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Higher Rates Unlikely To Have Prevented Credit Crunch

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More arrant ******** from the Bankprupt of England.

Must have forgotten the ex-head of the central smoney scammers admitted that they played with the interest rates to create a false boom after the 911 "attack", the housing and debt bubble were the result. Interst rate manipulation was absolutely fundamental to the bubble, fundamental to the misallocation of capital, fundamental to driving nearly everytbody into getting an inflation matching return even if it mean getting themselves on the wrong end of the banking effluent that was cooked up to keep the whole charade and bonus stream going.

Central banks created the first great depression and they have created this one too.

http://www.ft.com/cms/s/0/a03345c4-b2ac-11df-b5ab-00144feabdc0.html?ftcamp=rss

Higher rates unlikely to have prevented credit crunch

By Robin Harding in Jackson Hole and Norma Cohen in London

Published: August 28 2010 15:39 | Last updated: August 28 2010 15:39

Only punitive interest rates during the boom years could have prevented the ”great recession,” and they would have caused a significant fall in growth, according to Bank of England deputy governor Charles Bean.

In a paper on the lessons of the financial crisis prepared for the annual conference of central bankers at Jackson Hole, Wyoming on Saturday, Mr Bean said further policy action might be necessary to keep the recovery on track.

EDITOR’S CHOICE

UK quarterly growth revised upwards - Aug-27

Opinion: Britain buys a one-way ticket to second-class politics - Aug-27

Balls warns UK on verge of economic mistake - Aug-27

UK housing market recovery slows - Aug-27

Video: Growth set to slow - Aug-27

Samuel Brittan: The return of beggar-my-neighbour - Aug-26

But despite the fragility of the recovery and a considerable margin of spare capacity it was not too soon to analyse the responses to the credit crunch.

The collapse of Lehman Brothers in September 2008 presented central bankers and finance ministers in the advanced economies with one of the toughest challenges that they were ever likely to face, he said.

“Policymakers would be remiss if they did not re-examine their own decisions in the lead-up to to the crisis and strive to learn the lessons for the future conduct of policy,” Mr Bean said.

In a speech which ran to 43 pages – 65 when illustrative charts are attached – Mr Bean defended the Bank of England’s policy of inflation targeting – rather than targeting the actual level of prices as some have urged.

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They could have reduced the boom but interest rates would have to have been ratcheted up to about 10-15%, the level that house prices were increasing at to entice investors away from housing and back into cash.

Unfortunately this isn't a zero cost option, high rates also deter productive investment and feed back into the costs of doing business which is in itself inflationary.

Instead of blaming the BofE and their monthly decisions perhaps it might be better to ask yourself why we have to manipulate the entire economy so it doesn't upset the delicate flower that it the British housing market. It seems like an incredibly long winded approach to economics.

Edited by Chef

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Central banks created the first great depression and they have created this one too.

http://www.independent.co.uk/news/business/news/exgovernor-george-says-bank-deliberately-fuelled-consumer-boom-441160.html

The Bank of England deliberately stoked the consumer boom that has led to record house prices and personal debt in order to avert a recession, the former Bank Governor Eddie George admitted yesterday.

Lord George said he and his colleagues on the Monetary Policy Committee "did not have much of a choice" as they battled to prevent the UK being dragged into a worldwide economic slump by slashing interest rates. And he said his legacy to the current MPC was to "sort out" the problems he had caused.

Lord George, who headed the Bank for a decade from 1993, revealed to MPs on the Treasury Select Committee that he knew the approach was not sustainable. "In the environment of global economic weakness at the beginning of this decade... external demand was declining and related to that, business investment was declining," he said. "We only had two alternative ways of sustaining demand and keeping the economy moving forward - one was public spending and the other was consumption.

"We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term. But for the time being, if we had not done that, the UK economy would have gone into recession just as the United States did."

He said he was "very conscious" that stimulating consumer demand could give rise to problems in the future. "My legacy to the MPC, if you like, has been 'sort that out'," he said. Under Lord George's governorship, rates were slashed from 6 per cent in 2001 to 3.5 per cent in 2003, pushing house price inflation above 25 per cent and high street spending growth to its highest since the late-Eighties boom.

Guilty as charged.

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More arrant ******** from the Bankprupt of England.

