B&B: end of an era
The reverberations from the nationalisation of Bradford & Bingley (see my note of last night for more on this) will be profound.
First, it takes out of the market the leading provider of buy-to-let and self-cert mortgages.
Once the £41bn of B&B's mortgages is publicly owned, it will be run down over the coming years.
And it's very unlikely that the government will feel it wants to use taxpayers money to provide new buy-to-let and self-cert mortgages.
In other words, two big chunks of the mortgage market will be all-but closed - since few other banks are remotely interested in providing this kind of mortgage, which are perceived as higher risk.
That will add to the downward pressure on house prices - and may be a source of anxiety to buy-to-let investors who may have difficulty refinancing their mortgages as and when they need to do so.
Second, the nationalisation will be seen as proof that the demutualisation of building societies - which began when Abbey National became a bank in 1989 - has been a colossal failure for both the former building societies and the British economy.
These specialist mortgage lenders were under such pressure to grow their profits, as public companies, that they became reckless adventurers in wholesale funding markets.
They raised too much money too cheaply on the global money markets, which they then lent too cheaply to British homebuyers.
Which then stoked up the housing bubble. And the popping of that bubble has done for them.
Every single demutualised building society has either collapsed and had to be rescued or has been swallowed up by a bigger bank.
Just this year we've seen the Rock taken into public ownership and HBOS, owner of the Halifax, bought by Lloyds TSB in a rescue takeover.
Abbey itself was taken over in 2004 by Santander of Spain largely because it was hobbled by unfortunate forays into clever-clever financial trading.
The conversion of building societies into banks is an instance where deregulation and the liberalisation of an industry appears to have been an unmitigated disaster.
The Nationwide, which refused to follow the trend, looks smart.
Finally, there is just a chance that the nationalisation of B&B will be the last serious crisis for a UK banking institution.
Why?
Well the debacles at Northern Rock, HBOS and B&B all stemmed from their excessive dependence on the UK housing market and on sources of wholesale funding that were vulnerable to disappearing.
Our remaining big banks have much more diverse businesses, so even though they will suffer as the housing market falls, they can generate profits elsewhere to compensate.
Also they have more diverse sources of funding, they are less dependent on the whims of money managers who can shift billions of dollars at the click of a mouse.
In that sense, the nationalisation of B&B and of the Rock are the British equivalent of America's $700bn banking bailout plan.
Their nationalisation - and the rescue takeover of HBOS - removes from the UK commercial banking sector its biggest source of vulnerability.
That vulnerability was the Rock's, B&B's and HBOS's excessive exposure to mortgages that are expected to be a big source of future losses.
I'm 
© MMX~RS~q~RS~~RS~z~RS~57~RS~)
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Robert, you think it might be the end but watch this space. There's more pain on the horizon and I think you know it
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I don't understand why a reasonably accurate price can't be put on the mortgage book. It's just a bunch of loans, each with a term and an interest rate, secured on a piece of property. You just need to make some realistic assumptions on default rates and property prices, and then PV the future cash flows at an appropriate discount rate ... this latter to depend on the expected outlook for interest rates.
Given the data, and a couple of days to work on it, I could value the portfolio quite easily ... I could get it to a confidence level of inside 20%, no problem at all. So, why no private sector buyer? ... doesn't make sense to me.
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Robert, I have been following your blogs over the past couple of months and explain a complicated situation in its fundamental parts so that the rest of us not involved in the financial industry actually have a chance of understanding it!
I found the debate you were involed in the other day very informative too.
Fantastic blogging, and keep up the good work. Without you I would not have a clue why this crisis is happening.
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When Equitable Life had capital reserving problems, the first step was to make it closed book - basically administer existing business and not sell any new business as it would require an injection of new capital.
Fast forward to today, NR has been merrily selling new mortgages for a year now, and equally happy to accept billions of capital injections from the B of E on a regular basis! This does not make much sense to me. Why was NR not made closed book?
If God forbid another British financial services company requires a large capital injection there will come a time when the B of E will not be able to oblige (shame the gold reserve has already been sold off).
I hope I am wrong but I have the feeling that sales of self cert mortgages is more widespread than is currently perceived.
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British banks are not out of the woods just yet.
LLoyds may yet have problems digesting HBOS. Lloyds and all the other big banks may yet need to return for further funding, even including RBS despite the biggest UK rights issue already.
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Also Robert, if we do see an end to every Joe and Jane bloggs thinking there's phenomenal amounts of money to be made in buy-to-let, then good thing. Buy-to-let has distorted the UK housing market for quite some time, if many of those that own these properties on a buy-to-let mortgage have to sell them then good.
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The regulator too deserves a caning for this. Time after time programmes showed the self cert market was wide open to and being roundly abused. The punnishment of the odd broker over the years did nothing to stop this is no mitigant for the FSA. This crassly monitored lending happily contributed to the boom by leanding money to people who would be ok in good times but would have no hope when a downward cycle occured and rates rose or prices fell. Perhaps the Fast aSleep Authority will remember for the future that lending huge multiples to epople is, and will always be, a DUMB idea and ignoring a process being roundly abused is also a DUMB idea.
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"source of anxiety to buy-to-let investors who may have difficulty refinancing their mortgages as and when they need to do so.."
Oh, and I am sure that many of their tenants' hearts will be bleeding for them at this news !
In fact many will be wondering whether, with the downturn in the property market, and the increasing rents, whether to stop paying the rent altogether, and when the 'owner' gets stroppy, offer to buy the house at a knock-down price..
I wouldn't condone such behaviour, but hey, as a famous leader once said 'You cannot buck the market..'
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If there is a silver lining to all this madness, I for one hope that those who are first time buyers will finally be able to buy a house to live in and not for investment purposes.
As a society we brought this on ourselves...we became too greedy with visions of ever increasing house prices.
Thankfully, a market correction is needed no matter how painful it is. Its going to be a long, cold and dark winter.
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#2
Interesting if you take the presumption that what is on the books is real and solid.
What happens if some of those trades are not real but made up ?
What happens if the valuation is not real ?
What happens if the income statement of the buyer is not real ?
What happens if no one wants to buy property ?
Throw away all your assumptions and then you will realise where we are.
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I was never a fan of demutualisation and am happy to be with the Nationwide.
To all those ex-carpet baggers out there, I hope you are truly ashamed.
Many of our building societies are/were very old, with proud histories. I could never understand how the current members could claim all of the value of a Building Society which had been built up over decades. Morally it was wrong.
Put your savings into a building society and feel good about it.
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Nationalisation is unneccesary in this case. Nothing is at stake for the UK banking market as a whole.
Labour has just got a nice taste of the 1970's again.
The taxpayer is going to be at huge risk for most of this money.
As for no other lenders in the buy-to-let market; what about GE Home Lending?
Finally, i do belive that other banks are exposed; not by the mortgage market but by the CDS and derivative issues. HSBC has $50 billion of toxic debt on its books for example.
We had better hope US taxpayers are willing to buy it all.
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So does this mean Northern Rock is no loner the worst run bank in England, then?
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Mr Peston,
There was a group of guys in the late nineties and early 2000's who together opened deposit accounts in all the major mutual building societies in the UK and then after their membership had passed the statutory time limit to allow them to propose a resolution, forced the management of these societies to ballot members to change the societies' status from a mutual basis owned by its members to that of a limited company with share capital usually quoted on the stock exchange.
The carrot to entice members to vote for the change was a free issue of shares depending on the value of qualifying deposits held by these members. Members could either keep the shares or sell them for cash.
Where is the "group of guys" now ? Did they keep their shares or did they sell them for profit ?
Am I correct in assuming that if the building societies had kept their mutual status they would have/would be surviving the banking meltdown ?
When we had a housing value crisis in the past these societies survived even although the value of their securities in the form of the value of homes mortgaged, fell.
The "group of guys" have a lot to answer for by exposing the old mutual building societies to the dangers of the stock markets, but no doubt they don't care as at the time they made a killing on the originalchangeovers and resulting takeovers by the big banks.
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Robert's point about the huge failure that has been demutualisation of building societies needs to be made more forcefully. We need strong mutual financial services companies in the UK based around responsible saving and lending, where the management do not get huge bonuses for simply issuing more mortgages. However although Labour must take some blame from this the real fault lies squarely with the Conservative mantra of private sector as all. We are now paying the price for the seeds of this naive, corrupt and grossly over simplified theory which has been thrust upon us. And that excludes the 50bn of PFI debt which has to be paid thanks to New Labour.
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.....and another thing......
Why should this bail-out be the end of the problems for the British banking sector ?
Robert's rather bold statement seems to me to be based on the assumption that it's just home-grown debt that caused the issue.
Isn't the real problem that much of America's dodgy loans have been sold on throughout the world's banks. Presumably Paulson's rescue plan would only cover debt still owned by American institutions, so any of this debt owned by British banks is still going to cause a problem ?
More "sudden" bail-outs required ?
DEFINATELY !
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The problem was built into the birth of BB and the other building societies as banks. The minute they were turned into banks they were at the mercy of shareholders who demanded profit growth. The only way profit could come was by expanding the operation. With the traditional banks already holding the routine high street banking there was nowhere to go other than progressively towards loans to unsound borrowers. The more profit made the more profit demanded. It is suggested the management was not up to the job, I don't think the boards had any choice, in the same way BB had no choice in becoming a bank, the shareholders voted for it.
Lady Macbeth.. Tis best the deed is done quickly.
Another problem for Emperor Nero, sorry Gordon Brown, I'm sure he couldnt have seen it coming whilst he was off telling the world what to do. Now what was that about a gold clad staute upsetting the citizens. Mutterings of scorched earth.
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If that is the last bank that I have to buy with my taxes, then good, but I somehow doubt it.
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It's not the end of financial institutions going over the next 18 months, it just won't be on the same scale. There are likely to be even more consolidations amongst building societies and things will only return to some sort of normality in atleast 2 years time. And I for one am glad that buy to let investors stand to lose out because it was that type of purchase that has made it difficult to be a first time buyer.
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Jack @ 10
Fair point. Bet there's plenty of fraud in there, as you say. But, still, you can make an allowance for that in the valuation. The private sector is meant to be good at this sort of thing, risk versus reward and all that ... I'm extremely disappointed in them, to be honest.
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NOTE TO ALL BB SHAREHOLDERS
If you are unsure of what this mean of where to receive advise visit the UK shareholders associations website.
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The last serious crisis for a UK banking institution? We'll see!
Surely to support this contention you need to explain what happened to the Cheshire and Derbyshire Building societies, and then explain why whatever happened to them won't happen to other small building societies.
Can LloydsTSB cope with HBOS? Who knows? They probably don't know either as 5 minutes due diligence is unlikely to reveal anything much, and whatever assumptions they have made must involve some kind of assessment of UK house price levels. I'd be surprised if those assumptions turn out to be realistic.
Anyway I thought we were supposed to be in a global system of finance. If this is the case then surely events elsewhere can impact on the UK.
Check out Fortis Bank (I'm sure you already have).
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I am wondering, has the (financial) world gone crazy over the last few weeks - or did the world go crazy years ago when demutualisation was king (and not just for building societies) and building societies (and solicitors) were buying up estate agencies like mad?
Are we now seeing some of those chickens come home to roost?
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A big thankyou to Robert Peston for presenting this commentry in a manner and form that I can easily understand .
.
Same goes for your presentations on BBC news .
Well done indeed !!!!!!
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@2, sagamix
Say someone lends 50 billion from the money markets, in order to lend that to people wanting a mortgage in expectations of a 100% return and a repayment premium of 50% of the original amount.
Now people stop re-paying their mortgages, and any properties are hard to sell (doubly so in the buy-to-let market, as many invested in apartments which are currently difficult to sell) and the ones that do are at less than the mortgage value.
You're left with a bank owing 75 billion and no reasonable expectation of getting the original 50 billion originally lent out, let alone the extra 25 billion required to cover their own repayment premium.
Even the repossessed properties won't cover the costs - if they won't sell, they're not worth anything to the bank holding the keys.
No private company is going to take that kind of exposure on. They'll wait for the bank to fail, or be nationalized, and then swoop for the profitable parts.
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Excuse my ignorance, but if we're nationalising banks, can't we go some way and solve the the Housing problem in the UK at the same time?
A lot of these Mortgages are for BTL, so turn them into Social Housing when the Defaulters can't make the payments.
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The end of AAA Ne[a]ro ,banks fiddling while rome housing market burns
And as in the ancient Roman times gangs of fireLighters[the original short sellers]posing as fire fighters rome the streets ,offering to put out fires if the owners sold their burning houses at a fraction of their pre fire worth on the spot [market]
History repeated in cyber reality
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So, how many unit trusts and investment trusts have bought toxic debt as an investment ?
How many more innocent, maybe naive, Shareholders and pensioners have to suffer in this crisis?
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As for it being the 'last banking crisis' - that's a laugh.
There will always be new ways and means to make money in banking, and some of those methods will expose banks again in the future.
Regulation and taxation has bred a belief in short-termism - grab the cash before the Chancellor does.
Long-term investments, by businesses such as banking, won't be in vogue without government assurances those investments won't be raided to increase tax receipts. As such we can look forward to cycles of banks raking in massive profits, then falling into crises, for a long time to come.
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How many Hedgefunds have complicated finances they will not be able to re finance?
