so. I would certainly not like that myself. I guess you could mean that they should have cover for 50% of deposits (so the total amount of money would double) but presumably that would be no better in principle as the same money would still be lent out many times - it's just that the series would converge faster.

I am not saying that banks have unlimited scope for money creation - they need people to lend it to. They also have to meet the reserve requirements (i.e. 10% held back - 8% in the UK). They could start with 1 cent, but that would only allow them to create 9 cents.

Good! I wonder if it is worth explaining how the creation works. A bank get a $. They lend out $0.9. Someone deposits it back (so they now have $1.9 in deposits and $0.9 in loans). They lend out $0.81 and have $1.9 in deposits and $1.71 in loans). Both deposits and loans are infinite geometric series that in this case sum up to $10 and $9 respectively.

I completely agree with you  - banks get to charge interest on money that is deposited with them, pay interest on deposits, and the difference is theirs to keep.

Also good!

The problem is that they are allowed to do this multiple times from the original existing money.

Ok, but why is that a problem. They must have $10 in deposits in order to lend out $9. They cannot lend any more money unless their deposits increase.

If they were allowed to do this to an unlimited extent the confidence trick would fail and they wouldn't make money.

I am not sure there is a confidence trick involved here. As long as they lend to creditworthy people (and in the absence of outright fraud) everything is fine. I certainly would not be worried about my money under these assumptions. Should there be a run on the bank they might need to ask that I accept Joe Bloggs's mortgage repayments over the next decade in lieu of my deposit that they cannot immediately return but i) I could sell that to another lender, or ii) might even keep it if it suits me, or iii) could just wait until they sell said debt to someone else to repay me.

They maintain the illusion of security which allows them to profit. The interest they charge is a massive drain on all economic activity. Prices are inflated due to the increase in money supply brought about by their activities.

<{POST_SNAPBACK}>

I am not sure I agree. Banks make it possible for me to spend someone else's earnings during their remaining lifetime *if* I have something they are willing to exchange said earnings for even before earning them. I think that this increses economic activity rather then being a drain on it. I agree that excessive lending may cause inflation but only in the short term. The faster the lending criteria are relaxed the sooner there are no additional borrowers left. There are many other undesirable effects lending can cause but I believe this is the case *only* when loans are made to borrowers who are not creditworthy. Unfortunately, there appears to be anecdotal evidence that this is precisely what is happening at the moment :-(

To summarise: Banks can only lend out less than they have in deposits, so they always pay interest on more money then they receive interest on. I don't think FRB is inherently bad or dangerous. I agree that FRB could destabilise the financial system but only in the presence of unexpected bad debts or fraud.

HTH,

MoD

[Smell the Fear]

The car analogy nearly works. However, it is a bit more as if the first borrower of the car asked to keep it in your garage on weekdays and to be paid 'interest' for the priviledge (i.e. you pay him). He would obviously know that the car might depreciate a bit with use by others (AKA inflation).  He would not be deceived.

You could make the analogy a bit better by having the person who first borrowed the car give it to someone else (as a present, in exchange for a house, gratification, or whatever) and promise to pay you back over 10 years by supplying you with various car parts. The person who got the car from him would then keep it in your garage in exchange for something else.

I think there might be a bit of a misunderstanding here.  A bank only gets to lend out any deposit *once*, and even then not all of it. They can only lend it out again if a previous loan ends up back with them as a deposit. Obviously, a borrower would probably not deposit money they just borrowed but someone they paid with the money would.

I don't think there is a difference in principle between secured and unsecured lending as long as the interest rate differential is appropriate.

BTW, how would you ensure that banks only lend out money 'once' as you put it? If you insist that banks have a 100% cover for their deposits then they could not lend any money taken as a deposit at all!  They would have no motivation to accept deposits except if they were paid to do so. I would certainly not like that myself.  I guess you could mean that they should have cover for 50% of deposits (so the total amount of money would double) but presumably that would be no better in principle as the same money would still be lent out many times - it's just that the series would converge faster.

Good! I wonder if it is worth explaining how the creation works. A bank get a $. They lend out $0.9. Someone deposits it back (so they now have $1.9 in deposits and $0.9 in loans). They lend out $0.81 and have $1.9 in deposits and $1.71 in loans). Both deposits and loans are infinite geometric series that in this case sum up to $10 and $9 respectively.

Also good!