Must have forgotten the ex-head of the central smoney scammers admitted that they played with the interest rates to create a false boom after the 911 "attack", the housing and debt bubble were the result. Interst rate manipulation was absolutely fundamental to the bubble, fundamental to the misallocation of capital, fundamental to driving nearly everytbody into getting an inflation matching return even if it mean getting themselves on the wrong end of the banking effluent that was cooked up to keep the whole charade and bonus stream going.

Central banks created the first great depression and they have created this one too.

http://www.ft.com/cms/s/0/a03345c4-b2ac-11df-b5ab-00144feabdc0.html?ftcamp=rss

Higher rates unlikely to have prevented credit crunch

By Robin Harding in Jackson Hole and Norma Cohen in London

Published: August 28 2010 15:39 | Last updated: August 28 2010 15:39

Only punitive interest rates during the boom years could have prevented the ”great recession,” and they would have caused a significant fall in growth, according to Bank of England deputy governor Charles Bean.

In a paper on the lessons of the financial crisis prepared for the annual conference of central bankers at Jackson Hole, Wyoming on Saturday, Mr Bean said further policy action might be necessary to keep the recovery on track.

EDITOR’S CHOICE

UK quarterly growth revised upwards - Aug-27

Opinion: Britain buys a one-way ticket to second-class politics - Aug-27

Balls warns UK on verge of economic mistake - Aug-27

UK housing market recovery slows - Aug-27

Video: Growth set to slow - Aug-27

Samuel Brittan: The return of beggar-my-neighbour - Aug-26

But despite the fragility of the recovery and a considerable margin of spare capacity it was not too soon to analyse the responses to the credit crunch.

The collapse of Lehman Brothers in September 2008 presented central bankers and finance ministers in the advanced economies with one of the toughest challenges that they were ever likely to face, he said.

“Policymakers would be remiss if they did not re-examine their own decisions in the lead-up to to the crisis and strive to learn the lessons for the future conduct of policy,” Mr Bean said.

In a speech which ran to 43 pages – 65 when illustrative charts are attached – Mr Bean defended the Bank of England’s policy of inflation targeting – rather than targeting the actual level of prices as some have urged.

A load of tosh made up to somehow shift blame away from the BoE who should have known better. Of course Ir's should have been much higher since 2000. It was obvious madness to encourage such loose borrowing and even madder to allow any LTV the banks liked on any income proof or even none. If I had been chancellor, then it would not have happened. After the last bust you could easily have simply applied proper lending controls for commercial and residential lending (as there were in past times) and the effect would have been stability. The casino banks should be separate entities and strictly controlled in the derivatives markets.

The UK HAS ALLOWED ITS MANUFACTURING BASE TO WITHER FROM 30% TO 12 % OVER 30 YEARS. It has relied on financial earnings accounting for 38% of the economy pre crash. That was crazy and the Bof E is responsible for overseeing such a dangerous imbalance. Add in Labour with overspend and tax Gordon, it was a recipe for its own disaster without help from the USA.

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They could have reduced the boom but interest rates would have to have been ratcheted up about 10-15%, the level that house prices were increasing at to entice investors away from housing and back into cash.

No they wouldn't. If rates had been a just few percentage points higher then house prices would not have been rising at that level.

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No they wouldn't. If rates had been a just few percentage points higher then house prices would not have been rising at that level.

Or they can raise the bank reserve requirement to slow down lending or make mortgage carry more charge to the capita ( I think only half of the mortgage was counted when it comes to the leve of leverage the commercial banks was at - i.e. mortage was considered safe).

The worse thing is that BoE has learnt nothing - other engligthened regulators like those in Asia have mandated as 20% down payment after housing-banking crisis while BoE is hoping that UK banks will go back to 125%...

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They could have reduced the boom but interest rates would have to have been ratcheted up about 10-15%,

In this present day and age with the amount needed on a mortgage to purchase a house a rate of 8% would have done it.

Short memories remind us when rates for mortgages were 6% + the squealing could be heard miles away. ;)

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A load of tosh made up to somehow shift blame away from the BoE who should have known better. Of course Ir's should have been much higher since 2000. It was obvious madness to encourage such loose borrowing and even madder to allow any LTV the banks liked on any income proof or even none. If I had been chancellor, then it would not have happened. After the last bust you could easily have simply applied proper lending controls for commercial and residential lending

The thing is monitoring lending standards was not the job of the BoE, it was the job of the FSA who were a complete ******* waste of space. While banks were lending 125% no money down loans to anyone with a pulse and no proof of income.. Those muppets were turning a blind eye (encouraged by a chancellor with a hard-on for 'light touch' regulation) and instead focussed their attention on making sure you were getting the best deal on your gas bill. It was a department totally unfit for the position it held.