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So what's happened to all the Freemarketeers of not so long ago?
When the banks were raking in all those fees from those going overdrawn by a few quid and throwing money at anyone who could fill a form in, "the market" apparently could not be interfered with and would sort itself out.Well it's certainly sorted itself out and suddenly it's apparently the role of the Government to bail these institutions out.
However much Gordon Brown bleats about the International situation things here were obviously building up into a massive bubble that would eventually burst and he was the guy supposedly at the helm,worse he was quite happy to take the credit for the false sense of well-being the house price fueled spending binge engendered.
Is it any wonder that people afraid of losing their homes,jobs,denied proper pay rises and worried about the cost of food and fuel,in some cases to the extent of wondering whether they'll survive a hard winter are increasingly turning their political apathy into outright hostility? There appears to be no fairness for "the ordinary person" in this country,just a contempt from those above which is rapidly becoming mutual.
This Government has not only created financial instability but more worryingly increasingly social instability.
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22, well we shall see within the next 12 months, during that time Lloyds will have to see how to refinance a large part (around 150bn) of the debt that HBOS has. I for one am not sad at the loss of HBOS, although my experiences of them were neutral they were by far and away the worst bank when it comes to treating customers fairly. There bank charges (penalty) structure was one of their main profit drivers, indeed they were robbing the poor to pay the rich. The sooner this shower of losers is off the market the better - that said I do feel sorry for the ordinary staff.
However just wait, will the FSA drop all the charges cases next year? After all it seems the banks no longer have the billions that they took from customers in the form of charges. Thus returning fees may indeed be the end of many of them.
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On the 25th September
Mr Richard Pym, Chief Executive, said:
"The changes we have announced today focus the business as a strong savings bank, reduce the size of our lending activities, and increase our capacity in arrears collection.
We are a strongly capitalised bank now undertaking a complex transition with regrettable job losses, but we are planning to put the problems of the past behind us and have a business which is fit for purpose going forward."
Can somebody actually explain why in three days, this situation developed ?
As yet I have read/hear no adequate explanation.
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I certainly shalln't mourn the loss of the self-cert and buy-to-let mortgage markets. The former was a disaster waiting to happen. The idea that you could simply take someone's word for their level of income was absurd. As others have pointed out, there was plenty of evidence of widespread abuse and yet the Government and FSA did precious little to stamp it out.
As for the end of buy-to-let mortgages, excellent. They've probably done more than anything else to prevent many potential first-time buyers from getting a foot on the property ladder. Buy-to-let was a market fueled by greed and recklessness. Most of the baby boomers who invested in buy-to-let would never have been able to had they been prevented from buying property when they were young.
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robert, what you mean is that if there is less of a market for buy to letters to remortgage or refinance then the costs to those mortgagors will shoot up due to lack of competition, which will put more of them in difficulties and might trigger a sale of more buy to lets in a distressed market.
result: more repos.
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I wonder how many people will end up homeless in the next few years.
I also wonder how many families will be repossessed when they are unable to keep up mortgage repayments ?
Very few silver linings in these clouds.
I'm not a fan of Europe, but with the loss of inward investment in this country, we could be looking at two pounds to a Euro.
Maybe, we will wish we had all joined the Euro years ago !
I can't believe I've said that !
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Can a Moderator tell me why sometimes when I click on Post Comment, my comments disappear and there is no evidence that my comments enter the queue. Is this a tech fault or do you blacklist some bloggers?!
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Well it just goes to prove it. If the best brains in the financial world come up with the same solution.
So our balance sheet reads:
Deficits= Capatalism
Credits= Nationalism
So why don't we just skip out the middle man or woman and nationalise everything.
Then I for one could revert to a 9 to 5, five days a week job, with four weeks holiday.
I would have a structured career ending in retirement with a reasonable pension.
Instead I am left with a pension hole which can't be filled, no guarantee of a job, no real career prospects, just the sure fire knowledge that somebody else will be getting rich at my expense. We have been living boom and bust for most of my career and just when I think I am on the right track something like this happens.
So the truth of the matter is the little people are picking up the pieces again and will invariably be the one's that get 'shafted' in the process.
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I have been telling anyone who would listen for the last two years that Bradford and Bingley were going to be the first against the wall when the revolution came.
OK, I was wrong - Northern Rock were the first - but BnB's reckless behaviour promulgating self-certify and buy-to-let mortgages to the exclusion of all else has been an obvious disaster waiting to happen.
If it's been obvious to us, how was it not obvious to the regulators? Or to their shareholders for that matter? BnB's entire strategy was hinged on the housing bubble never ending.
Anyway, I have absolutely no sympathy with BnB or its shareholders - they have not been victims in this financial crisis, they have been part of the cause.
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No4
Northern Rock was not made closed book , because it was fundamentally profitable.
It's just that it's sources of funds dried up.
It's basic model of lend and borrow was working just fine , until someone turned off the money markets..........
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In fact, what has become of the short term private equity bonds, issued to buy out businesses?
Will they be refinanceable?
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CAAAndyfloss economics spun full of AAAir
AAA's you bite into the more nothing is there
The carrot is gone the stick is your share
tis all that is left of our state of farewell
NEWsSEEKERS
the carnival is over we may never meet [our debts] again
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We taxpayers are now in possession of many thousands of houses, as we have taken on thier mortgages. So there should be no shortage of social housing for the foreseeable future!
Yet another peice of Mrs T's work has failed and must be rolled back, i.e. her policy of selling council houses. We taxpayers are now buying the equivalent number back, only at vastly inflated rates!
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@26, Tengsted
Problem there is twofold.
1) The government turfing people our of their homes, even buy-to-let ones, isn't going to a vote winner.
Back in 97 Brown stated that Labour, unlike the Tories, wouldn't allow house prices to rise unsustainably and then crash (another broken promise Gordy!) and Labour used posters highlighting repossession rates under the Tories. Brown, and Labour, know that repossessing en masse would provide the Tories an entire arsenal with which to win a general election.
2) The properties that they possibly could get away with repossessing are the apartments.
The ones remarkably similar to the ones we've been demolishing for the past decade. The ones that were reknowned hovels, hellholes and breeding grounds for social discord, isolation and resentment.
I know the 70's are in vogue for Labour right now, but even they must baulk at the prospect of a return to high-rise style social housing.
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Thanks for spelling out something that is blazingly obvious but rarely admitted: that demutualisation of building societies was a lousy con-trick.
It's like all the utility privatisations -- legalised looting of publicly owned assets. I voted against on principle, because it was immoral.
But I then moved my savings and mortgage away from the TSB, Abbey and Halifax for sound financial reasons. Banks sometimes offer a cheap deal to hook you in, but it's short-term and they rely on people not realising or not bothering to move.
If you've got to give money to shareholders, there's less for the savers, and borrowers have to pay more. It's obvious. Why do the looters always get away with it?
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Let's be honest, is anyone really that surprised?
Did anyone at the time really think that demutualisation was a good idea? Apart from the financial Ringwraiths that brought it about?
I know for a fact that there were some that could see beyond the bribes of free shares, and felt that it was not only very unwise but also morally wrong, and closed their accounts if their building society demutualised. They had no wish to be turned into cannon fodder for the money markets.
Unfortunately, they seem to have been in the minority.
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PS "Privatise the profits, nationalise the losses" makes good sense to the looters of our economy, and always has done. Nice that they've always got us to bail them out!
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The joy of communism for the masses, has been at least in the past, that everyone is equally poor !
Just read any factual history books !
Of course, crime will fall, as few people will have anything worth stealing!
Except the Commissars!
Strange how someone will always end up a Millionaire (even under comunism).
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#37
If you are using any shorthand version of 'and', don't, if you want to use a shorthand use a plus (+) sign.
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@37, markanash
Check the URL at the top, you'll see something like 'dnaerror' in it and an explanation of why its been rejected.
It's usually a character it doesn't like - like an ampersand - or a profanity block.
The profanity block is quite comedy, it's filter is flawed. It had problems with me using the 11th letter of the alphabet as shorthand for 1000 the other day. It thinks that's swearing in some cases.
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Welcome comrade !
Step this way with your Potato Ration book open !
Alas for what was left of the British way of life.
Still we can always watch sitcoms about it on Freeview (on our communal televisions).
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Roll up, roll up, buy your Potato futures here!
Special discount to Commissar's and Party members only!
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Actually the humble potato does illustrate the basic equality of extreme regimes.
Robber Barons give their peasants French Fries.
Commissars give their peasants Boiled Potatos!
Note the role played by the Potato, fulfilling the same social and cultural role for both sets of oppressed masses.....
Hmm, I wonder what bath tub Vodka tastes like!
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> Wealthy financier 'killed by train'
A wealthy financier said to be overwhelmed by the current global banking crisis has died after throwing himself in front of a commuter train.
...continues at http://www.guardian.co.uk/uk/feedarticle/7834152
He leaves a wife and child.
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Time to stop this buy to let nonsense - it distorts the housing market, taking properties away from deserving families.
Does anyone else feel the same? There is a petition on this at:
http://petitions.number10.gov.uk/Propertymarket/
I'm amazed there are so few signatories!!
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#37
I just had this problem. If you look in the address bar you will see it says "profanity filter". It seems that bbc consider many words to be profane, even inoccous ones. At least that was my experience.
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#26 - rather than provide social housing in an overinflated property market, why not return these properties to the market and allow prices to come down to the normal level. If normal people can afford normal properties then the need for social housing is greatly reduced.
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I believe things will continue rough for a while. The proliferation of complex packaged products means that it is not just mortgage assets that are tainted.
Scandinavia went through something not too dissimilar in the 90s, and the Governments there intervened by creating "Rubbish Banks" to absorb bad assets. The scale was a lot smaller than now. The root causes, however, were the same. Basically, unsustainable growth of loans which supported economic growth, and was therefore let to carry on unchecked. The result was a prolonged period of low/no/negative growth.
Going forward, there needs to be real debate of how this can be prevented/mitigated in the future. BoE/FSA/HMT need to develop the skills and the guts for true risk assessment and then act on it.
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I am afraid Doctor Gloom's pessimistic view may be correct. We have heard only about mortgage related woes and the over-dependence of Northern Rock and HBOS on wholesale money markets. What about spiralling default rates on consumer loans and creditor cards? Once borrowers are in negative equity with their houses the barrier to bankruptcy lowers. I am seeing (as a debt adviser for well known charity) a dramatic increase in heavily indebted house owners giving up their houses and then petitioning for bankruptcy to clear mortage shortfalls and unsecured debts. The capital bases of some are high street banks look particularly vulnerable.
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There are some very fundamental differences between the US and UK housing markets which most commentators seem to ignore or are unaware of:
1/ US home-owners can hand back the keys with no further penalties - banks are unable to seize other assets to make up the shortfall. This means that even rich property owners can choose to hand back the keys for individual properties that are in severe negative equity and that they cannot rent out. This is not the case in the UK where banks would be able to pursue buy-to-let investors, seize other properties including their principal residence and non-property assets. This means that buy-to-let investors will be very reluctant to allow themselves to be repossessed as they will then risk total bankruptcy.
2/ Most US repos are happening in new-build suburbs which are in effect becoming hollowed out. With rising petrol prices qand no public transport these properties are becoming impossible to rent out and cannot be sold at any price. A similar situation does not exist in the UK.
3/ UK repos are running at a far lower rate than in the US and when they are auctioned they are still finding ready buyers who are then able to rent them out.
4/ The UK rental market is very healthy and if anything will become even healthier as fits-time buyers find it ever harder to enter the market with minimum deposit % rising.
5/ There is far less new build in the UK compared to the US and there is still an overall shortage of housing with a rapidly rising population.
6/ Self-cert mortgages may be higher risk however this can be heavily overstated - these mortgages were created for self-employed buyers who earn a large part of income without payng tax and the vast majority of them will continue to pay their mortgages every month for the reasons stated above.
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You should put more emphasis on the 'liberalisation' side of this deal, the takeover of the profitable parts by a foreign bank.
It's time this word became common currency and understood by the public. The exiting of profits overseas get set into stone ie irreversible, through 'liberalisation'.
A option would be to offer these profitable parts to UK people co-operative partners.
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There's been some great reporting here, Robert. Let's now focus on what happens to Private Equity - it's likely to make the mortgage fiasco look like a minnow!
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I bought some funds back just after the dot com boom. Paying the 5% commission on the investments and taking the sales patter that they would give me frequent updates and advice on the progress of my investments.
As it turned out I lost over 50% in about 1 year, all the time being told don't sell it will come right in the end. At this time I got very angry and shouted "How much must I loose before you will tell me it is time to sell ?".
The response was "We are not allowed to tell people to sell." So the reality of banks.
They are nothing but glorified salesman.
They don't know anything much about finance they are just interested in commission.
I learnt a hard lesson but it IS learnt.
Yes everyone in the banking industry knew something like this WOULD happen. They just hoped it would be after they had made their money.
Banks don't deal in investment they deal in profit from you. Don't expect them to look after your money, given the chance they will take it.
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Very clever move by the Socialists to keep the mortgage debt in State hands.
The leftist policy goal of controlling how people are allowed travel, where they are allowed to live and what they can think makes a leap closer.
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Some have posted that there is no value in these BTL mortgages . Here are a couple of considerations to calm our views.