Ok, but why is that a problem. They must have $10 in deposits in order to lend out $9. They cannot lend any more money unless their deposits increase.

I am not sure there is a confidence trick involved here. As long as they lend to creditworthy people (and in the absence of outright fraud) everything is fine. I certainly would not be worried  about my money under these assumptions. Should there be a run on the bank they might need to ask that I accept Joe Bloggs's mortgage repayments over the next decade in lieu of my deposit that they cannot immediately return but i) I could sell that to another lender, or ii) might even keep it if it suits me, or iii) could just wait until they sell said debt to someone else to repay me.

I am not sure I agree.  Banks make it possible for me to spend someone else's earnings during their remaining lifetime *if* I have something they are willing to exchange said earnings for even before earning them.  I think that this increses economic activity rather then being a drain on it. I agree that excessive lending may cause inflation but only in the short term. The faster the lending criteria are relaxed the sooner there are no additional borrowers left. There are many other undesirable effects lending can cause but I believe this is the case *only* when loans are made to borrowers who are not creditworthy.  Unfortunately, there appears to be anecdotal evidence that this is precisely what is happening at the moment :-(

To summarise: Banks can only lend out less than they have in deposits, so they always pay interest on more money then they receive interest on.  I don't think FRB is inherently bad or dangerous.  I agree that FRB could destabilise the financial system but only in the presence of unexpected bad debts or fraud. 

HTH,

MoD

<{POST_SNAPBACK}>

You seem to be missing the point that the money deposited with banks, which they can then relend (90%+ of), is the same money that was deposited maybe only minutes previously. You give all of this "money" equal weighting. All of the money becomes progressively devalued as more is created through FRB.

FRB is only made possible by the fact that we have money in electronic form (unless we simply print up more notes, which are only pieces of paper). If money was traceable (e.g. if we had a fixed supply of money, only in paper form) then this sleight of hand would be impossible unless the commercial bank counterfeited money. Essentially, deposits are traceable, but the system chooses not to trace them.

The problem I see is not so much with the creation of money, but with the ability of banks to tax every transaction that occurs in an economy via interest charges.

If customers want to keep their money safe in the bank, then they should pay the bank for this privelege. If banks want to charge interest for loans of money then they should be free to, and should do it with their own money. They should not be permitted to engineer a scenario whereby a proportion of all wealth is transferred to them for the sole reason that there is no alternative source of money in the economy.

Nor should banks have control over the money supply to the extent that they do. The money supply is the reason why we have suffered rampant HPI. HPI is evidence of the effect of poorly controlled money supply on the economy.

p.s. your tone is so patronising that I could probably only forgive it if you could give me a good reason why your opinion is so exalted in these matters.

[messychopper]

My feeling is: everyone has 3 points on their licence, therefore 3 points means nothing.  If everyone has one bankruptcy then it means nothing.

<{POST_SNAPBACK}>

Excellent point

[xian]

twentysomething... if you are in 10's of K's debt, you only have yourself to blame. Tuition fees were not that much a few years ago. Additional living expenses should have been affordable through vacation employment. At the most, a reasonably prudent and un-materialistic person would have accumulated debt up to a max of about 10k. This would not even leave someone as a student on the breadline.

A 10k debt should be easily offset by an average graduate starting salary with a few (less than 5 years) employment, living within your means... if not, you either chose the wrong degree (e.g. payed high tuition fees for a philosophy and new age arts joint honours, and achieved a desmond or lower), or haven't made the effort to find a way to pay back.

I have no sympathy. If you really borrowed money to fund piss-ups and latest reg fully loaded BMWs, then more fool you.

As for having no incentive to place a deposit on a house - understandable in the current climate... but to say you have no incentive to repay your debt?? You simply serve to underline your financial ignorance.

I believe your attitudes are common to this generation of students, who get on to a degree course if they can remember their name and tie their shoelaces, but still expect a 40k starting salary when they leave. Hard luck.

FYI... I'm a graduate of 11 years now, so not a huge difference from yourself. I worked every holidays to pay my way through college (not a poxy ex-poly). I had no debt when I left, but had a whale of a time while I was there.

I travelled for several years enjoying myself after graduating, seeing the world and developing personally as a result, never borrowing money to do so.

