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Bloo Loo

There Is A Way To Perpetuate The Bubble

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Just had another thought this morning about an aspect of the housing market and banking that seems to get disappeared regularly.

People here and in other places cant see the support going on forever.

forebearance, funding for lending, taxpayer schemes for buyers..all designed to stop the real market value from being discovered.

This cant go on forever they say.

This assumes that the market is what we think it is...currently a scheme to get new buyers in, greater fools some would say, and it seems with the new MMR regs coming in, that BTL is the simplest way to get them in with bigger than "legal" mortgages.

Now, back to the forgotten aspect.

Shell Property Companies.

So, rates rise a bit...this is reputed and logically going to put many many mortgage holders in the poop. Banks cant forebear mass defaults as this affects their visible solvency. so what can they do?..

Foreclose and arrange for sale to the "independent" shells....they transform the bad debt into an instant asset in the shell...the shell at the same time can outbid any other market players due to its backing at the bank and therefore keep prices high. Insolvent borrowers wont complain as they get what seems a great price paying back most if not all the mortgage arrears and capital.

The end game here is that the banks own many of the houses via the shells...valuations are kept sky high, and supported by rents. But there doesnt even have to be a profit, so valuations could leave the rents behind for a period and still people would wonder what is going on?

The new OO is an endangered species....same with the new BTL set...the long game is to collect a vast percentage of housing into the banks ownership.

Maybe its time to set up such a "shell" and talk to a banker.

Edited by Bloo Loo

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Thinking two things - your up early. Looking out at the bay on a beautiful morning on the Isle of Bute thinking that the further you get from London the more peaceful and normal life seems.

Good post though with a ring of truth about it

Edited by Greg Bowman

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Thinking two things - your up early. Looking out at the bay on a beautiful morning on the Isle of Bute thinking that the further you get from London the more peaceful and normal life seems.

Good post though with a ring of truth about it

I went to Arran once!

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Thinking two things - your up early. Looking out at the bay on a beautiful morning on the Isle of Bute thinking that the further you get from London the more peaceful and normal life seems.

Good post though with a ring of truth about it

Be careful it can be catching.....

It other countries where banks are holding property that they got by default, people get special terms of finance so it can be offloaded, the banks don't want it but won't give it away because then everything they are holding would collapse.

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Be careful it can be catching.....It other countries where banks are holding property that they got by default, people get special terms of finance so it can be offloaded, the banks don't want it but won't give it away because then everything they are holding would collapse.

I can see why !

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People here and in other places cant see the support going on forever.

forebearance, funding for lending, taxpayer schemes for buyers..all designed to stop the real market value from being discovered.

This cant go on forever they say.

This assumes that the market is what we think it is...currently a scheme to get new buyers in, greater fools some would say, and it seems with the new MMR regs coming in, that BTL is the simplest way to get them in with bigger than "legal" mortgages.

My view was that they'd run out of willing/able borrowers eventually - at these TwilightZone-crack-up price levels. That it becomes expensive even when people are pushing to outbid each other via lower rate mortgages, given the reflation of just past 2 years alone

Then I have to remember the general view that all borrowers are 'innocent' without any 'responsibility' for their own actions of paying ever higher prices for property. Of course they can keep it running, shell companies, or like in US, lending to real-estate companies, but surely capital malinvested retards the economy (global economy) in other ways too. The forgiveness didn't help. So many people were not ready to allow HPC in 2008, including non-owners with the excuses. It's why it's worse now.

The property below is currently on the market with an asking price of 900K. Previously sold for 596K in July 2006 when prices looked crazy to us at the time.

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... but surely capital malinvested retards the economy (global economy) in other ways too....

 

This is true but I'm sure the end game of getting rid of this temporary aberration of small-plot land ownership by commoners, and consolidating land ownership back into the hands of the wealthy and powerful few, will be worth another decade or two of "austerity".

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I don't see banks wanting to hold property and having to administer rents, repairs, etc any more than they have to. If they can dispose for a small loss they will usually take it. Also, don't forget they've had time to repair their balance sheets (Co-Op and some other nationalised ones notwithstanding) so are in a better position to take a hit.

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The banks could wind up owning lots of property in the case of large scale defaults whether they put them in Shell Companies or not. As the banking system is due facto propped up by the state and the central banks either via direct government intervention as with RBS and Lloyd's or via QE it is quite possible that the properties ultimately owner will be the taxpayer. It is then a relatively short step to nationalising this portion of public housing stock. In fact logically most of the people who could end up defaulting would have been in public housing in the immediate post war decades. This is why I believe the way rented property is owned, controlled, regulated and managed is going to be an major political issue in the future. The only surprise is that an ambitious or aspiring party leader has not made it a central plank of an electoral bid for power yet.