1 real estate is a long game but in todays world 5 -8 years is a very long time!
2 while sentiment in the buying market for homes of all sorts ( bar super prime ) is composed of fear and fear or recession our populations growth (ignoring immigration) has not gone away. Just look at the boom in rental markets in places like Warrington - full of flats but all letable at market rents. These people cant buy so must rent. Only some can stay at home. Therefore the sale price for these flats is way below the value of them for rent right now. That underpins the mortgages regardless of individual defaults by BTL landlords .
3 There will be very very little new supply next year.
4 If you can ride out the storm then all the teachers doctors etc that I know who bought these BTL's will do well in the medium term.
5 Look at the rest of the continent . It has a bouyant traded institutional investment sector in residential. Dull but reliable ( safe and sensible) . This is where we should go in my view.
Interseting times though.
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One thing that isn't coming out that will affect many having difficulty with mortgage payments is that if you hand in your keys, that isn't the end of it. Your loan provider will then sell the house - if it can - but after the sale and removal of their expenses, if there isn't enough left to pay off your mortgage they can still pursue you for the remainder of your debt, and they probably will. Stopping paying and handing in your keys isn't a solution. You are better off dealing with the sale yourself as that will minmise costs and reduce your overall debt.
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What you say is both interesting and telling. This whole crisis can be traced back to Thatcher and those who seek to just blame Brown for the mess are deluding themselves. In fact, I really can't be bothered listening to either the Tories or the Lib Dems on what they wold now do differently since they, like Labour, were in complete accord with the Free Market philosophy that got us here.
I wonder when the penny will drop and our political and economic masters finally realize that there is no way out of this situation by simply following the old rule book?
We need to recognize that systems, of which capitalism is one, are simply mechanisms and therefore only as good as the societal models that they operate within.
We need to adopt a more ethically-centred approach, which determines what a good and decent society values, e.g. that supports and can adequately afford healthcare for all and not one based on a postcode lottery; pensions to enable the old and infirm to live comfortable and meaningful lives, and not face a bleak and uncertain future; community structures that enable the young to feel active and participative members of society rather than pariahs; a system of reward that ensures that people from all walks of life receive a fair and equitable wage, irrespective of whether they work in the city or in supermarkets; that sees property as a place to live not to make money from etc.
When we finally wake up and appreciate that society is, first and foremost, about people not markets then we might start to build a society where everyone can play an equal part and not suffer the whims and follies of the intellectually bright, but emotionally stupid elite.
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The trouble for folks arguing in market prices for property is that there already is someone living in those properties !
So for a first time buyer to buy, someone needs to be made Homeless!
So to solve this more Housing needs to be built.
Bad luck lack of mortgages means no building.
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Why are Ministers not being asked in interviews, why, if debts can be nationalised, profitable sections of failing banks can't also be nationalised? Why is the public purse only taking the losses?
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#44
No one will be turned out of their house, they might loose title to the house (but they would have done so anyway if they default), the only thing that will happen is that they Will start paying a fair rent instead of a mortgage repayment for living in the house - of course if they can't even afford the fair rent they need to down-size or apply for housing benifits...
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This will put the buy-to-let market into meltdown won't it: can see a lot of amateur punters getting burnt. Incidentally, what happens to holders of PIB's ?
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Robert, what are you on about?
The sub-prime problem is the tip of the iceberg - what about all the Alt-A mortgages, the commercial property bubble, the CDO, CDS and SIV bubbles - all adding up to hundreds of trillions of dollars - much of which is stuffed into our banks, pension funds and insurance companies?
Is your new remit from the gov't to keep us all calm while the house of cards collapses?
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#68 ? Why stop at Thatcher, what about coming off the gold standard or floating exchange rate ? As for the plea for social equity...well a bunch of guys in Russia tried that, ended with Stalin. Ditto China (oops hello Mao), Cuba .....I am afraid the world is one big schoolyard and everyone is in a gang to avoid the bullies. I can't be bothered listening to politicians either, nor to you as you sound just like one.
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Actually in order to make Britain competitive in the International marketplace, salaries will have to come down.
So we will either have very considerable Inflation or actual pay cuts.
It may be that Labour or a future Government will actually cut the minimum wage.
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It would be interesting to know why the Ratings Agencies have not yet been brought to book for passing Bonds as good, which were not good at all?
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Re Post 60 - very sensible comments, I have seen the amount of repo's out there recently, UK Housing market has just been overvalued for 10 years due to shortage of homes.
Re Post 63 - why did you pay 5% commission when you could have paid less than 1%, and why follow the herd when financial colums were warning of the Dot Com bubble for 4 months before. The idea is to get in the market as it is in early stages of a rise, not at the top when the big traders have talked up the share prices and already sold their holdings.
Re moans against BTL investors - most BTL investors only put their already taxed income into buying investment homes because pensions were such a bad deal after dear GB started raiding pension funds by taxing them more in 1997.
Again BTL investors had ther hands tied with CGT on gains (tax on tax) but should have got out when warnings were being made in the last 9 months, April was a good time to exchange with reduced 18% CGT rate. BTL is a gamble, same as investing in shares but if you don't gamble what chance have you got of making a decent living here.
JOB stands for Just Over Broke....
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And what about an investigation into the role played by Anlysts talking down companies that are vulnerable?
And it appears a lot of short positions still existed in B and B last week, despite the ban on shortselling !
The Public and the country are being robbed by some very clever people.
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You are a dangerous man Mr Preston. I suspect it is from the concepts that you have introduced and phases that you have invented that has helped precipitate the massive loss of confidence in our banking system.
In this article for instance you state that "exposure to mortgages that are expected to be a big source of future losses". Who thinks this? Analysts do not think this. Indeed analysts predict a modest profit at the Bradford and Bingley of 4.71p per share this year and a small loss next year of -3.2p per share (http://www.reuters.com/finance/stocks/estimates?symbol=BB.L). Hardly unmanagable losses.
Bradford and Bingley has made significant profits over the past 7 years and one would expect it to make significant profit again. House prices may go up or down but the world remains fundermentally unchanged.
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Ignoring whether it would be "right or wrong", what would the effect be of paying £2 a share for B and B shares.
Would it underpin all other bank shares, preventing a repeat of this scenario next month/next bank.No bank share would then collapse like this.
If we have to throw tax money at this problem, let's get some benefit and/or lose some liabilities for our money.
If the £2 a share (and an interim Northern Rock payment) were to be made, immediately, (in shares of any "rescue involved" bank), wouldn't some of this stick, helping the capitalisation of that bank and easing off the pressure a little.
Compensation might have to be paid under EU law anyway and huge litigation costs benefit neither the taxpayer, nor the shareholders.
If we need the banks to recapitalise, then perhaps we should be suspending stamp duty on bank share purchases and immediately paying B and B and Northern Rock shareholders to "prove" that holding banks' shares is not a mugs game.
Again, ignoring the "rights and wrongs" of bank share shorting, perhaps now all shorters should be made to close their positions, to encourage bank share ownership among the general public and institutions.
We need to change sentiment to owning bank shares to positive, that will help their capitalisation and stop the ratchet tightening and the hunt for "the next worst bank".
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#60
I think there is a bigger problem with self-cert mortgages than you suggest.
In the old days (a couple of years ago) it seemed perfectly proper to put an inflated income figure on a self-cert mortgage application because you 'knew' you were not cheating anyone.
You fully expected to be able to keep up the mortgage repayments (and your income was rising) and - even if the worst happened and the property had to be sold - it would be sold at a profit, the lender would be repaid in full and the borrower would have profited from his investment.
Mortgage brokers certainly had a hand in egging some people on to submit inflated income figures.
But all these 'obviously true' statements are no longer true at all.
It is also the case that a minority of self-cert mortgage applicants were people who, in truth, had no legitimate income at all. Some such people were prepared to blatantly lie to get a mortgage, and found that they could get a mortgage via self-cert.
So, to my mind, in these difficult times there are considerable problems for lenders (and borrowers) in relation to self-cert mortgages.
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@72, Boilerplate
You're looking at this much as many look at a sausage - with little thought to actual content.
You'll have people on the social housing queue wanting to know why they don't get first dibs, they'll see it as hand outs to the middle class if the original owners get to stay in the house.
Some councils will just turf people out and send them to the back of the queue.
You'll also have those who've been paying their mortgages for some time, fallen behind and have their house repossessed. They'll feel pretty hard done by, especially since they'll be laying the blame right at Labours feet for their change in circumstance.
There are oodles of possibilities, and few actually reflect well on the government.
It's a no-win situation politically, and one begging for tagline.
"Labour, Labour, House Filcher"? Not as snazzy as "Thatcher, Thatcher, Milk Snatcher" though, but I'm sure some tabloid wit will come up with something.
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Problem - Housing market will continue to slide exposing more not less problems. First time buyers shunning market worried about further slides and difficulty in raising a mortgage. Buy to Let recruited to fill the first time buyer hole but now blow away. Can't see anything to provoke pick up until current mess out of the way and it is felt bottom has been reached. Whether anybody likes it or not the housing market is very embedded in the economy. Just making mortgages available is only part of it. National debt now tied to housing market values also.
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#31
Agree entirely. People want the benefits of free markets but none of the drawbacks. I didn't see any of the people I know who own houses complaining when the prices were increasing.
A labour government for the man in the street would have stopped the bubble and managed growth for the benefit of all. It would have slowed down the house price increase by taxing the buy to let out of the marketplace. This would have caused some slowdown in growth, but at a time when it could be managed better.
Rightly or wrongly, people in the UK believe they have a right to own their own property. Governments should understand this. "Teflon" Tony and "Get it in the neck" Gordon had plently of chance (10 years) to do something but did nothing, presumably because of the short term political benefits.
The irony is most people are now looking to the Tories to improve the situation. Now correct me if I'm wrong, but aren't they the party of the buy to let brigade ? Or will they gain government by adopting left wing policies in an ironic reversal of what happened when Nu Labour came to power ?
Personally I'm going to be watching out for "Teflon" Tonys next move. After all he called the top of the market well enough.
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Isn't the whole thing really a 'valuation' crisis. Probably should have guessed the sytem was messed up when you need MiT maths Ph.D's to establish 'value'. So now no-one knows how to value a swap, a bank's equity or even a house. Now a potato, that I can value.
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Downside of the way they are nationalising B and B?
It seems to me that the way in which are nationalising B and B may limit the foreclosure pressure that a normal bank would be under. This will keep UK house prices from falling as much as quickly - as they should. Thus prolonging the depression.
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RealEstratejohn
Thank goodness someone has made a sensible comment. Lots of BTL bashing on here from people who don't understand what they're talking about. Many BTL investors are providing a much needed service for those that want to rent and have actually made sensible investments in good property in sought-after locations and will ride out this storm. I'm sorry but you haven't seen the end of BTL.
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Re 81
NR shares compenastion covered in bill by assessor mechanism, as NR bust not much. BB would be similar assessor mechanism if same bill not zero but not high. The litigation EU law thing is not helpful to speedy resolution which many shareholders will want so swallowing lower price than liked most probable. Practicality of situation. If you have never queued for high court you have no idea how bad it is or what the cost are. If likely House of Lords x3+.
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Your blog highlights the aspect of building societies being carpet bagged into becoming banks. There is, however another important issue.
The stockmarket - or more importantly the institutional investors - want high returns from all companies. Some companies work in sectors that are inherently risky so give high returns to match the high risk.
There does not seem to be a place in the stock market for a low risk low return company. Time and time again the investors take what should be a low risk company like a former building society or a utility company and force it to create new risks in order to make a high return. If they do not then the directors are thrown out by the investors and replaced by new directors who will produce the high returns. All goes well untill something goes wrong and there needs to be a bail out. And those same shareholders are screaming that they have losty their money.
Let us have a mechanism for a low risk low return company. They would be somthing between government bonds and the stockmarket that we have come to know.
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81:
It almost seems the whole point of the last years shortselling and market manipulation, including the closure of the moneymarkets, has been in order to undermine and take over the ex building societies.
To pay the Shareholders or Pension funds any money would defeat the object of stealing the business.
In a few years the stolen elements will probably turn up as profitable businesses in someone elses ownership.
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@ no. 80
LOLOLOLOLOL
How far behind current events are you.....???
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I just don't believe that this is the end of the problem for British banking institutions. Why did Paulson and Co (the hedge fund) place a £1 billion bet recently on more British banking failures (of which HBOS was just one)? That's one hell of a bet to get wrong. We need to see how the markets react to Hank Paulson's TARP next week and beyond. The end of this mess will only start to be truly known – with hindsight - once the impact of the self-inflicted disaster in the banking industry flushes through to the real economy - and it will certainly come. The casualty rate will be high (public sector service cuts, tax increases, inflation, house repossessions, unemployment and perhaps even social unrest). Don’t forget too that the UK has an impending energy crisis, hence the panic-stricken rush into nuclear (the lights could well be going out in 5 years or so). And, moreover, mankind has reached the end of the era of cheap energy, the implications of which will soon make this financial crisis look like a cakewalk. So, it really is difficult to believe that the UK banking industry is through the worst when we haven’t the faintest idea what’s hiding in the US financial black-hole.
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@50 Frank-Castle
Thanks; it was an amersand in the text. Conspiracy theory dashed (and good job too)!
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All of this has been predictable for a long, long time.
