About a year before the Northern Rock crisis, I was sitting round in a pub with mates - all of them congratulating themselves on the massive houses they were living in, after having spent the best part of three, four, and in some cases, six years in a permanent state of flux from buying a house, doing it up, then moving to a bigger one (more on them later). I'd stayed exactly where I was, having not moved once since I bought my place for a paltry 70k. They were all on 25/30 year mortgages, paying out an obscene amount of money each month - I had seven years left on mine, and the repayments were so small I could cover them if I went and worked down Deptford market.
We had a discussion about how naive I was being - that I should be riding the wave along with them, and that there was no real risk involved because there was no way the economy could go tits-up - the banks wouldn't let it happen. After a history lesson involving the South Sea bubble and (more recently) the dotcom boom, a lot of political discussion about responsible capitalism and a lot more beer, one of my mates foolishly made the point that, because the economy needed to keep turning, credit would just keep on getting extended to people, including those who couldn't hope to pay it back. Similar to Prague's mate's one-liner above, my line back was "you can't just give a 300k loan on a house worth 150k to a couple who work in Tesco's". Unfortunately, you COULD just do that, and that, in a nutshell is what has caused the current, immediate crisis of the past five years.
However, this doesn't begin to scratch the surface of what the real problem is - namely, that we haven't figured out a way to have 'responsible capitalism' yet. There aren't any other acceptable ideologies out there that 'work' as well as capitalism - they've all been tried with varying degrees of failure. There are some unacceptable ones that seem to work well on the surface, but are fraught with problems underneath - take current communism in China as an example. A tiger economy that is held up as an example of success, but only does so because of the exploitation of hundreds of millions of it's own people.
So capitalism, in one for or another, is probably the way to go - but, human nature being what it is, it will always be undepinned by greed. It was nice and simple when we (Western Europe and the US) were trampling roughshod over foreign economies, in cahoots with despots, dictators and lunatics to keep their local populations down whilst pilfering their resources for a pittance of what they were really worth. The world has changed and (ironically) it's globalisation that has been the cause of it. Dismantling barriers to trade has encouraged ludicrous situations like massive corporations doing business in countries like the UK and making billions in profits, but paying pretty much fuck-all in the way of tax. Even more laughably, there's no really way out of this now, because if corporate tax avoidance was stopped tomorrow, overnight the stock market would have about 80% of it's value wiped out and we'd be in a recession that made the great depression look like a kid losing his piggybank for ten minutes.
The only thing that can be done is to keep loading the debt burden on future generations, whist diminishing the state to almost nothing. Politicians have become almost an irrelevance anyway in the past fifteen years thanks to Blair and his cronies - all parties dance to the tune of their paymasters in business, so doing away with the state is pretty much a given. The NHS will disappear in the next ten years, to be replaced by PFI (or whatever they call it when they re-jig it to pull the wool over peoples' eyes after the inevitable outcry). We'll continue to fund the huge - and growing - underclass that's been created by dependence on the welfare state, but proportionately more and more money from the lower-middle class will go towards this, whilst salaries at the top continue to rise inexorably. The spectre of thirty/forty year olds still living at home with mum and dad will become the exception rather than the norm, as whatever jobs they manage to get will go towards paying off the mortgages that their parents over-extended themselves on, rather than getting a deposit of their own together for an absolute hovel somewhere.
In short - there is nothing - NOTHING - that can be done. The only way out of this is a global conflict of some sort, which will serve as some kind of economic 'reboot'. Think it can't happen? Think again.
And the denouement of the start of this rambling post? Of the blokes I was sitting with, one got bailed out by his mum and dad and now lives with them, one moved to Australia and is doing OK, two of them got repossessed and now pay obscene rent and have no hope of being able to start again despite having decent jobs, one of them was a sparks and has been fucked for years due to the economy (an unfortunate choice of trade) and the other one is me. Mortgage free, split up with the wife, large lump sum in the bank ready to do whatever it is I want for the rest of my life. Sometimes following the crowd isn't the best choice of action.
Although I don't disagree with any of this it does have to be said that investing in property, even if it was a stretch on finances initially has been a sound and successful way for many, many people to better their standard of living. When I say stretch on finances I'm not talking about self-cert, interest only mortgages I'm talking about setting yourself up for what will be a bit (only a bit) of a struggle that requites sacrifices for a year or two until pay rises reduce the real cost of the mortgage.
My Mum and Dad (like many others) did this in the 60s and the 70s and with each move they decided to go without the 'luxuries' for a few years to get a better house. When I was a kid we had carpets that didn't cover the whole floor in some rooms as we were getting the mortgage under control. My parents, like many others on here, I'm sure, are now very comfortable in retirement because they were willing to sacrifice to move into more expensive houses which they would never have managed if they's stayed in the first house they bought.
Leroy I can't help thinking that your friends ether borrowed too much (self-cert, fast-track or some other scheme) or they failed to give up those little extras (holidays, flat screen TVs, cars, new mobile phones every year) or were unlucky to have lost their jobs.
As I say I'm not disagreeing with you but it's a little simplistic to suggest that there are only two options, limit your aspirations and always have spare cash, or go for broke and risk everything.
It was an asset bubble in the US which was led by lending to people that shouldn't have been lent to. These people defaulted and because all of the mortgages had been sold on in collateralised debt obligations, all people knew was that someone had lost money, but they didn't know who. Because of this none of the banks would lend to each other which meant that banks that had gap issues with assets and liabilities mismatching (such as Northern rock) were in trouble. Northern rock effectively lent people mortgages using short term credit. They couldn't borrow money from banks anymore, so they had to go to the Bank of England. This combined with the fact that some banks were lending people up to (130%) of the value of the property... People would be in a state of negative equity the second they moved in, which wasn't an issue when property prices were rising, but the second they fall you have a big problem. And they fell.
You then have a lot of money which has been lent to people which is backed by very small amounts of assets. It got to the point where $1 of asset value was supporting $40 of debt in some areas of financing.
