Monday, February 23, 2009

Pointless? Futile? Wealth Extraction!

Northern Rock plans new mortgage lending-UK Treasury

LONDON, Feb 22 (Reuters) - Britain's state-owned Northern Rock bank plans to increase its mortgage lending by up to 14 billion pounds over the next two years, a Treasury official said on Sunday. The plan to get Northern Rock lending again is part of a series of initiatives expected this week designed to get credit in Britain flowing again after the economy shrank by 1.5 percent in the last three months of 2008. "The government is implementing a new business strategy for Northern Rock that will see it make a significant return to the mortgage market," the official said.

Posted by troy @ 07:25 AM (2960 views)
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71 thoughts on “Pointless? Futile? Wealth Extraction!

  • I think maybe the words sad, pathetic, and hopeless are also up there on the list.
    Is the best way out of a hole to dig a tunnel? It’s hard to tell how much of this is just talk anyway – and will they get through the EU courts?

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  • The £5 billion they are talking about this year is an insignificant amount. In 2007 mortgage lending amounted to £363.8 billion. The Northern Rock lending terms will inevitable be much stricter than in 2007, so the effect of this initiative will be a very small pick up in sales volume and a continuation in price falls. I think it’s quite good that the government is making some money available to a few ‘quality’ home buyers. Not everyone is an evil BTLer. Some people just want an extra room for the new baby

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  • Eternal Sceptic says:

    Roll up, rollup. buy yourself some negative equity.Guvmint attempt to arrest the fall of house prices when the entire system is busted in every sense of the word.

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  • This is my take on the numbers, feeI free to correct my calcs.

    I think just to get this (yet another labour headline into perspective).

    £14 billion / £100,000 ave mortgage = 140,000 mortgages

    This is to be filtered in over 2 years.

    140,000 / 24 = 5833 mortgages per month.

    At an all time low of about 30,000 mortgages per month this is an increase but not a huge one.

    The terms of these loans have yet to be released.

    I suspect they will be 75% LTV unless Brown can force it higher.

    And we don’t know at what interest rate level these loans will be offered either.

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  • str 2007: nothing wrong with your figures but there will also be additional lending by banks who wish to retain market share. The Northern Rock interest rate will have to be on the high side of normal because they will not be allowed to gain an unfair advantage. Who accepts a mortgage on a higher than average rate. Answer: people who can’t get a mortgage elsewhere. Sadly these are exactly the people who the northern Rock underwriters avoid (can you imagine the fall out if they take on sub bar borrowers). Not very well thought out is it?

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  • Is £100000 the average mortgage ? That would mean a HUGE deposit wouldn’t it? You can’t buy an average 3 bed family home in Poole for much under £230000. But surely the POINT of Mr Browns current actions is to get ALL LENDERS lending again, to get competitive, isn’t it? But can the UK afford it? I have already posted on the other blog re Northern Rock, but surely the UK / nay the world , cannot afford to support the current inflated house prices in the UK, isn’t that how we got in this trouble, because people needed to borrow 120% LTV and 7 times their income to afford current prices. So how can Mr Brown announce this 24 hours after saying he wanted to see a return to old fashioned lending, and speaking of sensible lending? BOE on Friday said mortgage lending MUST be capped and Mr Brown and the BOE said yesterday no more huge ratios to earnings. If this means lending at 4 x’s income or less then the figures speak for themselves don’t they? Take a look at this link: http://blogs.thisismoney.co.uk/this_is_money_blog/2009/02/why-house-prices-may-fall-another-38.html . I am sure this has been posted here before.

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  • Bob1

    Nice addition to my post. Makes you wonder what may go on behind the scenes to ‘get the money out there’.

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  • 4. str 2007….

    Maybe the government are expecting repossessions at a rate of 70k per year and will allow these people to remortgage with them, good vote winner – no repossessions

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  • If they have £14 billion loaned to them, Malct et al might suggest they could lend out substantially more on fractional reserve principles.

