Three Financial Products That Work Against You

[Bloo Loo]

There have been many threads about the way mortgages force up prices for people. Many posters give many reasons why this happens.

There have been a few threads about why private medical and private pet insurance are also thriving.

In the mortgage case, I have often made the point that mortgages and loose lending are the main cause of rising prices, and that eventually, as has happened, the price level reaches such a point, that only those wealthy individuals can actually purchase a house outright, and for those who are on normal income resources, the only way to make finance work was to introduce "innovative" schemes, like, IO, buy with a friend, teaser mortgages, large unsafe multiples of salary, buy with a friend, buy with a builder, buy with the council, buy with the Government.

All these schemes are designed to keep prices up.

clearly, the people who benefit most on the way up are the people lending the money.

And how do they fool people into borrowing all the way up....by making it impossible for them to do otherwise...without the lender, you CANT buy that flat, you CANT move to that new job, you CANT SELL your house unless the buyer has lending.

Well, there are at least two more financial entities doing this and using the same methods.

Private medicine, and Pet medicine.

Now, medicine is a carreer that now pays huge money to those with the right qualifications....salaries way out of kilter with the rest of normal people, and in Human health, the entire supporting Administration also sucks in high entitlement salaries.

Now, it is often argued that it is in the interest of the insurance people to make sure they get the best possible price and that the free market is going to beat down hospital costs.

That is a good point, but I think people are missing the real motive behind high medical and pet care costs.

The sellers of insurance want the market to be the same as it is in housing...TOO EXPENSIVE for the normal person to pay for....this make insurance as neccessary as food, the air and water.. It is in the interest of the entire industry to put costs out of reach.

It is yet another example of the city spivs making themselves essential to the system, and they have the proof...without their help, we would have no houses, we would have no Doctors, we would have no cars, we would have no petcare, no care for farm animals....the list goes on.

And yet, if you beleive their point of view, then their logic is sound...but this is really backward thinking.....same as we realised in the housing market where people call on bankers to keep lending just so you can buy a place.....this is the reverse of the truth...it is BECAUSE of the lending prices are so high.

I came to this realisation while listneing to Alex Jones, complaining about US medicare and how big firms are exempt from employee cover while the small man had to pay for his employees to be covered.

He sees it as an attack on small business and how big firms are now able to (in the US) compete unfairly with the small man with reduced costs. I see now that if big companies pull their weight, THEY can force down medical costs for their employees by the fact that they WILL negotiate down fees...or can they, as most people are employed in small business, the US insurance industry has done a clever thing...they have disempowered the powerful purchasing of the big companies, by giving themselves the biggest share of the market...small businesses....

Its time we removed these three financial products from the arsenal of the city....they are only there to leach the rest of us under the guise of helping us.

[tinker]

Nice post.

You can add student loans to this product list. The financial castration of the young.

[bmf]

Ok I agree with your post but high house prices due to leverage is not the root cause. It's the first link in the chain but the anchor is the lack of supply.

Because supply is low we are forced to enter into an auction for property. This detatches the value from the cost to build. Then the banks realised they could supply ever increasing leverage as people paid whatever they could rather than what a house is worth.

If we could build our own house easily we would have a fair market where supply meets demand and the buyer is in charge. Housing used to be 3 times wages. Good houses can be built for a small multiple of the average wage. Only planning regulation, which restricts supply, prevents this.

Until this balance is restored any changes to interest rates or multiples will not allow prices to drop to their "true" level.

[Blod]

Couldn't agree more. The power of these vested interest should be tamed by something like the OFT but obviously it isn't.

These vested interests that have wormed their way in-between the consumer and supplier in virtually every field. It is shocking how well they've achieved this as when ever you try to highlight this most people fail to be able to grasp this. It's just like the old "house prices only ever go up" myth, only even more successful. :angry:

[Democorruptcy]

The banks own the insurance companies, they are just another form of looting.

RBS has Direct Line, Churchill, Aviva is 88.97 owned by banks and nominee companies, etc.

They want medicine to be so expensive so that they can get your body parts. "You can have that operation in exchange for a kidney, that we will take at the same time...."

[Bloo Loo]

Ok I agree with your post but high house prices due to leverage is not the root cause. It's the first link in the chain but the anchor is the lack of supply.

Because supply is low we are forced to enter into an auction for property. This detatches the value from the cost to build. Then the banks realised they could supply ever increasing leverage as people paid whatever they could rather than what a house is worth.

If we could build our own house easily we would have a fair market where supply meets demand and the buyer is in charge. Housing used to be 3 times wages. Good houses can be built for a small multiple of the average wage. Only planning regulation, which restricts supply, prevents this.

Until this balance is restored any changes to interest rates or multiples will not allow prices to drop to their "true" level.

Im sorry, but how can people bid fairly in an auction if the first link in the chain is credit...a bidder with no finance can be out bid by one with a charge card in his pocket. No matter what the supply.

[bmf]

Im sorry, but how can people bid fairly in an auction if the first link in the chain is credit...a bidder with no finance can be out bid by one with a charge card in his pocket. No matter what the supply.

