Bruce Banner Posted June 4, 2011 Share Posted June 4, 2011 I agree. But we are humans who make mistakes and have emotions. Loves hopes and dreams. Life, business, marriages, sibling rivalry none of it is fair. As for responsible people ( not you) they generally bore the pants off me, we need more irresponsible people to create jobs, dreams and hope. I think you will find in a chaotic world responsible people who died at 40 and are looking forward to being buried at 80 with their carefully planned no risk strategy are in for a shock. Having said all that I totally agree, but grossly unfair is not what I would call it - just life in all it's rich and vibrant hues But what about the emotions of those who didn't make the mistake, when they are forced to keep those who did in a higher standard of living that they themselves enjoy. We must take responsibility for our own mistakes. Those who reach for the stars and succeed rightly enjoy the rewards. It is wrong, on many levels, for those who reach for the stars and fail to be supported by those who took the 'safe' option. Quote Link to comment Share on other sites More sharing options...
sleepwello'nights Posted June 4, 2011 Share Posted June 4, 2011 You are not making 7% on your original capital in a falling house price market because your original capital is evaporating due to house price falls so you no longer have your original capital! I tell you what: the moment you want to use your capital for something, you will realise why it matters "if the house is reduced in value to 1p". Try selling your house to get your capital back then... You're back to the old argument do you measure yield on current value or cost. Neither is correct they measure different aspects of investment. Quote Link to comment Share on other sites More sharing options...
sleepwello'nights Posted June 4, 2011 Share Posted June 4, 2011 What an interesting straw man. Irresponsible dreamers are greater wealth creators than rational responsible people? Sounds more like a personal bias to me. There is of course a correlation between risk and entrepenarial activity but I doubt that irresponsibilty had much to do with the formation of Google for example. As for your view on lifes rich tapestry isn't that just an unarguable truism? Rape, murder, drug abuse are all part of the human condition. Are these equally morally ambivalent? I think if you replace responsible with risk averse it will more clearly define Greg's meaning. I think you're arguing on semantics and being pedantic in the process. "Many risk averse people make choices by putting excessive weight on the worst possible outcomes, far beyond the actual probabilities that they will occur. Risk aversion is highly influenced by experience, especially the economic environment during childhood. People who grew up in different economic climates tend to manage money very differently. The classic example is people who grew up during the Great Depression of the 1930s. As a group, these people tend to be very conservative about money and very risk-averse about job or career changes. Many of them avoid stocks, given memories of the Great Crash of 1929. However, many spendthrifts grew up during the Great Depression. Likewise, many sets of siblings develop radically different attitudes about money." What would our world be like if people like Isambard Kingdom Brunel, Cristoforo Columbus were denied their oppoortunities by the risk averse nay sayers? Quote Link to comment Share on other sites More sharing options...
mentholist Posted June 4, 2011 Share Posted June 4, 2011 I think if you replace responsible with risk averse it will more clearly define Greg's meaning. I think you're arguing on semantics and being pedantic in the process. "Many risk averse people make choices by putting excessive weight on the worst possible outcomes, far beyond the actual probabilities that they will occur. Risk aversion is highly influenced by experience, especially the economic environment during childhood. People who grew up in different economic climates tend to manage money very differently. The classic example is people who grew up during the Great Depression of the 1930s. As a group, these people tend to be very conservative about money and very risk-averse about job or career changes. Many of them avoid stocks, given memories of the Great Crash of 1929. However, many spendthrifts grew up during the Great Depression. Likewise, many sets of siblings develop radically different attitudes about money." What would our world be like if people like Isambard Kingdom Brunel, Cristoforo Columbus were denied their oppoortunities by the risk averse nay sayers? Neither pedantic or semantic. Irresponsible and not risk adverse are not the same thing at all. The former implies lack of awareness the latter implies calculation. Quote Link to comment Share on other sites More sharing options...