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  • matt the hat

    Another good point.

    My thoughts were that Government money should be going in the direction of supporting those in negative equity (not hand outs, just monies available to keep afloat). Whilst we go through the process of a huge devauluation of property.

    I almost expected a ‘government dept.’ to be set up to deal with this and lend the funds directly.
    Instead they’ve dropped interest rates through the floor to help negate the requirement and then pushed the funding out through Northern Rock.

    It’ll be interesting to see the terms of these mortgages when they become available as that should give an indication as to who/what they are for.

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  • Lending should be a commercial activity. Borrowing is not a human right.

    Debt should be tied to future productive capacity, not the value of assets bought through debt.

    Interest rates should be the fair price of money, not what people generally “want” it to be.

    Brown should be hanging from a lampost on Threadneedle as an example to those who wish to commit acts of treason against the British currency.

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  • I don’t see any difference now between Brown’s Labour and Labour of the 70’s, propping up failed business models.

    State intervention always fails, no matter how beautiful the theory or motives behind it.

    Fighting the sudden shock of collapse will only see it substituted by a long, slow water torture of inflation on the one hand or decade of stagnation on the other, as the Japanese have seen.

    “We will learn an enormous amount in the short term, quite a lot in the medium term, and absolutely nothing in the long term. That would be the precedent.” — Jeremy Grantham

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  • I don’t see any difference now between Brown’s Labour and Labour of the 70’s, propping up failed business models.

    State intervention always fails, no matter how beautiful the theory or motives behind it.

    Fighting the sudden shock of collapse will only see it substituted by a long, slow water torture of inflation on the one hand or decade of stagnation on the other, as the Japanese have seen.

    “We will learn an enormous amount in the short term, quite a lot in the medium term, and absolutely nothing in the long term. That would be the precedent.” — Jeremy Grantham

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  • Yup the proposal is pretty lame. I see Nouriel Roubini who in fairness was prescient about events and their roots in excessive debt leverage is suggesting unless we get down to some proper global QE then we are really and truly fcked.

    I have literally no idea what this would involve but he is suggesting that howevrer flawed the system a total purge as preferred by many here would be a disaster.

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  • I think Matt @7 has hit the nail on the head.

    However, I think that people will look at it as “aren’t the government good, they’re helping out cash-strapped homeowners to avoid repo”, but in future it will be regarded as “That nasty government who kept piling on debt to those who could least afford it to keep them in houses that fell in value by 50% rather than letting them get out at the top”.

    Short termism all over.

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  • mark wadsworth says:

    @ STR, please add to your list that the house price bubble is deflating at the rate of £1 billion or £2 billion each and every day.

    @ Bob1, first comment, good points, second comment, I don’t get this bit “there will also be additional lending by banks who wish to retain market share” – I could just as well argue that other banks will see this as a golden opportunity to rid themselves of risker borrowers.

    @ p doff, wrong. Banks can only lend out as much as they take in, otherwise their balance sheets wouldn’t balance. Whether they take this in as share capital or as loans or as deposits is a different topic. All that FRB means is that out of their total finance, only a small part has to be share capital. Admittedly, a low FRB ratio makes credit bubbles easier, but it is not the only cause.

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  • jackas – ‘Borrowing is not a human right’. I would say that’s debatable given that our economy runs on debt and that a healthy economy is currently required for most to maintain any standard of living. Of course it’s fundamentally ridiculous, but that’s the reality and it would require a complete change of our economic system to be otherwise, would it not?
    Unless we were prepared to undergo a depression to contract our capacity and expectations, that will continue to be the case.

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  • str2007

    It’s widely reported that the rock will be offering 90% deals. This also suggest that they will be targeting FTBs. How many of those 30000 mortgages are to FTBs ? Even if it’s one-in-three (10000) an extra 5000 per month will be very significant. Other government-owned banks are likely to follow suit too.