A key indicator is the house-price-to-average-earnings ratio, which has been way overbought for years.
Self-cert is daft - even the self employed can produced audited income statements.
BTL exploited the differential between rents and excessively low interest rates.
Mortgages at over 3.5x earnings, LTVs of over 85 percent, were problems waiting to happen.
On some of these measures, house prices are likely to bottom out at least 40 percent below the peak.
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80, 94:
I suspect the analyst earnings consensus excludes non-recurring items, i.e. write-downs.......
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Think through the consequences from the nationalisation of both Northern Rock and Bradford and Bingley (over and above the burden inflicted on the taxpayer) and it will become clear why these institutions should have been allowed to fail.
First, the banks are allowed to carry on offering high deposit rates, but now with a government guarantee. This automatically puts other banks at a severe disadvantage and forces them to offer even higher rates, putting a further squeeze on the margins of what are already weakened institutions.
Second, the government will now be responsible for foreclosing on delinquent mortgages and turfing those who are behind on payments out of their homes. Think how prepared or willing they will be to do this - and if they don't, how will other banks enforce their own debt contracts?
Allowing bank failures would mean a sharp but short recession from which we could move on. Prolonging the life of mismanaged institutions that ought to fail will create a depression.
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It's time for a PUBLIC INQUIRY into our banks and finance industry.
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Re 86
No such animal as a free market, all are regulated to some extent or other. Difference between parties in centre gorund not actually that much. Difference in policies also limited by need for mid 40's pence in the pound tax (direct and indirect) needed in western country with social infrastrucure requirements. It is the little things that are highlighted to give difference. Brown stuffed himself.
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#32: based on my experiences with about half a dozen different branches of Halifax, I wouldn't be too worried about their poor staff - most were, in my experience, so unhelpful and lacking in basic numeracy thay they would seem to have been earning well above their market worth for quite a while at Halifax. Those I have had dealings with would seem to have done rather well out of HBOS so far, but the job market, like the housing market, needs a, err, correction sometime to sort the wheat from the chaf. That said, the BoS staff I've engaged with have been uniformly excellent and helpful, if rather over-burdened by poor technology and clunky processes.
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#55: who on earth are people going to rent from if your idea comes off. That is just idiotic. I don't own a property, but I don't want to be a council tenant. Under your plan there's no alternative. Madness, utter madness. Or would you like all privately-held property to go to the state, and for us to live in some quasi-communist utopia?
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#76: adjusted for exchange rates and transport costs, the UK is already a cheaper place to produce, say, cars for sale in Europe than Eastern Europe or even China. Wages do not need to come down. Unfortunately what we need are people to lend money to start actual, real businesses which do something useful. Oops - banks don't have it, and the government has borrowed to the hilt already.
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In the 70s and 80s, there was a mass outflow of citizens from Ireland, who believed it could never again be prosperous (in their lifetime). Without EU money, it wouldn't have been. I fear the UK is in a similar position - I don't see how we can be anything more than an outpost of those countries with money and prudence.
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I've just been considering the ramifications of having Fiat money.
Now, the Govt could devalue the currency, arguably the markets will do that in foreign exchange terms in the fullness of time.
But in order to restore confidence to the foreign exchange markets, I propose that the Pound should move onto the Potato standard.
On a Pound for Pound basis !
Should communism be on the cards at least the general public will have had time to get used to the idea!
Smaller denominations could be exchanged for new potatoes leaving King Edwards for the newly devalued fifty pound notes!
Of course, this might cause trouble in the Casino business what with having to grease proof the gaming tables so as to not be spoiled by all the new Chips!
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#54
Jumping under trains is almost a national sport here in Japan... yes you have to feel for the person who does it, but also don't forget the poor driver trying to stop the train! Let alone the family left behind...
btw here the family has to pay compensation in many cases for the 'inconvenience' caused... one to think about.
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"supercalmdown", please calm down...
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I take it the nationalised mortgage book of B+B has no value, and is therefore free to the UK govt. (in line with the market valuation of it).
In which case, the UK govt has just come into ownership of a significant amount of housing stock, paid for by the B+B shareholders (who have lost their shirts).
Is this a bad thing ? Can't quite see how the tax payer can lose at all in this deal.
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What about the Schroders's and 3i's of this world ?
How much toxic debt have they acquired ?
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These building society failures have not only just happened, and certainly the Directors will have been aware of the problems for longer than the start of the recession. They are taking the opportunity to dig themselves out of a hole using public money, and without losing their overpaid positions.
If Directors fail in business then generally they are replaced, these Directors will keep their jobs and award themselves a huge bonus.
Furthermore they will never be held accountable for their shortcomings.
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Robert
I have a another distinction. Whilst money was no doubt lent cheaply. What was criminal was the artificial distortion of house prices due to the lending of sums which stretched income multiples to 4 x Salary, 5 x Salary.
It was argued that we were in a low inflationary environment and increasing multiples was prudent. Claptrap.
In the not too distant past it was considered prudent to lend a maximum of 3 x 1 or 2.5 x joint. Over the last 20 years this has been stretched further and further creating a bubble that had to explode.
Buy to let contributed further to the problem but only because of the artificial rise in property prices enabled would be landlords to raise deposits via remortgaging thier own property.
Had lending disciplines been maintained property price rises would have been far lower keeping a lid on buy to let which has priced all but a select few first time buyers out of the market.
I still think we are at the beginning of the unwinding of this so called credit crunch which is going to run throughout 2009 at least.
On a separate note I feel that any financial institution unloading toxic debt to the government should handover a significant percentage of their profits for the next x years until they have met their liabilities to the tax payer in full.
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#101
Yeah, and how much will that cost the tax payer, the Govt. has backed all deposits up to £35,000 remember, and how much instability would be caused by people and institutions who have more than that amount deposited with B+B cause, never mind all the houses that could get repossessed via the bankruptcy process.
This whole mess is going to cost the tax payer what ever is done, just accept that fact. As it is, if the BTL market does recover and self cert mortgages do come good again then the tax payer might manage to break-even if not make a profit - of course if one is only looking at this from a carpet-bagger or scavenger point of view then nationalisation is the worst of all options.
I see that the Tories are now suggesting that they would allow the BoE to take over these failing banks, as the BoE is a state owned bank, isn't that policy nationalisation in all but name...
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I don't believe it !
Whilst I've been on here chipping away at the credibility of online blogging with my starchy sense of Humour, some evil hedgefund has just shortsold my MarisPipers!
Is nothing sacred !
I knew I should have invested in turnips......
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Why is the government looking at selling the branches and savings to other banks?
I would suspect very few branches would be kept as rival banks will already have a nearby presence.
The government should look at selling to investors to create a new bank to rival the loss of HBOS and Lloyds as independent banks.
At the very least any bank that buys £20 billions of savings should also take on the same amount of debt, if not the taxpayer will pick up the loss as more households default on mortgages.
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112:
I don't quite see how the government has acquired the mortgage book for free - they've taken on the obligations to depositors and other creditors.
The net cost to govt will be the difference between these obligations and the ultimately realisable value of the mortgage book.
But I agree that this could turn out relatively OK for the taxpayer over the longer term. I don't think that the mortgage/security difference need be too bad.
House prices are likely to fall further from here - to a low perhaps 40 percent below the (over-inflated) peak. But not all the mortgages were issued at the peak, of course - a lot were earlier, at lower prices. Maybe the loss on self-cert and 'ordinary' mortgages might be 20 percent of the total.
In the UK, BTL borrowers cannot walk away - they remain liable for losses. So the overall loss on the BTL side of the book might be, say, 10 percent. The overall hit might be, say, 15 percent or so.
Against this, there is the value of the branch network and other assets.
The government needs to guarantee retail deposits, and let people withdraw their savings if they wish - but they probably won't, now the bank is taxpayer-guaranteed. Other creditors will probably have to wait, getting paid once the book unwinds.
One problem here, though, is the government reposessing people's houses; the voters are not going to like that. The BTL people aren't going to like the govt coming after them for their liabilities, but that's how it goes when investments go wrong.
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#106,
Don't want to or to proud to? If someone is homeless they will accept a card-board box from the council bin-man if that is what it takes to have shelter for a night...
As I said elsewhere, many people / families in the post war ear from 1945 - 1979 started out by renting from their local council (this also allowed them to move around the country is needs be fairly easily if work dictated), it also allowed them to save for a deposit.
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Turnips?
I remember an England football manager being labelled "the Turnip" after an inept performance against the Swedes.
The turnip in this situation - the team manager whose inept game-plan has gone down to defeat - is Brown; is there a Scots vernacular term for a turnip?
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Interesting recent developments. Not enough regulation of these 'institutions'? I fear not. Under the banner of too much red tape these guys have managed to avoid detailed scrutiny. Well done Cameron.
In France? Well, very dull and full of red tape, but much safer.
And as for the Conservatives, well of course they always knew this was going to happen. If only Gordon Brown had listened. Yeah right, let's not mention all of the CEO's and Directors of these failed banks who have benefited from the era of demutualisation and privatisation.
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That is an absolute disgrace, based on what pervert logic my hard earned money I pay as taxes to this government should save reckless private investors? Why not save MFI and all private companies in troubles nowadays?
Going bust is part of the solution of the problem, and all measures like that just encourage reckless private investing in the future. Not to mention that separating toxic debts, means some other private investor will take all the benefits and the taxpayer will get all the toxic debts???
Would you somebody explain why we should save all those reckless private investor?
Investing should be about taking responsibility and if investment is wrong you just lose your money it is simple as that.
Why I am not surprised with that culture of PC blaming everything else and nobody taking responsibility for its own actions.
I know that this will not be popular amongst the people who will lose money (bankers association and the investors), but there are hard times when some politics should be able to take hard decisions, it will not be a populist decision, but somebody should have the will to take it.
And Cameron is pathetic with his half-backed approach as well, so is there any political party in this country willing to tell the true and to take responsibilities for applying consistent market rules for EVERYBODY? Please the people know pay later is very comfortable for the politicians, but it is very short-sighted approach.
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Of course demutualisation was a failure as has been apparent ever since Northern Rock bit the dust. The old building societies were both predator and speculator proof. The Government needs to move quickly to repeal the 1986 'Building Societies Act' which made demutualisation possible. Also, some way has to be found for those societies taken over by the big four such as Woolwich and Cheltenham and Gloucester to be returned to mutual status at no cost to mortgage holders. Going beyond building societies, there is a good case for allowing Credit Unions to provide mortgages for first time buyers as this will be a further source of speculation proof housing finance, which has all but dried up.
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Robert Peston is right.
It is the end of an era for the demutualised, deregulated new world banking order.
Usher in Captain Mainwaring, Warren Buffet and the world of organic growth, value investing and living within your means.
Society is going to change radically.
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I made the point with Northern Rock, I make it again with Bradford and Bingley.
Before anyone takes a company over they go through a process of Due Diligence.
Has the Government done that with NR and B And B or are we the taxpayers buying them blind?
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Re 97
- Your analysis is spot on, house prices need to fall by at least 40% from the peak.
However in order to get there the wider economy will experience a lot of pain, putting downward pressure on real incomes. Most likely when we get to 40% a new floor will be established somewhat lower.
Added to this is the trillions of exotic derivatives that are in the process of blowing up in the faces of the PhD whizz kid designers.
A lot of people bought into the dream and now the dream is being revealed as a nightmare. It may take a while yet for the full horror of this catastrophe to penetrate.
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#121
It's not Browns game, the 'sport' and it's rules were invented in the 1980s by Thatcher.
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Apparently the Scots vernacular for turnips is Neeps. This fits turnip Brown exactly - it's an acronym for:
N o
E ffective
E conomic
P olicy
S tupid
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#119 wrote "I don't think that the mortgage/security difference need be too bad. "
I like the sense of optimism but I can't see the calculation...
If large proportions of the morgage book are already in negative equity then there will be a negative return if all the holders start to default. If everything runs to completion then I can see the losses would not be significant but that is not how the world works... just look across the pond; owners giving property back rather than stay put. If the default rate goes up the mortgage pool is sunk in its own toxic cesspool.
Once the BtL landlords start handing back the keys the realised loses are then owned by the tax payer.
And if the keys then get used for social housing all that has been achieved is that HMG bought at the top of the market.
Heads you Lose; Tails you Lose. Better not to play the game.
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A lot of people blame the USA for these problems, but acording to the New York Times(27 Sept 08) Credit Derivatives were first engineered in London by AIG under JJ Cassano a former executive.
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111:
The Government is not reading or listening to the opinions on this Blog.
I wonder indeed how much orchestration there has been on this whole fiasco, from anlyst downgrades to Mr Pestons announcement.
All very suspicious.
So one might as well discuss amusing root vegetables for all the good it will do.
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Demutualisation was a con. The Building Society I am a member of held off a carpet bagger by changing its rules, voted by its members. A Mutual is owned by its members, not a few shareholders, all of whom have a vote and a say at the AGM. Mutuals have to be run to benefit its members not to make an enormous profit, which only benefits shareholders and directors. Mutuals and credit unions could be the way forward for those of us 'little people', who look for security in our day to day living.
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Out of interest the word Armageddon is a greek word.
A greek version of the hebrew term
Har Megido a city in Bronze Age palestine, site of many battles, between Egyptian rulers, and palestinian and then later israelite kings.