Bruce Banner Posted June 4, 2011 Share Posted June 4, 2011 I think if you replace responsible with risk averse it will more clearly define Greg's meaning. I think you're arguing on semantics and being pedantic in the process. "Many risk averse people make choices by putting excessive weight on the worst possible outcomes, far beyond the actual probabilities that they will occur. Risk aversion is highly influenced by experience, especially the economic environment during childhood. People who grew up in different economic climates tend to manage money very differently. The classic example is people who grew up during the Great Depression of the 1930s. As a group, these people tend to be very conservative about money and very risk-averse about job or career changes. Many of them avoid stocks, given memories of the Great Crash of 1929. However, many spendthrifts grew up during the Great Depression. Likewise, many sets of siblings develop radically different attitudes about money." What would our world be like if people like Isambard Kingdom Brunel, Cristoforo Columbus were denied their oppoortunities by the risk averse nay sayers? Let's try a car analogy. You and I both want a BMW 7 series but can't afford it. You borrow the money and buy one anyway, whilst I settle for a 3 series that I can afford. You default on your loan and I am required to sell my 3 series to bail you out so that you can continue driving your 7 series. Not right, is it. Quote Link to comment Share on other sites More sharing options...
nutwit Posted June 4, 2011 Share Posted June 4, 2011 Had an interesting chat with a banking sector recruitment specialist the other day, he starts off telling me how they're all up to their old pay scale and more but just as i was starting to grind my teeth we get onto house prices and with no prompting from me he tells me how they're all selling up and renting, expecting epic falls in prices, not some 10-20% but huge falls, expecting to pick up million pound houses for "not very much". Basically we're talking the correction we've been holding out for all these years, the correction and overshoot. It's just one guy telling me about some other guys opinions but its an interesting thought. VIs turning is always a good thing, just as cheering as hearing EAs talking about getting prices down to shift stock. Surly everyone in banking knows why prices are where they are, surely they know they are still massively over priced, they know the effect of tightening lending criteria, they should know it better than the regulars here. Take from it what you will, i took it as a reminder and it's made me more determined to hold out for the overshoot, i'm not going to see a 10% drop from here and believe that's it. Id take that with a grain of salt. Where I work the trader that's been right all the way through this thinks the 20% drop in 2009 was the correction. He suspects tighter lending practices will keep prices in check while inflation will bring us back to equilibrium Quote Link to comment Share on other sites More sharing options...
sleepwello'nights Posted June 4, 2011 Share Posted June 4, 2011 Let's try a car analogy. You and I both want a BMW 7 series but can't afford it. You borrow the money and buy one anyway, whilst I settle for a 3 series that I can afford. You default on your loan and I am required to sell my 3 series to bail you out so that you can continue driving your 7 series. Not right, is it. Lets try a business analogy. I get a job with the local council and spend 30 years plodding along working, not putting much effort in and retire with a full final salary pension. I start as an apprentice, go to college in the evenings and get a good vocational qualification. Later I start a business. The business grows and expands and I employ several people. Later a large customer fails owing me a large amount of money. I cannot continue trading my business fails and i am made bankrupt. Not right is it. Both rather silly arguments. I still side with Greg Bowman that we need dreamers and risk takers as well as boring farts old before their time. Quote Link to comment Share on other sites More sharing options...
Greg Bowman Posted June 4, 2011 Share Posted June 4, 2011 Let's try a car analogy. You and I both want a BMW 7 series but can't afford it. You borrow the money and buy one anyway, whilst I settle for a 3 series that I can afford. You default on your loan and I am required to sell my 3 series to bail you out so that you can continue driving your 7 series. Not right, is it. But I had more fun That's the point exactly life isn't fair and if you can't control the system roll with it otherwise you snap like a reed in the wind. The gnashing of teeth that goes with thinking life's unfair isn't good for your health or happiness Quote Link to comment Share on other sites More sharing options...
Bruce Banner Posted June 4, 2011 Share Posted June 4, 2011 Lets try a business analogy. I get a job with the local council and spend 30 years plodding along working, not putting much effort in and retire with a full final salary pension. I start as an apprentice, go to college in the evenings and get a good vocational qualification. Later I start a business. The business grows and expands and I employ several people. Later a large customer fails owing me a large amount of money. I cannot continue trading my business fails and i am made bankrupt. Not right is it. Both rather silly arguments. I still side with Greg Bowman that we need dreamers and risk takers as well as boring farts old before their time. Example 1: More fool the council for not replacing you with a hard worker. Example 2: When you own a business, which I did for years, you have to manage risk. If you get yourself in the position where you can't cover bad debts you may go bust. Bankruptcy is your get out of jail card. Quote Link to comment Share on other sites More sharing options...
Bruce Banner Posted June 4, 2011 Share Posted June 4, 2011 But I had more fun That's the point exactly life isn't fair and if you can't control the system roll with it otherwise you snap like a reed in the wind. The gnashing of teeth that goes with thinking life's unfair isn't good for your health or happiness I think we'll have to agree to disagree. Quote Link to comment Share on other sites More sharing options...
