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Don't Bank On A Crash

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I would love there to be a house price crash in the UK, and have been learning the arguments in favor of a crash by reading posts here. Unfortunately, I don't think we'll deflate the bubble within the next decade without a concerted political effort. If I am correct then we may all be literally 'banking' on an unrealized scenario and placing our financial futures in jeopardy. Here is why.

My experience as an investor in Equitable Life Assurance Society (ELAS) tells me you can't trust UK government, UK financial institutions and UK regulators to do the sensible, fair and moral thing. There are too many examples which show the foundations of society in Britain are biased, and obfuscated to avoid transparency and a fair deal for all. It goes to the core of UK society starting with the state / private schools, and ending with our corrupt House of Lords.

If your wondering whether this is too extreme, here is the perfect example: in 2000 there were ~450,000 Equitable Life policyholders held in a single With Profits fund, around 90,000 had guaranteed annuities that were written in the 70s and 80s. This was a time when high inflation and high interest rates led actuaries to overestimate guaranteed annuity rates for millions of people born in the 1940s, 50s and 60s. These guarantees were without risk, and yet the 90,000 lucky investors at Equitable paid no premium for their policies - these policies were set to pay annuities of >15% when current rates are ~5%. Who paid the premium? You guessed it, the people without guarantees. Of course, they were never told of the liabilities (fact) they were not paid a premium for the risk (fact) and they were cheated by three Law Lords (fact). One Law Lord was at least honest enough to say he was one of the 90,000, the other two have refused to say if they were or not. Can you imagine! The scandal gets more rotten, guess which group also had policies with Equitable Life? You guessed it, MPs, many without guarantees. But did they stay long enough to suffer from "The Compromise" which redistributed policyholders funds to those with Guarantees? Of course not, they were allowed to exit the fund without paying the market value adjustment (essentially a straight-jacket designed to stop the fund collapsing) and before the redistributions of funds. This, by the way, is also fact despite being incredible. So where were the cries from the press. Well that nice John Humphries on the BBC had a policy with ELAS and he had a guarantee and it's well known that many Lords, MPs, and the judiciary favored ELAS and given their average ages they too most likely had the guarantee.

The end result for 250,000 policyholders was a series of policy valuation reductions. The reduction was used to pay an uplift to those with guarantees under what was called a compromise. Now the true irony of this is missed by most of you. What The HoL Ruling did was set a precedent which had to be followed by the all other With Profits funds. Standard Life, Friends Provident etc have all been re-adjusting policy values using the cloak of the fall in equities during 2000 as a smoke screen. Ever wonder why the so called smoothing didn't protect you savings? I believe the real reason is that many of your endowments, pensions and investment plans were raped to pay out guarantees. And why. Well, one Law Lord has now stated that the ruling was made in isolation of the counter claims of those without guarantees, and that if the reasonable expectations of those without guarantees were taken into account, under a holistic assessment of the strength of each class of policyholder, then the approach being taken by Equitable Life of distributing funds based on PRE (policy holders reasonable expectations) may have been the right one. PRE is basically a legal term saying you get what you paid for. Two High Courts supported ELAS and the third didn't. Who could have understood the Law well enough to know it was worth persevering through three high court rulings and then the HoL?

So why didn't the Government and the Regulator insist that the HoL assess the rights of both classes and why didn't they stop the process and insist on a fair and moral trial? You all know why!!

So the corollary of this story is be aware that the self interest of those in power biases the political and social structure of Britain. Given there are many relatively wealthy MPs, bankers, and investment professionals in the UK and that most have bloated equity tied up in their homes there is little hope of fiscal policies allowing the bubble to deflate. We are all in for a period of desperate attempts to artificially lower interest rates and prop up the economy with more debts (your debts) to keep the economy afloat.

Edited by bpw

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This is a repeat isn't it? I'm sure you posted a very similar thread to this not long ago bpw, if I'm not mistaken?

Some people seem to be getting very concerned don't they HPCers?

I feel heartened when I read the huge mass of verbage that bpw posted. If everything was rosy in the garden would all these people be spinning like mad?

Bankruptcies up, insolvencies up, retail recession, unemployment up, asset bubbles everywhere. But hey, hang on a minute, it's different this time or it's a new 'paradigm'!!!