It isn't actually that complicated when you realise the incentives that were there for everyone along the way to do what they did.
I read (or hear) a lot about this excessive lending and it's always described as being the most terrible thing ever. The truth is quite the opposite.
Firstly Northern Rock didn't lend 130%. They would do a 95% mortgage and also advance an unsecured loan of a maximum of £30k which was at the same as the rate the mortgage was on. The unsecured loan had to be repayment even if the mortgage was interest only. The maximum loan to value was 90% if you were purchasing a property of £300k plus. Thus the maximum loan to value was 125% and then only if you were purchasing a property valued at £100k or less. Anything at £300k or more and you were getting 100% Maximum.
The idea was that for first time buyers an interest only loan with a repayment loan to cover the deposit, stamp duty, solicitors fees and some furniture (including cups and saucers, knives and forks etc.) enabled those caught in the rent trap to get on the property ladder. Due to the maximum unsecured loan of £30k there was not a massive negative equity situation, and besides the vast majority of first time buyers borrow money from their parents to fund the deposit etc. and they replay that in a much shorter term than 25 years so from an affordability basis it made sense. I would also suggest that for a like for like property it was cheaper to buy with the Northern Rock mortgage product that it was to continue renting.
Interestingly, due to the higher mortgage rates (there has to be some benefit to the bank taking all the risk) these schemes became so profitable all the banks either had one of these schemes by the end or they were trialling one.
The arrears records on these schemes were surprisingly good. Most people that took them were earning significant incomes and were very sensible with their money but had left University with some debt (no shame in that) and were just unable to save a deposit even though they could, clearly, afford a mortgage.
Granted since the credit crunch there have been some repositions in this sector, and I don't doubt that the scheme was used by those that over spent and ran up debts to add those debts to their mortgages. What I would say, however, is that Northern Rock were under no obligation to reduce the rates on these schemes and unlike those that had equity you can't sell your house if you are in negative equity. The ironic thing is that if you were allowed to sell your house you could probably pay off most of the mortgage but unless you clear it all the bank insist on repossessing the property because then the indemnity insurance covers their losses. If not for that there would have been more house sales and far fewer repossessions. There is also, understandably an element of people thinking that if they already have negative equity they might as well just give the keys back.
I have't seen the figures since the bank was taken onto Public ownership, but I would be surprised if Northern Rock actually lost money on these schemes over all, and they have enabled many, many people to buy their own homes when otherwise they wouldn't have been able to.
I only mention this as I, personally, don't believe that much of the mortgage lending in the UK was responsible for the credit crunch or the recession. Due to the expanding population and the limited housing stock we have in the UK house prices will never totally crash like they did in the US where there are whole streets (probably neighbours) of empty houses.
If you have 6 Porshes 3 ex wives and live a life of luxury and you have exhausted the well of safe recipients of credit - what do you do to maintain your lifestyle/income? Do you allow it to drop, become a farmer or start going for the less safe ones. Then go for the even less safe ones. Better to mix the dodgy stuff with a few good ones and nobody will notice, especially as making a profit has been so easy for the banks for so long that they have become complacent. The fact is that credit isn't a bad thing - many of us wouldn't be able to buy our houses without it - but it is essential that the people you give it to can pay you back. The recovery is suffering because the banks aren't leanding now.
The crunch/collapse has made our country poorer and less able to pay for the things we used to be able to. This means public spending has to be cut, but doesn't mean that it was too high before- although I think it in the early part of the Millenium it definitely was until the Labour government identified the issue themselves and tried to reduce gradually since about 2005. It wasn't such a big deal though because there was more money sploshing around. This would have still been going on I suspect at a much slower pace had the collapse not happened. What people chose to ignore is that borrowing was much lower before the crunch, than before when the Labour party took over. If you are richer you can afford to pay for more- and good public services benefit the public and private companies too.
Still, the World post crunch will be very different, but we shouldn't try to blame the wrong people and let the guilty ones off the hook. Which I'm afraid is what seems to be happening now.
The actions of Mervyn King and his sycophants at the BoE's Monetary Policy Committee have really made for some terrible, unaccountable choices. First the decision to give up the fight against inflation. This has led to an artifically low interest rate. Now, while that has been of benefit to a number of borrowers short-term, it has created undue hardship for the much larger number of savers, who have consequently been unable to assist the country in spending its way out of recession. If interest rates had been kept high, savers would have had an income, inflation would be much lower, the pound would have been higher against other currencies, helping to keep a lid on energy prices and by now we'd all be much better off.
UK households are on average net borrowers, not savers; the problem with a numeric count is that most people do both - the issue is the amount borrowed compared to the amount saved.
Personally I think history shows the economy is more volatile with politically aligned interest rate management. We may be in recession, but I genuinely don't believe it's anywhere near as bad now as it was in the 80s. People's standard of living is generally higher than then, which makes comparisons tricky, but I think making those decisions independent was an important factor.
Fundamentally the cause is complex - debt is fine as long as you don't have to pay it back, but as soon as the markets get a bit nervy the whole thing collapses. Our world is over-dependent on the financial markets and the best way I see of getting out of the problem is investment in manufacturing and private sector growth. Get those right and we'll start to see a sustainable surplus in our economy. Of course, that's not really happening because you need the banks to take on greater risk than they're currently prepared to given their potential exposure in the current climate.
It's all a bit like football. If your house is built on sand, the Portsmouths of this world will come to pass soon enough. Our country has been living beyond its means for too long, and we got exposed by the financial collapse.
KHA, I think it's too early to say whether the UK has avoided a housing crash - with interest rates having been cut to effectively zero for millions of people lucky enough to be on tracker mortgages taken out before the crisis, the proverbial tide hasn't yet come in to let us see who's been swimming with no trunks on.
The very low sales volumes seen across the country (even in London/SE) are reflective of this too, and are not a healthy sign (ie. people are 'stuck' but for the timebeing are not in financial distress).
