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VeryMeanReversion

Two Post-Crunch Anecdotes

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Anecdote 1:

Friend started a business in 2007, just before the crunch. I told him how it was going to go with the upcoming recession but he carried on regardless. He rented two industrial units to merge into one large one, puts £150K of his own cash into the business.

In 2009, the business is in trouble, he's missed a few payments and the bailiffs are knocking. I help him out with a personal loan, not attached to the business (knowing that the business may fail, wanted to help out and even negotiated the interest rate down). Any missed payments and more bailiffs are sent round. The rent keeps going up and the council rates keep going up each year.

In 2011, it's all over so he throws in the towel. The lenders now act surprised and say "Why didnt you tell us, we could have helped out, longer terms, different rates etc.".

Each of the multiple lenders now repossess what is essentially parts of one piece of equipment so effectively get nothing. The landlord cant find tenants for his four empty industrial units, even after reducing the price by 25% and he now has to pick up the tab for the council rates so he is now in trouble.

So everyone loses. (The business was viable with a reduction in rent and loan repayments)

Anecdote 2:

I do a bit of work for another mate of mine. His client can't pay him so he can't pay me. After a year of waiting, if I want to see the cash, I will have to go to court to get the money from him, pushing his company into bankruptcy (3 friends work there).

The lesson here is that whilst things are going OK in debt-world, the debt-wheel keeps turning. When it stops, the chain of payments causes multiple companies and people to get wiped out. I have a day job so the above doesn't really affect me that much, I just have to decide whether to try and get some of the money back.

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This is why they need more money in the system.

The next injection can't be far away now.

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Anecdote 1:

So everyone loses. (The business was viable with a reduction in rent and loan repayments)

Anecdote 2:

His client can't pay him so he can't pay me.

It's always true that if costs were a little bit lower (lower rents, lower wages, lower material prices, lower interest rates) then some uneconomic business models become viable. But material prices and ultimately interest rates are set globally, so that leaves wages and rents to be set locally. However, as these fall (and they will fall, it's just a giant game of chicken at the moment to see who's desperate enough to move first) it also affects what prices businesses can achieve for their goods and services, and if that gathers speed then there's a deflationary spiral that feeds off itself.

Edited by silver surfer

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Anecdote 1:

I do a bit of work for another mate of mine. His client can't pay him so he can't pay me. After a year of waiting, if I want to see the cash, I will have to go to court to get the money from him, pushing his company into bankruptcy (3 friends work there).

The lesson here is that whilst things are going OK in debt-world, the debt-wheel keeps turning.

I think the lesson here is:

"Never do business with family or friends"

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it also affects what prices businesses can achieve for their goods and services, and if that gathers speed then there's a deflationary spiral that feeds off itself.

Unless the governments choose to print which is precisely what they have chosen to do.

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Anecdote 1:

Anecdote 2:

Sorry to hear about this. I think the lesson here is that in the current business context (cultural and financial/economical) you cannot lend to anyone.

It is probable that all you can do is wait and play the inflation game until the lot goes down the drain and you can pick up the pieces to rebuild.

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This is why they need more money in the system.

The next injection can't be far away now.

Yeah but like before it won't get beyond the Banksters poker table and into the hands of the people who can actually do some good with it.

The whole money system is being held hostage by the Banksters and if they don't get their way they'll bring it all crashing down. There's no negotiating with them, heads they win, tails the taxpayer loses.

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I think the lesson here is:

"Never do business with family or friends"

You can do business with friends and family. But you need to realise up front that at some point you may either lose the money or lose the friend. So long as you go into it appreciating this then there is no problem.

VMR, was type of business was that ? My pet theory is that businesses based around discretionary purchases are having a really bad time of it at the moment.

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Choose your bridge, Mr. Pip," returned Wemmick, "and take a walk upon your bridge, and pitch your money into the Thames over the centre arch of your bridge, and you know the end of it. Serve a friend with it, and you may know the end of it too -- but it's a less pleasant and profitable end.