    It’s also significant that this is new money – created money. If there is more money in the economy, but the same amount of goods and services there will be inflation. The government is as worried about inflation as it is about the value of the pound.

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  • jackas – I agree with the first three points, although future productive capacity is not easy to forecast so I’d appreciate some further details there, as for the last I think we can lay the true blame elsewhere, although Brown should be punished – he is a politician who had little foresight and failed to listen to advisers who warned him of the perils of the course being taken.

    The market needs to be totally freed from the whim of all these politicians, the worst of the mess would have been avoided if the common knowledge was that there was no backstop for the system.

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  • just a quick friendly warning to all re banks and ATMs and theft.

    My daughter had £300 taken out of her account yesterday (sunday) from an ATM in a country town in Wiltshire.

    Neither her nor her card were anywhere near at the time.

    The bank says it’s getting worse and blamed the credit crunch and heroin

    Back on topic, even Vince Cable said it was a good idea (NR issuing mortgages) on BBC this morning.

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  • mark w just caught a glimpse of your response to p.doff

    In recent years there has effectively been NO frb ratio according to various sources.

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  • Obviously it is motiviated by some pretty misguided socialist ideas, but exactly where is the money going to come from?

    Or are we beginning to see the birth of what Jim Rodgers has called ‘a holocaust of inflation’?

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  • If you can’t remove a bad smell you cover it up with a stronger smell. It seems House price inflation cannot be reversed so ordinary inflation is needed to bring prices (and, more importantly, the corresponding debts) back in line with incomes. But inflation is like fire – it’s easy to start but difficult to stop.

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  • 14. mark wadsworth said…”Banks can only lend out as much as they take in, otherwise their balance sheets wouldn’t balance”.

    But, but, but ……… Malct et al told us all that money borrowed from bank A would eventually be deposited in bank B, who would then lend out a fraction of that money to new borrowers, who would repeat the cycle. So the £14 billion loaned to Northern Rock would be multiplied substantially, resulting in much more money being injected into the economy. We’ve consistently been told that banks create the money they lend to us out of thin air, …and then peskily don’t create the interest.

    Don’t ask me, …….. I’m just trying to stir things up, as usual.

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  • hpwatcher: hyperinflation is almost impossible. Deleveraging will continue for the foreseeable future. QE is only intended to temper the effects of deleveraging (i.e. it can only hope to replace only some of the money that is being destroyed). The government(s) are painfully aware that the vast bond issuances they will undertake for the next few years will result in much higher yields. Did you see Hilary pleading with the Chinese to buy bonds? These higher yields (interest rates) will curtail inflation very effectively. I see signs of stirring in the bond markets already.

    I can’t wait for this bank and mortgage bailout nonsense to become old news. It is masking the main event, which a post credit crunch world of much higher interest rates and taxes. There will be no chance of inflation or house price rises in this environment

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  • hpwatcher: hyperinflation is almost impossible. Deleveraging will continue for the foreseeable future. QE is only intended to temper the effects of deleveraging (i.e. it can only hope to replace only some of the money that is being destroyed). The government(s) are painfully aware that the vast bond issuances they will undertake for the next few years will result in much higher yields. Did you see Hilary pleading with the Chinese to buy bonds? These higher yields (interest rates) will curtail inflation very effectively. I see signs of stirring in the bond markets already.

    I can’t wait for this bank and mortgage bailout nonsense to become old news. It is masking the main event, which a post credit crunch world of much higher interest rates and taxes. There will be no chance of inflation or house price rises in this environment

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  • 51ck,

    The bank manger used to ask you about your future productive capacity before lending you money. It’s a bit old school I know, but old school is usually a good school.

    Money should represent the present value of productive activity (labour mainly), whether its savings (past labour) or borrowings (future labour). By disconnecting this important relationship with the future, you have corrupted this important relationship with the past. It means anyone with savings is being “crowded out” of the asset purchasing market by people who have been allocated capital for inefficient reasons. In short, it means a bastardisation of our currency as a store of value.