Moreover outside of London/SE, prices are down say 15-20% in nominal terms and given cumulative inflation has been approx 10% since 2008, then they are down 25-30% in real terms which is crash territory (it just hasn't felt like it yet for many given the above). Given ongoing public sector cuts badly affecting areas like the North-West and North-East, these trends are not about to reverse.
I would agree that the US case was somewhat different given the abundance of land and the supply boom in the first half of the 2000s, but the types of 50%+ price falls which made the headlines really only affected a handful of communities in places like Vegas, Phoenix, Florida etc. Places like New York, Boston, Chicago, San Francisco etc. (the driving forces of the US economy much like London/SE for the UK) were relatively unaffected.
But however I agree with the general point that UK residential lending was not a key factor in the crisis.
Re my earlier post about the competence (or lack thereof) of the Governor of the BoE. Interesting to see today that none of the favourites from the establishment got the top job as King's replacement. Instead it went to Mark Carney, a Canadian. (Canada is generally seen as having the developed economy that weathered the storm better than its peers.)
Wonder how Mr. Carney will find the transition to the UK - from my woefully under informed viewpoint Canada is a highly regulated economy in general, hell bent on trying to avoid absorption into the US at the expense of it's own manufacturers/businesses. Want a cell phone in Canada, you'll have a handful of choices at best for your plan - want to watch TV or connect to the internet, choose from 2 or 3 providers who own both. Flying anywhere? Choose from Westjet or Air Canada & very high fares compared to Europe. You're an American business trying to get a foothold in the Canadian economy, despite NAFTA it's going to be a struggle.
So if the intention is to rethink our position within the EU, you couldn't have a better man for the job - he's been successfully operating in an intentionally isolated economy with it's own unique currency, trying at the same time to do business with & yet keep out a vastly bigger neighbour on our doorstep. The difference is that Canada has vast natural resources propping up the economy.
NYA, For clarification when I said house prices wouldn't totally crash I was thinking much in excess of 30% reductions. A 50% reduction would only take out some of the excessive growth of the ten years before the credit crunch.
I wasn't, however, aware that so much of the US was as unscathed as the UK.
Clearly as cumulative incomes fall first time buyers will be able to afford to pay less and demand will also fall. I certainly don't see the UK housing market as a one way bet, but simple supply and demand ensures that there will be few properties that are empty because no one wants to live in them, at least not in the South East. I don't think we will ever be able to build enough houses to satisfy demand, even with the relaxing in planning laws that each successive Government promises.
Utter tosh, the pursuit of libertarian/monetarist economics was the a main policy of center right/left goverments from Carter onwards: Britain included. Carter reduced regualtion, which was furthered more agressively by Reagan. Bush snr made the first big concerted push for affordable housing, making targets and forcing government sponsorhip that way. Clinton re-emphasised it towards the late 90's. Bush jnr constantly waffled on about Thatchernomics in 2002, mainly home ownership.
Of course there's truth in the article. Europe will radically alter, if the North and South of Europe don't split monetarily - which is too late now - some global economic shock will pull it apart. But frankly the guy is talking so much bullshit something will happen, though his mad statements like 'always with the risk of having the wheelbarrow stolen' means he has to take his hyperbole pill every hour.
Read Gillian Tett's book Fool's Gold and it'll have a little more insight as to the causes and problems.
While the 'wheelbarrow' quote may be apocryphal it illustrates the folly of Quantatative Easing.
Again I thank you guys for a bit of education here, and I am in danger of sounding simplistic when I talk of criminal deception. But I recall my best man ( now a stand-up comedian but whose Dad was former chairman of A&L) putting it very succinctly: "the American banks started giving mortgages to tramps and then pretended to be surprised when they couldn't pay them back? Hello!" Now as I understood it the likes of Goldman Sachs said "doesn't matter if they can't pay back, we will bundle them up with some good mortgages and flog the bundle to some mugs, and you'll be covered. By the way we think the German banks are amongst the biggest mugs so we'll target them in our sales pitch". I reckon that's criminal because it implies deliberate deception and the consequences for the whole world were unthinkable, as Mr Fleming chillingly points out.
please see www.theeuroprobe 2012.021 the origin of the EU.
None of it is that complicated until the whole thing is batched up and sliced into tranches. The trouble is that people are saying that because of a pile up the the motorway that the speed limit should be halved, the brake effectiveness should be doubled and that all turbo charged engines should be removed.
130% mortgages (or 100% + a personal loan) are clearly nuts but what's wrong with 90% if the borrower pays a premium for the financing above 75% and the lender has decent systems and decent intelligence on the customers?
Picking up some information on Italian economic outlook later in the week which may turn a corner next year... my take is that if Italy (and Spain) are sorted AND the relevant bods agree a pan eurozone banking framework (soon!) we will move into the next phase... which might go anywhere and take 3-10 years
Meanwhile this US fiscal cliff looks a bit of a challenge!
None of it is that complicated until the whole thing is batched up and sliced into tranches. The trouble is that people are saying that because of a pile up the the motorway that the speed limit should be halved, the brake effectiveness should be doubled and that all turbo charged engines should be removed.
130% mortgages (or 100% + a personal loan) are clearly nuts but what's wrong with 90% if the borrower pays a premium for the financing above 75% and the lender has decent systems and decent intelligence on the customers?
Picking up some information on Italian economic outlook later in the week which may turn a corner next year... my take is that if Italy (and Spain) are sorted AND the relevant bods agree a pan eurozone banking framework (soon!) we will move into the next phase... which might go anywhere and take 3-10 years
Meanwhile this US fiscal cliff looks a bit of a challenge!
So are you suggesting that any unsecured loan (car loan/credit card/etc.) to someone that owns their home is nuts? If so is it more nuts to offer an unsecured loan to someone that doesn't own their own home?
If we follow that logic through does that mean that no unsecured loans should be offered to anyone?
I only ask as I don't, personally, think that the mortgages tied up with an unsecured loan are nuts - especially when the two are offered by the same institution who are, therefore, able to properly assess affordability.
