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Converted Lurker

Why Banks Are In A Win Win And Won't Care Re. Massive Losses

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worth debating on a separate thread? So what they lose billions/trillions, that's a good thing if they need to destruct some over inflated currency surely? Hardly gonna cause symstemic failure and meltdown is it? <_< I realise I'm being overly simplistic...

http://www.housepricecrash.co.uk/forum/ind...30&start=30

Not at all, its all Fractional Reserve Borrowing. Sure their profit projections may be reduced, they may even take a hit and declare a loss for a year or two, but lets not forget they have been making (not projecting to make) record profits over these past ump-teen years. They have sold CDOs back to the market and reduced their exposure-to-risk to near zero.

They will be able to look back over history and say "Wow what a great period we had, our share of wealth in the world just grew and grew and the poor bastards that made us wealthy are left with nothing, to bad they didn't understand the game, BANK ALWAYS WINS!". The banks have made you the debtor pay back interest for the past many years and now they get a legal shot at being able to take all your equity you thought you were accumulating off you as well, so infact they get to keep all the money you ever paid them and keep ownership of the property itself. And so the banks are left with all the money, all the property and the ability to whip the average man back into work (to start the cycle again).

You talk of money as if it is actually something "important", sure its important to you as for your whole life you'd had it drilled into you that it is what makes the world go round. But for a bank money itself really is just paper and there is more where that came from, when they need to burn it they will burn it, when they need to manufacture it they will manufacture it, the real asset to the bank is the legal mechanism of what money makes people do. A means to forcing people into work and to further its own purpose.

So sure the propaganda machine of the banks will make the general public believe they got a "shafted" too; since thats an easy pill for the public to swallow based on their limited understanding of the perception of money. This will allow the bank to futher their own motives whilst in this position when public sentiment is on their side but in reality the banks will have increased their share of wealth in the world; I would not call that a shafting.

Edited by Converted Lurker

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What about a reversion to mean, people stop spending and the debts the banks loaned out and repackaged and resold and repackaged and resold revert to market values they don't then own the assets, they own a promise.

Edited by maxwell

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Yes well done, you've got it.

House price crash, bank wins. No house price crash, bank wins.

The banking system always win as a whole as long as we have:

1. central bank

2. fiat currency

3. inflation / deflation

When banks lose money, they're not really losing anything,

chances are they'll get a bailout courtesy of the central bank.

Creature from Jekyll Island by G.Edward Griffin is an excellent

book for explaining this.

Edited by Dr Doom

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...

When banks lose money, they're not really losing anything,

chances are they'll get a bailout courtesy of the central bank.

...

In extremis, it's the central bank that ends up with all the collateral, i.e. all the real stuff.

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In extremis, it's the central bank that ends up with all the collateral, i.e. all the real stuff.

Sort of, but not really.

The central bank is a control system. It dominates the economic and political

system of a country.

Whoever controls the central bank controls everything.

Bankrupting everybody is just part of gaining more control.

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worth debating on a separate thread? So what they lose billions/trillions, that's a good thing if they need to destruct some over inflated currency surely? Hardly gonna cause symstemic failure and meltdown is it? <_< I realise I'm being overly simplistic...

http://www.housepricecrash.co.uk/forum/ind...30&start=30

Not at all, its all Fractional Reserve Borrowing. Sure their profit projections may be reduced, they may even take a hit and declare a loss for a year or two, but lets not forget they have been making (not projecting to make) record profits over these past ump-teen years. They have sold CDOs back to the market and reduced their exposure-to-risk to near zero.

They will be able to look back over history and say "Wow what a great period we had, our share of wealth in the world just grew and grew and the poor bastards that made us wealthy are left with nothing, to bad they didn't understand the game, BANK ALWAYS WINS!". The banks have made you the debtor pay back interest for the past many years and now they get a legal shot at being able to take all your equity you thought you were accumulating off you as well, so infact they get to keep all the money you ever paid them and keep ownership of the property itself. And so the banks are left with all the money, all the property and the ability to whip the average man back into work (to start the cycle again).

You talk of money as if it is actually something "important", sure its important to you as for your whole life you'd had it drilled into you that it is what makes the world go round. But for a bank money itself really is just paper and there is more where that came from, when they need to burn it they will burn it, when they need to manufacture it they will manufacture it, the real asset to the bank is the legal mechanism of what money makes people do. A means to forcing people into work and to further its own purpose.