In many respects the way the scenario is going to play out is already established with just the details that have not been finalised. The reality is the whole series of OO home ownership bubbles since the 1970s will turn out to be a illusion that has consumed vast amounts of potentially productive capital and labour but which will end up with many families back in the position of either their grand parents who often lived in public housing or their great grand parents who rented from private landlords. If you look at the way things have panned out the supposed 1980s OO revolution including the sale of Council property has really been little more than a mechanism for turning public rented assets to private rented assets.The problem is that transfer is effectively propped up by public money. The question is what happens when that money and the populaces patience run out.

Edited by stormymonday_2011

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TBH the scenario outlined, although not ideal, sounds okay. Renters become an important demographic and I'd rather rent off a company than some over-leveraged BTLer.

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I don't see banks wanting to hold property and having to administer rents, repairs, etc any more than they have to. If they can dispose for a small loss they will usually take it. Also, don't forget they've had time to repair their balance sheets (Co-Op and some other nationalised ones notwithstanding) so are in a better position to take a hit.

the banks wont own any property..that would be illegal in the scenario of the possession...the debtor could claim the bank hadnt paid best price, that the deal wasnt arms length and maybe get the debt nullified.

No, the properties would be owned by the shells, the banks could have an interest in these shells in a number of ways, all of them controlling, but never directly.

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The banks could wind up owning lots of property in the case of large scale defaults whether they put them in Shell Companies or not. As the banking system is due facto propped up by the state and the central banks either via direct government intervention as with RBS and Lloyd's or via QE it is quite possible that the properties ultimately owner will be the taxpayer. It is then a relatively short step to nationalising this portion of public housing stock. In fact logically most of the people who could end up defaulting would have been in public housing in the immediate post war decades. This is why I believe the way rented property is owned, controlled, regulated and managed is going to be an major political issue in the future. The only surprise is that an ambitious or aspiring party leader has not made it a central plank of an electoral bid for power yet.

In many respects the way the scenario is going to play out is already established with just the details that have not been finalised. The reality is the whole series of OO home ownership bubbles since the 1970s will turn out to be a illusion that has consumed vast amounts of potentially productive capital and labour but which will end up with many families back in the position of either their grand parents who often lived in public housing or their great grand parents who rented from private landlords. If you look at the way things have panned out the supposed 1980s OO revolution including the sale of Council property has really been little more than a mechanism for turning public rented assets to private rented assets.The problem is that transfer is effectively propped up by public money. The question is what happens when that money and the populaces patience run out.

a bank never owns the property until it buys it...see my post above.

Edited by Bloo Loo

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TBH the scenario outlined, although not ideal, sounds okay. Renters become an important demographic and I'd rather rent off a company than some over-leveraged BTLer.

The tipping point will be when renters are in a majority which is still some way off at the moment. One of the dangers for elite groups from such a change is that debt servitude tied to property ownership is a bulwark to political stability and the maintenance of the status quo. If the masses own no property then they have far less to lose from radical political change. I don't think it is a accident that rentierism and violent revolution are historical bed fellows with the former often leading to the latter if not controlled. I expect that quite a bit of effort is being put in behind the scenes by the British establishment to maintain the appearance if not the reality of a property owning democracy,

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a bank never owns the property until it buys it...see my post above.

Legally no but the reality is that post default it is their financial problem as it is an unproductive asset unless generating interest or rents. To be honest it makes little difference to the process of transferring our society from one where renting rather than OO is the norm who owns the property be it a shell company, private BTL landlord,foreign property speculator or housing association so long as it does not come onto the open market at a lower price. As long as property prices are bid out of the reach of the majority then the supply of renters is maintained and the process of rolling back homeownership will continue. Whether this will ultimately be a good or bad thing for the UK remains to be seen. Some might argue that 60 years of obsession with buying and trading small plots of land has not really been beneficial to this country economically, socially or politically.

Edited by stormymonday_2011

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Legally no but the reality is that post default it is their financial problem as it is an unproductive asset unless generating interest or rents. To be honest it makes little difference to the process of transferring our society from one where renting rather than OO is the norm who owns the property be it a shell company, private BTL landlord,foreign property speculator or housing association so long as it does not come onto the open market at a lower price. As long as property prices are bid out of the reach of the majority then the supply of renters is maintained and the process of rolling back homeownership will continue. Whether this will ultimately be a good or bad thing for the UK remains to be seen. Some might argue that 60 years of obsession with buying and trading small plots of land has not really been beneficial to this country economically, socially or politically.

yeah, thats what I am saying, get in now, set up your shell.

obvious current candidates are the sons of ex prime ministers, bankers and other retards that feel that rigging the game for their own benefit is a legitimate use of peoples funds.