Again I thank you guys for a bit of education here, and I am in danger of sounding simplistic when I talk of criminal deception. But I recall my best man ( now a stand-up comedian but whose Dad was former chairman of A&L) putting it very succinctly: "the American banks started giving mortgages to tramps and then pretended to be surprised when they couldn't pay them back? Hello!" Now as I understood it the likes of Goldman Sachs said "doesn't matter if they can't pay back, we will bundle them up with some good mortgages and flog the bundle to some mugs, and you'll be covered. By the way we think the German banks are amongst the biggest mugs so we'll target them in our sales pitch". I reckon that's criminal because it implies deliberate deception and the consequences for the whole world were unthinkable, as Mr Fleming chillingly points out.
please see www.theeuroprobe 2012.021 the origin of the EU.
Disco, Disco, I did. And that's seven minutes of my life I wont get back, reading it and wondering what the feck you think it has to do with my points above.
You picked the wrong person. Maybe it was the chance meeting with the Dutch girl 40 years ago at Eltham Park lido, while I already had a head full of Golden Earring and Shocking Blue, but I've always loved "Europe". You should try it while you can.Especially Germany. Go to a Bundesliga game, it might remind you of something we lost. Before they turn round and say "alright if you wanna leave, feck off then.". See, they are as pissed off with you as you are with them. I just hope I won't face a one hour immigration queue to get to the Valley because of the xenophobic nutters you seem to unquestioningly support.
By the way, I really enjoyed the idea of a group of lecturers in UK universities who belong to "The Frankfurt School", promoting all these sinister values to the lovely lilywhite innocent British, especially this one:
6. The promotion of excessive drinking and drugs.
People from Germany, or a German source of thinking. Trying to promote this to the British...magnificent in its absurdity. Especially as I just finished watching the excellent BBC doc. on 50 years of the Stones. Perhaps you want to claim that Keith Richard had German ancestors or something.
Anyway this has feck all to do with the financial crisis. Good luck with the campaigning, and do try to accept that no-one in "Europe" is behind all those offers you get in the post for credit cards.
Unsecured loans and credit cards come with a premium priced in between 10 & 20% above the cost of a mortgage. Afraid my language was a tad inprecise and the statement missed a vital piece... Unsecured loans and mortgages which together make up 130% of a single transaction must come with a high risk premium particularly if there is evidence of a bubble building... if prices continue to rise all is good but if they fall by as little as 10% then people will be tempted to walk away particularly if income reduces at the same time.
The only reason we didn't have a complete crisis is because banks didn't reposess in the same way as they did in the 90s AND the government intervened to stop banks falling over. Also to be fair domestic property lending (especially in the south east) is a fairly safe long term bet... it was commercial lending and acquisitions like ABN amro (full of US toxic products) which caused problems and has stopped meaningful commercial lending now just when we need it
The problem with the euro was that it opened up a massive line of credit to countries and individuals within those countries, that had no access to it before.
People borrowed money that they couldn't pay back. Governments poured appeasment cash into pensions and public sector jobs to please people and get elected. It was never going to be sustainable. In a way the Eurozone countries may be lucky because they're facing that adjustment now.
The US and the UK are in a massive deficit and have been for a while, reliant on a seemingly endless flow of credit. When that stops coming the fit hits the shan.
Seriously_red: the thing that you've missed and that the likes of RBS like to keep buried is that apart from the odd bit of toxic debt ABN Amro wasn't that bad an investment, they just paid over the odds for it. The real problem was that the wideboys had spotted that they were making good money from customers on the back of a rising market. So they all got into proprietary trading (basically gambling the family silver) which is fine as long as you remember the warning that comes with every investment product: that the value can go down as well as up. It did, and suddenly the so-called smart boys were left with an empty purse. Easier to blame one bad deal and over-enthusiastic lending. Generally agree with your analysis, but I actually think that we need less lending, commercial and otherwise and a good burst of living with what we can afford right now.
Again I thank you guys for a bit of education here, and I am in danger of sounding simplistic when I talk of criminal deception. But I recall my best man ( now a stand-up comedian but whose Dad was former chairman of A&L) putting it very succinctly: "the American banks started giving mortgages to tramps and then pretended to be surprised when they couldn't pay them back? Hello!" Now as I understood it the likes of Goldman Sachs said "doesn't matter if they can't pay back, we will bundle them up with some good mortgages and flog the bundle to some mugs, and you'll be covered. By the way we think the German banks are amongst the biggest mugs so we'll target them in our sales pitch". I reckon that's criminal because it implies deliberate deception and the consequences for the whole world were unthinkable, as Mr Fleming chillingly points out.
please see www.theeuroprobe 2012.021 the origin of the EU.
Disco, Disco, I did. And that's seven minutes of my life I wont get back, reading it and wondering what the feck you think it has to do with my points above.
You picked the wrong person. Maybe it was the chance meeting with the Dutch girl 40 years ago at Eltham Park lido, while I already had a head full of Golden Earring and Shocking Blue, but I've always loved "Europe". You should try it while you can.Especially Germany. Go to a Bundesliga game, it might remind you of something we lost. Before they turn round and say "alright if you wanna leave, feck off then.". See, they are as pissed off with you as you are with them. I just hope I won't face a one hour immigration queue to get to the Valley because of the xenophobic nutters you seem to unquestioningly support.
By the way, I really enjoyed the idea of a group of lecturers in UK universities who belong to "The Frankfurt School", promoting all these sinister values to the lovely lilywhite innocent British, especially this one:
6. The promotion of excessive drinking and drugs.
People from Germany, or a German source of thinking. Trying to promote this to the British...magnificent in its absurdity. Especially as I just finished watching the excellent BBC doc. on 50 years of the Stones. Perhaps you want to claim that Keith Richard had German ancestors or something.
Anyway this has feck all to do with the financial crisis. Good luck with the campaigning, and do try to accept that no-one in "Europe" is behind all those offers you get in the post for credit cards.