I wobbled at the beginning of the year but I'm confident now.

The trick to stay happy is to peruse this site periodically, otherwise you can't see the wood for the trees and the bigger picture is lost. Stand back and realise that in 18 months HPI has plummetted from over 20% to virtually nothing.

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Given there are many relatively wealthy MPs, bankers, and investment professionals in the UK and that most have bloated equity tied up in their homes there is little hope of fiscal policies allowing the bubble to deflate.

Were there not "many relatively wealthy MPs, bankers, and investment professionals in the UK" with "bloated equity tied up in their homes" during the early 1990s when the last bubble deflated?

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I totally agree with you but for one point.

This corruption will cause the crash and 'their' portfolios are probably well passed on to the common or garden mug to be bought back for less than it was sold..

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The power elite of any country are arrogant swine who feather their own nests. On the Continent the elite are subtler and probably warier, being mindful of what happened to their ancestors when they took liberties with the peasants and the lower middle classes (ie: neck-down circumcision). The Anglo-Saxon world has never had a proper revolution, so our elite are more brazen.

But the elite can't control everything. There is a limit to their discretion w.r.t. interest rates. As fuel imports increase, they will have to raise rates or else face a long decline in Sterling.

They will most likely join the Euro. This will give an extra boost to house prices, as the Euro has a lower interest rate than Sterling, and will hide the net outflow of wealth from Britain. They will be able to continue to enjoy their posturing, their private schools and fancy jobs in the City and the Inns of Court, London will not look all that different, just the money will be different. They couldn't really give a stuff what happens to the country. They have no national concern. They are a society within a society, their fate is unrelated to the fate of ordinary British people. If Britain sinks to the status of Portugal in the 1970s (which may happen), they'll barricade themselves off in their gated communities deep in the Surrey countryside, or they'll move to Argentina, or Switzerland. They are slime eels. But they can't stop a house price crash once the economic fundamentals form.

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So we are to believe that the gnarly old British Lion, having spun (sorry brought) peace and democracy to Iraq, will now spin every economic truism on its head. That it folks deficits and an inefficient and decrepit public sector, coupled with a withered industrial base and a financial services sector reliant on debt junkies will brush off all comers.

When the US economy goes tits up this year, lead by a consumer recession, the British and many other economies will follow. I’ve made reference to Germany elsewhere on the board, the German economy is the default position for mature post industrial economies in the west. They have 9% unemployment and house prices that have fallen for a decade and a half, they have benefited by a consumer boom across the globe and have a very healthy trade balance. The Japanese have experienced similar deflation, yet they (like the Germans)maintain their competitive edge. Tony Blair has no plan B, plan A was let the good times role until I resign by the way.

The Japanese and Germans are preparing for the economic impact of global capitalism; the UK seems to be on an utterly divergent path. Now I wonder whose going to get it right?

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I completely agree that this country (and probably the world) is run by a self-interested elite who have connections across all facets of society. They do look after themselves primarily, and they do abuse their position for personal gain. But to suggest that they can control markets indefinitely is not true.

Your rant is basically a thousand words dedicated to that old chestnut: "the government wouldn't let it happen". <_<

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This is a repeat isn't it? I'm sure you posted a very similar thread to this not long ago bpw, if I'm not mistaken?

Some people seem to be getting very concerned don't they HPCers?

Whoops - you are missing my point.

And for the record: 1) i live in the USA and don't own property in the UK, that means the 250% price rise of the past 7 years has left me unable to buy a suitable home in the UK despite a good salary; and 2) I dearly want a crash because i know it would be fair to FTBs and those lower in the chain.

So, I am not a trojan horse trying to make others feel there really is no hope. Only someone who wants you all to be carefull and more politically active.

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Very interesting.

But I very much doubt those in power can prevent the economic cycle.

Maybe, just maybe, they could delay the enevitable for a while so they can reorganise their finances so they don't suffer in any downside. With the property market all they need to do is force a interest rate cut through, causing a market bounce in which they could sell their portfolios. That would work. Maybe thats what happened last August!

Edited by Jason

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Guest Winners and Losers

OK. I won't BANK on it. But I won't BANK on price rises either.

