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Ponzi Schemes And Monopoly Money

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I seem to have started a little sub-business with people coming to ask advice on housing and the markets - I'm no longer the mad Cassandra in the corner. Three people have definitely pulled out of buying houses and one more on the edge after hearing the alternative point of view.

What struck me as the most fundamental misunderstanding is the requirement for new money to fund a Ponzi scheme and in this particular case for the money to be of the Monopoly variety rather than..... okay cue the jokes about BoE, Sterling, promissory notes etc.... real hard earned cash.

It is the one fact that really brings people down to earth when explained.

We might have to acknowledge this as being a rare hybrid pyramid-ponzi with homeowners and buyers taking part as well as the people running the scam. But call it what you will people seem to believe it is the arrival of all these foreigners or something else driving up demand and hence prices. I.e. it is something fundamental in the market driving up the fundamental value of a house rather than wave after wave of new monopoly money arriving in the market driving prices up and leaving the fundamental value untouched. Not to mention the existing players (homeowners) willingly accepting large chunks of this monopoly money and treating it as real, new wealth.

My simple formula to explain - the new money coming into the market (until very recently) has been effectively been virtual:

  • 100% + mortgage = no real money down
  • huge arrangement fee added to your mortgage = no real money down
  • MEW against artificially inflated valuation = no real money down
  • Equity released from sale and sunk into new purchase = no real money down
  • Stamp duty paid by one of the above = no real money down
  • EA fees paid by one of the above = no real money down

Remind people of monopoly, just turn over your card, read off the number and there's your mortgage and you collect some money from the bank. This is like the new came with magic ink - every time you pass GO wipe off the old number and replace with a bigger one :lol:

Show people the BSA lending figures, decline in 100%+ mortgages and the slash in credit card limits and they say "so what" explain that this means people will need to find huge wads of real money in their bank accounts and back these up with real payslips and real credit card statements........

"Demand" suddenly swings from those prepared to sign a self cert letter of optimistic (!) earnings to those who can sign a £20,000 cheque from their own bank accounts and produce supporting documentation - and this is the difference that will bring it all crashing down.....

For those who need evidence I have the adverts from Metro saying how you can buy a new £240,000 house as long as you have a household income of £32,000!!!!!! (okay you can buy 25% and rent the rest if you read the small print).

Oh must go - customer approaching (my only charge - a beer if my advice proves sound - here's hoping for a lot of drinks before Christmas)

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