Completely agree. And I say that as someone that wasted only 30 seconds before realising it was all pish and bile aiming at the lowest common denominator.
Seriously_red: the thing that you've missed and that the likes of RBS like to keep buried is that apart from the odd bit of toxic debt ABN Amro wasn't that bad an investment, they just paid over the odds for it. The real problem was that the wideboys had spotted that they were making good money from customers on the back of a rising market. So they all got into proprietary trading (basically gambling the family silver) which is fine as long as you remember the warning that comes with every investment product: that the value can go down as well as up. It did, and suddenly the so-called smart boys were left with an empty purse. Easier to blame one bad deal and over-enthusiastic lending. Generally agree with your analysis, but I actually think that we need less lending, commercial and otherwise and a good burst of living with what we can afford right now.
I don't know the details re. ABN but you've hit the nail on the head "they paid over the odds" That's fine in a rising market since the price rises to cover any errors and you can sell off parts to recoup your cash BUT in a down turn and a liquidity squeeze you'd best have quality on your books and not shite - I've heard that the head guy there has likened his job to defusing a ticking time bomb!
To me that applies to businesses, personal finances and in theory to derivatives - basically make sure you have an umbrella for a rainy day. Funnily enough, the same goes for governments and the Euro - countries need to ensure they have got a competitive structure, growth and the ability to collect taxes so that funds will keep buying government bonds. If you don't and you let the politicians and voters fool each other into soft choices then you're going to fall over.
Have to disagree with your final point in that we need more credit now but only on quality deals so as to get things moving and create jobs which in turn generates taxes and spending
Again I thank you guys for a bit of education here, and I am in danger of sounding simplistic when I talk of criminal deception. But I recall my best man ( now a stand-up comedian but whose Dad was former chairman of A&L) putting it very succinctly: "the American banks started giving mortgages to tramps and then pretended to be surprised when they couldn't pay them back? Hello!" Now as I understood it the likes of Goldman Sachs said "doesn't matter if they can't pay back, we will bundle them up with some good mortgages and flog the bundle to some mugs, and you'll be covered. By the way we think the German banks are amongst the biggest mugs so we'll target them in our sales pitch". I reckon that's criminal because it implies deliberate deception and the consequences for the whole world were unthinkable, as Mr Fleming chillingly points out.
please see www.theeuroprobe 2012.021 the origin of the EU.
Disco, Disco, I did. And that's seven minutes of my life I wont get back, reading it and wondering what the feck you think it has to do with my points above.
You picked the wrong person. Maybe it was the chance meeting with the Dutch girl 40 years ago at Eltham Park lido, while I already had a head full of Golden Earring and Shocking Blue, but I've always loved "Europe". You should try it while you can.Especially Germany. Go to a Bundesliga game, it might remind you of something we lost. Before they turn round and say "alright if you wanna leave, feck off then.". See, they are as pissed off with you as you are with them. I just hope I won't face a one hour immigration queue to get to the Valley because of the xenophobic nutters you seem to unquestioningly support.
By the way, I really enjoyed the idea of a group of lecturers in UK universities who belong to "The Frankfurt School", promoting all these sinister values to the lovely lilywhite innocent British, especially this one:
6. The promotion of excessive drinking and drugs.
People from Germany, or a German source of thinking. Trying to promote this to the British...magnificent in its absurdity. Especially as I just finished watching the excellent BBC doc. on 50 years of the Stones. Perhaps you want to claim that Keith Richard had German ancestors or something.
Anyway this has feck all to do with the financial crisis. Good luck with the campaigning, and do try to accept that no-one in "Europe" is behind all those offers you get in the post for credit cards.
Prague, I been to Denmark, Holland, Poland, Czech Republic, Italy, Greece, France and even Germany and enjoyed it. So there you have it, as much as you like to believe I am some sort of nutter (as you describe it) who hates Europe, I am the complete opposite.
It's the EU I despise, I won't go further than that as you rightly said has nothing to do with this thread. I find it very strange that you seem to think I hate Europe and quiet frankly, I feel insulted.
I would say that, in a capitalist economy, that the crashes are caused by greed AND the booms are caused by greed. Whilst ever people have confidence that their 'greed' will be rewarded by prosperity in the future, the boom will continue, when that confidence goes, we get a crash.
Greed (or, maybe better to say 'ambition') is an important part of the system either way.
In this regard, I would say that the main trigger was inept government intervention (particularly in the UK with regards to Northern Rock) which gave the impression that the banks did not understand the risk that they had been taking. This was never true, in fact the banks were and are amazingly good at assessing risk.
This impression prompted a market reaction that was quite out of proportion to the levels of loan defaults that were ever really likely. To give you an example, I know several businesses that, at the heart of the crisis, made a very good living out of calling several mortgage lenders' customers to say: "We would like you to remortgage right now, and if you will agree to do so, we will simply give you 30% off your mortgage debt. So you had a mortgage of £100k, it is now £70k."
These kind of calls actually required incredible levels of skill to do well, because, unsurprisingly, most people thought it was a scam - it was not, the banks simply needed to prove to the markets that their loans had a real, defined value!
I will always maintain that we have one of the very best retail banking systems in the world. The government has used the industry as a scapegoat which has led to a public attitude that 'bankers' are a bunch of bunglers and crooks. This has never been true (certainly no more true than in any industry) and if we over-regulate the lending sector, then we will do immense damage to our economy.
When I was at Uni long ago, I was fascinated by how certain fellow students were drawn into the far left groups and became totally consumed by them. They lost all sense of proportion, and had certain lines that they always parroted. So when there was a Student Union motion attacking price increases in the canteen, they would get up there and parrot, with a straight face "This cannot be seen in isolashun, but as part of the wider struggle to kick out this Tory guvernment 'n' replace it with a Labour guvernment pledged to Soshulist policees."
They were, temporarily I hope, fanatics.
When I watch and listen to Farage turning every single issue into something that has the hated EU and the essential referendum as the answer to every political problem, he makes me think of those students.