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I am not sure the Equitable Life debacle is a good example.

I don't think the House of Lords could come to any other decision. The GARs (Guaranteed Annuity Rates) were part of the contract - so why should they not be honoured. As EL was a mutual company, the "cost" has to fall on all the policy holders.

EL's main problem was paying out too high a rate of bonus over many years in order to maintain its place at the top of the League tables. This just made its problem worse as more policyholders were added to the books. That's where the "smoothing" disappeared.

The Directors were warned about this several years before the chickens came home to roost. They thought (wrongly and immorally) that they had "discretion" to manipulate the Bonus rates to negate the GARs which they had freely given.

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A HPC can be avoided if someone can solve the economic cycle problem. Its akin to perpetual motion.

and as we all know the best way to start in your legendary fix to the economic cycle is to wait until the cycle reaches the highest peak that has ever been achieved and rub your hands together..

"I can do it" you can proclaim "All that has ever afflicted economies I can solve, and I need a challenge so I will manage it at the hardest point that could be imagined.

It is nieve to think that the economic cycle cannot be stopped, but to think it can be achieved at the peak of the biggest boom ever is a very, very very stupid belief.

Read what I have written above does anyone agree?

I am not sure the Equitable Life debacle is a good example.

I don't think the House of Lords could come to any other decision. The GARs (Guaranteed Annuity Rates) were part of the contract - so why should they not be honoured. As EL was a mutual company, the "cost" has to fall on all the policy holders.

EL's main problem was paying out too high a rate of bonus over many years in order to maintain its place at the top of the League tables. This just made its problem worse as more policyholders were added to the books. That's where the "smoothing" disappeared.

The Directors were warned about this several years before the chickens came home to roost. They thought (wrongly and immorally) that they had "discretion" to manipulate the Bonus rates to negate the GARs which they had freely given.

This is a good example..

The government was happy to sacrifice these poor souls..

Why do home owners think they are different..

Its not like our prime minister has a mortgage costing him more then he is paid is it?

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Let's ban BTL to ensure we have no choice but to hand over more dosh to these middlemen. Equitable life killed off any faith in the pensions industry in this country,

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I don't think we'll deflate the bubble within the next decade without a concerted political effort. If I am correct then we may all be literally 'banking' on an unrealized scenario and placing our financial futures in jeopardy.

...

So the corollary of this story is be aware that the self interest of those in power biases the political and social structure of Britain.

"Curiosity killed the cat"

To get closer to truths of "power" and why, how and when inflation was followed be deflation to further thier interests read

http://www.amazon.com/gp/product/091298639...glance&n=283155

Below is a reader review from the above amazon link;

Warning: This book will change your life, June 30, 2005

Reviewer: Mike Phillips "Mike" (San Francisco, CA) - See all my reviews

Here is a quick overview of how I figured out the monetary system to the point of being confident that my understanding is reasonably correct and being able to explain the basic scam in about 45 minutes.

First I became convinced that if I am ever going to understand how the world works I should probably figure out an answer to the question "what is money?" Surprisingly, a search on Amazon.com did not return very many books on the topic. Like any good college educated liberal I chose the one book which garnered praise from all my favorite trusted sources such as the New York Times and the Washington Post. I didn't see how I could possibly go wrong spending $12.92 for the 800 page book "Secrets from the Temple: How the Federal Reserve Runs the Country", which The Nation said, "May be the most important political book of the decade."

Unfortunately, after reading William Greider's 10 year, day by day account of Federal Reserve Chairman Paul Volker's back and forth decisions on raising and lowering interest rates, I still did not have the foggiest clue as to what money is or how it is created. I'm sure most people would have given up at this point but I was not ready to throw in the towel. For some reason I was not convinced by the book's conclusion that it was critically important to maintain the money mystery because "Taboos uncoded lost their power to persuade...The mystery was necessary, therefore, to sustain social faith. Knowledge was disturbing. Not knowing the secrets was reassuring."