So sure the propaganda machine of the banks will make the general public believe they got a "shafted" too; since thats an easy pill for the public to swallow based on their limited understanding of the perception of money. This will allow the bank to futher their own motives whilst in this position when public sentiment is on their side but in reality the banks will have increased their share of wealth in the world; I would not call that a shafting.

Are you talking banking system or banks in particular ? Individual banks can and do fail. Ask anyone who had money with BCCI or held shares in the company. Banks are just part of the capitalist system. If you don't like it you have got to come up with an alternative. Since old school Marxism seems to have fallen out of favour there are not many choices for those who want a different system unless you want to join the Islamic nut cases.

Edited by up2nogood

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Since old school Marxism seems to have fallen out of favour there are not many choices for those who want a different system unless you want to join the Islamic nut cases.

LOL. Marx was a big fan of central banks... in fact, of the ten goals of the Communist manifesto, Britain has succumbed to seven or eight. Doesn't sound much like 'old school Marxism' is too much out of favor with the British government.

Free market capitalist banks would be very different to what we have today.

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worth debating on a separate thread? So what they lose billions/trillions, that's a good thing if they need to destruct some over inflated currency surely? Hardly gonna cause symstemic failure and meltdown is it? <_< I realise I'm being overly simplistic...

http://www.housepricecrash.co.uk/forum/ind...30&start=30

Not at all, its all Fractional Reserve Borrowing. Sure their profit projections may be reduced, they may even take a hit and declare a loss for a year or two, but lets not forget they have been making (not projecting to make) record profits over these past ump-teen years. They have sold CDOs back to the market and reduced their exposure-to-risk to near zero.

They will be able to look back over history and say "Wow what a great period we had, our share of wealth in the world just grew and grew and the poor bastards that made us wealthy are left with nothing, to bad they didn't understand the game, BANK ALWAYS WINS!". The banks have made you the debtor pay back interest for the past many years and now they get a legal shot at being able to take all your equity you thought you were accumulating off you as well, so infact they get to keep all the money you ever paid them and keep ownership of the property itself. And so the banks are left with all the money, all the property and the ability to whip the average man back into work (to start the cycle again).

You talk of money as if it is actually something "important", sure its important to you as for your whole life you'd had it drilled into you that it is what makes the world go round. But for a bank money itself really is just paper and there is more where that came from, when they need to burn it they will burn it, when they need to manufacture it they will manufacture it, the real asset to the bank is the legal mechanism of what money makes people do. A means to forcing people into work and to further its own purpose.

So sure the propaganda machine of the banks will make the general public believe they got a "shafted" too; since thats an easy pill for the public to swallow based on their limited understanding of the perception of money. This will allow the bank to futher their own motives whilst in this position when public sentiment is on their side but in reality the banks will have increased their share of wealth in the world; I would not call that a shafting.

Whether or not they are directly liable, they will pay a heavy price if the loans go pear shaped. They will face massive law suits, they will lose a lot of business.

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A bank will only go bankrupt if they need to pay out and don't have enough money coming in from people to whom they have lent money. They can pay their creditors off with money which should be paid back to the central bank. They do this by adjusting their reserve.

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LOL I just picked up on this thread.

Never forget it is your soverign government which grants all banking the power of the currency and the license to be a bank within the territory. This means that a government has the power to seize all goods and assets of a bank that exist within the terrerory, this would allow re-appropiation of them should the power of the people (the mob) demand it.

My own views are that government should at the very least take a mandatory share holding (exact % TBC but in the realm of 5 to 25%) in any bank that operates using its currency or within its territory. This means the government takes a dividend from all banking, this would also presume that a government stops taking loans from the bank. This would also presume a large chunk of debt-free-money exists within the system, I'm not advocating to abolish debt-based-money just have 2 classes of money with legal standing. This would shift the power of currency and banking back into an accountable elected process, such that the government never has a controling interest in any one bank but maintains the right to create law when necessary (which can undermine any unilateral moves by all controling interests over all banks) this emphasyses all possible scenarios that are a win-win for all vested interests and that no one group (private enteprise vs the people) is able to dictate.

