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Why The Credit Bubble May Yet Burst


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An excellent article in todays Times about the runaway credit bubble.

http://business.timesonline.co.uk/article/...54151_1,00.html

I particularly enjoyed this quote.. :D

The study’s author, Edward Chancellor, a former Lazard banker, says: “An Englishman’s home is no longer just his castle. It is also a leveraged hedge fund, a pension fund, a cash machine and a source of limitless credit creation.â€
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I preferred this one

The answer just might be that we — Britain and the United States — are in the midst of the mother and father of all credit bubbles. People, businesses and governments have been showered with credit to a degree never seen before.
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I believe we are witnessing the economic equivalent of a super nova in the Western ecomonies, I don't think they'll be much left when the dust clears, and for the record I think a vast amount of notional capital ( paper money ) will be written off in terms of currency devaluation. Once we cease to be major markets for goods from SE Asia, they won't want to keep buying our crappy currencies with thier goods anymore. And good old demographics shows why that will happen

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Halifax changed my normal credit card, which I have had for years this morning, to their 0% deal for 9 months. A few months ago they refused this as it was "for new customers only" but things have changed so, I assume, competition on the credit high street is still intense.

This credit, including housing bubble, is all going to end in tears.

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Meanwhile, bankers and their regulators are deluding themselves if they believe that credit scoring, Value At Risk models and the rest of the paraphernalia of modern risk assessment will shield them from defaults.

Credit scoring is a joke. Its even worse for business risk scoring.

Its like watching the titantic hit the iceberg on slow motion, its going to end in tears...

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Halifax changed my normal credit card, which I have had for years this morning, to their 0% deal for 9 months. A few months ago they refused this as it was "for new customers only" but things have changed so, I assume, competition on the credit high street is still intense.

This credit, including housing bubble, is all going to end in tears.

i applied for a halifax credit card a few years ago, and they didnt just send me 1 card, they sent 2! the second card had a slight variation to my name and a different acount number, so as far as they are concerned its for a different customer :o unbelievable! :huh:

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"HAVE YOU ever wondered why banks suddenly dominate the corporate landscape? Five of Britain’s ten biggest companies are banks, compared with none 20 years ago. "

ERM I AM A BIT CONCERNED.

WITH THIS BOOM - MUST FOLLOW A BUST????????

Should we be worried when this bubble bursts, and the banks are unable to retrieve these loans at a profit e.g. bankcruptcy or IVA....

These banks may go bankcrupt themselves when they realise they are 100 millions out of pocket???? Will our life savings with these banks be lost? I can see the day where we are all scrambling to the bank getting our money out - and then this sign comes down at the desk - "no more withdrawals"

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Will our life savings with these banks be lost? I can see the day where we are all scrambling to the bank getting our money out - and then this sign comes down at the desk - "no more withdrawals"

A certain Warren Buffett, no less, has gone on record saying that he expects to see a major UK financial institution go bust in the near future.

Alot of the institutions are using credit derivatives to transfer the credit risk of the loans they make off there books, all fine in theory, until the ultimate holder of the credit risk ( more than likely a hedge fund based in Bermuda ) goes pop, then all that risk revert to the lender.

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What surprises me about this article is... that it doesn't surprise me! The economics boffins on here have been talking about this for ages, and once any muppet with GCSE maths starts to look at the debt issue, it becomes clear how shafted the UK and the US are.

I am glad that by September the wife and I will only owe money to the student loans company, and of course, will have no 170K-mortgage-for-1-bed-flat around our necks.

Scary stuff, but the wise can protect themselves...

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This seems to be similar to Japan's experience over the last 15 years or so. A massive property bubble during which Japanese banks were the largest in the world followed by years of property declining in value for 13 straight years. During this time many of the Japanese banks have either folded or had to merge (e.g. Sumitomo with Mitsui) as they have been crippled by high levels of debt.

Don't think that it can't happen here too!!

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Guest Charlie The Tramp
RichM Posted Today, 04:31 PM

any muppet with GCSE maths starts to look at the debt issue, it becomes clear how shafted the UK and the US are.

And those who got their 11+ in the mathematics of integers under simple operations such as addition, subtraction, multiplication, division, involution, and evolution, counting or problem solving involving arithmetic operations. :D

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And those who got their 11+ in the mathematics of integers under simple operations such as addition, subtraction, multiplication, division, involution, and evolution, counting or problem solving involving arithmetic operations.  :D

Yep - I have been absolutely amazed, even stunned over the last few+ years, and the last 18 months in particular: I (and others surely!?) have just watched it all unfold - House prices rising and rising - 150-250% in 5-6 years - the huge number of "Equity Release" adverts - particulalry on tv, satellite, in the Post Offices - it is like watching a horror story unfold. It is just frightening how the majority seem to go along with it all - only the silent (q. large) minority see it for what it is - a nightmare unfolding.

If Warren Buffet predicts a UK Financial Institution crash ....... well ........ as said above, it surprises me that it doesn't surprise me. How many of you out there have actually pinched yourselves in last few years - asking out loud - "Is it just me, or do other people see it!??"..... Me and a friend were pacing up and down his living room over the millenium celebrations, asking each other if we were mad; what were we discusiing? Well, we were talking away animatedly about the absolutely absurd, crazy, crazy price levels of dotcom shares...... We were quite pi**ed, and we were saying "maybe we're mad?!".......

