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Catch22

The Biggest World Wide Property Bubble In History

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OK, forget the argument as to what is or is not Sub Prime, for now, lets just go with the definition as outlined in the Press. It's some dodgy loans on property in the US.

Now step back from the miles and miles of news print devoted to these dodgy loans, mostly dealt out in California and Florida, and THINK FOR ONE MINUTE

The whole of the worlds banking system near collapse, needing the US Federal Reserve Bank, the Bank Of England, and the European Central Bank, amongst others to pump billions up on billions of USD, GBP, and Euros into the system. On the back of US Sub Prime as defined in the press.....go on your having a larrrrrrrrrrrf.

The problem is there for all to see, THE BIGGEST WORLD WIDE PROPERTY BUBBLE IN HISTORY is in danger of bringing the global financial system down. And they have no idea how to stop it happening.

I know how about flooding the market with abundant cheap credit ....................Right, so we are going to solve this problem with the very same policy that got us into the problem in the first place. Sounds like the plot line for The Simpsons Movie sequel: Homer Saves The World Banking System.

I feel the World Banking System is in need of an enema, meaning standing near fans could be very hazardous at some stage in the future

Edited by Catch22

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The problem is there for all to see, THE BIGGEST WORLD WIDE PROPERTY BUBBLE IN HISTORY is in danger of bringing the global financial system down. And they have no idea how to stop it happening.

I know how about flooding the market with abundant cheap credit ....................Right, so we are going to solve this problem with the very same policy that got us into the problem in the first place. Sounds like the plot line for The Simpsons Movie sequel: Homer Saves The World Banking System.

It is comical. They only have one plan and it isnt working anymore. There must be some confused faces just now wondering why pumping more money into the system isnt working like it usually does. DOH!

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Politicians and CBs knew it was happening.

They knew it would end in tears.

So why did they let it happen?

Because there are not actually any conviction politicians out there, despite what they claim.

Politicians generally take the path that is likely to win them more votes than it loses. Had they acted to stop HPI they would have been accused of depriving people of the profits they were due so they let it run.

The only bit of conviction politics I can remember recently has been Tony Blair's determination to go to war in Iraq. Bit strange that this should be the one issue he was prepared to go against public opinion on.

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http://search.japantimes.co.jp/cgi-bin/eo20070920a1.html

Worldwide bubble trouble

By ROBERT J. SHILLER

The U.S. Federal Reserve is sometimes blamed for the current mortgage crisis, because excessively loose monetary policy allegedly fueled the price boom that preceded it. Indeed, the real (inflation-corrected) federal funds rate was negative for 31 months, from October 2002 to April 2005. The only precedent for this since 1950 was the 37-month period from September 1974 to September 1977, which launched the worst inflation the U.S. has seen in the last century. What then helped produce a boom in consumer prices now contributed to a boom in home prices.

But loose monetary policy is not the whole story. The unusually low real funds rate came after the U.S. housing boom was already well under way. According to the Standard & Poor's/Case-Shiller U.S. National Home Price Index, home prices were already rising at almost 10 percent a year in 2000 — a time when the Fed was raising the federal funds rate, which peaked at 6.5 percent. The rapid increase thus appears to be mostly the result of speculative momentum that occurred before the interest-rate cuts.

Alan Greenspan, the former Fed chairman, recently said that he now believes that speculative bubbles are important driving forces in our economy, but that, at the same time, the world's monetary authorities cannot control bubbles. He is mostly right: the best thing that monetary authorities could have done, given their other priorities and concerns, is to lean against the real estate bubble, not stop it from inflating.

The current decline in home prices is associated just as clearly with waning speculative enthusiasm among investors, which is likewise largely unrelated to monetary policy. The world's monetary authorities will have trouble stopping this decline, and much of the attendant problems, just as they would have had trouble stopping the ascent that preceded it.

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http://knowledge.wharton.upenn.edu/article...?articleid=1812

A Global Tour of Mortgage Lending

Worldwide, the trend has been to move away from government control of mortgage lending and toward various systems of financing through the capital markets, Wachter and Green say.

Prior to the 1980s, for example, mortgages in the United Kingdom were provided through heavily regulated "building societies" which drew on depositors' savings and offered mortgages at below-market interest rates, shielding the mortgage market from changes in market rates. That changed with the Building Society Act of 1986, which leveled the playing field between the building societies and commercial banks. By 2000, building societies provided only 15% of mortgages, down from 70% in 1980.

Many other European countries opened their mortgage markets to competition in similar ways during the 1980s. "From heavily regulated and rationed systems, modern housing finance emerged with funding increasingly supplied through market-oriented commercial banks...," Wachter and Green write. "The result has been an explosion of mortgage growth throughout Europe...."

Falling interest rates contributed to the boom in mortgage lending by making homes more affordable. From 1980 through 2004, the average prime interest rate for 13 industrialized countries fell from 15% to 4.4%, Wachter and Green say. Low interest rates also allow people to borrow more, allowing them to bid up home prices.

Wachter and Green

http://www.kansascityfed.org/publicat/symp...terandGreen.pdf

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