Mungler Posted January 22, 2008 Report Share Posted January 22, 2008 So, the economic markets around the world are in turmoil and free fall - but why? Because banks and other institutions have been greedy and blinkered in their lending practices. It's not just about cheap credit because on the whole it appears that a large chunk of the world will borrow as much as they are allowed to borrow regardless of the cost or sense of that borrowing, the only check on their borrowing being when the banks say "no more credit". We see people buying houses at the top of the market with very little equity down and the rest on a gigantic self certified mortgage or an interest only mortgage. So, with the introduction of the ridiculous Home Information Packs (HIPs) coupled with a credit crunch and a global economic hiccup we are about to find out how people with uncertain jobs pay off enormous mortgages for property in negative equity whilst the housing market declines. Back in the good old days the banks would only lend on strict criteria - 3.5 times single and 5 times joint incomes with a large minimum down payment (a big enough buffer to protect the banks in the event that the house against which the mortgage is secured drops in value). This in turn kept house prices in check because to have say a £700,000 house you would need £200,000 down payment and a joint income of £100,000 or a sole income of £145,000. This also protected the banks (and made them a better investment on the stock market) because they tried to limit their exposure. The fact is, incomes have not increased at the same rate as house prices. We see the most daft lending practices, or rather we did until the banks suddenly saw the bleedin obvious staring them in the face. This is a very good article on how the sub prime US lending sent everything tits up http://news.bbc.co.uk/1/hi/business/7073131.stm There are similar issues over here, and as always we will follow the States - the States catches a cold and we do 6 months later. It all seems so obvious but will any of the boards of directors or financial strategists that made the decisions be penalised - sacked and sent into the wilderness never to work in the City again or required to hand back their share options and bonuses on the premise that bonuses are given for performance and there should be a consequence to non performance? Hmmmm I think not. Quote Link to comment Share on other sites More sharing options...
Catamong Posted January 22, 2008 Report Share Posted January 22, 2008 (edited) Yes, I've just tried to transfer my mortgage into the American "sub prime" sector so that I could default on the loan and my Building Society would write it off, sadly those at the Shabby didn't want to know. Cat. Edited January 22, 2008 by Catamong Quote Link to comment Share on other sites More sharing options...
pin Posted January 22, 2008 Report Share Posted January 22, 2008 It all seems so obvious but will any of the boards of directors or financial strategists that made the decisions be penalised - sacked and sent into the wilderness never to work in the City again or required to hand back their share options and bonuses on the premise that bonuses are given for performance and there should be a consequence to non performance? Hmmmm I think not. CitiGroup & Merrill Lynch had 9bn and 11bn "sub prime" write-downs recently and the top man from both ousted Quote Link to comment Share on other sites More sharing options...
Highlander Posted January 22, 2008 Report Share Posted January 22, 2008 Yep same ol same ol and you just know who's gonna pay in the long run same people who're gonna pay for NR being saved whichever way GB jumps! We're being **** on from a bloomin' great height and there's booger all we can do about it! Quote Link to comment Share on other sites More sharing options...
starlight32 Posted January 22, 2008 Report Share Posted January 22, 2008 Yes- But at if there is a bit of recession people already in the property business will be able to have a revival of how it once was... For example being able to go to auction without having wannabees paying over the asking price- same as have a go diy'er's paying daft prices for a house they cannot repair.... The buy to let market has knackered the property game full stop. Years ago you had to buy bricks and mortar up and above your own house with either hard cash or bank loan form the bank scrutinized by the manager. Nowadays they just throw the money at you everything-cars,mortgages,credit cards,holidays you name it you can get in or out of work. Bring back the way it was- you only bought it if you could afford it-Full stop Quote Link to comment Share on other sites More sharing options...
al4x Posted January 22, 2008 Report Share Posted January 22, 2008 Its the US market thats having a shock at the moment Mungler its very different to the UK market where the papers are trying to talk us into problems. Certainly in the South East so far there are no signs of negative equity and at the moment interest rates show no signs of going up only dropping. So its only unemployment people have to fear, as for banks tightening lending practices I'm not too sure i've only recently re-mortgaged to buy my ex out and have managed about 15 times income without going self cert. I'm happy I'm not over stretching myself as the property is a renovation and will be sold in 18 months. then i'll do another and another on the path to getting mortgage free. If I just wanted a house to live in and pay off then it wouldn't be practical, do I believe house prices are going to fall significantly and long term and its a simple no chance, 2007 they still went up about 7% and 2008 if they do anything nasty it will be to remain static all the stats are on a month by month basis and now is the worst time to be selling a house add into that the HIPS fiasco and you can see why the market is a bit unsettled. A lot of people are willing a market crash but the obvious sign of high interest rates are not there and show no signs of happening. Quote Link to comment Share on other sites More sharing options...