I started to develop a career simply through hard work, completely unrelated to my degree, about 6 years ago, and now earn over 100k p.a. I still drive an 8 year old diesel peugeot 306. This is because I take financial responsibility for myself, and know that splurging money and keeping up with the Jones's is not necessary to be happy.

I think you need to grow up and take stock of your financial situation, stop being such a goddam consumer, and accept responsibility for yourself, instead of blaming economic conditions, and supposed "impossible / difficult" conditions for students.

Alternatively, you could declare yourself bankrupt, safe in the knowledge that is other people who have worked hard for what they have who will ultimately foot your bill through higher bank charges and lower interest designed to offset such financial losses from irresponsible borrowers.

[Wuluf]

You seem to be missing the point that the money deposited with banks, which they can then relend (90%+ of), is the same money that was deposited maybe only minutes previously. You give all of this "money" equal weighting. All of the money becomes progressively devalued as more is created through FRB.

<{POST_SNAPBACK}>

It is not rocket science.. (given 10% CAR)

The way it works is that banks rather than lending out 90% of deposits do the opposite and keep the entire deposit as the CAR and then lend out (deposit/10)*90 against it...

This increases the amount of money in the system..

The banking system is almost riskless.. Individuals banks can and do lose money..

CAR limits the gearing. A second factor limiting money growth is that repayments have to be serviceable and loan terms are finite..

[MongerOfDoom]

You seem to be missing the point that the money deposited with banks, which they can then relend (90%+ of), is the same money that was deposited maybe only minutes previously. You give all of this "money" equal weighting. All of the money becomes progressively devalued as more is created through FRB.

I cannot see how the money becomes devalued. It takes just as much effort to earn money to pay off a loan as it does to earn money you want to save or consume.

FRB is only made possible by the fact that we have money in electronic form (unless we simply print up more notes, which are only pieces of paper).

Printed money just makes things easier. I would be happy to accept a note issued by a respected bank that said "a tenner redeemable on request, although it might be a short while before we beat it out of Joe Bloggs who owes us a real one". Why wouldn't you?

If money was traceable (e.g. if we had a fixed supply of money, only in paper form) then this sleight of hand would be impossible unless the commercial bank counterfeited money. Essentially, deposits are traceable, but the system chooses not to trace them.

I really do not see what the problem is. How would your ideal system work? The working of the current system is well known. There are no secrets and I cannot see where a 'sleight of hand' comes in.

The problem I see is not so much with the creation of money, but with the ability of banks to tax every transaction that occurs in an economy via interest charges.

Bank charges are optional, and IMHO an excellent value for what they allow. If anything, the competition works so well that banks appear to head for the same steep cliff trying to maintain market share of an increasingly unprofitable lending market. I recall Barclays said sometime ago they did not want new mortgage business at competitive prices because it was unprofitable :-( Banks appear to be subsidising the economy at the moment, at least assuming that Barclays were right.

If customers want to keep their money safe in the bank, then they should pay the bank for this privelege.

That might be a bit of a niche market. What would you gain by keeping your money out of the system? I would rather they lent out my money and paid me interest.

If banks want to charge interest for loans of money then they should be free to, and should do it with their own money. They should not be permitted to engineer a scenario whereby a proportion of all wealth is transferred to them for the sole reason that there is no alternative source of money in the economy.

They *pay* me to use my money. I am not deceived. Should I be forbidden from lending it to them? Should I be forbidden from lending my money to anyone at all?

Banks make large profits but they also provide a valuable service. I certainly would not want to be without them, and the economy would be much worse off too. Anyway, you can always buy shares in banks if you think they have it too good.

I do not see how they 'engineer'ed anything. Can you explain what it was that they did?

Nor should banks have control over the money supply to the extent that they do. The money supply is the reason why we have suffered rampant HPI. HPI is evidence of the effect of poorly controlled money supply on the economy.

What is the alternative? A centrally planned system? I'd rather have HPI myself. Besides, I would have thought that banks do not really have any control over the money supply in the economy. They might have an effect on it but I cannot see them making any decisions with the intention of affecting it.

I agree that the recent HPI would not have happened the same way without massive relaxation in lending criteria. It is not however caused by money being somehow cheapened as those who borrowed all they could are without doubt in the process of discovering (also, rents would have gone up if money was somehow cheapened; so would the RPI). Bubbles have been happening in all sorts of circumstances even without the help of mature banking systems. FRB is certainly not the cause of the bubble because it predates it. Finally, if you really believe what you said in the above quote then presumably you must also think that houses are fairly priced because money is somehow plentiful now.

p.s. your tone is so patronising that I could probably only forgive it if you could give me a good reason why your opinion is so exalted in these matters.