Dickens, Great Expectations.

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This is why they need more money in the system.

The next injection can't be far away now.

late 2013 or early 2014 - Just in time for the May 2015 election

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The lesson here is that whilst things are going OK in debt-world, the debt-wheel keeps turning. When it stops, the chain of payments causes multiple companies and people to get wiped out. I have a day job so the above doesn't really affect me that much, I just have to decide whether to try and get some of the money back.

This is key...business are interconnected, one that can't pay its bills can bring down the business they owe the money to, even worse if the business relies on a few customers it can only take one to go under for many more to fail......more debt is required?.....more customers require debt? :unsure:

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You can do business with friends and family. But you need to realise up front that at some point you may either lose the money or lose the friend. So long as you go into it appreciating this then there is no problem.

I did. I've done it before, not expecting anything back and luckily, when they made good, they paid me back with interest.

VMR, was type of business was that ? My pet theory is that businesses based around discretionary purchases are having a really bad time of it at the moment.

Entertainment for kids, definitely in the discretionary category. A similar businesses in the area is still doing well but that is run from debt-free buildings so there are smaller fixed costs.

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I haven't got as much money as I'd like. There's very slim chance of me paying it you back but please will you lend me £1.8M

thank you.

That would require your soul as a deposit and three references from a president, pope and a living saint. I'll send you the forms.

Edited by VeryMeanReversion

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Anecdote 1:

Friend started a business in 2007, just before the crunch. I told him how it was going to go with the upcoming recession but he carried on regardless. He rented two industrial units to merge into one large one, puts £150K of his own cash into the business.

In 2009, the business is in trouble, he's missed a few payments and the bailiffs are knocking. I help him out with a personal loan, not attached to the business (knowing that the business may fail, wanted to help out and even negotiated the interest rate down). Any missed payments and more bailiffs are sent round. The rent keeps going up and the council rates keep going up each year.

In 2011, it's all over so he throws in the towel. The lenders now act surprised and say "Why didnt you tell us, we could have helped out, longer terms, different rates etc.".

Each of the multiple lenders now repossess what is essentially parts of one piece of equipment so effectively get nothing. The landlord cant find tenants for his four empty industrial units, even after reducing the price by 25% and he now has to pick up the tab for the council rates so he is now in trouble.

So everyone loses. (The business was viable with a reduction in rent and loan repayments)

Anecdote 2:

I do a bit of work for another mate of mine. His client can't pay him so he can't pay me. After a year of waiting, if I want to see the cash, I will have to go to court to get the money from him, pushing his company into bankruptcy (3 friends work there).

The lesson here is that whilst things are going OK in debt-world, the debt-wheel keeps turning. When it stops, the chain of payments causes multiple companies and people to get wiped out. I have a day job so the above doesn't really affect me that much, I just have to decide whether to try and get some of the money back.

In case 1, your mate needed to be a bit more pro-active with his negotiations. Called a meeting of his landlord and lender. Told them to accept a reduction in payments, or he would go under. They would have had no choice but to offer him the reductions he was asking for. Donald Trump would have done that, laid it on the line to them.

There is a lot of power in having no money, shame he didnt use it.

Thats business.

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In case 1, your mate needed to be a bit more pro-active with his negotiations. Called a meeting of his landlord and lender. Told them to accept a reduction in payments, or he would go under. They would have had no choice but to offer him the reductions he was asking for. Donald Trump would have done that, laid it on the line to them.

There is a lot of power in having no money, shame he didnt use it.

Thats business.

Yes, if he would have come to me first, I could have suggested it. I did help him get his payments reduced in 2009. Taking on relatively short-term HP-type loans on capital equipment is just daft IMO. If you don't make all payments, you lose everything.

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My pet theory is that businesses based around discretionary purchases are having a really bad time of it at the moment.

An anecdotal: I'm closely involved with a business that does discretionary purchases (entertainment for corporates, seminars, weddings, etc). While competitors who provide a "Value Range" offering are suffering badly, the "Premium Brand" suppliers are booming. There is a never-ending supply of customers for who money is no object, they simply want "the best" (i.e., the most expensive).