The endgame is to maximize stability over maximize profits. Maybe this statement is a pretty uptopian outlook.

Maybe one possible way of moving into this gradually would be to enforce FRB reserve allowances whilst allowing falling IRs during the next IRs downward cycle, you'd need to counteract the problem that this makes a bank lend to what they preceive as a good bet first; so some loans might be relatively riskyer but help achieve the "maximize stablity" goal, so a suitable penalty metrics needs to be applied to debase profit to stay on track for stablity.

The gradual introduction of debt-free-money system for long term / lifetime personal investment but in limited supply for non-personal investment, the point here is that business should exist in the volatile here and now but should not be able to transfer most of their wealth into trying to conquering the world.

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Am I the only person here who, although of reasonable intellegence, hasn't got a bloody clue what any of this is about?

And thats is just where the banking system likes you to be. [if you were refering to the Original Post]

One of the concepts explained (when reading between the lines) in the original posting was this: (All of these figure are illustrative and completely ficticious, I'm sure the mortgage advisers on the forum could correct the numbers to make a 100% realistic example of this, but as I say its just illustrative.)

1) A person took out a repayment mortagage (say £210k) on a property valued at £260k at time of sale, so the person is putting down £50k equity.

2) That person then pays off the agreed amount each month over the first 5 years.

3) At year 5 the person loosed their job, this is due to a recession and is unable to find another to allow him to continue meeting his mortgage obligation.

4) Bank forclose on him and reposess. Bank can only get £175k for the property now. The capital amount left is due was £185K.

5) So the bank ends up taking the original £50k equity and the first 5 years worth of interest and capital repayments off the person.

6) The person still owe the bank £10k. So now for all his efforts on the treadmill he has lost everything. The treadmill was not only the 5 years when he had his last mortgage but also the years it would have taken him to accumulate the original £50k equity in the first place.

So what is it all for ?

The next scenario is that that the person put away £75 a month while he was employed into a pension fund. But this pension fund has a considerable share of mortgaged based inverstment. This is because the bank gave the man a mortgage then resold his mortgage back to his own pension fund. So now when the man retires due to reduction in profit forcast the man will have a considerably lower payout to retire on.

In all of the above scenario the banks were able to extract massive amount of profit from the sitaution and have fed the shit back to the man and taken a commission from him for doing so. The poor man will always get the wrong end of the financial deal because the system that allows this to take place is not designed to look after him but to maximise profits for the bank.

At the end of it all the bank didn't actually loose as they have possession of property and money and everything and the man is left with nothing but a small debt to force him back into the system to work. Its then in the bank interests to restart the machine again from the vantage point of having a bigger chunk of the world wealth pie by loaning out to the man the perception that he might one day own his own asset(s) to do the same thing, but for now the bank loans/hires out the assets and keeps taxing the man.

So then my last post was really a comment on how could you move away from this systemic sitiuation and the crux of that is political and elected basis of reform and how those reforms would still keep capitalist momentum (advancement in technology and such...) but neutralize some of the capitalist demons. Most is unproved debatable theory but at least a basis or something different but potentially palletable. IMHO

Edited by Odin

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Free market capitalist banks would be very different to what we have today.

Yes. It would look more like the US 200 years ago. Gold and silver, and a few banks who give out gold and silver

receipts and that are controlled by the threat of bank runs.

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worth debating on a separate thread? So what they lose billions/trillions, that's a good thing if they need to destruct some over inflated currency surely? Hardly gonna cause symstemic failure and meltdown is it? <_< I realise I'm being overly simplistic...

http://www.housepricecrash.co.uk/forum/ind...30&start=30

Not at all, its all Fractional Reserve Borrowing. Sure their profit projections may be reduced, they may even take a hit and declare a loss for a year or two, but lets not forget they have been making (not projecting to make) record profits over these past ump-teen years. They have sold CDOs back to the market and reduced their exposure-to-risk to near zero.

They will be able to look back over history and say "Wow what a great period we had, our share of wealth in the world just grew and grew and the poor bastards that made us wealthy are left with nothing, to bad they didn't understand the game, BANK ALWAYS WINS!". The banks have made you the debtor pay back interest for the past many years and now they get a legal shot at being able to take all your equity you thought you were accumulating off you as well, so infact they get to keep all the money you ever paid them and keep ownership of the property itself. And so the banks are left with all the money, all the property and the ability to whip the average man back into work (to start the cycle again).