The BoE may not be blameless in this, but technically monitoring the consumer trading practicies of the banks was not their direct responsibility.

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No they wouldn't. If rates had been a just few percentage points higher then house prices would not have been rising at that level.

A false economy, they could have lowered the price of housing but only by increasing the amount of money that was paid back to the banks. The net result is that most people are no better off as their fixed costs remain the same, it's just the ratios have been altered.

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More arrant ******** from the Bankprupt of England.

" If the Bank of England had tried to use monetary policy to stop the credit bubble, Mr Bean estimates that interest rates in the UK would have been around 7 per cent from the end of 2004 to mid-2007, and real house prices would have been 20 per cent lower at the end of 2006. Actual UK rates were between 4 per cent and 5.75 per cent during that time. "

I've been saying that here for a very long time.

And more: That if Gordon Brown had not removed housing costs from the inflation index in 2003, the BoE would have increased interest rates in 2004, and would have kept them around 1% higher between 2004 and 2008.

( Note: If mortgage rates are 6% instead of 5% [20% higher] monthly payments will also be almost 20% higher. That will reduce the purchasing power of buyers by almost 20%. Hence, a peak nearly 20% lower. )

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A load of tosh made up to somehow shift blame away from the BoE who should have known better. Of course Ir's should have been much higher since 2000. It was obvious madness to encourage such loose borrowing and even madder to allow any LTV the banks liked on any income proof or even none. If I had been chancellor, then it would not have happened. After the last bust you could easily have simply applied proper lending controls for commercial and residential lending (as there were in past times) and the effect would have been stability. The casino banks should be separate entities and strictly controlled in the derivatives markets.

The UK HAS ALLOWED ITS MANUFACTURING BASE TO WITHER FROM 30% TO 12 % OVER 30 YEARS. It has relied on financial earnings accounting for 38% of the economy pre crash. That was crazy and the Bof E is responsible for overseeing such a dangerous imbalance. Add in Labour with overspend and tax Gordon, it was a recipe for its own disaster without help from the USA.

Lol, demanding to have force used against you so that you can pay more money into the banking system.

99% of people in this country just want to be robbed.

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A false economy, they could have lowered the price of housing but only by increasing the amount of money that was paid back to the banks. The net result is that most people are no better off as their fixed costs remain the same, it's just the ratios have been altered.

Of course. What else would you expect? However, by shifting the ratios you reward prudent behaviour because people see more benefit from paying off their debts or not borrowing as much in the first place.

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Of course. What else would you expect? However, by shifting the ratios you reward prudent behaviour because people see more benefit from paying off their debts or not borrowing as much in the first place.

which would have spanked the economy which was ready to bust back then after the tech boom, the whole point of the credit boom was to do exactly the opposite to your sensible behaqviour above which would have been political oblivion for labour

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It was obvious madness to encourage such loose borrowing

Up to the mid 90s lenders were quite responsible. Then the American Lenders arrived here with plenty of cash, deep pockets, and very loose lending policies. The indigenous Lenders seeing their market share drop dramatically had no choice but to join in with these new lending policies or fail and see their customer base fall off a cliff. Global regulation was needed at the time to reign in this irresponsible behaviour but the massive profits generated meant more tax revenue in the coffers of Global Treasuries. Economies growing fast fuelled by more and more debt, and when the crash came no one saw it coming which IMO shows how many people are not worth the massive salaries they earn but are living in their own fairyland.

I believe King knew what was coming but was silenced by the Political Paymasters, his reward a further 5 years as Governor of the BOE. ;)

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Of course. What else would you expect? However, by shifting the ratios you reward prudent behaviour because people see more benefit from paying off their debts or not borrowing as much in the first place.

Jacking up IR's to eye watering levels doesn't allow people to pay down debts easily, the difficulty remains the same. OK people may not borrow to purchase housing as frequently, but upshot is that we continue with a nation of rentier surfs that still find themselves unable to get a foot on the property ladder.

Reducing house prices by lumbering people with extra costs hasn't really solved anything. We could say the same about taxes, if they were raised the price of housing would also have to come down, but it's an unnacceptable compromise imo, we could do better.

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Guilty as charged.

Exactly. People do a lot of blame-storming, but they see only the symptoms of the credit boom, not the root cause.

The expansion of credit was caused by a monetary environment that was too loose When the BoE only charges banks 3 or 4% to borrow then banks can go on a lending spree, which caused a spending spree and asset bubbles.