This City became symbolic of future world shattering conflicts and the Hill of Megido, Har Megido fell into Greek as Armageddon.
Nobody is interested in my economic or business knowledge so I thought I would share an ancient linguistic root!
Instead of Potatoes!
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"To all those ex-carpet baggers out there, I hope you are truly ashamed.
Many of our building societies are/were very old, with proud histories. I could never understand how the current members could claim all of the value of a Building Society which had been built up over decades. Morally it was wrong."
Here here!
I am also a satisfied Nationwide customer, and I have to say that the Halifax treated me extremely poorly till I moved account. The funny thing was, that many people didn't even understand what they were doing. I once heard some people discussing setting up a building society so that they could then demutualise and make a profit! Errrr... no.
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130:
Thanks. I'll try to explain my calculation a bit.
Let's call the peak housing price 100. Some self-cert (and other) borrowers bought at this peak (which I'm calling 100). But a lot of others - indeed most - bought earlier, on the uptrend - after all, this book has been accumulated over several years. Let's say the average is 80, i.e. 20 percent below the absolute peak.
Now, if the price index falls to 40 percent below peak - i.e. 60 - then repossesed houses will sell (eventually - my calculation is over a reasonable time horizon) at 60. The drop in value isn't 40 percent, because they were not all bought at 100. 60 is about 25 percent below the average (which I'm guessing is 80 percent of peak).
If house prices - having dropped to 40 percent below peak - then gradually recover (over maybe ten years or so), then that 25 percent discount will shrink a bit. Hence my 20 percent.
With BTL, the mitigating factor is continuing liability. I think that this reduces the loss, again over time, from maybe 20 or 25 percent to maybe 10 percent or so. The whole lot might average out at a loss of 15 percent across the whole book.
Against this, the bank - at the peak, when everything was fine - had significant equity, now presumably lost. The loss of this equity margin can be regarded as an offset - the government has got the rest of the bank (including branches, performing mortgages, etc) for nothing, and can realise some value from this.
So I reckon the taxpayer loss is likely to be 10 percent or so of the total book - bad, but not catastrophic. Creditors (other than depositors) will not get their money back for a long time, effectively a cheap source of funds to run the operation.
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All the debate has been about banks and mortgages. Can anyone tell me what will happen with personal debt? I believe the UK figure is about one trillion pounds. Does that include mortgages, or is it all cars, HD tellys and fancy phones? What happens, if, due to the banking crisis, hundreds of thousands of personal borrowers default?
It has been obvious for ten years, at least, that institutions were offering ridiculous amounts to people who palpably could not afford to repay. Funny how the daily loan offers in the junk mail have dried up!
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128;
Yes, I agree that it started in the 1980s.
But Brown has had eleven years to deal with it. He preferred to ride the wave - 'boom' without 'bust', I seem to recall.
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sagamix, I don't think it's quite that simple for a private buyer to value these things...
The self-cert portfolio may well turn out to be toxic waste should the economy go into a full-blown recession, since it's often assumed that people buying these were encourage to be 'imaginative' with their earnings in order to guarantee the funding. They will be one of the first groups to see rises in defaults.
I'd imagine that we will see a sale of the prime assets to a private buyer - I seem to remember that JPMorganChase obtained £2billion of assets from Northern Rock soon after nationalisation....
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If the banks are not in trouble because they have diverse investments why did RBS have to make a £12b rights issue, the biggest in history?
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#130, you seem to forget that there is a legal difference between the US and UK. You cannot "hand the keys back" and walk away, you still owe the debt. All that will happen is the home will be seized and then you will be chased for the difference. That will make a big difference to the recovery rate for the assets on British bank books.
#128, this is absolutely a new Labour issue. Look at house price inflation and you see the current bubble starts just after New Labour comes in. People moan about "rich bankers" but as is becoming clear the UK economy was based on financial services and debt mainly underwritten by a property asset bubble. Here's a deal, bankers return their bonus for the last 6 years and GB and the UK government returns all the tax it got out of this - corporation tax, stamp duty, CGT, income tax, NI and the rest. Whilst you are at it return all the investments in the public sector and the civil servants hired can return their wages. Sound fair?
#123, see above. However I do agree with you on one matter. The UK needs to take the pain. We need to go into recession, property prices needs to fall dramatically, companies need to go bust and at the end a more cautious - dare I say prudent - approach can take place to economic running of this country.
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Much like others on this blog I did not support demutualisation of the building societies. In my case I sold the shares I was awarded and put my funds in the pay-off the mortgage pot.
Much the same mess resulted from the demutualisation of insurance companies.
I think we can say that during the Nineties an illusion was created. This was stoked up subsequent to the collapse of the dot-com bubble and continued until the spring of 2007.
I feel we have now reached the end of the begining. More unpleasantness is ahead: unemployment and severe cuts in the public sector. We might start to get out of it by 2018.
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#138
Yes I agree, and it's to their shame, but "Nu-Labour" wanted power so they bought into the same game as the Tories were bribing the electorate with - had they not Major (or who ever might be their leader by now) would be picking up the same mess, in 1997 the world was heading for a boom built on the mirage that has just vaporised and like Blair, Brown and Darling the Tories would not have changed a thing for the better either.
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Post 134 - Supercalmdown,
Thanks for the origins of Armageddon, I did that earlier this year, got out of BTL and England to a warmer, cheaper tax haven and nothing wrong with that except missing friends and English tucker.
I must admit though that the economy has gone down a great deal faster than I imagined and I still remember 1989/92 when It was hard to survive even when living at parent's home.
Hope things don't get as bad as some suggest in Blighty cos it is still a nice place if the weather is fine or you don't mind high taxes (which are not spent right)
At the moment, savings are kept in tax free cash deposits until it is time to drip feed monthly into the stock market again (halfway through the recession)
Be wary of Financial advisers if buying shares though, I spoke with one in Wachovia Bank on holiday and he wanted me to put 25% lump sum into Bank Preferred stocks issued at $25 originally.
The Wachovia price I remember was $18 at the time (August 1st) and they slid down to $8 by Friday evening, OUCH !
Glad I resisted buying them....
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143:
Yes, agree, I don't see it as a one-party issue. I can't imagine the Tories would have been any better than Labour at resisting the seductive property bubble. It gave the UK illusory growth based on inflated asset values, an inflated consumer spending situation and inflated debt, and no government is likely to own up to growth being illusory.
I think we have to accept that most of the public carry a bit of the blame. We elect parties with more image than substance. We want everything now, rather than saving. It takes two to make an irresponsible loan - a banker, but also a customer.
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We may hope this is the last crisis for the British banking system in this cycle, but for that to happen we will be extraordinarily lucky.
The simple fact is that in some ways European banks (including the British) are more not less leveraged than the US banks when you take into account their exposure to derivatives and other off balance sheet items. Just to take Barclays, for instance, it has assets of £ 1.22 trillion, roughly the same as the UK's GDP, supported by £23 billion capital, a leverage of over 50/1.
Before this crisis is over I bet that one or more of our big banks will be Asian or Middle eastern owned. That's what happens to debtors.
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#141
Please see my comment in message # 143, this 'bubble' that you mention was (in the UK) the result of the John Major years. No new Govt, especially a party that had been out of power for so long, could have made such a difference to the economy in such a short period of time as you suggest.
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141:
Brilliant post, especially about BTLs not walking away from their liabilities. The taxpayer is going to lose to some extent; BB shareholders, including lots of small investors, may have lost the lot. Employees are likely to lose their jobs, and a lot of them may own shares too.
No need to let BTLs off the hook. They often used equity in their existing houses (etc) to get BTL mortgages. A lot of BTL investment was speculative. Tough.
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More of my good money being thrown after bad. With the exception of my mortgage I've always saved for the things I wanted, I've never had credit debt. So why should I be paying for bad mortagages, or the avarice of rich bankers?
Our taxes will go up to pay for it all and people will resent it. I foresee a lot a tax-dodging!
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#141, you seem to forget that there is a legal difference between the US and UK. You cannot "hand the keys back" and walk away, you still owe the debt.
If you walk away and become insolvent/bankcrupt then the effect is the same. You don't really believe the cost price will be recovered do you?
Actually... that's given me an idea for a career change... maybe IVA advisor?
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Its rather obvious,I think,that the consumer will be left in a far more precarious position by nationalisation and mergers etc. The lack of competition amongst lenders stemming from fewer of them with only giant monoliths of banks remaining will do little to ease mortgage woes.The chances are that lending rules will be so stringent and rigid that fewer will qualify,and those that do will be subject to harsh terms,the old adage,"if you don't like it,then lump it," apparently applying quite redolently. The result for financial institutions will no doubt be highly favourable as they will reside in a win win situation,but where will this leave the public and the economy?
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WHERE HAS ALL THE MONEY ACTUALLY GONE?
In all the talk over the past few months no commentator, economist, banker or politician has actually explained where the billions now being replaced by governments have actually gone. Money just circulates around, doesn’t it? So how come billions seem to have disappeared into thin air?
The answer is that it isn’t there because most of it never actually existed in the first place. People have forgotten that money is a measure of wealth created by human effort, not just abstract numbers in computer files. Bankers have made billions out of nothing. Here’s how.
I take £1000 of my hard-earned cash to the bank and put it in my savings account. The bank lends it to someone to buy a house. The £1000 is passed three or four times from buyer to seller in the house chain until the last seller, who is not buying (perhaps they inherited the house from their parents who have died), takes the money and puts it in his savings account with the bank.
The bank lends the same £1000 again to somebody else and the cycle repeats. The same £1000 repeatedly cycles through the economy without – and this is the crucial point – without anybody lifting a finger to create any wealth to enable it to legitimately enter its next cycle. In its second and subsequent cycles the money is not hard-earned; it is merely a number in a computer file and nothing more.
So the £1000 has been lent repeatedly and if the system wobbles, such as one of the borrowers losing his job, my original £1000, which may have been lent ten times or maybe a hundred times, cannot possibly be repaid. In fact it is impossible to say where it is (but see below) because, of the total amount lent, only a fraction has ever actually existed. A wobble could also be caused by a general slowing of the economy or a decline in the savings rate in which people save less and want their money out of the bank.
It should at least be obvious by this stage that the orphan and I cannot both get our £1000 back since there isn’t £2000 there.
Each time the £1000 cycles round the bankers take a percentage even though no wealth has been created. If it goes round often enough they get it all, hence their billions of dollars in bonuses and my £1000 disappears into thin air. (It must be thin air since the Large Hadron Collider has not yet created any black holes.)
Furthermore, each time the £1000 has been lent the borrower has promised to repay it from his earnings over the next twenty years. The money to repay cannot possibly be found now because the borrowers cannot suddenly put in 20 years of work instantly to create the wealth to earn the money to repay the loans.
Contrast this with spending the money in the supermarket. Again the money repeatedly cycles round the economy but there is a difference. In this case the £1 you spend on a loaf of bread, for example, goes to pay the wages of the farmer, the baker, the driver who takes the bread to the supermarket, the oil worker who makes the diesel for the van and the checkout girl who puts it through the scanner. All these people have done useful work to the value of their wages and between them created £1’s worth of wealth to justify the £1 entering its next cycle through the economy.
This example is simple, yet it explains why all the money seems to have disappeared into a black hole – sorry, thin air. Fancy “financial instruments” and practices like CDOs, leveraged this and that, hedge funds and short selling, which I don’t begin to understand, are doubtless clever devices which manage to turn money over even faster without creating a penny of wealth.
It should have been obvious to the politicians that there was something wrong when bankers could pay themselves hundreds of billions – yes hundreds of billions – of dollars over the last decade in salaries and bonuses without doing anything more than moving numbers from one computer file to another. Why they didn’t realise or why they didn’t do anything about it is for them to explain. Over to Jeremy Paxman.
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BAIL OUT
It has been reported that US Treasury Secretary Henry Paulson is worth about £700 million. Perhaps somebody should ask him how he managed to do $700 million worth of work in just 50 or 60 years.
Presumably most of his money came fro his job at Goldman Sachs. He should ask 1000 of his friends to bail out the banks instead of the taxpayer having to do it.
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#128 I don't care who started the game, obviously we need somebody to stop it, like Ronald Reagan, not like Brown or Cameron.
You may call this Bail Out, but actually it is Rip Off for the generations to come. It is most stupid and unresponible behaviour I have seen in last two weeks.
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Hi, I'm thinking of writing a piece on the corruption in government and how it links with the City and financial services in general.
I'm well aware that when John Major left office he became Chairman for the European arm of the Carlyle Group, an investment firm, though has since stepped down.
I'm also well aware that when Tony Blair quit he got a part time job for JP Morgan for £2.5 million a year.
I also know that both the Labour Party and the Conservatives both have many friends in hedge funds. Lansdowne Partners Limited and CQS for the Tories and Doughty Hanson and John Aisbitt (Man Group) for Labour.
But I'm curious as to whether anyone has published a list of previous Prime Ministers and what other gold plated City jobs they also might have been given, because the press is strangely quiet on these matters, though surely it is of huge public interest, especially during such economically bleak times. And I'm interested in what jobs Gordon Brown might be looking at when he gets culled at the next election.
If anyone could help I'd be very grateful.
I'm also interested to know whether anyone out there still foolishly thinks we're living in a democracy, whether we ever were, or if we were, what date it actually died.
Answers on a postcard please.