You talk of money as if it is actually something "important", sure its important to you as for your whole life you'd had it drilled into you that it is what makes the world go round. But for a bank money itself really is just paper and there is more where that came from, when they need to burn it they will burn it, when they need to manufacture it they will manufacture it, the real asset to the bank is the legal mechanism of what money makes people do. A means to forcing people into work and to further its own purpose.

So sure the propaganda machine of the banks will make the general public believe they got a "shafted" too; since thats an easy pill for the public to swallow based on their limited understanding of the perception of money. This will allow the bank to futher their own motives whilst in this position when public sentiment is on their side but in reality the banks will have increased their share of wealth in the world; I would not call that a shafting.

This is an excellent post :) and why I've decided to put a bit of my savings into gold just to see if the gold bugs might be on to something - it's made in the core bounce of a supernova and the banks can't mess with it :)

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Whether or not they are directly liable, they will pay a heavy price if the loans go pear shaped. They will face massive law suits, they will lose a lot of business.

do you have any grounding or experience in the financial sector to back up this claim?

from my decade or so working in IT dev in banking and insurance HOs and picking up the gossip/meeting the personalities, I reckon it's different:

most of them won't be critically harmed, it all being down to relative competitiveness, legal wording in their favour, good legal departments, and having a spread of business areas to make profits elsewhere, and they've ALL exposed themselves, but some of the smaller ones will have problems (small current and ex-building socs that have no other main line of business apart from mortgages). In fact I feel that the mortgage credit market will whittle down thru loss-forced mergers to ten or so mortgage companies (perhaps with many more brands) getting rid of all of the frankly old-fashioned small mortgage companies. It will also allow entrance of more foreign banks into UK high street banking.

the insurance industry went similarly pear-shaped 7 years ago - RSA and NU lost a lot but stayed ok, Equitable went t*ts up. And there's only about four or five major insurance companies left now after all the mergers etc - working under several brand names and underwriting again under several brand names. Remember Commercial Union? General Accident? Scottish Amicable? All gone....

finally: this is not some sort of engineered mess, senior people working in high street banking aren't that clever - 'Never ascribe to malice that which is adequately explained by incompetence' - Napoleon Bonaparte

Edited by Si1

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And thats is just where the banking system likes you to be. [if you were refering to the Original Post]

One of the concepts explained (when reading between the lines) in the original posting was this: (All of these figure are illustrative and completely ficticious, I'm sure the mortgage advisers on the forum could correct the numbers to make a 100% realistic example of this, but as I say its just illustrative.)

1) A person took out a repayment mortagage (say £210k) on a property valued at £260k at time of sale, so the person is putting down £50k equity.

2) That person then pays off the agreed amount each month over the first 5 years.

3) At year 5 the person loosed their job, this is due to a recession and is unable to find another to allow him to continue meeting his mortgage obligation.

4) Bank forclose on him and reposess. Bank can only get £175k for the property now. The capital amount left is due was £185K.

5) So the bank ends up taking the original £50k equity and the first 5 years worth of interest and capital repayments off the person.

6) The person still owe the bank £10k. So now for all his efforts on the treadmill he has lost everything. The treadmill was not only the 5 years when he had his last mortgage but also the years it would have taken him to accumulate the original £50k equity in the first place.

So what is it all for ?

The next scenario is that that the person put away £75 a month while he was employed into a pension fund. But this pension fund has a considerable share of mortgaged based inverstment. This is because the bank gave the man a mortgage then resold his mortgage back to his own pension fund. So now when the man retires due to reduction in profit forcast the man will have a considerably lower payout to retire on.

In all of the above scenario the banks were able to extract massive amount of profit from the sitaution and have fed the shit back to the man and taken a commission from him for doing so. The poor man will always get the wrong end of the financial deal because the system that allows this to take place is not designed to look after him but to maximise profits for the bank.

At the end of it all the bank didn't actually loose as they have possession of property and money and everything and the man is left with nothing but a small debt to force him back into the system to work. Its then in the bank interests to restart the machine again from the vantage point of having a bigger chunk of the world wealth pie by loaning out to the man the perception that he might one day own his own asset(s) to do the same thing, but for now the bank loans/hires out the assets and keeps taxing the man.