Loose Monetary Policy

Predicable effects:

  • House price bubbles

  • Consumers borrow to spend

  • Excessive optimism on asset prices (makes banks appear safe, further encouraging lending)

  • Incorrect assessment of risk (rating agencies rating Sub-Prime as triple-A, lax lending standards)

  • Increase tax revenue, encouraging excessive government spending

  • Financial crisis

So yes the FSA should have wiser in setting capital requirements etc, but that only helps one of symtoms of the disease caused by loose monetary policy.

The public are large do not seem to acknoledge this and would rather blame bankers, but in actually fact their behaviour, although deplorable, was entirely predictable. As was the behaviour of borrowers borrowing too much, consumers and governments for spending to much, rating agencies for believing it all.

If you provide lots of alcohol at your party, are you surprised when people get drunk? Do you go around afterwards blaming people for drinking too much of the booze you provided? They knew people would get drunk, it was predicted by Lord George in the quote above. It's so good, here it is again:

[Lord George], was "very conscious" that stimulating consumer demand could give rise to problems in the future. "

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Jacking up IR's to eye watering levels doesn't allow people to pay down debts easily, the difficulty remains the same. OK people may not borrow to purchase housing as frequently, but upshot is that we continue with a nation of rentier surfs that still find themselves unable to get a foot on the property ladder.

The only person talking about interest rates at eye-watering levels is you. I started off by saying that this was not necessary.

Paying off debt doesn't become easier when rates are slightly higher, but the reward for doing so becomes greater.

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Exactly. People do a lot of blame-storming, but they see only the symptoms of the credit boom, not the root cause.

The expansion of credit was caused by a monetary environment that was too loose When the BoE only charges banks 3 or 4% to borrow then banks can go on a lending spree, which caused a spending spree and asset bubbles.

Loose Monetary Policy

Predicable effects:

  • House price bubbles

  • Consumers borrow to spend

  • Excessive optimism on asset prices (makes banks appear safe, further encouraging lending)

  • Incorrect assessment of risk (rating agencies rating Sub-Prime as triple-A, lax lending standards)

  • Increase tax revenue, encouraging excessive government spending

  • Financial crisis

So yes the FSA should have wiser in setting capital requirements etc, but that only helps one of symtoms of the disease caused by loose monetary policy.

The public are large do not seem to acknoledge this and would rather blame bankers, but in actually fact their behaviour, although deplorable, was entirely predictable. As was the behaviour of borrowers borrowing too much, consumers and governments for spending to much, rating agencies for believing it all.

If you provide lots of alcohol at your party, are you surprised when people get drunk? Do you go around afterwards blaming people for drinking too much of the booze you provided? They knew people would get drunk, it was predicted by Lord George in the quote above. It's so good, here it is again:

Given a choice would you rather pay:

A) 8% in mortgage repayments, or

B ) 4% or lower in interest payments.

If your answer is B, and everbody else would also answer B, why would it make sense to then impose A on society when it's clear that nobody wants to pay a larger portion of their wages back to the banks. How is this 'good' for the economy?

Edited by Chef

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Given a choice would you rather pay:

A) 8% in mortgage repayments, or

B ) 4% or lower in interest payments.

If your answer is B, and everbody else would also answer B, why would it make sense to then impose A on society when it's clear that nobody wants to pay a larger portion of their wages back to the banks. How is this 'good' for the economy?

And yet the banks never collected more of people's wages in mortgage interest than when rates were lower over the last 10 years...

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Given a choice would you rather pay:

A) 8% in mortgage repayments, or

B ) 4% or lower in interest payments.

If your answer is B, and everbody else would also answer B, why would it make sense to then impose A on society when it's clear that nobody wants to pay a larger portion of their wages back to the banks. How is this 'good' for the economy?

err, because if you run rates too low it always ends in a financial crisis?

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And yet the banks never collected more of people's wages in mortgage interest than when rates were lower over the last 10 years...

The banks only make a spread over the cost of money to them. If money cost them 14%, they will charge 15% to cover costs and risks. If rates are 4% they will charge 5%.

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As a saver, would you rather be paid:

A) 8% in interest repayments, or

B ) 4% or interest payments.

If your answer is A, and everbody else would also answer A, why would it make sense to then impose B on society when it's clear that everyone wants more interest on their savings. How is this 'good' for the economy?

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  • 152 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% +
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      • Even
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      • up 5%



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