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#141 and #148
re BTL mortgages default
This will depend on how things pan out, if Govt. decide that, due to the numbers of people failing into arrears, that these people need to have the option of returning the property to the lender - now the state - they could allow this (for ex NR and B+B customers ONLY) with a stroke of the pen. Of course any change in the law would have to be carefully drafted to prevent opportunist abuse of an such scheme.
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#149
You would be resenting a run on the banks even more should a major player go down like they did in 1929, sometimes tax payers money (not your money, it's UK PLC's money, you just paid your dues) has to be used to prevent an even grater loss to the population.
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#154
Well seeing that, along side Thatcher, Regan was one of the architects of the mirage that has just vaporised...
As for a rip off, if nothing changes and we all carry on trying to catch a glimpse of the mirage then you will be quite correct, how-ever I believe that the capitalist world is on the brink of a huge change back to a mixed economy - with lessons learnt from both the pre and post 1980 eras.
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And this stupid rule you can't short a bank, it actually gives all irresponsible bankers cart blanche to do whatever stupid they like, because anyway the government will protect them.
What next? Why bother with free market, democracy and ellections, lets just make Brown General Secretar and declare PC communist state.
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#157 road to hell is paved with good intentions, yes lets get tax-payer's money and do some "good" with them.
What about if I don't want you to that with my money.
I just want whoever plays with property bubble to pay the bill.
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Slightly off point, but lovely to see Cameron finally nailing the coffin lid on Thatcherism by saying the bank corset would be brought back and that debt was BAD.
All of us who lived through the 'sale of family silver' and were unhappy for 20 years can finally say "We told you so"
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#160, I believe that member of CND tried using that line, to try and prevent 'their money' being used for things they didn't think should be done - anyway, and besides, I thinking it's also called a "I'm alright Jack - *od you!" attatuid...
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156:
Personally, I wouldn't give BTLs any options at all - make them pay back the lot, pronto, if they can't/won't keep up the mortgage payments. If they end up with just one house, and a costlier mortgage than they had before, tough. Others will be worse off than that.
These people had the intention of (a) taking more rent from tenants, often on low incomes, than the mortgage was actually costing them, and also (b) eventually pocketing a capital gain as well. Not just greedy, but greedy and exploitative.
They were doing this at a time when some people - especially would-be first time buyers - couldn't afford one house, let alone two. BTLs helped push house prices out of reach of first time buyers. It's immoral speculation, frankly.
BTLs are the LAST people we should be helping. Are BB shareholders going to get an easy option, or BB employees? No. BTLs should pay up.
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#160
Sorry, meant to say also, we all 'play with property' as the vast majority of us live in some form of house and very few can afford an out-right cash purchase.
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Given that hundreds of thousands if not millions of indivduals will surely face the experience of unemployment:
Why not offer them the option of actually doing something useful to the economy e.g.
- Lending a physical hand with actually building homes that people actually need.
- Turning a hand to ecologcally friendly means oif power generation.
- Turning a hand to actuially growing and producing food locally.
In return, people could obtain benefits that they could actually living on. Have yopu tried living on £59.00 or whatever it is that the law states that you need to live on?
The impact would be favourable to GDP and most importantabtly to individual esteem. Avoidance of anomie. suicide and everything that goes with depression.recession/activity would be solved. People would be proud and willing to act for the common cause - athe failing of the market.
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Robert, Why do you repeatedly break these stories before they are properly communicated to the markets ? Wouldn't a regulated market professional be disciplined for doing so? And wouldn't the media respond with patronising disapproval ? Why are the rules different for you and your informants ?
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Damned if you do, damned if you don't...
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So now we have all learned that there was a reason for the mutual society.
Why endowments worked when they were set up correctly with out excess fees and the need for the company to pay shareholders.
why Building societies were seperate from Banks and commercial money..
Thank you all you elected representatives that got us in this mess , you did a fine job..
My one request, is isn't it time to kick lobbyists into touch and let the peoples voices be heard?
Lobbyist do not have the voters interest at heart and in effect disnefranchise us all !!
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The role of many so-called 'professionals' has also been overlooked.
Many investors, trying to undo the damage Gordon Bown inflicted on their pensions switched to buy-to-let. Many join property clubs which used RICS surveys to justify their prices. RICS surveys were recommended by all the BTL books as a way of telling genuine from fake prices.
However, these prices have proven to be a mirage and appear little more than guesses. They should be investigated and made to compensate the investors they led down the garden path.
They did not cause the whole debacle but they played a significant part for pension refugees.
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#26 - Tengsted
This is already underway, with social landlords being granted additional funds to purchase properties in BTL developments which have failed to sell.
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#166
Robert Peston is so well informed that I honestly believe (although no proof) that he is being used as an official conduit and no shame their if he is, there are very good reasons why 'announcements' might need to be made before the UK markets can be informed officially - Asian and pre-market trading are just two, preventing a run on banks is another, it also prevents any kind of insider-trading as all are in the loop.
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All the lenders still in business are offering buy to let products. Quick look on Charcole web site showed deals as low as 4.99% for the right lending criteria. Also when I popped into my local Lloyds TSB baranch yesterday morning they had signs up encouraging people to book appointments with their mortgage advisor for normal fixed rate mortgages at 4.99%. This is as good as deals got last summer prior to the Credit Crunch.
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Second Paragraph. End of self certification mortages is no bad thing, who thought up the bloody stupid idea in the first place. Just allowed stupid lenders to lend to greedy/lying borrowers.
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169:
I agree wholeheartedly about the professionals in the BTL thing - far from blameless.
But I just don't buy the idea that BTL investors were only doing it as a pension alternative.
One huge difference is that you don't use debt to build up a pension - you use your own money, i.e. savings.
BTL was quite different - it was speculation using borrowed money. Whereas investing your own money in pensions is prudent and doesn't harm anyone else, BTL was greedy and exploitative. It was leveraged investment, which is risky.
These people thought BTL was easy money, at the expense of tenants and of priced-out-of-the-market would-be first time buyers. Sympathetic. Not.
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Just a thought how many people in the late 1990's and early years of this decade got into Buy to Let to provide a pension for their old age?
I know of several people for whom most of their pension pot is based on a number of Buy to let properties.
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No Bailout full stop.
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My money was in a very small BS. This was taken over by a bigger BS which turned into a bank which was taken over by another bank. I save all I can. I live very frugally.
Why should I have to worry about imbecile "experts" who earn 50 times or more than my salary who live in fanatsy land? All I want is a safe haven for my money saved over a life time without constantly having to check for changing offers, deals new accounts with bonuses. Is this too much to ask in this day?
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I remember when Thatcher encouraged (ordered?) the de-mutualisation of building societies and was totally opposed. I remember the hideous spectacle of the carpet-baggers borrowing money in order to 'steal' the money from those that had saved with these societies for years. I vowed then never to use any of these 'new banks' and have stuck with one of the few real mutuals left. They may go under but at least they will go down with principles intact! Their motto is TLC not PLC!
I just hope the carpet-baggers of that time lose as much money as the people they robbed. But, of course, they won't - the government will bail them out - unlike the small savers in 1989.
And let's also hope that the greedy fat-cat bankers are also made to suffer financially for the dire mess they, and the government, have caused.
Keep up the good work, Robert. You must be totally exhausted but we really do need you and your expertise through these difficult times.
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What is the latest on the bailout?
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Do they have to buy loans from third parties that they agreed to last week?
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RBS now owes 270 billion to the money markets following its take over of ABN Amro, I would bet my bottom dollar that they will be next.
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Re 155 - The inter relationship between politicians and big business is a complex and interwoven affair, and there are all kinds of linkages both formal and informal.
Of something that shoud be of historical interest to people in the UK is John (later Lord) Wakeham who was at one time Energy Secretary under Thatcher. He subsequently became a consultant to the criminal US enterprise that was Enron.
When Enron imploded it was accepted that Wakeham was entirely innocent of any wrong doing since he didn´t know what was going on. I think this is probably true which raises the question of why pay someone money when they don´t know what is going on. The answer is probably because these kind of people provide access to other people, and it all helps in the lobbying effort.
The same "ignorance" defence will likely be deployed in the event that any of the current failing finance houses are found to have employed ex - politicians and are also determined to have to have engaged in criminal activities.
Basically these people share the same world view and all of the same values.
Take this blog for example - the writer obtains preferential access to information - but in return he reports it in a certain way. (For example he is well aware that Bradford and Bingley can´t possibly be the last UK banking failure, and yet he implies that it might be. He also knows that at a minimum the consequences of this fiasco will be long term mass unemployment and yet he barely mentions it). It´s the basic quid pro quo. If he reported this information in a different way then he´d stop getting access. There is no conscious conspiracy - it´s just ingrained, and the people involved don´t believe that they are doing anything wrong and don´t even understand the argument.
"There are none so firmly enslaved as those who falsly believe themselves to be free."
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Will the regulator stop third parties from selling loans to banks and building societies. Many UK lenders were set up to originate and sell loans and a number of these lenders do not exist any more. The owners made millions and in some cases are setting up new lenders to make more money when the recovery comes. The taxpayer is left paying the bill but these guys are free to set up again - Check Mate is an example.
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Re NOSIDA - No.177
I so agree with you. Why do financial matters have to be so very, very complicated? Could it be that it suits the suits! Bamboozle the idiots with jargon and offers and then run away with their cash.
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Did Robert Peston attend the Sun School of journalism, where every sentence is a new paragraph?
But,
making two paragraphs out of:
"They raised too much money too cheaply on the global money markets, which they then lent too cheaply to British homebuyers.
Which then stoked up the housing bubble. And the popping of that bubble has done for them."
is excessive.
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I have read tonight many people criticising BLT investors for their greed and selfishness. I think for most of us it is not greed or selfishness that has driven us. I am self empoyed I have no company pension scheme, I have no government funded final salary scheme in the state sector. I understand that my retirement age has been increased(By GB) before I can claim my state pension-for what it will be worth afteer it has been means tested. I was unfortunate to be mis sold a pension in that scandal. I am also a member of Equitable Life. The small Personal Pension that I can afford has also had its performance affected by GBs taxes. I could have hoped that the endowments on my mortgages could have atleast paid off my mortgage as promised by the nice man from the insurance company. Wrong again. So I decided the only route to looking after myself in my old age rather than being a state burden was to invest in property. I cant trust banks, pension funds, insurance companies or governments, their track records are not great. I think you will find that many BLT investors are not the greedy people some of the bloggers imply. Personally I would much rather have spent the investment money on a new car, holiday paying off my mortgage, putting the kids through University(thanks for that one as well GB) etc. I am however open minded so any bloggers out there with suggestions please fire away.
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There is another scam whereby a company is setting up to "help" borrowers in difficulty by renting their properties to them and then sharing in the upside of house price inflation or seeling the property out from under the borrower/tentant. This business is being toted around the City by the management of a failed mortgage lender and they claim they can make millions out of people's misfortune.
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Assuming that the government acquires the Bradford and Bingley for nothing was it not unfair that they made shareholders plow £400 million into it a couple of months before nationalisation.
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End of an era indeed.
Has anyone cared to think for a minute or so about what the end of these former Building Societies will mean?
How will the loss of jobs be felt not just in Bingley and Hertfordshire but in that recent power house of the North; Leeds.
Leeds has carved a little niche for itself in recent years. All kinds of banking, financial services have led to its local economy booming. BTL and student accommodation leading the housing market. Houses in nicer areas of town more than doubling in price. What will happen when banks and other institutions rein in their expansion plans? Has Leeds got any traditional industry to fall back on? I suppose they will have to rely on NHS doctors continuing to coin it in.
Hang on though. Isn't the financial sector supposed to be the source of funds paying for public services?
Oops..
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187:
I am shocked (but, sadly, not surprised) to hear of this.
Our PM, Mr McTurnip, needs to pull his finger out. We need a raft of new regulations to stop such exploitative practices, and we need it NOW!
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Is anyone aware of any thoughts the Government may have of allowing Buy to Let properties to be purchased by pension schemes?
This was supposed to be part of pension simplification in 2006 ,but Mr Brown backtracked at the last minute.
There would be a certain market for this that could at least reduce the backlog of properties and free up some of the mortgages held on these properties.
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Post 174.
BTL for most people ws not greedy speculation by buying a few properties. Tenants were provided a service which they could choose to use or refuse.
I started with my own money 10 per cent deposit was nine grand, then time to gear up and borrow off my equityin my own house, Yes, SPECULATE TO ACCUMULATE or let your savings decline in a bank deposit account so the bank can speculate with your cash.
If you speculate or gamble with shares or BTL or even your own home then watch the news, watch the charts and open your eyes.
My 9 grand from 9 years ago has made a sufficient amount to get out and start living off the interest, not working to live.
When the markets bottom out, yes I'll take another gamble and have another punt.
Sorry but average wages do not normally give early retirement without making a few gambles in life. If I lost my gamble I don't start blaming anybody but myself . Nothing wrong with "Leverage" Sir if you can take the risk and watch your speculative investment. I had to leave the UK 5 years earlier than I planned but it was a good choice.
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post 192.
Dear GB put a stop to that one just before it was due to come into effect, I suppose too many bloggers would have been against that too...