So then my last post was really a comment on how could you move away from this systemic sitiuation and the crux of that is political and elected basis of reform and how those reforms would still keep capitalist momentum (advancement in technology and such...) but neutralize some of the capitalist demons. Most is unproved debatable theory but at least a basis or something different but potentially palletable. IMHO

thats incorrect.

if the outstanding loan is 185k and the property is sold for 175k , the bank has lost 10k. the 50k deposit was given to the seller, but this has got nothing to do with the bank.

banks are not money creating machines as everyone makes out. they are merely brokers between the capital markets and the public. when a bank loans you £100,000 they themselves need to go to the capital markets to borrow this money in order to lend it to you for your mortage.

the curent BOE interest rate/LIBOR is 5.75%. this means that it costs the bank 5.75% to borrow that money to loan out to you, at a rate of say 6.5% for your mortgage, so the interest rate they are earning themselves is not exactly astronomical given the fact that they must bear the risk of default of the loan.

Edited by mfp123

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thats incorrect.

if the outstanding loan is 185k and the property is sold for 175k , the bank has lost 10k. the 50k deposit was given to the seller, but this has got nothing to do with the bank.

banks are not money creating machines as everyone makes out. they are merely brokers between the capital markets and the public. when a bank loans you £100,000 they themselves need to go to the capital markets to borrow this money in order to lend it to you for your mortage.

the curent BOE interest rate/LIBOR is 5.75%. this means that it costs the bank 5.75% to borrow that money to loan out to you, at a rate of say 6.5% for your mortgage, so the interest rate they are earning themselves is not exactly astronomical given the fact that they must bear the risk of default of the loan.

so far as I know the bank will quite happily chase you for the rest of your life for the 10k. they do not bear the risk.

and the libor rates don't directly affect the rate that the bank borrows at - it's only by arbitrage that they do.

the bank will try to get as competitive a deal as it can issuing it's own bonds to finance mortgages, even on international markets.

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so far as I know the bank will quite happily chase you for the rest of your life for the 10k. they do not bear the risk.

and the libor rates don't directly affect the rate that the bank borrows at - it's only by arbitrage that they do.

the bank will try to get as competitive a deal as it can issuing it's own bonds to finance mortgages, even on international markets.

of course they bear the risk. its no different from a business loan,credit card loan, overdraft. if you fail to pay back the money they lose this money from their overall profits.

its also the same as me lending you money. if you dont pay me back i lose my money. the reason why banks are prepared to lend such high amounts on a mortgage is that it is a secured loan, therefore they have a good chance of getting most of their money back if you default.

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Guest Cletus VanDamme
What about a reversion to mean

Which mean are we talking about here, over what time period?

Reversion to mean could well mean reversion to feudalism.

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of course they bear the risk. its no different from a business loan,credit card loan, overdraft. if you fail to pay back the money they lose this money from their overall profits.

its also the same as me lending you money. if you dont pay me back i lose my money. the reason why banks are prepared to lend such high amounts on a mortgage is that it is a secured loan, therefore they have a good chance of getting most of their money back if you default.

in so far as if they just can't get the money out of you, ie you go bankrupt, die or leave the country, they bear the risk. But the legalese behind the loan agreements (as with credit cards, overdrafts etc) means the loanee/mortgagee is the primary holder of the risk unless one of the legal (as just mentioned default situations occurs)

ergo, in most cases, they will chase you until you die for the money, at their discretion (it may be cheaper for them to write it off, but you have no say in the matter)

------

edit: don't get me wrong, they still lose out compared to if people didn't default in the first place, from the capital loss as well as the costs of chasing it up, and have to retract easy credit as a result - a proportion of defaulted mortgages do genuinely end up with the mortgage bank having to write off significant chunks of money, but they get most of it back, they have made sure of that, even to the extent of influencing legislation to allow them to do so (there used to be a 10 year limit on how long they could chase you for but that got overruled in the late 90s I believe by pressure from the BBA when one of the big banks still managed to sue someone succesfully after they were reposessed in the late 80s)

Edited by Si1

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thats incorrect.

if the outstanding loan is 185k and the property is sold for 175k , the bank has lost 10k. the 50k deposit was given to the seller, but this has got nothing to do with the bank.