    Shipbuilder,

    you should open up a mortgage lending business and try and get funding from charities. “Borrowers in need”, “Red Bills Day” etc etc

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  • tyrellcorporation says:

    What worries me is that the Government recently (last week I think) passed new legislation which allows them to be LESS transparent with bank bailouts and financing. Coupled with the news that QE will start very soon, I see a distinct possibility that through new secret conduits and schemes GB will start to print money to lend directly as new and cheap credit. Mugabenomics at it’s best from Mr Brown but unfortunately this man is utterly desperate and will now do ANYTHING to get a mandate.

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  • Troy – Re off topic ATM / CC warning

    sounds like slander to me ;p (I take it she is not a heroin user)
    …but seriously – to take money from an ATM – (with a cloned card or not OR with the card @ a chip & pin terminal) the criminals would have needed the PIN, so they, more than likely, copied her details from another transaction – which would involve looking at her keying in her pin and swiping her card. This is most easily achieved at an ATM (with a camera & magnetic card reader) or in a restaurant or café.

    I think it is getting easier for this activity – chip & pin is less secure for shop transactions and tiny cameras (which will fit on the inside-top frame of an ATM) are now actually very cheap (miniature CCD’s are now under £100). Credit crunch has nowt to do with it, apart from possibly making some people more desperate (but I really don’t see it pushing many people into serious fraud who wouldn’t be there anyway).

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  • Jackas –

    Yes, indeed
    – the disassociation of credit application from loan management and ownership via the methodology known as securitisation is definitely a big part of the problem to which we have recently been witness.

    However, possibly controversially, I do not believe it is the process of securitisation itself that should be shunned – the thought needs to be pursued a little further in my opinion. Why were there so many buyers for these packages of debt? I think, if one follows the trail, one may well be surprised that the underlying reasons are seemingly the existence of light-touch, well defined, yet poorly managed regulation and implicit state backing.

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  • tyrellcorporation –

    Yep – unfortunately with the proposed methods there is a need for opacity, which may also, of course, be used for covert operations which are not in the interest of the majority. The conspiracy theorist would tell us that the whole thing was engineered by a well connected elite in order to acquire even more power.

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  • 28. 51ck-6-51x(financial engineer) – I do not believe it is the process of securitisation itself that should be shunned…

    Well I can understand a comment like that coming from a banker – 51ck… did you work in the securitisation business or some other part of the casino

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  • p doff – don’t feed the trolls!

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  • matt_the_hatt

    You are entitled to your opinions on the way the system should work but I don’t appreciate the way you always pipe up whenever I suggest anything that may be perceived as promoting free market capitalism. I am not involved in securitisation and am not a banker (and was not at any time in the past)*. Please take a leaf out of some of the other blogger’s books and write about your opinions in a logical manner rather than jumping on people’s backs when you do not agree with their statements – thanks.

    * mind you, I would not lay the blame there either! Remember they were doing what they were allowed to do in an attempt to make themselves a better income and that was an activity that was glaringly encouraged by society.

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  • 24. Bob1 wrote ”hpwatcher: hyperinflation is almost impossible. Deleveraging will continue for the foreseeable future…..These higher yields (interest rates) will curtail inflation very effectively. I see signs of stirring in the bond markets already.”

    Any thoughts anybopdy else?

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  • matt the hat: I actually do work in the “casino” as you call it. What are your views on securitisation?

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  • 27. 51ck-6-51x re off topic.

    I’ve never understood why they didn’t just set things up to ask you for 3 of the 4 numbers of your pin when they launched chip and pin – i.e. entry line on the card reader along the lines of “please input the first, second and last digits of your pin: _ _ *_” – it would have been so easy and made all these cameras/peepers useless.

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  • matt,

    Securitisation has been around for decades and has serves a good purpose when used properly. It has only been abused in the wrong way for the last 5-8 years.