He's a fanatic. Genial, a good speaker, with a harmless eccentric looking face, but a fanatic.
The stuff you referred me to is also the work of a fanatic.
The EU was created to try and ensure that fanaticism never again took control of Europe as it did in the 1930's.
By all means criticise its policies, its structures. But do it from a point of view of being part of it, a citizen of Europe.
And don't forget to start with what goes on in your own backyard. Because if you are pissed off with your NHS, your train service, the rip off prices for all your utilities, and most of all, the financial crisis, if you blame all that on the EU you despise, you are letting the real culprits off big time.
Booms and crashes are a natural feature of capitalism but the breadth and depth of any one recession is a factor of how big and long the preceeding boom was and how good the regulatory regime was... for instance Spanish banks didn't get burnt by sub prime CDO instruments because their regulator prohibited them from playing.
This week we see that at last the Eurozone has agreed on a supervisory framework for the biggest 200 banks in the Eurozone - a step to secure the framework and a step towards fiscal / political union - to prevent a recurrence of everything Prague mentions from the 1930s
So gradually things are being put in place to remediate the structural issues. In my recent reading I just came across the following:
"If the euro area were viewed as a single entity, having, for instance, the form of a federal state, there would be no alarms regarding the resilience of its monetary and financial structure, notwithstanding the worries about the repercussions of the financial crisis on the economic cycle, banks and markets. But there is no political union in Europe. In the long term this makes monetary union more difficult to sustain; tangible progress must be made in the European construction; a path must be charted with political union as its ultimate goal, and each step marked along the way.
As Tommaso Padoa-Schioppa observed on the eve of the changeover from the lira to the euro, “The danger lies in thinking that the euro is the final step, that united Europe is now fully forged. Those who wanted the single currency most, wanted it because it would facilitate further steps ahead, not because it would be the last one.” It is necessary to recall the original reasons underlying the European project, including in spheres that transcend economic activity."
No one, especially the Germans, wants to let this fall over. As long as Italy and Spain sort their issues then the Euro area may well continue to consolidate, converge and grow... slowly yes, but still it will walk away from this crisis. Italy is actually in a position to announce NO deficit in the 2013 budget so whoever succeeds Mario Monti will actually have some cash to spend to generate growth and can still maintain a deficit %
Sorry to be the bringer of bad news but here goes..........Buy farmland or a smallholding,self sufficiency in food,solar panels with battery backup , water borehole, poly tunnels, four large chest freezers for storing last years crop,back up generator,wood burning stove,become part of a local network of like minded people,and invest in hard money.I saw this 15 years ago coming and I've been able to help others who listened. The whole system is going down and they are not telling you the truth.The cities will be war zones with little or no police protection.So if you can relocate now to as remote a place you can and prepare do so .Also this is a wide world collapse so where ever you go it will be bad. Im not a doomsday nutter Im a level headed guy who thinks ahead.
Peter. Nice try fella. Unfortunately, if it all goes to shit as much as you and the other doommongers predict (and I believe it's quite possible that it will) you'll all be dead within a week like everyone else. Just live your life - there's fuck all you can do about it anyway.
Leroy I'm not a doom-monger. I've read your posts mate and you are one of the posters on here thats got a clear picture of things. Where I live is very hard to get to and there is safety in numbers up here as we are all of the same mindset. There will be survivors so I'm going to give it a go.
Comments
Besides, hard to enjoy the lump sum when it's actual value is diminishing by the day!
;0)
My Mum and Dad (like many others) did this in the 60s and the 70s and with each move they decided to go without the 'luxuries' for a few years to get a better house. When I was a kid we had carpets that didn't cover the whole floor in some rooms as we were getting the mortgage under control. My parents, like many others on here, I'm sure, are now very comfortable in retirement because they were willing to sacrifice to move into more expensive houses which they would never have managed if they's stayed in the first house they bought.
Leroy I can't help thinking that your friends ether borrowed too much (self-cert, fast-track or some other scheme) or they failed to give up those little extras (holidays, flat screen TVs, cars, new mobile phones every year) or were unlucky to have lost their jobs.
As I say I'm not disagreeing with you but it's a little simplistic to suggest that there are only two options, limit your aspirations and always have spare cash, or go for broke and risk everything.
Firstly Northern Rock didn't lend 130%. They would do a 95% mortgage and also advance an unsecured loan of a maximum of £30k which was at the same as the rate the mortgage was on. The unsecured loan had to be repayment even if the mortgage was interest only. The maximum loan to value was 90% if you were purchasing a property of £300k plus. Thus the maximum loan to value was 125% and then only if you were purchasing a property valued at £100k or less. Anything at £300k or more and you were getting 100% Maximum.
The idea was that for first time buyers an interest only loan with a repayment loan to cover the deposit, stamp duty, solicitors fees and some furniture (including cups and saucers, knives and forks etc.) enabled those caught in the rent trap to get on the property ladder. Due to the maximum unsecured loan of £30k there was not a massive negative equity situation, and besides the vast majority of first time buyers borrow money from their parents to fund the deposit etc. and they replay that in a much shorter term than 25 years so from an affordability basis it made sense. I would also suggest that for a like for like property it was cheaper to buy with the Northern Rock mortgage product that it was to continue renting.
Interestingly, due to the higher mortgage rates (there has to be some benefit to the bank taking all the risk) these schemes became so profitable all the banks either had one of these schemes by the end or they were trialling one.
The arrears records on these schemes were surprisingly good. Most people that took them were earning significant incomes and were very sensible with their money but had left University with some debt (no shame in that) and were just unable to save a deposit even though they could, clearly, afford a mortgage.
Granted since the credit crunch there have been some repositions in this sector, and I don't doubt that the scheme was used by those that over spent and ran up debts to add those debts to their mortgages. What I would say, however, is that Northern Rock were under no obligation to reduce the rates on these schemes and unlike those that had equity you can't sell your house if you are in negative equity. The ironic thing is that if you were allowed to sell your house you could probably pay off most of the mortgage but unless you clear it all the bank insist on repossessing the property because then the indemnity insurance covers their losses. If not for that there would have been more house sales and far fewer repossessions. There is also, understandably an element of people thinking that if they already have negative equity they might as well just give the keys back.