<{POST_SNAPBACK}>

Sorry. You seem to have found a conspiracy of sorts, and I am trying to explain I believe there is none. Is this a fair take on your position? If it is then you can see why I might be trying to explain or state things rather than argue. As always, any corrections of my mistakes are most welcome.

I do not mean to be unpleasant to you - sorry again.

Thanks,

MoD

[Twenty Something]

Xian and a few others, you launch a quite scathing attack on my personality without really knowing me. You say that you have no sympathy for me, well good, i am not after your sympathy! I did a degree in Computer Science if it makes any difference and earn circa 35k pa. My second job is lifeguarding/ personal training at a large leisure chain which i do as its what i enjoy, not out of neccessity. There is a common snobbish theme running through this post that i must be some sort of cretin with two gcse's in art and english rodders. You earn 100k a year, well bully for you. You choose to drive a diesel peugeot well bully for you. I don't.

At no point in this thread have i suggested that i am going to go bankrupt, or that i can't affort the repayments on my loans. I am fine thankyou very much. The point of this thread is that people such as myself have CHOSEN to borrow money to spend on things other than houses. Its not due to financial stupidity, its not due to lack of upbringing, its something that we have chosen to do in a society that takes every opportunity to screw over the hard working middle classes. I have no chance of getting a house, not because i am stupid, but because its out of my reach, even earning what i consider to be a fairly decent wage. I get taxed left right and centre to pay for things that i never use.

A lot of people here are equating large personal debt with irresponsibility and ignorance. It couldn't be further from the truth. Xian, if you take the time to read back to the start of the thread, you will see that i am at the same time saving for my future. I have merely presented a theory that a lot of people (not everyone) in my age group are spending on material things as they don't have the option of getting a mortgage. If i could take back my holidays, car, possessions and have the money would i? HELL NO. You scrimp and save and die a rich man, i prefer to live thankyou. It doesn't mean i am going bankrupt, it means i am in a manageable situation with large debts that WILL be paid back in the next few years. Take your snobbery and go stick it...

[Smell the Fear]

I cannot see how the money becomes devalued. It takes just as much effort to earn money to pay off a loan as it does to earn money you want to save or consume.

Printed money just makes things easier. I would be happy to accept a note issued by a respected bank that said "a tenner redeemable on request, although it might be a short while before we beat it out of Joe Bloggs who owes us a real one". Why wouldn't you?

I really do not see what the problem is. How would your ideal system work? The working of the current system is well known. There are no secrets and I cannot see where a 'sleight of hand' comes in.

Bank charges are optional, and IMHO an excellent value for what they allow. If anything, the competition works so well that banks appear to head for the same steep cliff trying to maintain market share of an increasingly unprofitable lending market.  I recall Barclays said sometime ago they did not want new mortgage business at competitive prices because it was unprofitable :-(  Banks appear to be subsidising the economy at the moment, at least assuming that Barclays were right.

That might be a bit of a niche market. What would you gain by keeping your money out of the system?  I would rather they lent out my money and paid me interest.

They *pay* me to use my money. I am not deceived. Should I be forbidden from lending it to them? Should I be forbidden from lending my money to anyone at all?

Banks make large profits but they also provide a valuable service. I certainly would not want to be without them, and the economy would be much worse off too. Anyway, you can always buy shares in banks if you think they have it too good. 

I do not see how they 'engineer'ed anything. Can you explain what it was that they did?

What is the alternative? A centrally planned system? I'd rather have HPI myself.  Besides, I would have thought that banks do not really have any control over the money supply in the economy. They might have an effect on it but I cannot see them making any decisions with the intention of affecting it.

I agree that the recent HPI would not have happened the same way without massive relaxation in lending criteria. It is not however caused by money being somehow cheapened as those who borrowed all they could are without doubt in the process of discovering (also, rents would have gone up if money was somehow cheapened; so would the RPI). Bubbles have been happening in all sorts of circumstances even without the help of mature banking systems. FRB is certainly not the cause of the bubble because it predates it. Finally, if you really believe what you said in the above quote then presumably you must also think that houses are fairly priced because money is somehow plentiful now.