    You’re being too harsh on bankers imo – it’s a bit like saying everyone that learns to drive is a murderer because a small minority go on to cause death by driving dangerously.

    Mortgage Backed securities are like baseball bats. People that use them for their correct purpose should not be punished. The people that use the recklessly should be taken out of society.

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  • hpwatcher @ 11.28

    I hope bob1 is right.

    bob1 is probably far more knowledgable than I as to what can or cannot be achieved.

    My common sense head says that inflation has been a serious problem before, here and elsewhere and probably without trying to create it.

    There appears to be a concerted effort to create inflation, infact it is the only way as I see it to reduce debt levels (providing inflation finds its way through to wages).

    As bob1 is saying the battle is indebted countries need cash rich countries to but up debt (government bonds etc) in order to keep functioning and if the indebted countries reduce the value of their currencies too much by printing their way out of trouble then the cash rich countries will refuse to keep buying the debt as it gets repaid with a lower value currency.

    This may be part of the reason the government have put in measures to hide what’s going on.

    In answer to your question my thoughts are confused as the situation to my tiny mind is so interwoven and complicated that a clear answer to me seems difficult to come by.

    The consensus as I see it here is that we will have deflation for another year or so followed by a pick up in inflation.

    How that will transfer itself to house prices I’m not sure. They should fall, but I’m not seeing asking prices in good areas really any lower than they were in 2007 (higher in some cases).

    There still is to that extent a large amount of denial out there.

    Prices are set at the margins and the margins are set by forced sales in this environment. The government are doing what they can to reduce forced sales.

    If we’re only a year away from inflation picking up, can the homeowners hang in there for their 2007 prices ?

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  • Sorry posted on the national association of bankers site by accident – please don’t steal my life’s savings

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  • gardeniadotnet says:

    bob1

    What is the relevance of the figures quoted below to the current financial turmoil?

    The entire derivatives market is very large. Latest estimates point to US$668 trillion (gross) or about 15 times the size of the world economy. Their underlying worth is about US$15 trillion, slightly larger than the US gross domestic product (GDP)

    Source:
    http://biz.thestar.com.my/news/story.asp?file=/2009/2/14/business/3264668&sec=business

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  • come on matt…wouldn’t it be boring if we all agreed?

    as an aside, hardly anyone in the city is actually a banker. I’m not…but I wouldn’t mind stealing your savings anyway

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  • hpwatcher –

    My thoughts are that bob1 is correct for the short term [< 6months] and possibly medium term [< 2 years] (there needs to be a householder deleveraging as well as a financial sector one; and this will inevitably be slower), but the longer term effects of all the state and central bank actions could well be inflationary, but it does seem to be something on which many economists can not really agree. I would err on the side of if* capital reaches general circulation then there is inflationary pressure (remember inflation is a weakening value of money, so the increase in money is not sufficient for inflation, but rather a catalyst). * I use the word 'if' since the capital reaching general circulation is not a necessary effect of QE (although I do agree it most likely would be [jackas!]), since the money could even stay inside the BoE accounts in which it is created, or could stay circulating in the money market or between bank and central bank and not feed out)

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  • Following on from STR2007

    The Halifax index indicated a rise in January – which we all expect to be a blip. However, it would not be a surprise if prices stopped falling in the second half of the year – based on very low volumes. So if those stubborn sellers hold out for another six months or so they will be given a boost which will encourage them to hold out still further. I can’t see anything causing capitulation this year.

    What we will see next is inflation outstripping house price rises – so house prices falling in real terms. Those stubborn sellers may well hold out until inflation catches up.

    This of course makes it very difficult to define ‘the bottom of the market’ or, more importantly, ‘the optimum time to buy’.