I have't seen the figures since the bank was taken onto Public ownership, but I would be surprised if Northern Rock actually lost money on these schemes over all, and they have enabled many, many people to buy their own homes when otherwise they wouldn't have been able to.
I only mention this as I, personally, don't believe that much of the mortgage lending in the UK was responsible for the credit crunch or the recession. Due to the expanding population and the limited housing stock we have in the UK house prices will never totally crash like they did in the US where there are whole streets (probably neighbours) of empty houses.
The crunch/collapse has made our country poorer and less able to pay for the things we used to be able to. This means public spending has to be cut, but doesn't mean that it was too high before- although I think it in the early part of the Millenium it definitely was until the Labour government identified the issue themselves and tried to reduce gradually since about 2005. It wasn't such a big deal though because there was more money sploshing around. This would have still been going on I suspect at a much slower pace had the collapse not happened. What people chose to ignore is that borrowing was much lower before the crunch, than before when the Labour party took over. If you are richer you can afford to pay for more- and good public services benefit the public and private companies too.
Still, the World post crunch will be very different, but we shouldn't try to blame the wrong people and let the guilty ones off the hook. Which I'm afraid is what seems to be happening now.
Personally I think history shows the economy is more volatile with politically aligned interest rate management. We may be in recession, but I genuinely don't believe it's anywhere near as bad now as it was in the 80s. People's standard of living is generally higher than then, which makes comparisons tricky, but I think making those decisions independent was an important factor.
Fundamentally the cause is complex - debt is fine as long as you don't have to pay it back, but as soon as the markets get a bit nervy the whole thing collapses. Our world is over-dependent on the financial markets and the best way I see of getting out of the problem is investment in manufacturing and private sector growth. Get those right and we'll start to see a sustainable surplus in our economy. Of course, that's not really happening because you need the banks to take on greater risk than they're currently prepared to given their potential exposure in the current climate.
It's all a bit like football. If your house is built on sand, the Portsmouths of this world will come to pass soon enough. Our country has been living beyond its means for too long, and we got exposed by the financial collapse.
The very low sales volumes seen across the country (even in London/SE) are reflective of this too, and are not a healthy sign (ie. people are 'stuck' but for the timebeing are not in financial distress).
Moreover outside of London/SE, prices are down say 15-20% in nominal terms and given cumulative inflation has been approx 10% since 2008, then they are down 25-30% in real terms which is crash territory (it just hasn't felt like it yet for many given the above). Given ongoing public sector cuts badly affecting areas like the North-West and North-East, these trends are not about to reverse.
I would agree that the US case was somewhat different given the abundance of land and the supply boom in the first half of the 2000s, but the types of 50%+ price falls which made the headlines really only affected a handful of communities in places like Vegas, Phoenix, Florida etc. Places like New York, Boston, Chicago, San Francisco etc. (the driving forces of the US economy much like London/SE for the UK) were relatively unaffected.
But however I agree with the general point that UK residential lending was not a key factor in the crisis.
So if the intention is to rethink our position within the EU, you couldn't have a better man for the job - he's been successfully operating in an intentionally isolated economy with it's own unique currency, trying at the same time to do business with & yet keep out a vastly bigger neighbour on our doorstep. The difference is that Canada has vast natural resources propping up the economy.
I wasn't, however, aware that so much of the US was as unscathed as the UK.
Clearly as cumulative incomes fall first time buyers will be able to afford to pay less and demand will also fall. I certainly don't see the UK housing market as a one way bet, but simple supply and demand ensures that there will be few properties that are empty because no one wants to live in them, at least not in the South East. I don't think we will ever be able to build enough houses to satisfy demand, even with the relaxing in planning laws that each successive Government promises.
130% mortgages (or 100% + a personal loan) are clearly nuts but what's wrong with 90% if the borrower pays a premium for the financing above 75% and the lender has decent systems and decent intelligence on the customers?
Picking up some information on Italian economic outlook later in the week which may turn a corner next year... my take is that if Italy (and Spain) are sorted AND the relevant bods agree a pan eurozone banking framework (soon!) we will move into the next phase... which might go anywhere and take 3-10 years
Meanwhile this US fiscal cliff looks a bit of a challenge!
If we follow that logic through does that mean that no unsecured loans should be offered to anyone?
I only ask as I don't, personally, think that the mortgages tied up with an unsecured loan are nuts - especially when the two are offered by the same institution who are, therefore, able to properly assess affordability.
You picked the wrong person. Maybe it was the chance meeting with the Dutch girl 40 years ago at Eltham Park lido, while I already had a head full of Golden Earring and Shocking Blue, but I've always loved "Europe". You should try it while you can.Especially Germany. Go to a Bundesliga game, it might remind you of something we lost. Before they turn round and say "alright if you wanna leave, feck off then.". See, they are as pissed off with you as you are with them. I just hope I won't face a one hour immigration queue to get to the Valley because of the xenophobic nutters you seem to unquestioningly support.
By the way, I really enjoyed the idea of a group of lecturers in UK universities who belong to "The Frankfurt School", promoting all these sinister values to the lovely lilywhite innocent British, especially this one:
6. The promotion of excessive drinking and drugs.
People from Germany, or a German source of thinking. Trying to promote this to the British...magnificent in its absurdity. Especially as I just finished watching the excellent BBC doc. on 50 years of the Stones. Perhaps you want to claim that Keith Richard had German ancestors or something.
Anyway this has feck all to do with the financial crisis. Good luck with the campaigning, and do try to accept that no-one in "Europe" is behind all those offers you get in the post for credit cards.
Afraid my language was a tad inprecise and the statement missed a vital piece...