Additionally, I have a pet theory of my own: these customers are split into 2 types. Those who are genuinely so loaded that they don't know the value of money any more; and the indebted wannabes (especially marriages!).

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An anecdotal: I'm closely involved with a business that does discretionary purchases (entertainment for corporates, seminars, weddings, etc). While competitors who provide a "Value Range" offering are suffering badly, the "Premium Brand" suppliers are booming. There is a never-ending supply of customers for who money is no object, they simply want "the best" (i.e., the most expensive).

Additionally, I have a pet theory of my own: these customers are split into 2 types. Those who are genuinely so loaded that they don't know the value of money any more; and the indebted wannabes (especially marriages!).

....if you have access to the right target market....never underestimate how many who 'don't know the value of money' think if it costs more it must be better. ;)

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In case 1, your mate needed to be a bit more pro-active with his negotiations. Called a meeting of his landlord and lender. Told them to accept a reduction in payments, or he would go under. They would have had no choice but to offer him the reductions he was asking for. Donald Trump would have done that, laid it on the line to them.

There is a lot of power in having no money, shame he didnt use it.

How was that going to help though? They would have made sure there was next to nothing left for him, and would have kept the option of pulling the plug at any future time. That sort of a deal only works if you expect the company might grow substantially (e.g. a tech startup). Otherwise you just become a receiver, though it's possible you can still pay yourself. You can also bet the bank/landlord will say something like "So, you are confident that a cut in loan repayments and rent will make the company profitable and keep it that way in the long term? In that case you won't mind a tiny little charge on your house and other property?"

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How was that going to help though? They would have made sure there was next to nothing left for him, and would have kept the option of pulling the plug at any future time. That sort of a deal only works if you expect the company might grow substantially (e.g. a tech startup). Otherwise you just become a receiver, though it's possible you can still pay yourself. You can also bet the bank/landlord will say something like "So, you are confident that a cut in loan repayments and rent will make the company profitable and keep it that way in the long term? In that case you won't mind a tiny little charge on your house and other property?"

It helps because the business as stated by the OP, would have been profitable given lower rent and interest charges.

So would you prefer to have a lower but continuous rent, or no more rent when we go bust until you can find someone else to rent the place out, and then there is no guarantee you will get the amount you were getting before?

And the banker, we will pay you less now, and more later if things go well, or next to nothing if we go bust, what do you want us to do?

Easy decision for the bank and landlord, they accept a big cut allowing the business to continue, or they lose an even bigger amount.

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Easy decision for the bank and landlord, they accept a big cut allowing the business to continue, or they lose an even bigger amount.

At the risk of sounding daft, what is in it for the owner? The landlord and bank will demand to see the accounts, and will then know exactly how much to charge without pushing the company under. If the business might grow substantially, there is upside left. If it is unlikely to, the "owner" will only get the leavings of the others.

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At the risk of sounding daft, what is in it for the owner? The landlord and bank will demand to see the accounts, and will then know exactly how much to charge without pushing the company under. If the business might grow substantially, there is upside left. If it is unlikely to, the "owner" will only get the leavings of the others.

Whatever happens, they will get more money by accepting lower payments. It's what administrators do all the time.

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Easy decision for the bank and landlord, they accept a big cut allowing the business to continue, or they lose an even bigger amount.

And there are people patiently waiting with savings ready to buy out these struggling landlords when they fail, at rock bottom prices for their commercial property. They can then charge tenants low rents for new enterprises. Even better if the businesses are able to buy the premises for very little as well as fund their businesses.

And no concerned for some businessman who refused to accept recovery wasn't around the corner, destroying his £150K. Does he own a house? Maybe he'll have to sell it for less money and help lower prices to affordable levels for savers. It's your own friend's fault for getting it wrong and risking a lot of his money.

It's a win for patient savers.

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  • 311 Brexit, House prices and Summer 2020

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


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



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