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If Fortis is nationalised tonight or early next week by the Belgian government, what will happen to the ABN AMRO retail assets which I believe are still owned by the RBS acqusisition vehicle? Is RBS left owning these assets and do these cause a further burden on RBS' stretched capital ratios?
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Isn´t it lucky that the British Govt. is so dedicated to the interests of its electorate.
The good bits of Bradford and Bingley are going to Banco Santander and the bad bits are going to the British taxpayer.
Last week it was time to help out the French taxpayer via EdF and this week its time to help out nuestro amigos en España.
No doubt the United States have issued instructions to the British to lend a hand with the more general bailout. Expect news next week.
How can people possibly believe that there may be low or no cost to the taxpayer when every time there is anything of value it is immediately disposed of to some private sector entity.
Your Government holds you all in complete contempt!!
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I am astounded at the negativity on this blogg, does it only attract 'naer do wells?'.
I do not understand the antipathy about Self certs and Buy-to-lets.
These are both valid mortgages if treated realistically by both lenders and borrowers.
There are two reasons why the castigations are unreasonable:
1) Self Certs are ok if the borrower is sure of his/her position. Not all self certs are crooks, some self employed don't have payslips.
2) The lender has a reasonable understanding of who they are lending to and their ability to pay, regularly. A lack of one-to-one interviews is a primary source of the problem
The 'failures' in both these sectors, NOT failures of these sectors, note the difference, has been because you can not speak to a proper experienced manager face to face.
You get a 22 year old kid (manager) or a 'wise' financial advisor/broker.
The lender never knows the customer, as in previous times.
Recently it has been a 'game to all', the winner takes the money. Never a traditional business transaction, as it was.
The number one question is 'are they going to pay', if the answer is yes, then the deal is good. Proper managers get it right more often than questionaires!
Why do so many hate Self Certs and Buy-to-letters, it almost feels like a class thing, I thought we got rid of that years ago. The same people probably hate the Queen, Ascot, the Conservatives, the Aristocracy, big businesses.
What is wrong is that traditional ways of doing business, trust, respect, honesty, belief have 'gone out of the window' for 'sharp deals' and 'apparent profit'. Didn't Nick Leeson and Barings ring great big warning bells in 1995, and stimulate tighter financial regulation.
Obviously no!
We have ourselves to blame, our governments, our banks and financial institutions, our watchdogs, everyone has turned a 'blind eye', because it did not 'suit us to do otherwise'.
The 'I told you so's' are the only ones who got it right - congratulations! What else have they done?
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Well said Post 196, I am in complete agreement with you especially on the last line!!
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I'd be really disappointed if the Government sells the savings business to Banco Santander or any other bank!
Surely they should transfer these balances back to the Building Society sector so that these savers could become members of a more stable, mutual organisation once again!
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Once the hoo hah has died over this banking fiasco, are the government going to punish those who have played with our money and lost? I remember going to the bank some years ago wanting help and was shown the door! Now that some banks are in difficulty through their own incompetence, they are going cap in hand to the government and getting bailed out. One of the best sights I have seen in years was the employees of Lehmann Brothers carrying their little boxes to their cars muttering "what do I do now"? They have been doing that to the small man in the street for years and now it's their turn. They don't seem to like it for some reason! I wonder why?
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#192
Of course people don't have a choice, there is a gross lack of LA/HA housing stock, basically there are three options for most people, carry on living in the family home, rent from a private (often BTL) land-lord or some how get a mortgage - often by lying through ones teeth, which brings us full circle back to the problems with B+B...
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first draft of the new bailout bill, 106 pages long! And it's unworkable because of sec 2(2)(a) "protects home values", which means that home values will be artificially propped up during economic downturns, diluting the dollar even further. Oh, neat, financial institutions are now agents of the federal government
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#195
I don't think that the UK state/Govt. has ever acted as a deposit bank, and for good political reasons, the nearest they come is bonds and the like.
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This comment was removed because the moderators found it broke the House Rules.
Mr Peston,
I refer to my blog of approx 11.36am this morning.
You rightly state that every demutualised building society has either been nationalised, collapsed or taken over by a larger bank.
Can I ask again, if the building societies had not been demutualised, would they have survived this banking meltdown ?
.....and where are these persons who forced the building societies to demutualise ?
They should be brought to account. More than anyone else they are to blame for destroying a stable property financing system which had lived through economic and financial meltdowns over the last 100 years.
Find them please. See what they have to say for themselves now.
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192:
Fair enough. What you say is fine, because the key point that you make is 'if I lost my gamble, I don't start blaming anyone but myself'. Good. You wouldn't expect to be let off if it went wrong. You accept the risk-return equation. You accept responsibility. I'm glad to hear you did well out of it.
Unfortunately, lots of other BTLs don't have your appreciation of risk/return. They want all return and no risk. They think they can just 'hand back the keys' if they get it wrong. This shouldn't be allowed. You accepted risk. So should they.
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Also re. BTL, please consider one other thing. Where I live, most jobs are in shops, hotels and pubs. Many locals' wages are not much above minimum wage level. A tiny terraced house here costs upwards of 350 thousand. What chance have locals got of buying here? This was bad enough before, but when BTLs came in - from outside, not locally - it got even worse. They were regarded as exploiters.
I asked one of them once if it troubled her conscience, that she was pricing out local youngsters from the house market. Trouble her conscience? I don't think she had one.
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#163: These people had the intention of (a) taking more rent from tenants, often on low incomes, than the mortgage was actually costing them, and also (b) eventually pocketing a capital gain as well. Not just greedy, but greedy and exploitative.
Absolute bunkum. The majority of BtL mortgages are interest-only. Until recently, you were not allowed to take out an interest-only mortgage on a principal residence without another repayment vehicle (such as an endowment policy) - bringing that back would be a good idea IMHO.
Therefore BtL landlords were, at worst, exploiting the price differential between interest-only and repayment mortgages.
And that ignores the fundamental differences between the rental and sales markets.
The real damage was done when the Assured (sic) Shorthold Tenancy became the norm. This provides no protection to a tenant if the landlord has the property repossessed - there is no longer the concept of a "sitting tenant" with rights of occupancy. This, in turn, allowed mortgage companies to offer finance, safe in the knowledge that the property could, if anything, be repossessed a lot faster than would be the case for an owner-occupier.
If you want to take the heat out of the BtL market, bring back proper rights for tenants. Lenders will not want to lend so readily or so cheaply, deposits will have to be higher, and landlords will have to start investing in their stock to realise decent returns.
But just accusing lots of very honest folk of being, essentially, crooks is unfair and pointless. And, no, I don't have any BtL property.
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#106: Don't want to or to proud to? If someone is homeless they will accept a card-board box from the council bin-man if that is what it takes to have shelter for a night...
Frankly, that is just trite. I don't want to because I don't think I should be a drain on society. Council housing isn't free, it is insanely costly to run (as most things administered by bureaucracies tend to be). Surely is the responsibility of every citizen to do their very best to avoid having to use the state's safety nets?
As I said elsewhere, many people / families in the post war ear from 1945 - 1979 started out by renting from their local council (this also allowed them to move around the country is needs be fairly easily if work dictated), it also allowed them to save for a deposit.
I have no desire to return to either post-war austerity or the left wing havoc of the late 1970s, thank you very much, although it looks like we're on that path...
As for cardboard boxes, I'm happy to sleep in one if needs be, although, as a trained Mechanical Engineer, I'm confident that I could knock up something a bit more useful from scrap on the street. Anybody who cannot manage to do better from available materials (anywhere) than a cardboard box really is in serious trouble, and is unlikely to be able to cross a road without running the risk of immediate death. Those are the people society needs to house, because they're clearly unable to fend for themselves.
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#196
The self employed might not always have play-slips but they do have proof of earnings - otherwise they would not be able to complete their tax returns etc.
Sorry buy self certs are just toxic, it's a pity for the genuine person who needs to use such a mortgage but far to many were tempted to simply lie through their teeth to obtain loans that they have not way of ever maintaining - hence the current problems.
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204:
Brilliant post.
The people who engineered de-mutualisation - a catastrope, in my opinion - were carpet-baggers. They opened multiple savings accounts and then used their votes to get de-mutualisation and a quick buck. Odious. It wasn't, generally, the managers of the mutuals; most were happy with the existing system. One big mutual even fought tooth and nail to stay mutual, and succeeded.
I doubt if we could ever identify the carpet-baggers, and even if we did, we couldn't hold them to account, unfortunately. What they did was legal, if totally unethical.
We need new regulations reinforcing/reintroducing sound finance.
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re Post 200.
But shortage of housing stock was caused bya certain Iron Lady selling off Council houses and not replacing them by building new homes, by the way where was that money used? I wonder.
I am in total agreement with you on the shortage of housing in certain areas and yes BTL landlords probably made that situation worse.
A lot of us small landlords charged reasonable market rents and some were rip-off tyrants. But if rental yields were like the 3.5 per cent and lower seen in the USA, I wouldn't have bothered with BTL.
It was only to provide for a pension, not just for the hassle of owning a few houses and dealing with repairs and having the very small minority of bad tenants to deal with.
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#201
Are you talking about the US bail out or the UK B+B nationalisation, perhaps you could make it clear?
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As a result of the taking on board of all this debt, the majority of which is mortgage debt on buy to let property or second homes, should we not consider a tax on buy to lets and second homes to cover the likely losses that the government. ie the taxpayers are now left with....it would certainly make people think twice about getting into buy to let in the future.
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207:
I said that BTLs were often greedy. I did NOT say they were crooks. Big difference.
My main point was that it's speculative investment, so they shouldn't expect to walk away from it if it goes wrong. Simple as that.
You make an EXTREMELY good point about tenant rights.
I cannot, for the life of me, understand why a Labour government - which is to be praised for the minimum wage, and other employment rights - has not also given tenants protection along the lines of the former Rent Act. A staggering oversight. Thanks for pointing this out.
I think a lot of good ideas are coming out of this blog. Sensible finance. Restricted mortgage/earnings multiples. Sensible LTV limits. Mutuals.
And tenant rights should be centre stage. We need action on these things.
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Re: posts 205 and 206.
Friendlycard, I am glad that at least you are in agreement with me for taking the risk on my own back. It wasn't a bed of Roses for the first 5 years with no money for a social life for us but it paid off. You are further right towards the end because when I sold my BTL's in April/May this year, I had 2 to 3 Landlords waiting to buy them with the existing tenants who had mostly been living there for 4 to 7 years.
This proves that some BTL landlords are not responsible even though all the warnings had been out for 3 months before that.
My houses were less than 200 grand each
but I know where you are coming from about house prices in some areas going for stupid prices. 350 grand for a 2up, 2 down or 3 bed terrace is silly money, hence I expect prices have to fall a good bit further yet.
With 2 people on 25 grand a year, banks will be going back to 3 times income again very soon, I just looked at a new 5 bed, 3 bath house with 2 car garage in the US for £96,000 complete with many upgrades. This will probably end up at £80,000 soon.
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re #208
After reading that diatribe of self, self, self I'm starting to warm to Aurthur Scargill...!
Sorry but I really do think that some people just don't realise just how bad some have it, even when above the minimum wage, never mind one it.
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Post 213.
Tax on BTL?
How about the Council Tax, the tax already paid on your earnings to get the deposit, the income tax on your rental income, the VAT on furnishings and bulding materials, and DON'T FORGET THE CAPITAL GAINS TAX.
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This isn't finished yet. Too many people have believed that housing prices must always rise. This has led to a huge number of remortgages for holidays, cars, kitchens etc.
There will be a large number of people realing from negative equity in the short term and shortfall, or even, lack of pensions in the medium term.
First time buyers will save this market, but not before there is a significant adjustment.
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Sorry I need some help with all this.
Are these the two main consequences for everyday life?:
1. People are going to find it a lot harder to get mortgages.
3. Credit cards and loans in general will become more restricted.
I don't see how all this is so dramatic and I don't own a property yet so I'm not exactly home and dry.
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215:
Yes. You took risks, and, vitally, you accepted responsibility, so you earned a good return. That's fair. Great. That's how it should work, and I'm glad it did for you.
Also, I'm pleased to hear that you recognise that - unlike you - some other BTL people are less than responsible. My guess is that these irresponsible BTLs are the same ones who will now expect to be let off their responsibilities. My point is that they shouldn't be let off. They should be responsible, as you obviously are.
Glad you appreciate the pricing issue, too. 350 grand for a 2u2d terrace is typical in my village. Even ex -LA semis are pushing 200 grand. It gives local youngsters no chance.
I care about this. I'm OK financially, but others aren't. I campaign for affordable housing. So I hope you'll understand why the BTL influx to my village annoyed me, to put it mildly.
Good luck with future investments.
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Come on guys. Eagerly awaiting suggestions on how the self employed can afford to provide for our retirement under current regime. Plenty of opposition to BLT but no obvious other options coming forwards. Some excellent points being made about calculating risks, interest only mortgages, tenacy rights etc. Currently I 'exploit' my tenants by providing them with an excellent standard of accomodation, furnished and after taking all costs into account lose money on the deal each month. But that is the risk a greedy landlord like myself is prepared to take because I am just hoping there is a small chance that I can keep the BLT going long enough to be able to retire..I really could do without the hassle, risk and time taken in the whole venture. For many of us this is a longterm plan not a get rich quick scam. I have kids who will one day be first time buyers and no doubt I will encourage them to save for a deposit when they are living at home rent free because due to student debt they too cannot afford to buy. It really is a sorry state but to single out people who have got off their backsides in this way rather than just griping is a tad unfair and does rather oversimplyfy what is a complex issue.