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I can see IRs rising causing a huge problem for Brits but that their sales are gobbled up by countless foreigners just wanting to plant their money in a safe haven.

foreigners are negligable compared to a bank that wants to remove its bad debts, and realise payments on its spare capital.

The Shell game is win win for a banking insider...and for every 10 foreigners, there are thousands of mortgagees(ors) on the brink.

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yeah, thats what I am saying, get in now, set up your shell.

obvious current candidates are the sons of ex prime ministers, bankers and other retards that feel that rigging the game for their own benefit is a legitimate use of peoples funds.

You can make this the first one in your portfolio. Nice Northern cheap, just 10 minutes drive away from Manchester Airport, where obviously no one is struggling. Owners, sellers, flippers, and bank forbearance. Pay the asking price, do it up, and rent it out. Sorted.

http://www.rightmove.co.uk/property-for-sale/property-40804555.html

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The tipping point will be when renters are in a majority which is still some way off at the moment.

I don't think the balance needs to go that far - a lot of owners are going to have a stake in a better deal for renters. They will be their sons and daughters and the sons and daughters of their friends for a start. Even if you ascribe to the notion that everyone is a VI, you'd still have to assign a very narrow, stupid, and unimaginative VI to the majority to end up with such a bleak conclusion (and if we're genuinely that unpleasant, then I shall anticipate the eventual demise of our species with equanimity).

Edited by tomandlu

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I don't think the balance needs to go that far - a lot of owners are going to have a stake in a better deal for renters. They will be their sons and daughters and the sons and daughters of their friends for a start. Even if you ascribe to the notion that everyone is a VI, you'd still have to assign a very narrow, stupid, and unimaginative VI to the majority to end up with such a bleak conclusion (and if we're genuinely that unpleasant, then I shall anticipate the eventual demise of our species with equanimity).

I think you are right.

I had not factored in the cross generational ownership bias which means that most families will now include a younger renter

I suppose initially their parents would have regarded this state as temporary for their offspring but from reading some recent Telegraph and Mail articles on this issue I think it is begining to click with some middle class families in the South East that their kids will never own a property of their own unless they inherit it. Again as I said in an earlier post this realisaton is actually going to be quite dangerous for political and financial elites. Mass property ownership allied to debt service is actually the safest and most reliable way to fend off violent political change. Undermining it for all but a few is fraught with risk for those at the top

Edited by stormymonday_2011

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I think you are right.

I had not factored in the cross generational ownership bias which means that most families will now include a younger renter

I suppose initially their parents would have regarded this state as temporary for their offspring but from reading some recent Telegraph and Mail articles on this issue I think it is begining to click with some middle class families in the South East that their kids will never own a property of their own unless they inherit it. Again as I said in an earlier post this realisaton is actually going to be quite dangerous for political and financial elites. Mass property ownership allied to debt service is actually the safest and most reliable way to fend off violent political change. Undermining it for all but a few is fraught with risk for those at the top

Inheriting is no real protection against a housing bubble. It's better than nothing, sure, but it's the equivalent of an inadequate life-jacket in a storm. If you've got any brains, you recognise that you'd rather not be in the water in the first place...

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the banks wont own any property..that would be illegal in the scenario of the possession...the debtor could claim the bank hadnt paid best price, that the deal wasnt arms length and maybe get the debt nullified.

No, the properties would be owned by the shells, the banks could have an interest in these shells in a number of ways, all of them controlling, but never directly.

A technicality, the banks still have effective control. The thing is this practice has been going on for a long time now, 5+ years, I'm not sure why it would suddenly be more influential than it already is/has been.

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A technicality, the banks still have effective control. The thing is this practice has been going on for a long time now, 5+ years, I'm not sure why it would suddenly be more influential than it already is/has been.

thats why i said it is "disappeared"...this shell game is in effect very close to money laundering, as it is in effect debt laundering...you start with a bad debt, and end up with an asset in a property company or a loan thereto.

As to its importance, that, as I posted, will come about when interest rates rise...it will cleanse the banks and keep asset prices up.

Its not a technicality. Its also the reverse of the SIV, which were outlawed with new regulations.

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thats why i said it is "disappeared"...this shell game is in effect very close to money laundering, as it is in effect debt laundering...you start with a bad debt, and end up with an asset in a property company or a loan thereto.

As to its importance, that, as I posted, will come about when interest rates rise...it will cleanse the banks and keep asset prices up.

Its not a technicality. Its also the reverse of the SIV, which were outlawed with new regulations.

Reverse of the SIV? That's why it can't work. Not long term. Where's the demand for new debt coming from? SIVs were/are debt enablers. Debt is being retired continuously. No debt creation = no growth.

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