Sorry. You seem to have found a conspiracy of sorts, and I am trying to explain I believe there is none.  Is this a fair take on your position? If it is then you can see why I might be trying to explain or state things rather than argue.  As always, any corrections of my mistakes are most welcome.

I do not mean to be unpleasant to you - sorry again.

Thanks,

MoD

<{POST_SNAPBACK}>

Banks have created a position for themselves (by whatever means, be it historical good fortune, the structure of the industry, corruption, influence, banking law and regulations) whereby they can make vast profits in almost any situation.

All of this profit has been extracted from the truly useful parts of the economy. It is a drain on society and the welfare of every one of us. I am not calling for abolition of banking as we know it, but it needs to be controlled to prevent the negative effects it can create.

As for sleight of hand, you may be aware of what happens to your deposit, but 99% of the population isn't. That is the deception. The world of banking is cloaked in secrecy and impenetrable jargon to such an extent that people don't even bother to try to understand its function. We blindly accept it as it is. Bankers are hero worshipped and regarded as being worthy of the vast sums they choose to pay themselves.

I am not blaming them as individuals, but the system under which they are permitted to operate requires scrutiny.

[BoredTrainBuilder]

Xian and a few others, you launch a quite scathing attack on my personality without really knowing me. You say that you have no sympathy for me, well good, i am not after your ...

<{POST_SNAPBACK}>

Twenty Something, you're right, there's an amazing amount of judgementalism out there. You made a relevant and interesting observation and before you know it you are receiving unwanted lifestyle critiques. These people with sanctimonious controlling tendencies are harmless if irritating on internet forums but unfortunately the attitudes are also prevalent in the media and government.

[Smell the Fear]

Twenty Something, you're right, there's an amazing amount of judgementalism out there. You made a relevant and interesting observation and before you know it you are receiving unwanted lifestyle critiques. These people with sanctimonious controlling tendencies are harmless if irritating on internet forums but unfortunately the attitudes are also prevalent in the media and government.

<{POST_SNAPBACK}>

I agree. Do as you please, everyone else does. Some people are happy to scrimp and save, stay in on a saturday night and fantasise about their future wealth. Leave them to it I say.

[xian]

The point of this thread is that people such as myself have CHOSEN to borrow money to spend on things other than houses. Its not due to financial stupidity, its not due to lack of upbringing, its something that we have chosen to do in a society that takes every opportunity to screw over the hard working middle classes. I have no chance of getting a house, not because i am stupid, but because its out of my reach, even earning what i consider to be a fairly decent wage. I get taxed left right and centre to pay for things that i never use.

A lot of people here are equating large personal debt with irresponsibility and ignorance. It couldn't be further from the truth. Xian, if you take the time to read back to the start of the thread, you will see that i am at the same time saving for my future. I have merely presented a theory that a lot of people (not everyone) in my age group are spending on material things as they don't have the option of getting a mortgage. If i could take back my holidays, car, possessions and have the money would i? HELL NO. You scrimp and save and die a rich man, i prefer to live thankyou. It doesn't mean i am going bankrupt, it means i am in a manageable situation with large debts that WILL be paid back in the next few years. Take your snobbery and go stick it...

<{POST_SNAPBACK}>

How does this society screw over the hard working middle classes?? This is one of the lowest taxed societies in Europe. And we all pay tax on lots of things we don't use, that's life.

I don't see how this, and the fact that property was out of your price range when you left college to explain why you and others went on a consumer binge. Prices are nearly always out of a new grad's range, and also I assume it is only very few unusual grads who are property and profit minded at that time when certainly the focus should be on living and enjoying.

But indebted consumerism occurs because we fall for advertising, believe that material things will make us happy, and want to own the shiny designer labelled things we see around us that others have. Don't make the mistake of believing this equates to living.

FYI, I am not a snob, I just see the disconnection between the current value of alot of higher education and graduate expectations.

I am also not, as you suggest, a scrimp and saver without a life. I have simply lived enjoyably within my means, and if I haven't earned the money to pay for something, I simply don't buy it. I have friends who have also borrowed lots of money to "live" as you put it, and are now servicing debt. Funny that I also did the things they did, we all enjoyed ourselves, while they earned 4 times what I did, and I worked for less than 10k per year. In addition, I travelled extensively for a few years, while they didn't.