Okay agreed, in my haste to post an explaination to the board member that asked I incorrectly attributed the 50k for the banks keeping.

But the net message of my post does not change i.e. "the chap taking out the mortgage lost his 50k".

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according to the fsa there is still a 5 year limit on how long lenders can hold you liable for (although this does seem to go against the news stories I've read):

http://www.moneymadeclear.fsa.gov.uk/pdfs/...age_cantpay.pdf

Often, empty

properties sell for less than their market value.

This could mean that your mortgage is not

repaid in full and the lender may still pursue

you for any outstanding balance – they can

do this for up to six years after the sale (five

years in Scotland).

but there's still an industry dealing with this stuff:

http://www.ibas.co.uk/IBAS%20Mortgage%20Sh...0Resolution.htm

...Hazel Blundell called IBAS when she was in communication with an agent acting for Halifax claiming a £27,000 shortfall. She wanted to know if the settlement of £7,500 ‘without disclosure’ offered to her was reasonable and also if Halifax ‘would really go to the bother of litigation’ which they threatened. We offered her membership to allow us to fully assess her exposure to the claim but unfortunately she felt it was "not worth the bother of spending £195 or sending us the information" at that time as she though the Halifax were "bluffing".

Seven months later she called us again, this time in a state of panic. She had been served with a Claim Form some weeks previously and filed a defence based on irrelevant issues following advice provided on the internet which led Halifax to immediately apply for a Set Aside of her defence. Halifax were successful and at the Case Management Meeting also obtained Summary Judgment for a debt of £42,670 and within a further month obtained a Charging Order against the home she owned with her new husband.

...Rita and Ronald Woods had been under increasing pressure from Drydens acting for Bradford & Bingley for some years, for a £41,000 shortfall following repossession in 1995. The Woods ignored the letters from Drydens and resisted completing the financial declarations. They believed that in doing so, time would fall on their side and limitation would expire. However, B & B had initially written to them within a year of the sale, thus complying with the legal requirements.

Some years later they were shocked to receive a letter stating B & B had carried out standard searches and discovered they had a new home with substantial equity which was adequate to cover the full Mortgage Shortfall Debt claimed. Drydens advised that they were instructed to initiate proceedings without further delay with a view to taking a Charge over the new property.

......As a solicitor, Mark Keating used his knowledge of the law to hold Alliance and Leicester at bay for some years. However, despite arguing an under-sale, excessive fees and inadequate valuations, the best deal he could negotiate was a settlement of 50% of his £27,000 shortfall debt, a figure he was prepared to accept as reasonable. Fully committed on his current mortgage, he could not raise this level of funds. But, he was acutely aware that if he did not settle quickly, as his new home offered equity it was in danger of repossession to satisfy the old mortgage shortfall debt claimed.

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thats incorrect.

if the outstanding loan is 185k and the property is sold for 175k , the bank has lost 10k. the 50k deposit was given to the seller, but this has got nothing to do with the bank.

banks are not money creating machines as everyone makes out. they are merely brokers between the capital markets and the public. when a bank loans you £100,000 they themselves need to go to the capital markets to borrow this money in order to lend it to you for your mortage.

the curent BOE interest rate/LIBOR is 5.75%. this means that it costs the bank 5.75% to borrow that money to loan out to you, at a rate of say 6.5% for your mortgage, so the interest rate they are earning themselves is not exactly astronomical given the fact that they must bear the risk of default of the loan.

It really is as simple as that

LTV will become more important if the direction of house prices reverts downward.

In general the banks are on a very good thing and are highly likely to continue profiting even if prices do fall in real terms. They need to fall in nominal terms, plus below the LTV value before the banks are at risk of lossing anything.

Apart from the real mavericks, giving over 100% mortgages out willy nilly, and lending to all and sundry with products with very marginal profitability, most will be safe from the initial downturn. Their profits will be down as there will be no new business but what equity left will be theirs.

The problems for many banks will be after the initial fall where prices continue to fall where lending would be a definate poor investment. It will be necessary in this case for some banks to go to the wall to protect others. Would some of the larger financial concerns consider sacrificing a subsidery or two to help their overall survival?

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