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#147, the house prices were under control under Major and the BoE - under Clarke's command - kept interest rates high. Brown made a number of key steps to ensure the property bubble started - gave the BoE a target that ensured that interest rates would stay artificially low, just in case they felt tempted to target property asset inflation he changed the inflation measure, he changed tax laws to almost guarantee that money would get funnelled in to property at the expense of other assets, he moved the regulation to make sure dodgy mortgages were not punished. There is exactly one group of people who are responsible for this and that is the Brown and his clique at the Treasury.
#150, there is a big difference. In the states you can simply post in the keys. Yes you will lose THAT house but they cannot come after your other houses or assets. In the UK they can and bankruptcy is a serious issue and when push comes to shove I suspect alot of people will do alot to avoid it.
#156, I suspect that something "to help the houseowner" will come about and it is absolutely the wrong thing to do. Just like NR should have gone bankrupt, so should the "investors" in BTL. Then hopefully next time wrong people will be more cautious.
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Did you see the Checkmate Mortgages website - you are having a laugh. Who is this guy?
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Banks in the USA are being split into smaller banks which will produce better competition and reduce the risk of future “moral hazard”. But banks in the UK are being merged creating fewer but bigger banks, which will result in less competition and increase future risk for, yet again, another “moral hazard”.
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REGARDLESS OF A BAIL OUT - IT IS AND ALWAYS WILL BE UNLAWFUL
REGARDLESS OF A BAIL OUT OR THE ARGUMENTS OVER WHETHER OR NOT THERE WAS REGULATION AND NO MATTER WHAT LEGISLATION IS PASSED BOTH IN THE UK AND USA - IN PRINCIPLE AND IN LAW WHAT THE BANKERS DID WAS UNLAWFUL AND WILL ALWAYS BE UNLAWFUL. PROCEEDINGS CAN BE TAKEN AGAINST THE LEGISLATION, ORDERS AND AGAINST THE DECISIONS THAT THEY MADE. THIS WILL BE THE NEXT PHASE. TO PUT IT MILDELY IT IS A FORM OF CRIMINAL NEGLIGENCE INTER-ALIA.
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The ending of the Mutual building societies was another of the events that, while ostensibly a financially driven decision, had greater, but initially invisible effects.
A number of these kind of events which may make sense in themselves have accumulated over a number of years until we have the mess that we now have.
The original reasons for setting up Mutual Building societies were better than the reasons for ending them.
But they are just one aspect of the dissolving effect on society of single decisions taken ostensibly for purely business reasons.
One other example, outside the purely Banking and Financial services sector is the shameful way large companies in telecommunications and Power (to name the two worst) are able to indulge in confusion pricing whose main (possibly only) aim is to cheat the customer.
"Cheat";being a word that somehow went out of fashion over the last 30-40 years.. along with "lie"
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BTL is very bad news for 3 reasons ...
1. it takes a large chunk of houses and flats out of the supply for owner/occupiers - therefore, it pushs up prices, forces people who want to buy to rent instead, which in turn supports valuations - not a virtuous circle, but a vicious one
2. when prices start falling, the less astute (or less lucky) BTL investors panic and get into trouble, especially if they're highly leveraged - that's not good for anyone
3. when times are good, the sector rewards people who happen to have access to credit (either legitimately or fraudulently) but are adding no economic value - these people are (and I mean this only economically, not insultingly) parasites.
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You appear to have confused the symtoms with the cause.
Tyhe symptoms are the massive bank failures but the cause was the government forcing the interest rate below market value for decades thus causing the housing boom.
Privatising the losses is an old Socialist trick, one they used to do in Italy in the 30's. Its fascist economics, plain and simple.
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Its interesting to see how we end up selling to foreigners, all this could have been avoided with responsible government and BOE.
House prices has already fallen by over 20%, look at last years sales price and present asking price. But first time buyers cannot afford to buy due to increase in deposit and interest rate. Also rent is going up by 15% a year now.
We are reducing competition as the number of banks in the high street become less by the day.
Still I believe we can get out of this mess by cutting interest rate to 4% immediately (latter with more cuts to 3%), as once it happen people will be able to pay their interest and confidence will return, which in turn increase liquidity. Also this could help people to spend money where by we can grow again.
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#222
It seems to me that the pips are starting to squeak, as someone once said would happen, it's just a laugh that it fell to the Tories and not the Socialists to lay the foundation for it to happen...
Anyway, you can believe what you like but you can't change history, this housing bubble was created under the Tories and all Blair, Brown and Darling did was buy in to the same mirage - owning a house is not a right, having a house to live in is, there is a subtle difference. Since the Tories introduced the RTB, people who (through no fault of their own) have no hope in being able to pay back a mortgage have been either pushed into believing they could have afford a mortgage or pushed into having to spend almost as much renting privately - and both of these situations have been made worse by the BTL market that has both driven up the purchase prices and the monthly rental price.
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#225
We hear what you say (and in some ways I agree with you), but please, there is no need to SHOUT - for one thing it makes it difficult for some to read when it's all CAPITALS.
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#226,
Was that collusion or confusion pricing?...
I'll stop there as I suspect that I'm straying off topic into the utilities, another sector were regulation has woefully failed in my opinion.
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Liberalisation of the markets started by the Thatcher/Friedman era and followed on by New Labour have been shown to be a complete misnomer.
This is as big as the Berlin Wall coming down.
The biggest sea change in political and economic philosophy in a generation.
That is, greed for the the common good is a sham, that government's need to keep an eye on greedy people who believe they are accountable to no one.
Why have the governments of the US and the UK nationalised large parts of the banking sector? simple, they can't be trusted.
Trusting people and expecting them to behave in a sensible way is impossible in an unfettered market when all that is in their dollar studded eyes is the latest Lamborghini, the biggest juiciest Sunseeker yacht and biggest mansion on the hill.
The next big thing will be an integration of political/economic philosophy into the ecology of our planet. Not sure how many generations away that is before this realisation comes about.
Just two words surround all this thinking - Personal Responsibility :-)
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#228
Now the detail is out it seems that it will be the banks who will be picking up the bill for this one, all the Govt. seems to have done is to protect the innocent depositor - it was the FSA who actually shut the bank down on Saturday due to being insolvent, of course perhaps you would have preferred all B+B's depositors to loose their deposits and for EVERY other bank in the country to be having a run on their reserves this morning as all the other banks go under trying to pay the £15bn that they would be liable for had the Govt. NOT stepped in?
Any failing is not in a (mildly socialist) depositor bail out but in the capitalist greed that has caused a(nother) bank to go bust.
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#229
The problem is that people don't have the cash to spend, all lowering interest rates would do is allow even more to be (mistakenly) placed on credit - tough medicine is needed, not a top-up of what has caused the hangover.
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Self Cert Mortages Before they came in I remember (I was a legal conveyancer for 35 year until made redundant a few months ago becase of this crisis) that borrowers if self employed had to provide audited business acount for the last three years. If they could not it was because they had not been self employed that long or did not have accounts. If the later then who i there right mind WOULD/SHOULD use other peoples money to lend to them. WHAT has happened to prudent business practice. If it's been thrown out the window for the sake of PROFIT why now should the rest of us pay the price. Let them go to the wall or become soooooooo down valued that one of the prudent company's pick them up for a song. That's good business is'nt it????
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#105
It's unfair for you to label most Halifax staff as underperforming their BoS colleagues. They are after all one and the same entity. They share the same systems and processes, and staff deal with both sets of customers equally. The only difference is how the branch or telephone number is branded. I presume you just had a bad experience in a Halifax branded branch or over the 'phone. Wishing them all "Halifax" colleagues out of work because of a few bad individuals you have experienced isn't really a constructive comment.
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Could somebody please explain why banks need to lend TO EACH OTHER? This is clearly a critical part of the credit crunch, experts are constantly exclaiming over LIBOR being at historic highs - but it is not self-evident, to this dummy at least.
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"Demutualisation...has been a colossal failure" - RUBBISH!!! On 7th Sept this year the Nationwide had to rescue the Cheshire and Derbyshire Building Societies that were both victims of the credit crunch. I suppose you forgot that, Robert? Mutual organisations are just as likely to have funding problems as public limited companies are. The cosy old mutuals, which were basically run for the benefit of their boards and not their members, really needed the shake-up they got by the demutualisation in the 1980's. It forced the remaining mutuals to become much more responsive to their customers.
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#230, it is not a matter of belief. If you look at the stats as well as the changes in tax law and subsequent re-direction of investment it points solely at the Labour government. Those are the facts.
Mortgages and buying houses isn't the problem. People buying houses believing that "prices must go up" or "you are throwing money away renting" or "renting is paying someone's mortgage" is pure stupidity on those people's part. Nobody held a gun to their heads and if their bought an investment they didn't comprehend then they deserve to get fleeced.
The sole way this problem is going to get solved is to take the medicine of recession, repossessions and bankruptcy. Thank Mr Brown, he did put an end to boom and bust - he managed to just get bust.
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#230, just checked for some stats.
UK house prices - first sheet:
http://www.communities.gov.uk/housing/housingresearch/housingstatistics/housingstatisticsby/housingmarket/livetables/
Average annual house inflation under Major = 1.2%
Average annual house inflation under Brown = 11.2%.
The year by year figures are even more striking.
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#240
As I said, believe what you like, the political / economic history of the 1980s says otherwise.
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#163 "Personally, I wouldn't give BTLs any options at all - make them pay back the lot, pronto, if they can't/won't keep up the mortgage payments. If they end up with just one house, and a costlier mortgage than they had before, tough. Others will be worse off than that."
We recently sold our house and moved into rented accommodation - we would have preferred to buy, but couldn't find a suitable house.
Now we are worrying about whether our landlord might have a difficult mortgage and need to sell the house from under us. It's managed by an agent, so we have no direct contact with the landlord, and no idea how they financed the house.
I imagine all tenants who MIGHT be affected by the collapse of BTL financing are also now worried about losing their homes.
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#238
I don't claim to be an expert but, as I understand it, banks have to lend to each other because they don't actually own that much real money.
Most of their 'wealth' is in the form of glorified IOUs from other banks, which is OK as long as they can rely on the other banks to actually honour them, because everyone can pretend to have more than they have actually got.
Now it turns out that all the banks have discovered that they can't rely on the others to honour their IOU's - or rather the IOUs that they have got may not be worth as much as they thought they were. And there is no way of telling what they are actually worth.
So the whole system has seized up, because everyone is having to come to terms with the fact that they don't have quite as much money as they think - which, in some cases, means going bankrupt.
From what I can gather, most of the global economy is an exercise in self-delusion.
But as I say, I'm no expert.
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#242, well if you take into account the entire Tory rule from 1979 until 1997, house price inflation was only an issue for around 3 or 4 years out of 18. For new Labour it is 11 out of 11 years.
Property prices as a proportion of national wealth was far, far, far lower under the Tories and the much maligned "interest rates at 15%" killed any trend towards what we have now dead.
This isn't a matter of belief it is a matter of maths and stats. Unless you learnt that 1=11 then the plain fact is that average house price inflation was 10 tens more under Brown than before.
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I seem to remember some ten years ago there was a solicitor who was famous/notorious for pressurising the mutual socities into demutualising and returning the 'profits' to shareholders.
He was a bumptious, self righteous character.
I would so like to see him interviewed now, and to have him share with us his thoughts as he surveyed the ruins he was partly instrumental in creating.
What was his name?
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Sorry I just found a link to a story on Mr Hardern (former royal butler) one of the main 'carpet baggers' back in 1999.
This is priceless....
http://news.bbc.co.uk/1/hi/business/your_money/301085.stm
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Is it not the case that the complexity and the proliferation of complex and multi-layered credit derivative instruments lay at the heart of this crisis?
Banks offloaded debt from their balance sheets in the form of these instruments - as they borrowed the money you talked about today from the capital markets. This was bought and sold in increasingly bizarre debt packages mixed with some toxic and some good loans, mortgages, borrowing - and then sold again to another buyer - and again and again etc etc -
As the volumes of trade stretched into the trillions of dollars no one really could properly know what their exposure to risk actually was - and with the increasing drive to mark to market 'real values' in terms of assets and liabilities in the audit world (post Enron) everyone in the banking world was simply covering their tracks and 'hiding' the debt in increasingly bizarre credit derivative instruments.
The credit derivative industry is self-regulated and has nearly contributed to the collapse of major financing institutions before (LTCM in the late 90s) - that should have been a warning and a major shot across the bows. It was not. And now we are in serious trouble
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Robert, the question I have is how the banks have suddenly found themselves lending £625 billion per year more than they are receiving in receipts. Surely this is not all mortgage lending (how many average mortgages would this equate to per year?) so who has been borrowing the money? I guess it's the same question asked by most people on the street which is where has all the money gone - any clues greatly appreciated.
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To #131, the story is a little more complex than how you paint it. The credit derivatives engineered in London were not the cause of the problems. It was basically a "perfect storm" situation. I can't really give justice to AIG's defense, but if you go to http://www.albawaba.com/en/countries/Saudi%20Arabia/251398 there is an interesting explanation on the matter.
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