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Sour Mash

Poland Look Set To Bail Out Chf Mortgage Borrowers.

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Headlined in the FT today (but behind a paywall and site rules forbid quoting it) so here's an article from Reuters pertaining to the matter a few months back:

http://www.reuters.com/article/poland-economy-swissfranc-idUSL8N14Z258

Bottom line is that prior to 2008 about half a million poles decided to ignore currency risk and take advantage of low-low Swiss Franc borrowing rates as they were cheaper than borrowing in the local currency at the time. To the tune of about $42 billion dollars worth of Swiss Francs (at current rates).

Now that the Swiss Franc has managed to massively appreciate, the borrowers are complaining that their loans are costing too much to repay so the government there looks set to approve measures to force the banks to convert the loans to Polish zloty at 'historical rates' i.e. essentially the exchange rate that existed at the time the loans were extended, and force the lenders to swallow the loss.

Apparently Hungary has already done something similar.

On the one hand, at least the banks are being forced to swallow losses made on stupid loans. On the other, the greedy idiots who disregarded currency risk in order to take on large mortgages and thus push prices up in Poland for sensible buyers look set to get away with their greed and stupidity.

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One has to presume that UK taxpayers won't end up paying for these Polish bank losses one way or another but one never knows these days. Who knows what behind the scenes agreements Dave might have made in his recent eu negotiations with Poland.

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I'm wondering whether the same will happen with student loans one day. Is it worth paying them off or waiting for the bailout?

I'm banking on my student loan being refunded at some point for my pension. I see the US have started making moves in that direction. Should take another good crisis to 10 years before that happens.

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I'm wondering whether the same will happen with student loans one day. Is it worth paying them off or waiting for the bailout?

To be honest, there's probably less mis-selling with PPI.

Ditto HTB.

In fact I can see just about every form of debt...loans, credit cards, catalogues, hp agreements, all being subject to huge levels of debt forgiveness at some point in the future.

It's just a win, win and win again situation for the debt junkies, the feckless and the over leveraged.

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Ditto HTB.

In fact I can see just about every form of debt...loans, credit cards, catalogues, hp agreements, all being subject to huge levels of debt forgiveness at some point in the future.

It's just a win, win and win again situation for the debt junkies, the feckless and the over leveraged.

It does seem that the end-game will be debt relief/forgiveness. Thus far they have focussed on overtly bailing out the lenders with any relief for borrowers being tangential through low interest rates and forbearance thanks to the banks wanting to keep loans looking as if they are performing.

If TPTB can get full-spectrum inflation to really kick off then just about everyone with debt will be laughing as their asset shoots up in cash value and their income stream (theoretically) inflates, making the capital debt easier to pay down.

However, betting it all on some sort of QE for the masses is really taking a risk. Might be prudent to have some debt balanced by hard assets to hedge against that scenario.

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However, betting it all on some sort of QE for the masses is really taking a risk. Might be prudent to have some debt balanced by hard assets to hedge against that scenario.

Yep certainly worth thinking about. a hedge.

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To be clear, banks didn't have to buy CHFs at all because these houses were bought in Poland for PLN. Banks used CHF rate to convert (on paper) the amount of borrowed PLN to CHF using current exchange rate (from the date the loan was taken), and then used actual interest rate to calculate monthly payments (to be paid in CHF). Not a big deal if the CHFPLN exchange rate would have stayed more or less the same, however:

1. If CHFPLN would have collapsed people would be able to pay their mortgages much quicker because the capital would be smaller. This would mean big losses for banks.

2. If CHFPLN went drastically up (this is what has happened) we have negative equity problem, and a drop in property value further magnified the issue (since 2007-08 when majority of CHF denominated mortgages were taken, the property market in Poland is heading down with some recent rebound). This in a way sounds favourable for banks because their CHFPLN paper long positions are making big profits.

Edited by Paul77

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