I needed another book, however the only ones that the New York Times seemed to recommend were all described as condensed versions of "Secrets of the Temple." I had no choice but to bite the bullet and for the first time in my life order a book which was not recommended by the New York Times. I ordered "The Creature from Jekyll Island: A Second Look at the Federal Reserve by G. Edward Griffin. At least Willie Nelson seemed to like it. Actually, I wasn't quite sure if Willie Nelson was wholeheartedly endorsing the book in his review which simply read, "Scary. It's the story of the world banking system. Enough said."

I was quite pleased that Jekyll Island contained a pretty good description of the money creation process. However, the book contained a lot more than that. All I can say is that I often see my life as divided into two main periods; before reading Jekyll Island and after reading Jekyll Island. I finally knew what Willie Nelson meant by "scary."

Now that I was starting to really get somewhere in figuring out how money is created, I needed to find more information to clear up some of the details. My wife even got involved in the search for truly academic and scholarly information. I will be forever indebted to her for discovering a free downloadable copy of a book entitled "The Mystery of Banking" by Murray Rothbard. This was exactly what I had always been looking for. It clearly explained the process without dumbing it down in any way or obfuscating the details in order to "sustain social faith."

That is essentially how I got started in learning about money. I have found this to be the most fascinating field I have ever encountered and I am very glad that I didn't take William Grieder's advise to remain blissfully ignorant.

Or to start from a wider perspective go with "How the eorld really works";

http://www.amazon.com/gp/product/096408481...glance&n=283155

enjoy

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I am not sure the Equitable Life debacle is a good example.

I don't think the House of Lords could come to any other decision. The GARs (Guaranteed Annuity Rates) were part of the contract - so why should they not be honoured. As EL was a mutual company, the "cost" has to fall on all the policy holders.

EL's main problem was paying out too high a rate of bonus over many years in order to maintain its place at the top of the League tables. This just made its problem worse as more policyholders were added to the books. That's where the "smoothing" disappeared.

The Directors were warned about this several years before the chickens came home to roost. They thought (wrongly and immorally) that they had "discretion" to manipulate the Bonus rates to negate the GARs which they had freely given.

It's this kind of nonsense that resulted in grotesque injustice to non-gars. What you fail to point out is that the HoL decision was specific to the mis-selling case bought by the GARs. One law lord admitted that the outcome was prejudiced by the claim by Equitable that the cost would be 50 million, in the end it drove the society to near insolvency and cost billions. Did you get the letter from ELAS saying it woudl cost 50mln as well? I did, and yes they lied. While the board were incompetent, it was not fair, moral or right that the GAR action group should have been allowed to enjoy both the overallocation of bonuses, equal distribution of funds (gar and non-gar) and then after all that get paid the uplift using other people's money - thats the whole point of my posting since the situation was an extreme example of how greedy people can be even if it means hurting other pensioners and savers. Remember, the GARS enjoyed spectacular growth because:

1. overbonussing (a common practice that affected all WP funds)

2. ELAS attempt at being fair by invoking the princilpe of reasonable expectations (PRE)

3. the boom in equities over the 80s and 90s.

That wasn't enough for those who bought the mis-selling claim they wanted ELAS to take money from other people to support guarantees for which they paid no premium.

The court cases were bought against ELAS buy a small group of policyholders who were determined to use the force of contract to overcome the law of reasonable expectaions. The fact is non-gars like myself were mis-sold policies that carried the GAR risk without a premium, and without knowing they were ultimately to be used as cash cows for greedy pensioners who were happy to take money from other pensioners.

My main point is this happened in the UK a country that touts fairness and honesty. Where was the drive to ensure counter claims of non-gars were bought to court. Why did the Financial Services Authoriy not disagree with ELASs interpretation of the law. And finally how did we allow a decision to be made by Law lords holding guaranteed annuities.

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I had a non-GAR policy and had a big chunk of my hard-earned lopped off to pay those with GAs. Couldn't believe it when they had the gall to charge me an exit penalty when I left (thankfully) shortly thereafter. Whilst it was in the contract, you would have thought that EL may have felt morally obliged to waive the penalty. But no. In fact after I left they put it up to discourage others from jumping ship!!

Amazing.

However - it has ever been thus. There has never been a society wherein the needs of the common people were put before the needs (or even wants) of the elite. Never will be. Human nature. We all look after our own.

It's just now that we have tools such as the internet, we are a lot more aware of it going on.

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  • 301 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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