The Eagle Posted June 4, 2011 Share Posted June 4, 2011 You're back to the old argument do you measure yield on current value or cost. Neither is correct they measure different aspects of investment. Your comment completely misses the point, it's not about measuring the yield, the yield is irrelevant when you are losing the capital itself! Sometimes I feel like I'm talking to 5 year olds... Quote Link to comment Share on other sites More sharing options...
noodle doodle Posted June 4, 2011 Share Posted June 4, 2011 Ask your average mid-level/senior bank employee how much they made from selling their bonus shares high before rbs etc capsized and buying 'em back low afterwards. exactly.... Most people I know in banking up in eburgh lost a great big whacking chunk of their pension/slush fund/next house deposit etc when the banks went south This sounds like wish fulfilment on their part to claw those losses back, and since they've been wrong on most major calls so far.... Quote Link to comment Share on other sites More sharing options...
leicestersq Posted June 4, 2011 Share Posted June 4, 2011 Your comment completely misses the point, it's not about measuring the yield, the yield is irrelevant when you are losing the capital itself! Sometimes I feel like I'm talking to 5 year olds... I take a capital loss over a year of 50%. My yield is 2000%. Yield is always something you have to consider. Quote Link to comment Share on other sites More sharing options...
Bruce Banner Posted June 4, 2011 Share Posted June 4, 2011 I take a capital loss over a year of 50%. My yield is 2000%. Yield is always something you have to consider. Based on current market value? Quote Link to comment Share on other sites More sharing options...
TimeTraveller Posted June 4, 2011 Share Posted June 4, 2011 Based on current market value? 1. My house's net present value is 200k. If I rent at 12k p.a. and the NPV of the house is now 100k but rent costs remain the same my asset returns 12k p.a. So that might be ok... However... 2. NPV is 100k and I've just had my initial capital obliterated by 50%. Opportunity cost is huge... If we're assuming that rental prices remain the same I could have bought two houses for the equivalent capital and be up 24k p.a. There are very few ways you can slice 50% capital loss and smell of roses afterwards. There are at least two sides to a financial transaction, and even when things were horrific, someone, somewhere was making out like a bandit. Quote Link to comment Share on other sites More sharing options...
Panda Posted June 4, 2011 Share Posted June 4, 2011 Nice try but your thinking is completely flawed (not sure if you are trolling or just thick), I'm surprised nobody else told you so already. You are not making 7% on your original capital in a falling house price market because your original capital is evaporating due to house price falls so you no longer have your original capital! If you put your money in a saving account, the original capital is safe no matter what (unless the bank goes bust and you had more than the FSA guaranteed amount in a single bank). I tell you what: the moment you want to use your capital for something, you will realise why it matters "if the house is reduced in value to 1p". Try selling your house to get your capital back then... His post is a common mindset amongst many, the BoE are hoping this trick works, low interest rates, so no return on cash, rising rents so less money left over from you salary to spunk up the wall, hey presto, use savings as a deposit to buy a house. You save on rising rents, you save by thinking you return on your cash is the difference between rental cost and interest returned on cash. But you forget, you cash is now being spunked up the wall through a falling asset you own and must maintain, so your deposit goes, and you are locked into a falling asset value cycle......................oooooops? Merv you naughty boy! Quote Link to comment Share on other sites More sharing options...
cybernoid Posted June 4, 2011 Share Posted June 4, 2011 But I had more fun That's the point exactly life isn't fair and if you can't control the system roll with it otherwise you snap like a reed in the wind. The gnashing of teeth that goes with thinking life's unfair isn't good for your health or happiness However, if the guy with the loan for the 7 series was not given that loan as the bank employee actually bothered to do their job and assessed the loan would not be repaid, both would have 3 series and be happy longer term. Now that we have had so many debt junkies driving around in 7 series they couldn't afford none of us will ever see a BMW ever again. Longer term, bad for all our health and happiness. There is a difference between risk taking wealth creation and being a pr1ck. Quote Link to comment Share on other sites More sharing options...