Not if building your own is a viable alternative. If someone thinks a 2 bed house is worth 500K then if they want to pay that it's up to them. I would rather build my own 4 bed for 200K. If I had the option to do this the light is let in on the magic.

[interestrateripoff]

The entire economic system is based on perpetual expansionist growth, which is what these financial products aim to do, create price growth which feeds into GDP.

Ultimately it becomes self defeating as everything becomes too expensive.

You either buy a house or health insurance.

Ultimately it destroys the economy but very slowly.

[Bloo Loo]

Not if building your own is a viable alternative. If someone thinks a 2 bed house is worth 500K then if they want to pay that it's up to them. I would rather build my own 4 bed for 200K. If I had the option to do this the light is let in on the magic.

well, yes, you can build your own. But that is not how house prices are determined...they are determind by BUYERS buying...and BUYERS in the main cant buy WITHOUT finance.

mind experiment....how much would housed cost if mortgages were banned on residential property?

[bmf]

well, yes, you can build your own. But that is not how house prices are determined...they are determind by BUYERS buying...and BUYERS in the main cant buy WITHOUT finance.

mind experiment....how much would housed cost if mortgages were banned on residential property?

Fair question. Here is what I think would happen:

- prices would plummet

- most people still would not be able to buy

- people with 1M+ (old people!) would buy up lots of houses to BTL

- a small subset of people would own lots of the property

Then after that bit:

- People save up as much as they possibly can before buying a house

- If supply is still low people compete to save, working all hours

- Essentially we are still bidding over a finite supply but by other means

If we had far less restrictive planning and regulation on how many properties people can own:

- More supply as lots of BTL forced to sell up

- If still not enough supply prices stay too high

- So you opt out and build your own at cost

Until you have an option to go outside the system that keeps supply finite you will always have people played off against one another.

How much would mobile phones cost if we had an arbitrary ceiling of 10M?

The OP is entirely right. The entire system is based around forcing you into committing to a lifetime of debt. Having done this both you and your family have to go out and work all hours, of which the government gets 30%.

[Giordano Bruno]

Not if building your own is a viable alternative. If someone thinks a 2 bed house is worth 500K then if they want to pay that it's up to them. I would rather build my own 4 bed for 200K. If I had the option to do this the light is let in on the magic.

I have looked at a few other threads and posts about self-build. I got the impression that self-build, and I mean pay a builder to do the actual work, is not much cheaper. 70% of the house price is cost of the land was the view of one post.

[bmf]

I have looked at a few other threads and posts about self-build. I got the impression that self-build, and I mean pay a builder to do the actual work, is not much cheaper. 70% of the house price is cost of the land was the view of one post.

This is precisely why I said there had to be far less restrictive planning laws. Land with planning permission is expensive. Land is not. The gap between the two is created by the difficulty in obtaining planning permission.

The last government knew this and kept supply low. They also threw in the extra ingredient of brownfield, so even when you got your expensive land, it needed an expensive cleanup first. All keeps prices nice and above stamp duty.

Until planning is sorted out we will never see houses come back to fundamentals ie cost of the land (at a non-manipulated price) plus the cost to build.

And so until then you will have to borrow many times your salary then work every day of your life to pay it off. Each year you work from January to May goes straight to the government.

[Hold Fast]

well, yes, you can build your own. But that is not how house prices are determined...they are determind by BUYERS buying...and BUYERS in the main cant buy WITHOUT finance.

I would say house prices are a function of credit availability and buyer sentiment. House prices have boomed because MSM promoted it and credit was loose. You can see the real take off on the bubble lifecycle graph - it needs the weight of the whole population jumping in to really kick it off. They are competing and most ask how much can I have rather than what can I afford.

The new car market to me is quite similar -people compete to have the nicest cars - social standing etc. How many people buy a new car with their own cash? If credit wasn't available (e.g. govt banned car credit) then a Ford Focus wouldn't be £15k as there would be no market. The car makers pump up buyer desire to match their target price point with adverts and topgear style nonsense (how much willing to pay) and credit fills the gap (how much able to pay).

The only difference is the lifetime of the product - but credit still boosts prices and in the end who really benefits?

[bmf]

I would say house prices are a function of credit availability and buyer sentiment. House prices have boomed because MSM promoted it and credit was loose. You can see the real take off on the bubble lifecycle graph - it needs the weight of the whole population jumping in to really kick it off. They are competing and most ask how much can I have rather than what can I afford.

Yes - but they have no real alternative. If you rent you pay for someone else's decision to say "how much can I have?"

If this were down to fundamentals the question would be: "how much can I build it for?". Planning law makes this question a non-starter.

The new car market to me is quite similar -people compete to have the nicest cars - social standing etc. How many people buy a new car with their own cash? If credit wasn't available (e.g. govt banned car credit) then a Ford Focus wouldn't be £15k as there would be no market. The car makers pump up buyer desire to match their target price point with adverts and topgear style nonsense (how much willing to pay) and credit fills the gap (how much able to pay).

The only difference is the lifetime of the product - but credit still boosts prices and in the end who really benefits?