But I do get a kick out of knowing that because I didn't fall for things like a new Mercedes, the latest flat screen TV, brand new designer clothes every month etc, but choose less showy alternatives I was able to place a deposit on a house halfway through the latest boom and with some more planning should be able to retire long before the average age, while still young. That's both having your cake and eating it. That's living and enjoying yourself while you're young, and being able to look forward to reaping the rewards of being prudent.

I am glad you are in a manageable situation. You probably know this already, but consolidate your debts to the lowest interest rate provider, be prepared to watch rates and offers and switch cards regularly, overpay the monthly payment where you can (you have a good salary so should be able to afford to), and then in a few years time you will be in a good position to buy a house if you choose to do so just in time for the next boom.

Also FYI, I am not a man.

[BoredTrainBuilder]

I am glad you are in a manageable situation. You probably know this already, but consolidate your debts to the lowest interest rate provider, be prepared to watch rates and offers and switch cards regularly, overpay the monthly payment where you can (you have a good salary so should be able to afford to), and then in a few years time you will be in a good position to buy a house if you choose to do so just in time for the next boom.

Also FYI, I am not a man.

<{POST_SNAPBACK}>

Are you an agony aunt? If not you should be.

[Smell the Fear]

But I do get a kick out of knowing that because I didn't fall for things like a new Mercedes, the latest flat screen TV, brand new designer clothes every month etc, but choose less showy alternatives I was able to place a deposit on a house halfway through the latest boom and with some more planning should be able to retire long before the average age, while still young. That's both having your cake and eating it. That's living and enjoying yourself while you're young, and being able to look forward to reaping the rewards of being prudent.

<{POST_SNAPBACK}>

I take it you are not anticipating a sharp fall in house prices, then?

[MongerOfDoom]

Banks have created a position for themselves (by whatever means, be it historical good fortune, the structure of the industry, corruption, influence, banking law and regulations) whereby they can make vast profits in almost any situation.

Is this anything at all to do with FRB? Capitalism is indeed inefficient at allocating resources but it appears to be the best system we have so far. Banks do not get free lunch. There would be lots more of them if they did. They would never go under, either.

All of this profit has been extracted from the truly useful parts of the economy. It is a drain on society and the welfare of every one of us. I am not calling for abolition of banking as we know it, but it needs to be controlled to prevent the negative effects it can create.

What do imply? Are you saying that 'useful parts of the economy' somehow force money down the banks' throats? Could they not choose to avoid that? Or are you saying that banks somehow have a stranglehold over said 'useful parts of the economy', competition or not? Surely you need to balance the benefits banks provide against some of the less desirable effects of their existence (which would not necessarily disappear anyway if you somehow got rid of banks).

[ Actually, the answers to the two quations above might be yes. See e.g. http://www.amazon.co.uk/exec/obidos/ASIN/0...8420268-8840613 This is however nothing to do with FRB, and nothing to do with some inherent advantage given to banks by the system. ]

As for sleight of hand, you may be aware of what happens to your deposit, but 99% of the population isn't. That is the deception.

I am not convinced. They know how much interest they get, and they know that they will get most of their money back if things go wrong. At least some staggeringly high proportion of UK population who have less than 35k odd in savings do. Surely no-one thinks that the bank pays them interest just for the hell of it?

The world of banking is cloaked in secrecy and impenetrable jargon to such an extent that people don't even bother to try to understand its function. We blindly accept it as it is. Bankers are hero worshipped and regarded as being worthy of the vast sums they choose to pay themselves.

I am not blaming them as individuals, but the system under which they are permitted to operate requires scrutiny.

<{POST_SNAPBACK}>

There are overpaid muppets everywhere. Then again, I only rarely see people who admit to being overpaid themselves, so it might be that our collective opinions on how much our work is worth might be a little skewed.

I think I agree that some of the problems could be fixed through better regulation but that is probably the case more in principle than in practice, seeing as the regulators are not necessarily shining models of probity, or so L&G would probably tell you. What regulation would you bring in?

Do you still believe that FRB allows banks to generate profits by 'questionable' means? I think we are now more in agreement but that might be just because the topic has shifted a bit.

Thanks,

MoD

EDIT: fixed the first sentence in the last paragraph to say what I meant it to say

Edited September 7, 2005 by MongerOfDoom

[xian]

I take it you are not anticipating a sharp fall in house prices, then?