.............AND.... Lo and behold, ............dotcom shares went into MELTDOWN soon afterwards........ and, today, only 4-5 years later........ we realise we were NOT mad!!! We both meet up often -- and we are doing exactly the same thing again - this time about the ABSOLUTELY CRAZY, ABSURD house prices......... and we are just thinking......... well......... it's all going to happen again..... this time though..... it is going to be FAR worse for many. many people. :(

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A certain Warren Buffett, no less, has gone on record saying that he expects to see a major UK financial institution go bust in the near future.

Alot of the institutions are using credit derivatives to transfer the credit risk of the loans they make off there books, all fine in theory, until the ultimate holder of the credit risk ( more than likely a hedge fund based in Bermuda ) goes pop, then all that risk revert to the lender.

So how do you protect your savings in the face of this risk? Government bonds? A large chunk of gold under the bed?

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As an old timer you guys are missing the point. Being offered 0% interest for 9 months was never offered until recently. Indeed to get a bank loan in the 1980's people simply went to see the bank manger, who you size you up and say "No."

Credit Cards were in their infancy with 25% interest rates.

Now the credit industry is so competitive which is great for the consumer not the banks. Yes there will always be fools who spend over their limits. However most frugal customers can borrow £10k at 0%, then simply balance transfer the sum after the deal expires to 3.9% elsewhere. The cheapest loan known to man!

If you break down our debt 1.1 trillion only 182 billion is unsecured i.e. personal loan, credit card, or other finance. With a population of 58 million lets assume only 70 % are over 18. Therefore the average person owes just £4,550 at very low interest rates. This includes car finance a fairly new phenomenon especially since the virtual abolition of the company car, all credit cards, graduate loans, over draughts (often interest free) and regular bank loans.

To break it down further Barclaycard say 24% of customers pay the full balance every month, as I am sure most sensible people do. People run their credit cards like current accounts it pays to pay by card for all the points and benefits. In addition the super rich may carry 10k 20k plus on their cards just for monthly expenses.

To take a guess lets assume 50% of unsecured debt credit card and 50% loans. Of the 50% 25% is not overhanging debt but regularly paid off. So £568.75 is lopped off per person. Leaving approx £4,000 per person, not a disastrous sum especially at such low rates.

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As an old timer you guys are missing the point. Being offered 0% interest for 9 months was never offered until recently. Indeed to get a bank loan in the 1980's people simply went to see the bank manger, who you size you up and say "No."

Credit Cards were in their infancy with 25% interest rates.

Now the credit industry is so competitive which is great for the consumer not the banks. Yes there will always be fools who spend over their limits. However most frugal customers can borrow £10k at 0%, then simply balance transfer the sum after the deal expires to 3.9% elsewhere. The cheapest loan known to man!

If you break down our debt 1.1 trillion only 182 billion is unsecured i.e. personal loan, credit card, or other finance. With a population of 58 million lets assume only 70 % are over 18. Therefore the average person owes just £4,550 at very low interest rates. This includes car finance a fairly new phenomenon especially since the virtual abolition of the company car, all credit cards, graduate loans, over draughts (often interest free) and regular bank loans.

To break it down further Barclaycard say 24% of customers pay the full balance every month, as I am sure most sensible people do. People run their credit cards like current accounts it pays to pay by card for all the points and benefits. In addition the super rich may carry 10k 20k plus on their cards just for monthly expenses.

To take a guess lets assume 50% of unsecured debt credit card and 50% loans. Of the 50% 25% is not overhanging debt but regularly paid off. So £568.75 is lopped off per person. Leaving approx £4,000 per person, not a disastrous sum especially at such low rates.

It doesn't matter what the rate is if you lose your job and cannot afford to repay.

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It doesn't matter how much the interest is. Low interest just makes things worse.

Say, after essentials, you are, optimistically, left with £300 a month to spend on fun.

You see a nice laptop for £900 and you buy it on a six months interest free credit card, assuming in three months the debt will be cleared if you live frugally.

Of course, being over optimistic, other expenses come up, and even with ZERO INTEREST that £900 is already a pain in the backside.

Cheap, easy debt is just handing out drugs in the playground. Nothing more.

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FDbuytoletinvestor:

Good point, it won't be credit card annihiliation for everyone. But:

800 billion is still on property. This is called "secured" debt. But of course, it isn't that "secure", and still has to be paid off.

IRs are anyone's guess, but they only have to go up a couple of percent to shaft hundreds of thousands of people.

The thing that really clinches it for me is the contribution of MEW to the economy as a whole. At last count, 7% of GDP.

That is very, very frightening. This debt is keeping the UK growing at the astonishing rate of 3% a year, wow! How fast will grow/recede when house prices stop going up, people are no longer confident about taking out MEW, and people's spending is curtailed?

Recession is on the cards, IMHO. Batton down the hatches...

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Easy to run up a 4k credit card debt - a lot harder to pay it off.

The motto of the typical UK borrower seems to be that something/someone will turn up to pay off your debts, but you are not quite sure what it is & when it will happen. Still its not your fault you ran up the debt - in fact by spending (someone elses) money you are helping the UK economy.

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  • 444 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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