Unsecured loans and mortgages which together make up 130% of a single transaction must come with a high risk premium particularly if there is evidence of a bubble building... if prices continue to rise all is good but if they fall by as little as 10% then people will be tempted to walk away particularly if income reduces at the same time.
The only reason we didn't have a complete crisis is because banks didn't reposess in the same way as they did in the 90s AND the government intervened to stop banks falling over.
Also to be fair domestic property lending (especially in the south east) is a fairly safe long term bet... it was commercial lending and acquisitions like ABN amro (full of US toxic products) which caused problems and has stopped meaningful commercial lending now just when we need it
People borrowed money that they couldn't pay back. Governments poured appeasment cash into pensions and public sector jobs to please people and get elected. It was never going to be sustainable. In a way the Eurozone countries may be lucky because they're facing that adjustment now.
The US and the UK are in a massive deficit and have been for a while, reliant on a seemingly endless flow of credit. When that stops coming the fit hits the shan.
Seriously_red: the thing that you've missed and that the likes of RBS like to keep buried is that apart from the odd bit of toxic debt ABN Amro wasn't that bad an investment, they just paid over the odds for it. The real problem was that the wideboys had spotted that they were making good money from customers on the back of a rising market. So they all got into proprietary trading (basically gambling the family silver) which is fine as long as you remember the warning that comes with every investment product: that the value can go down as well as up. It did, and suddenly the so-called smart boys were left with an empty purse. Easier to blame one bad deal and over-enthusiastic lending. Generally agree with your analysis, but I actually think that we need less lending, commercial and otherwise and a good burst of living with what we can afford right now.
Radar Love, now that was a song.
To me that applies to businesses, personal finances and in theory to derivatives - basically make sure you have an umbrella for a rainy day. Funnily enough, the same goes for governments and the Euro - countries need to ensure they have got a competitive structure, growth and the ability to collect taxes so that funds will keep buying government bonds. If you don't and you let the politicians and voters fool each other into soft choices then you're going to fall over.
Have to disagree with your final point in that we need more credit now but only on quality deals so as to get things moving and create jobs which in turn generates taxes and spending
It's the EU I despise, I won't go further than that as you rightly said has nothing to do with this thread. I find it very strange that you seem to think I hate Europe and quiet frankly, I feel insulted.
Greed (or, maybe better to say 'ambition') is an important part of the system either way.
In this regard, I would say that the main trigger was inept government intervention (particularly in the UK with regards to Northern Rock) which gave the impression that the banks did not understand the risk that they had been taking. This was never true, in fact the banks were and are amazingly good at assessing risk.
This impression prompted a market reaction that was quite out of proportion to the levels of loan defaults that were ever really likely. To give you an example, I know several businesses that, at the heart of the crisis, made a very good living out of calling several mortgage lenders' customers to say: "We would like you to remortgage right now, and if you will agree to do so, we will simply give you 30% off your mortgage debt. So you had a mortgage of £100k, it is now £70k."
These kind of calls actually required incredible levels of skill to do well, because, unsurprisingly, most people thought it was a scam - it was not, the banks simply needed to prove to the markets that their loans had a real, defined value!
I will always maintain that we have one of the very best retail banking systems in the world. The government has used the industry as a scapegoat which has led to a public attitude that 'bankers' are a bunch of bunglers and crooks. This has never been true (certainly no more true than in any industry) and if we over-regulate the lending sector, then we will do immense damage to our economy.
When I was at Uni long ago, I was fascinated by how certain fellow students were drawn into the far left groups and became totally consumed by them. They lost all sense of proportion, and had certain lines that they always parroted. So when there was a Student Union motion attacking price increases in the canteen, they would get up there and parrot, with a straight face "This cannot be seen in isolashun, but as part of the wider struggle to kick out this Tory guvernment 'n' replace it with a Labour guvernment pledged to Soshulist policees."
They were, temporarily I hope, fanatics.
When I watch and listen to Farage turning every single issue into something that has the hated EU and the essential referendum as the answer to every political problem, he makes me think of those students.
He's a fanatic. Genial, a good speaker, with a harmless eccentric looking face, but a fanatic.
The stuff you referred me to is also the work of a fanatic.
The EU was created to try and ensure that fanaticism never again took control of Europe as it did in the 1930's.
By all means criticise its policies, its structures. But do it from a point of view of being part of it, a citizen of Europe.
And don't forget to start with what goes on in your own backyard. Because if you are pissed off with your NHS, your train service, the rip off prices for all your utilities, and most of all, the financial crisis, if you blame all that on the EU you despise, you are letting the real culprits off big time.
This week we see that at last the Eurozone has agreed on a supervisory framework for the biggest 200 banks in the Eurozone - a step to secure the framework and a step towards fiscal / political union - to prevent a recurrence of everything Prague mentions from the 1930s
So gradually things are being put in place to remediate the structural issues. In my recent reading I just came across the following:
"If the euro area were viewed as a single entity, having, for instance, the form of a federal state, there would be no alarms regarding the resilience of its monetary and financial structure, notwithstanding the worries about the repercussions of the financial crisis on the economic cycle, banks and markets. But there is no political union in Europe. In the long term this makes monetary union more difficult to sustain; tangible progress must be made in the European construction; a path must be charted with political union as its ultimate goal, and each step marked along the way.
As Tommaso Padoa-Schioppa observed on the eve of the changeover from the lira to the euro, “The danger lies in thinking that the euro is the final step, that united Europe is now fully forged. Those who wanted the single currency most, wanted it because it would facilitate further steps ahead, not because it would be the last one.” It is necessary to recall the original reasons underlying the European project, including in spheres that transcend economic activity."
No one, especially the Germans, wants to let this fall over. As long as Italy and Spain sort their issues then the Euro area may well continue to consolidate, converge and grow... slowly yes, but still it will walk away from this crisis. Italy is actually in a position to announce NO deficit in the 2013 budget so whoever succeeds Mario Monti will actually have some cash to spend to generate growth and can still maintain a deficit
http://www.redicecreations.com/radio/2012/12/RIR-121213.php