<{POST_SNAPBACK}>

I, like most at the moment, am anticipating a gradual slow down in prices and saleability, perhaps up to 20% over the next few years. However, I am hoping for an extreme crash, preferably over 50%.

[Smell the Fear]

I, like most at the moment, am anticipating a gradual slow down in prices and saleability, perhaps up to 20% over the next few years. However, I am hoping for an extreme crash, preferably over 50%.

<{POST_SNAPBACK}>

I just thought that it seemed a little inconsistent with your desire to retire early and comfortably. I was assuming that you planned to do this with your house that you bought half way through the boom. Surely you anticipate that a lot or even all of your gains will be wiped out?

Or are you making alternative arrangements for retirement?

[Nijo]

I don't see much difference between the generations, except that the current crop happen to be at a HP peak. If it crashes then in 5 years there'll be something else to complain about.

The 20-somethings that choose not to save are the same as the 40-somethings that MEW to the hilt.

The 20-somethings that choose to save (like me) are the same as the 40-somethings that are a bit more careful with their finances.

It's all down to your attitude to money.

[xian]

I just thought that it seemed a little inconsistent with your desire to retire early and comfortably. I was assuming that you planned to do this with your house that you bought half way through the boom. Surely you anticipate that a lot or even all of your gains will be wiped out?

Or are you making alternative arrangements for retirement?

<{POST_SNAPBACK}>

yes, it does seem inconsistent.

[Twenty Something]

Lol smell the fear, you beat me to it! Here we have xian lecturing me on prudence and how she will retire young, but she is betting all this on the belief that her house will carry on rising ad infinitum! Its exactly this smug attitude that is so laughable in today's society! I've brought a house and its risen in value by 50% in the last 5 years, clever old me! I'm going to retire in a few years and live it up whilst you are all paying mortgages. Xian, i hope you realise that your "profit" is not yet realised, and that you have to sell your nest egg first!

I guess it boils down ultimately to what makes you happy in life. I am a material person i will admit. I'm not into designer outfits and flashy haircuts, but i am very into fast cars and adrenalin sports. I drive an impreza P1 which has set me back 35k. I go snowboarding, do triathlons, spend most weekends away from home either training or seeing friends. This sort of lifestyle costs a lot of money. Its not for some-people will look at my car and call it hideous. People will ask why i travelled to hawai and spent grands to compete in the ironman. Xian, perhaps your tastes are more modest than mine. You are not into fast cars and expensive sports. On 100k a year i should imagine that you can live a nice life, and well done to you, especially if you have done it from modest beginnings. Please don't judge me though because i am in a lot of debt. It doesn't make you smarter than me, it doesn't make you a better human being. The mentality of buy now and pay later has been drilled into myself and my peers for years, and its only going to make this crash worse.

As for society not screwing over the middle classes, i respectfully disagree with you. The upper class don't care as they can just carry on sipping bolly and having a jolly good time whatever the economy does. It seems to me that most of the lower class are living at the tax payers expense moaning about how hard it is to raise 5 children and do GCSE's. The back bone of this country is people like me who are subsidising all this governments **** ups and some! We may well have the lowest taxes in europe, i don't know, but they don't call it rip off britain for nothing.

[xian]

Lol smell the fear, you beat me to it! Here we have xian lecturing me on prudence and how she will retire young, but she is betting all this on the belief that her house will carry on rising ad infinitum! Its exactly this smug attitude that is so laughable in today's society! I've brought a house and its risen in value by 50% in the last 5 years, clever old me! I'm going to retire in a few years and live it up whilst you are all paying mortgages. Xian, i hope you realise that your "profit" is not yet realised, and that you have to sell your nest egg first!

I guess it boils down ultimately to what makes you happy in life. I am a material person i will admit. I'm not into designer outfits and flashy haircuts, but i am very into fast cars and adrenalin sports. I drive an impreza P1 which has set me back 35k. I go snowboarding, do triathlons, spend most weekends away from home either training or seeing friends. This sort of lifestyle costs a lot of money. Its not for some-people will look at my car and call it hideous. People will ask why i travelled to hawai and spent grands to compete in the ironman. Xian, perhaps your tastes are more modest than mine. You are not into fast cars and expensive sports. On 100k a year i should imagine that you can live a nice life, and well done to you, especially if you have done it from modest beginnings. Please don't judge me though because i am in a lot of debt. It doesn't make you smarter than me, it doesn't make you a better human being. The mentality of buy now and pay later has been drilled into myself and my peers for years, and its only going to make this crash worse.