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  • I always assumed that the main reason banks were willing to lend outrageous LTV’s was because they knew the debt could be ‘repackaged’ and sold on. And I also assume that the number of willing buyers for this kind of debt is currently somewhere around zero. So on that basis, if a bank lends money, then that money has to be repaid to that bank – otherwise they take the hit. And on that basis, aren’t banks going to return to the old principles of lending, like restricting lending to a multiple of income, and doing proper due diligence on borrowers – like figuring out what the risk of unemployment is, and deciding what is likely to happen to the value of the house being bought? A lot of assumptions I know but I just can’t see how we can move away from the type of financial trading that got us here, AND increase lending – the 2 are mutually exclusive.

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  • gardeniadotnet –
    As I’ve said before I don’t think those notional values have much bearing on the current crisis other than pointing to the sensible route of the use of clearing houses (which in the interest of the financial companies as well as the state). The vast majority (at least $450 trillion) of the notional are on interest rate swaps (this is swapping the streams of cash flows from some contract for another with a counterparty, so the notional is not really a good measure of risk there)

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  • gardeniadotnet

    The answer is not too much relevance. Most derivatives are fairly innocuous because they might be simple hedges against factors that harm a business. An example of this is the airlines using the derivatives market (futures or options mostly) to hedge against fuel spikes. Farmers were amongst the first to use futures to hedge against events that may harm them like heavy surpluses or even crop wipeouts. Farming, as I suspect you know! is a fraught business. The world needs farmers to produce so we can’t risk them going out of business or avoiding producing at all because it’s too risky. Even trading of futures or options etc for pure profit is not particularly harmful because it provides liquidity to the market. It’s no good a farmer taking out a futures contract to protect himself if nobody takes up the other side of the trade. Even the dreaded use of leverage is not particularly harmful because most individuals and companies who trade derivatives have an account that will be margin called before they go into debt.

    The short answer is that only a few areas of the derivative market are dangerous

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  • gardeniadotnet says:

    Cheers 51ck, but your response is over my head (as usual!)

    I’ll post the article separately as an attempt to widen the debate.

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  • Look its quite obvious that many on here are first time buyers waiting for prices to bottom out before swooping for a bargain which is sensible. However I think now is the time to get on the ladder. Yes prices may fall another 10% but coming into the market now means the market is all yours and if you can pick up a repossesion at rock bottom price with nobody else competing with you then you will surely never regret it.
    Prices rose 1.9% in January.
    Estate agents are reporting huge increases in potential buyers now looking for a bargain.
    It is now cheaper to buy than rent in the just about the whole country.
    I bought 6 months ago at a rock bottom price and got my house valued just the other week and I still have aroung 8% before slipping into negative equity. That was 6 months ago.

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  • timmy t –

    I agree with that logic. It’s the fact that there was a market for the repackaged debt where the buyers had no will to perform due diligence on the contents of the products they were buying – it was like a game of pass the parcel where there was a bomb in the middle tied to the paper, but delicious sweets beneath every layer along the way, and most players even knew about the bomb, although not really how many layers were left. The question is why, on top of greed, there was no will – and I think this is mostly due to the implied backing of the system, especially state side (with the aid of Freddy & Fannie, and their smaller siblings). Of course a side effect was also the encouragement of the house prices only go up mantra, which in turn will feed the bubble (but that is an effect IMO).

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  • gardenia –
    Cool. I’ll try to clarify my understanding.

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  • Timmy

    I think you are slightly wrong there. The main reason the banks were willing to lend outrageous LTVs was because they believed houses prices would continue rising at a rapid rate. The LTV would start to look reasonable in a matter of months. Income multiples didn’t matter because they could always get their money back by selling the house.

    Once they had lent out every penny they could they wanted to lend out more money. If you were 100% certain that a horse was going to win a race you might borrow money on your credits cards to back it. It’s not that you borrowed money thinking ‘well – it’s the credit card company’s risk not mine’ – you believed you would pay the credit card company back and you would both do well out of it. But when the horse didn’t win…

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  • luckyjim –

    I think Timmy is correct about the trigger
    The effect of seemingly perpetually rising house prices does, of course, encourage both over leveraging by the buyers and reduced lending criteria for the lenders, that was the vicious circle that inflated the bubble.