zilly Posted June 4, 2011 Share Posted June 4, 2011 I agree. But we are humans who make mistakes and have emotions. Loves hopes and dreams. Life, business, marriages, sibling rivalry none of it is fair. As for responsible people ( not you) they generally bore the pants off me, we need more irresponsible people to create jobs, dreams and hope. I think you will find in a chaotic world responsible people who died at 40 and are looking forward to being buried at 80 with their carefully planned no risk strategy are in for a shock. Having said all that I totally agree, but grossly unfair is not what I would call it - just life in all it's rich and vibrant hues In what way do you think that responsible people don't create jobs..? Most bizarre. Sounds to me like you're a bit brainwashed into thinking that people who think rationally and behave responsibly are undesirable. That's part of the consumerist conditioning you've undergone in order to encourage you to 'live for today' and get out there and spend,spend,spend i.e. exactly the kind of behaviour that's got us into this mess and led us up the garden path societally. Do you think the Germans value irresponsible behaviour? And how are they doing relative to us? As for the life's unfair thing (yawn) - classic moral relativism, one of a string of hackneyed cliches trotted out by people to excuse their own substandard behaiour. And a perfect example of the thinking that leads societies into oblivion. Quote Link to comment Share on other sites More sharing options...
Greg Bowman Posted June 4, 2011 Share Posted June 4, 2011 In what way do you think that responsible people don't create jobs..? Most bizarre. Sounds to me like you're a bit brainwashed into thinking that people who think rationally and behave responsibly are undesirable. That's part of the consumerist conditioning you've undergone in order to encourage you to 'live for today' and get out there and spend,spend,spend i.e. exactly the kind of behaviour that's got us into this mess and led us up the garden path societally. Do you think the Germans value irresponsible behaviour? And how are they doing relative to us? As for the life's unfair thing (yawn) - classic moral relativism, one of a string of hackneyed cliches trotted out by people to excuse their own substandard behaiour. And a perfect example of the thinking that leads societies into oblivion. Quote Link to comment Share on other sites More sharing options...
winkie Posted June 4, 2011 Share Posted June 4, 2011 How I understand it is that yield is worked out on current value.....if something is losing value yields will fall due to the fact there will be far better places to invest for capital growth and those that provide the income/yield the say renters will have more choice themselves so pulling rents down further. Quote Link to comment Share on other sites More sharing options...
winkie Posted June 4, 2011 Share Posted June 4, 2011 I agree. But we are humans who make mistakes and have emotions. Loves hopes and dreams. Life, business, marriages, sibling rivalry none of it is fair. As for responsible people ( not you) they generally bore the pants off me, we need more irresponsible people to create jobs, dreams and hope. I think you will find in a chaotic world responsible people who died at 40 and are looking forward to being buried at 80 with their carefully planned no risk strategy are in for a shock. Having said all that I totally agree, but grossly unfair is not what I would call it - just life in all it's rich and vibrant hues Something is not quite right or fair when the responsible as well as the irresponsible can't lose....lets all be irresponsible. Quote Link to comment Share on other sites More sharing options...
dances with sheeple Posted June 4, 2011 Share Posted June 4, 2011 (edited) Depends where the bottom is going to be doesn't it. Houses are still selling at silly money -10% which is still silly money, and i wouldn't bet against it appear like insane money in the nearish/middle distance. Honestly when you consider wage deflation, cost of living inflation and no more lier loans we are going to look back up at this peak in wonder. look at it edit: and that average line there is well skewed, i wouldn't put much stock in that at all. Yes, but at a fraction of the volumes? people can`t sell for anything near bubble price in the numbers they used to? who is buying the properties off these bankers, foreign money? Edited June 4, 2011 by dances with sheeple Quote Link to comment Share on other sites More sharing options...
Tired of Waiting Posted June 5, 2011 Share Posted June 5, 2011 Your comment completely misses the point, it's not about measuring the yield, the yield is irrelevant when you are losing the capital itself! Sometimes I feel like I'm talking to 5 year olds... Actually I think he/she is using "self-help psychological" accounting. Always see the bright side of the accounts... Repeat as mantra. All is fine, really. There-there. Quote Link to comment Share on other sites More sharing options...