Respectfully this is not the same. There is not a finite number of nice 5 door cars in the UK relative to demand. Somewhere to live is required whereas one can use other public transport. Imagine you needed a car, there was no public transport and there were a finite number of cars and manufacturers oddly refused to produce more. Then cars would go up to levels well beyond their true price. Just ask OPEC.

[_w_]

Nice post.

You can add student loans to this product list. The financial castration of the young.

+1

[Hold Fast]

Respectfully this is not the same. There is not a finite number of nice 5 door cars in the UK relative to demand. Somewhere to live is required whereas one can use other public transport. Imagine you needed a car, there was no public transport and there were a finite number of cars and manufacturers oddly refused to produce more. Then cars would go up to levels well beyond their true price. Just ask OPEC.

Interesting point - I'm wondering if the alternatives aspect is different for housing though? If you can't afford a car you use public transport. If you can't afford a house the alternatives are "be homeless" they are rent, share. live with parents etc. You still get credit distorting the market price.

I'm not disagreeing with you.......I just think credit availability often works against people buying things (houses, cars) when the people using it think that its helping them - as per the original post. DFS sofas are another - but now start paying next year for 5 years interest free. Paying a price you would not pay with your own earned cash that is.

Sorry if I'm missing your point. it's good to discuss though, like many on here I'm finding this site educational!

[winkie]

Not if building your own is a viable alternative. If someone thinks a 2 bed house is worth 500K then if they want to pay that it's up to them. I would rather build my own 4 bed for 200K. If I had the option to do this the light is let in on the magic.

It doesn't matter what they want....if they or others in the chain are unable to get the credit for it they can't have it.......

What happened years ago when we did not have the pills or potions... or we did not have the medical know how like we have today, we went without....if we started taking better care of our bodies and eating healthier, if we did not have to have todays' mind stressing jobs to pay for what we want and started smiling and laughing more we would not have a need or require these additional medical developments........

Pet insurance is a waste of money....manufactured highly in-bred pedigree animals may need it....your communal garden moggie or mongrel dog often have better, stronger healthier constitutions, they are less likely to require a vet.

Edit: to make more sense.

Edited August 14, 2011 by winkie

[bmf]

It doesn't matter what they want....if they they or others in the chain are unable to get the credit for it they can't have it.......

What happened years ago when we did not have the pills or potions... or we did not have the medical know how like we have today, we went without....if we started taking better care of our bodies and eating healthier, if we did not have to have todays' mind stressing jobs and started smiling and laughing more we would not have a need or requirement these additional medical developments........

Pet insurance is a waste of money....manufactured highly in-bred pedigree animals may need it....your communal garden moggie or mongrel dog often have better, stronger healthier constitutions, they are less likely to require a vet.

I don't think we are on the same page here, or even the same book.

[winkie]

This is precisely why I said there had to be far less restrictive planning laws. Land with planning permission is expensive. Land is not. The gap between the two is created by the difficulty in obtaining planning permission.

Believe me if planning permission was not required land would be expensive....the only reason it is cheap now is because people can't build on it.

[winkie]

I don't think we are on the same page here, or even the same book.

What I am saying.....you only need something if you think you need it...there are always ways around everything....

Wants are what the large corporates, banks and advertising companies are exploiting.....if everyone decided they would refuse to buy or buy at the price they are asking, the prices would have to fall.

[bmf]

Believe me if planning permission was not required land would be expensive....the only reason it is cheap now is because people can't build on it.

Clearly we have differing opinions on how demand changes as supply increases.

[caparn]

Yes, I agree fully with the post. If you want to put house prices down put an immediate ban on all mortgages.

[caparn]

What I am saying.....you only need something if you think you need it...there are always ways around everything....

Wants are what the large corporates, banks and advertising companies are exploiting.....if everyone decided they would refuse to buy or buy at the price they are asking, the prices would have to fall.

Ok let's start with the basics: air, water, food, accommodation to keep you out from the cold. I suppose the alternative is death, so better include life in the list.

[winkie]

Ok let's start with the basics: air, water, food, accommodation to keep you out from the cold. I suppose the alternative is death, so better include life in the list.

Yep, we need all that and most of us in this rich country of ours has access to it....any extras over and above basic needs, most of us have to work and pay for it....they set the extras at the highest price they possibly can to make the biggest profit they can, the more that are prepared or can pay, the higher they will push the price up......so if you want it you are in effect making a rod for your own back.

[bmf]

Yes, I agree fully with the post. If you want to put house prices down put an immediate ban on all mortgages.

Not sure if you are joking as this seems extreme, but it doesn't follow the spirit of what I'm saying.

Even if you banned mortgages people would still have to save and then bid for houses as demand exceeds supply. This is the point - whatever system you use people have to pay over the actual cost of the product if demand exceeds supply.

If we banned mortgages people would just have to save like mad in order to outbid each other. Therefore the determinant of house prices would be how much you earn rather than how much it costs to build a house. You would therefore be in the same situation of having to prostitutue yourself to an employer. If we could build near cost we would soon pay down the debt and be in control of our lives.

It's the supply that creates an auction situation.