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  • 25. jackas said…

    “Shipbuilder,

    you should open up a mortgage lending business and try and get funding from charities. “Borrowers in need”, “Red Bills Day” etc etc”

    Can’t tell from that reply if you got my point or not – the reality is now that borrowing has become almost essential, whether we like it or not (and I don’t). It’s easy to say that we should go back to more restrictive lending, but again, can that actually happen? We have an economic system where any form of contraction or flat growth is seen as the end of the world and causes the system to cease functioning. That just doesn’t tie in with any theory about how lending should be in the future – do we accept deflation? As I see it the current system simply can’t continue.

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  • If the question is ‘why was Northern Rock prepared’ to lend 125% LTV’ I think it’s solely down to rising prices. i don’t believe they thought they could pass the debt on and it would not be their problem – clearly it was still their problem.

    There is a seperate story about trading in these toxic debts. It’s like when I bought and sold dot-com shares which I believed to be worthless. I was able to buy and sell something of negligible intrisic value and make huge profits. I’m sure some of the people who bought shares from me at 4x their original price also believed them to be worthless. But they belived they could sell them at 5x original value. Yes – pass the toxic parcel. And then the music stopped.

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  • luckyjim said…Timmy

    I think you are slightly wrong there. The main reason the banks were willing to lend outrageous LTVs was because they believed houses prices would continue rising at a rapid rate. The LTV would start to look reasonable in a matter of months. Income multiples didn’t matter because they could always get their money back by selling the house.

    I don’t buy it Jim. These are supposed to be the cleverest people in the world – any numpty could see this crash coming!

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  • luckyjim: in trading circles, that’s called the “greater fool” theory

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  • 51ck-6-51x – I would tend to agree that the root cause of any risk taking is the implied state backing of the system. However for this to change we would need to see a fundamental shift in how we view government’s responsibility. I think that this is tied to how the state is funded – healthy economy means more tax, when the economy suffers our service suffer. How would you see this link being severed? A completely private system, including services, would suggest that wages would need to rise generally, even allowing for reduction in tax – do you see that happening?

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  • I know this is way to simple a concept to have any credibility around here, but it has to be said. When they create the debt based money supply they don’t create the interest. Hence hooked on borrowing and hooked on growth.
    btw, I strongly recommend Vernon Coleman’s book ‘Gordon the Moron’ (not that I always agree with his opinions) it is thoroughly depressing.

    bob1 ~~~ the other post got disappeareded, at least my wife, daughters and grandchildren are not now at risk of being confronted by the offensive and disturbing remark – thank you for your later consideration, I trust you found flashman well?

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  • bob1

    Yes – the greater fool theory. I remember somebody trying to explain that to me when I was temping in a bank in the 80s. Everybody was applying for Euro Tunnel shares at the IPO. I didn’t buy any because I saw it as a very risky construction project. I was right. Everybody else in the bank doubled their money overnight. Doh.

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  • Troy – conflict seems to arise because there are two types of debate going on here – between those who think, for whatever reason, that the basic system is fine and just needs adjusted and others who believe that it is fundamentally flawed and needs changed.
    When people are involved in that system for the roof over their head and their livelihood to a lesser or greater extent, I guess they don’t like it to be challenged.

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  • shipbuilder –
    For the link to be severed would almost certainly be painful in the short term and so would almost surely be a part of a big-event such as a total system failure or a revolution. Whilst I tend to advocate an anarcho-capitalist system (completely private, albeit whilst acknowledging possible flaws that need addressing) I see it is as highly unlikely to occur in these big-event scenarios, or, indeed, gradually due to the individual advantages which may be gained from implementing economic protectionism and maintaining bogus competitive advantages, and monopolies and the kickbacks from continual changes to the laws and regulatory procedures we see today (urgh – lobbyists).