Venger Posted June 5, 2011 Share Posted June 5, 2011 Because for the vast majority of people including politicians and bankers it is not an 'asset' in a tradeable way. It is shelter for millions upon millions of people It is a dream come true for a young married couple It is somewhere to start a business from It is the only thing millions of small business owners have to secure lending against to build businesses and create jobs As another OP said a catastrophic fall + 50% would mean bars on the windows and blood on the streets. So really not strange at all and by definition any other asset is in the hands of even fewer people than housing - equities, commercial property, commodities. Be careful what you wsh for 'It is a dream come true for a young married couple.' It's a dream too far out of reach for many a marrying couple now, due to prices in all but the roughest areas. Unless they buy into Shared Ownership or have BOMAD. Millions of people have to rent for their shelter. The main group it would hit is equity rich older homeowners, such as the nimby types with the placards against newbuilds, who all too often don't realise how great they've got things. Leveraged speculators. Older people who kept on expecting more HPI and who've put themselves in positions where they stuggle on £60K joint incomes. Some younger people who didn't question what they were told from their elders or boom property shows. Those you hold up as fine examples who've secured debt on their own homes to support their businesses. Younger people who've been saving their money can buy these businesses from them at cheap prices if they fail due to a HPC and run them without debt if your house debt business people fail. Are there homeowners all getting angry and rioting in the US and Ireland over market forces seeing their homes crash in value? I think they're just forced to accept reality of values falling back. Winners and losers. All you'd get in England with a 50% crash is a lot of whining from those who lose out with lower prices. Your blood in the streets is more likely to occur if the market is kept artificially supported and inflated for too long, led by younger and angrier people who have more just cause to be angry than those who chose to load up with debt. Be careful what you wish for? Bring it on. Quote Link to comment Share on other sites More sharing options...
Georgia O'Keeffe Posted June 5, 2011 Share Posted June 5, 2011 (edited) 'It is a dream come true for a young married couple.' It's a dream too far out of reach for many a marrying couple now, due to prices in all but the roughest areas. Unless they buy into Shared Ownership or have BOMAD. Millions of people have to rent for their shelter. The main group it would hit is equity rich older homeowners, such as the nimby types with the placards against newbuilds, who all too often don't realise how great they've got things. Leveraged speculators. Older people who kept on expecting more HPI and who've put themselves in positions where they stuggle on £60K joint incomes. Some younger people who didn't question what they were told from their elders or boom property shows. Those you hold up as fine examples who've secured debt on their own homes to support their businesses. Younger people who've been saving their money can buy these businesses from them at cheap prices if they fail due to a HPC and run them without debt if your house debt business people fail. Are there homeowners all getting angry and rioting in the US and Ireland over market forces seeing their homes crash in value? I think they're just forced to accept reality of values falling back. Winners and losers. All you'd get in England with a 50% crash is a lot of whining from those who lose out with lower prices. Your blood in the streets is more likely to occur if the market is kept artificially supported and inflated for too long, led by younger and angrier people who have more just cause to be angry than those who chose to load up with debt. Be careful what you wish for? Bring it on. i dont think you are joining up the dots, this credit money that has been created via property over the decade hasnt just gone into housing, it has gone intoi the entire economy, businesses on the whole are just as highly leveraged as property owners, for house prices to fall by that much all that has to happen isthe destruction of the credit money (deflation), the idea that this will only effect property owners impies that the only beneficiary has been property owners, a silly idea because the beneficiary has been the entire economy through that money circulating including stock markets and your job and wages and the savings you have made on the back of that. Millions more on the rock and roll as that money is destroyed and businesses go under as they are no longer able to service their leverage, Public sector shrunk by many degrees as GDP falls off a cliff and govt debt skyrockets, probably taking the currency with it to a large degree. As far as the US is concerned, firstly they offloaded alot of their sh!t onto European banks, secondly they dont the UKs relative level of personal debt, thirdly their banks are fraudulently marking up assets on their books so the pains hardly started, 4thly they are the reserve currency (at least for now) and that gives them a power that the UK doesnt have. You saw the UKs relative strength when the currency fell 30% against everything in 6 months during 2008. Fifthly the US does actually have a more balanced economy than the UK. As for Ireland, they have been protected by being part of the EU who are still silly enough to lend them money. Without the EU still thinking they can ass rape them, ireland would have had to balance their books overnight, interest rates through the roof and the currency through the floor. The uk is neither of these countries and doesnt have the advantages that both currently enjoy. TGhe main reason youve not seen social unrest to a great degree in any western country is because no western country has even genuinely started to fix the problem. The UK enjoys the advantage over the both these countries of longer term debt (more time to fix it), which there isnt the political or voter will to do so. Ultimately the longer things go the worse they will get, but the idea that the only people to get hit will be homeowners is silly, if they have any sense when things get really bad and there is widespread realisation that negative equity will be more or less permanent until the mortgage is repaid most sensible people will just chuck the keys back and leave the UK if its viable (although not sure where to as nowhere is really safe, its a global crisis much like the 30s). Peoples equity/savings/pensions/jobs they are all interlinked and not one is safer than the others as a whole Edited June 5, 2011 by georgia o'keeffe Quote Link to comment Share on other sites More sharing options...
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