As for society not screwing over the middle classes, i respectfully disagree with you. The upper class don't care as they can just carry on sipping bolly and having a jolly good time whatever the economy does. It seems to me that most of the lower class are living at the tax payers expense moaning about how hard it is to raise 5 children and do GCSE's. The back bone of this country is people like me who are subsidising all this governments **** ups and some! We may well have the lowest taxes in europe, i don't know, but they don't call it rip off britain for nothing.

<{POST_SNAPBACK}>

Nope. You have incorrect assumptions regarding my financial plans and situation. I'm not betting on infinite property rises, Im hoping for a huge fall.

As for "buy now pay later, it's exactly that with which I cannot find sympathy. Sorry.

As for the middle classes being screwed, it's only ever the rich who DON'T get screwed, in any society. Everyone pretty much gets screwed, unless you're either part of the ruling or aristocratic groups.

edited to add: I am not judging you as an individual, but I have little time for rampant consumerist behavior which then results in bleating about debt and affordability, when they have had every opportunity to do otherwise.

Edited September 7, 2005 by xian

[Twenty Something]

The point i am trying to make to you is that i am not bleating about debt! You have now taken this post so far off topic that i have half forgotten what it was i was saying in the first place!

Ok so answer me this. How would me saving a 30k deposit over the last 5 years have helped me to get on the property market today? 35k x 3.5 = £122,500. Now you find me a place in the South East that i could buy with that!! This is my point, there aren't any, or if there are, they are garages! True, if i had that deposit then maybe in 10 years time IF house prices have corrected i would be better placed to buy, but my point is that i am a part of a generation that sees no hope of this ever happening. I believe that house prices will crash over the coming years, but a lot of people don't. I can honestly say that i have never been into an estate agents to enquire about properties for sale, and this is because buying a house is as alien an idea to me as castration! Its not even in my mindset as it just seems impossible. This is my point, that people of my age are racking up huge personal debt due to a lack of affordability in the housing market.

When working at the gym, i tell people to set a goal and that way they have something to work towards. This could be doing a 5km run or whatever. Take this and apply it to housing, and i can't set myself the goal of owning a house. It just seems impossible, and therefore i am spending my money on other things. I am confident that one day i will be able to afford a house, but even if the crash starts tomorrow, its going to take years for this mess to unwind. So, balls to owning a house, lets go travelling and buy fast cars. My lifestyle is having no effect on you or anyone else for that matter. I pay my rent, i service my debt, heck i even go to church once a year at christmas. Your way is one way, but its not neccessarily the best way for us all.

[xian]

Ok so answer me this. How would me saving a 30k deposit over the last 5 years have helped me to get on the property market today? 35k x 3.5 = £122,500. Now you find me a place in the South East that i could buy with that!!

<{POST_SNAPBACK}>

Apart from the fact that you probably wouldn't want to buy today, what about co-buying with a mate? Only takes a 100 or so quid to ensure the solicitor writes in the appropriate clauses to ensure appropriate share of collateral if you've put up different amounts of deposit. And if worst comes to worst and someone falls out / moves out, there's a room to be rented which would approx cover mortgage, and under room to rent scheme up to about 4k would not have to be declared.

[Guest wrongmove]

....True, if i had that deposit then maybe in 10 years time IF house prices have corrected i would be better placed to buy, but my point is that i am a part of a generation that sees no hope of this ever happening.....

.... I am confident that one day i will be able to afford a house, but even if the crash starts tomorrow, its going to take years for this mess to unwind.way, but its not neccessarily the best way for us all.....

<{POST_SNAPBACK}>

TS, your lifestyle is your business, but your argument is a bit self-contradictory. But it is obviously up to you. You could have money in the bank, but you choose to have fun now. Fine, in the past I have done the same to some extent (not on the same scale as you), and I don't regret it now.

But what exactly is your point ? Surely if you used the moeny spent on fast cars etc., many tens of thousands, as a deposit, and add it to say 3.5-4x your income, you could afford to buy now, (35kx4 + 40k = £180k) or you would be at least very well placed in the event of a crash. Instead you choose debt. Fine, but are we supposed to congratulate you or something ? I am just confused