    A completely private system, including services, would suggest that wages would need to rise generally, even allowing for reduction in tax – do you see that happening?
    I’m not sure I understand the question precisely – could you rephrase it?
    There should be less need for taxation in an economy where more things are private, and the allocation of capital would end up being more efficient, but I don’t see what causal link there is from a broader free-market and the phenomena of wage inflation.

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  • troy
    Sorry about that. Sometimes flashman gets into my head and makes me say bad things.

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  • Poacher –
    I only just saw your response.

    Yeah – they could have thought it through a bit better in my opinion too.

    But I don’t think it was really about added security in the first place, but rather more about being able to push responsibility onto the card user. If someone forges your signature it is not your fault – it has to be written after which it may be read and copied and there is nothing the user can do, whereas with chip and pin the only time it’s available to be read, the user is in charge and can hide it; so now it’s easier for the bank to say we won’t pay out.

    If I had the option I’d go for an 8 or 9 digit PIN from which I am requested a random 3 or four digits.

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  • matt_the_hat – “Sorry posted on the national association of bankers site by accident – please don’t steal my life’s savings”

    It wouldn’t be bankers stealing your (or my) savings, it would be those who borrowed too much which would include some bankers (more shadow bankers actually), new businesses, and mortgage holders. Mind you the problem was not as simple as too many over leveraged entities – we must ask ourselves why? The reason I think boils down to the growing size of both savers & borrowers – there were heavy savers as well as heavy borrowers.
    As John Maynard Keynes said “Whenever you save five shillings, you put a man out of work for the day.”

    Milton Friedman said “If you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand.” – quite apt methinks.
    – and for the future, he also said, “Nothing is so permanent as a temporary government program.”
    and “The government solution to a problem is usually as bad as the problem.”

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  • 64. 51ck-6-51x said…

    “A completely private system, including services, would suggest that wages would need to rise generally, even allowing for reduction in tax – do you see that happening?
    I’m not sure I understand the question precisely – could you rephrase it?”

    I guess that in a fully private system, if it worked correctly, there would have to be a more even distribution of wages, so wages for the majority rising. The problem there is that full employment is never really achievable, so some form of welfare is inevitable.

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  • shipy ~~~ In a completely private system psychopaths/sociopaths (any old label will do) would have NO EFFECTIVE opposition,

    as now.

    Political Ponerology in action.

    what rabbit hole? how deep? millions, billions, trillions?

    better to slumber than wake up to a nightmare!

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  • Poacher –
    I only just saw your response.

    Yeah – they could have thought it through a bit better in my opinion too.

    But I don’t think it was really about added security in the first place, but rather more about being able to push responsibility onto the card user. If someone forges your signature it is not your fault – it has to be written after which it may be read and copied and there is nothing the user can do, whereas with chip and pin the only time it’s available to be read, the user is in charge and can hide it; so now it’s easier for the bank to say we won’t pay out.

    If I had the option I’d go for an 8 or 9 digit PIN from which I am requested a random 3 or four digits.

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  • shipbuilder –
    I don’t think there would necessarily be a more even wage distribution, that said I think without the current system constraints (regulations, taxation, subsidies, trade barriers…) there would be a move away from consumerism (there is less need to only ever have production and no state pushing that mandate), which could well lead to more even wage distribution and away from the rat race of today. As for welfare, I think if people really need help from the community they will get it; most people are kind to others, and the few that are not, well good luck to them in the new system, I think they will need more of it to get what they want (I think that some having much more than others is an inevitability unless greed, competitiveness and luck are somehow banished!)

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  • troy –

    They have opposition – everyone and anyone else. Why exactly would a private system lead to social injustice? I think it would lead to a fairer society, since there would be less central control there would also be less points of failure for justice (less points at which one may bribe or ‘encourage’) and there would be direct choices in all parts of the system rather than a single vote for four years of rule.

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