Cranfield Posted January 22, 2008 Report Share Posted January 22, 2008 I agree that the unfortunate thing is that those most at fault, will not be made to pay the cost, that will be the privilege of the rest of us in some way. The bigger scandal is that as soon as things improve, they will be back to their old habits again. Its also fair to add that the full effect of a recession is felt by the poorest, usually those not to blame at all. Quote Link to comment Share on other sites More sharing options...
al4x Posted January 22, 2008 Report Share Posted January 22, 2008 It all seems so obvious but will any of the boards of directors or financial strategists that made the decisions be penalised - sacked and sent into the wilderness never to work in the City again or required to hand back their share options and bonuses on the premise that bonuses are given for performance and there should be a consequence to non performance? Hmmmm I think not. CitiGroup & Merrill Lynch had 9bn and 11bn "sub prime" write-downs recently and the top man from both ousted those figures do make big news but and the big but is how much have they actually made in the sub prime markets, my bet is the losses are a drop in the ocean Quote Link to comment Share on other sites More sharing options...
pin Posted January 22, 2008 Report Share Posted January 22, 2008 (edited) Interest rates are being kept artificially low, Mervyn King has come out previously and said he's being brow beaten into it. The government need us to consume, if we don't retailers make no money and the economy goes flat. One of the worst xmas's on record last year and people are starting to feel the pinch. It won't be long before Mervyn plays his hand and interest rates will rise and fast! When you have spending on housing out of control there are but two things to control it, higher interest rates (I'm talking 3-4%) or a recession which causes the same thing. Gamble on which is coming first, but it is coming Edit: http://news.bbc.co.uk/1/hi/business/7202645.stm US Federal reserve have dropped their **** and slashed interest rates by 3/4% and it simply hasn't worked. Worlds largest economy is heading for recession and is further proof that if your house isn't in order cutting or keeping artificially low interest rates simply won't work. The analogy is a boat with a hole in it which keeps getting bigger. You start off with a pump which can cope, but over time you find you need larger and larger pumps. Eventually the boat can't bear the weight of the pump required to get rid of the water. It's then you are forced to come to terms with the fact that you should have taken it to be mended, not tried to stave off the inevitable. By then the cost to mend the much larger hole, water damage and the cost of all those pumps starts to look rather expensive compared to just mending the small hole Edited January 22, 2008 by pin Quote Link to comment Share on other sites More sharing options...
Wookie Posted January 22, 2008 Report Share Posted January 22, 2008 The silly thing is that (I heard) Clinton actually started the whole ball rolling by repealing a law preventing this sort of thing from happening. All I know is that the bloke on Radio 4 this morning was talking about regulating the bankers rather than the banks. If they didn't take the risks that lead to this sort of thing, we would not be in this position now. Mind you, if the banks weren't trying to make fortunes for their shareholders we wouldn't be in this position either. Quote Link to comment Share on other sites More sharing options...
Mungler Posted January 22, 2008 Author Report Share Posted January 22, 2008 (edited) If you read the BBC news article the US Sub prime sector is worth $6 trillion dollars of a bond market with a total value of $27 million i.e. nearly 1/4. It has a value greater than US Treasury Bonds. Say 25% of that market default (it could be higher as it is volatile and the clue's in the name given "sub prime" read "dead beat") and there is no prospect of a effecting a physical recovery (repossession and sale) because the US Housing market has slumped big time (and it has) and these cases are in negative equity. That's lots of trillions of dollars invested by banks, pension funds, insurance companies. The knock on effects are enormous, and so saying that something in the States won't affect us in the UK is nonsense. Global economy, global markets and global banks. Oh, and talking of knock on effect, the article says that in Cleveland (an economically depressed state) the biggest property owner is now Deutsche Bank - repossessiontastic. EDIT: Regarding interest rates, I actually think these will continue to fall but the borrowing criteria will tighten up - the banks want people who can afford to repay debt to take out loans and keep spending to keep the economy going. An interest rate rise (perhaps to counteract inflation although I am not sure what the figures are) would be an economic disaster. With everyone massively over stretched can you imagine what would happen if the rates went up to early 1990's levels of well over 10%. Imagine having your mortgage on your VISA card. Edited January 22, 2008 by Mungler Quote Link to comment Share on other sites More sharing options...
pin Posted January 22, 2008 Report Share Posted January 22, 2008 those figures do make big news but and the big but is how much have they actually made in the sub prime markets, my bet is the losses are a drop in the ocean Sadly note mate, see the boat analogy. They were so convinced this wouldn't happen they kept popping the market up artificially. Both companies are pretty screwed right now. Quote Link to comment Share on other sites More sharing options...
trakker01 Posted January 22, 2008 Report Share Posted January 22, 2008 its all a scam,for us greedy & vonerable folk, the uneducated, PUSHED ALONG BY THE MASS MEDIA & ADVERTISING.. thinking we can all live like millonares, working 40/50hrs per week....only forgetting the private educated, silver spoon childern get there (occasionally), pushed along by enthusiastic parents........& who's parents there growth..... £££££££££ ......a pit fall for weekend millionaires , who really work in factories, for a managemnt, & clocking ,in & out.. !! :blink: .......... ......HANG ON & ENJOY THE RIDE !!! its only just started......... expect propert to drop by 15% + Quote Link to comment Share on other sites More sharing options...
Highlander Posted January 22, 2008 Report Share Posted January 22, 2008 You can tell the youngsters on here, no one remembers the crash of the late '80's early 90's when interest rates topped what 14%. A lot of people didn't survive that but everything has it's time and life goes on. Difference now (and probably the best thing GB ever did) is the money supply and interest rates are in the hands of the Old Lady of Threadneedle Street instead of the b***** useless politicians. We might or might not be affected by what's happening in the USA, my guess is if it gets really bad there it will affect the global economy to some degree or another but talking everything down and getting despondent about 'fears' rather than reality is sheer nonsense. 2008 will be a damn good year for me :blink: so ask me how it went in 2009! Quote Link to comment Share on other sites More sharing options...
Dunkield Posted January 22, 2008 Report Share Posted January 22, 2008 Being old I can say - what's a mortgage? 14% interest rates, I remember those, bring them on :blink: Quote Link to comment Share on other sites More sharing options...
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