Massive mortgage squeeze
Net new mortgage lending is likely to fall to less than zero next year, according to a report commissioned by the Treasury from Sir James Crosby, the former chief executive of HBOS, owner of the Halifax.
Sir James is warning that as homeowners are paying off mortgages, banks are putting less money back into the housing market than they are taking out.
This represents a wholly unprecedented collapse in funding for the British housing market and Sir James says it's likely to lead to further declines in house prices, falls in consumer spending and a rise in unemployment.
It comes after net new mortgage lending has already fallen from £108bn in 2007 to a forecast £40bn this year.
Net new mortgage lending has never been negative, since records began.
Sir James is particularly worried about the impact of the collapse in housing finance on Britain's battered housebuilders. He says that they are dependent on mortgages worth 85% of the value of homes being sold, and that the provision of these has tumbled.
Part of the cause of this drying up of finance is that banks are having to redeem £160bn of bonds backed by mortgages over the coming three years, when it expects to receive just £150bn in deposits from ordinary savers.
That's why Sir James is recommending that the Treasury auction £100bn of insurance to wholesale providers of funds, which banks would then lend in the form of mortgages.
The chancellor said yesterday that he'll provide the support, if he's allowed to do so by the European Commission.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~47~RS~)
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Dear Robert,
Mortgages, --- House prices are the fault of Estate Agebts, Morgage issues the fault of the Lenders, Between them they have "Castrated " the market,
House prices are Massively over priced, and no one will lend until the Market has come back to what is normality, even if it means a massive fall in house prices WHICH IS GOING TO HAPPEN.,
Banks are FORCING people to sell their homes to pay off Credit on their cards, in fact there is no let up in the Banks cruel unsympathetic dealing, with their account holders, BANKS ARE THE PROBLEM, they are crucifying everyone they can when it is their fault all along with The lenders, and the estate agents that this crisis is deepening.
This is really going to end in Tears, and Britain is definately on the brink of an Economic disaster.
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I don?t know why Brown didn?t reverse a Tory tax rise (introduced at a time when they were scrabbling for revenue themselves) and remove VAT from building work (it?s levied on all improvements - everything except new build).
It would help the builders - and people usually have to buy things to go in the extension/loft conversion.
Plus, bricks, plasterboard and mortar are some of the few things we still produce in the UK. Companies like Baggeridge Brick have been mothballing their plants as demand collapses.
The 2.5% VAT cut will have about as much effect as the stamp duty cut did ...
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There was a wonderful cartoon of John Major at about this time in his tenure, showing him as manager of a bottle bank. We appear to have a few clones running this country now.
What was required yesterday was a speech of Churchillian proportions. What we got was a balding ditherer who ghad not prepared his dossier ("if allowed to do so" - he's had enough time to get that approval, which he didn't actually need in the circumstances, when we look at what's been going on within Europe of late).
And a new banking system.
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On one hand this is worrying on the other it makes sense.
Mortgage lending had lost site of reality as indeed had house buyers.
The contraction is needed to bring house prices down to more sensible levels and to avoid people overstretching themselves (which despite the math they seem hell bent on doing).
If lending principles such as 3+1 times salary had been maintained and landlords forced to take repayment mortgages much of this unsightly mess could have been avoided.
I appreciate that this is a simplistic view to a complex problem but bottom line had the banks/buidling societies have followed their traditional business models without getting greedy none of this would have ocurred.
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Total Nonsense!
This kind of rumour is what is going to drive us into an economic collapse.
What utter rubbish!
Prices will find a bottom and then will be underpinned by rents and the banks will lend the money which is being pumped into the market by the Gov.
Come on !
Please use some common sense here.
The banks would love to make things worst so they can charge us more for doing far less but the reality is they need to make money and an all out scenario painted above would only cost them.
This logic err non logic errr idiocy is what got us here!
Back to basics I think.
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Not really a shock this, is it?
The housing market was an inflated bubble that is not so much bursting as slowly deflating.
Prices are regressing to mean, and they will probably compensate in the years to come by a severe undervalue.
I suspect that "safe as houses" is going to have a new sinister meaning in the years to come.
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whoopee Bert - another headline grabber!
evryone knows that 2007 was crazy in terms of lending so lets not constantly refer to it as the benchmark
take a more balanced long term look and talk a wee bit of sense for once
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This is really serious because the wider economy cannot even start to recover until the housing sector stops deflating.
It just shows that the Chancer of the Exchequer has really missed the point with his emergency measures.
I saw Newsnight last night with Yvette Cooper, Dominick Grieve and invincible Vince Cable. While Cable and Grieve were making sensible balanced points, it seemed like all Yvette Cooper could say was "well we've got to do something".
Now Yvette Cooper may be a highly intelligent capable minister, but she didn't come across like that because she had to trot out the Government line. She had clearly been drilled into automatic on-message responses to all the questions. This gives the impression that if ever they step off the hymn sheet and get involved in a realistic debate, then it will all fall apart. This is probably because the first step is an admission that they have got it terribly wrong so far and it's very likely to get worse.
Coming back to what to do, there is no guarantee that doing something will necessarily make things better for people. On the other hand, there is a strong possibility that doing the wrong thing will constrain the possibilities for doing something useful in the future. So I would want a lot more of a justification for action than just saying "you can't stand by and do nothing". Doing the wrong thing now is much worse than doing nothing because it wastes the resources that would be available to help people later on, when they really need it.
I would say start to sort out the real underlying problems, the debt mountain, the burden of public spending, the fact that real productive jobs and businesses are going under because of the credit constraints, rather than throwing good (albeit borrowed) money after bad.
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So i was wrong robert...
I did say a few weeks ago that the average price of a house in the uk would be 94,000 by the time they reached there true value. you have to go back to around 1985-86 then add 1% to 2% increase from then, hosue price never fell back to there true value in the last crass. which mean the average price of a 3 bedroom house will be around 70,0000. i think that figure just put about everybody in negitive equity.
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As a lot of newly built houses are rubbish anyway we shouldn't be too sorry for the house building industry. I wouldn't buy one - even in this deflating market. Old houses may be drafty and not very fuel efficient, (at least the windows are in the right places and don't face brick walls) but you'll know the house will last the life of the mortgage!
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I am not sure why anyone would wish to take seriously a report from Sir James Crosby. Lets bear in mind that Crosby was the CEO of the now collapsed HBOS Bank until 2006 and should therefore take a major responsibility for that Bank's approach to risk management and lending which took it to the brink of disaster this year.
It's therefore hard to take seriously anything that Crosby says and the Treasury would have done better to have reconstituted the review under the aegis of a more credible chairman.
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@9
70,000
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If, as it would seem, the taxpayer has been conscripted into supporting the financial institutions and that those selfsame financial institutions then fail to support the taxpayer in return then we taxpayers have to ask why are we supporting these financial institutions?
Perhaps it would have been better to allow all those dodgy banks to crash and leave a great big mess behind. Perhaps we could have all made a few bob picking over the wreckage.
I am starting to doubt everything now as it is quite clear to me that stability is only about supporting a greedy and incompetent ruling caste in their privileged positions and comfortable pensions.
If the taxpayer cannot have the stability that allows the taxpayer to benefit, then why pay taxes?
Time for a revolution, methinks! Tumbril manufacturers should be a buy.
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labantall: There would be no point reducing VAT for builders as they, as companies, can claim it back.
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Given the critical nature of housing to the overall economy, will the government STILL believe in a near-term, brisk economic recovery in the light of this grim news for the housing market?
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Can I also point out:
VAT rate is cut from 17.5% to 15%.
This is a 2.5 percentage point cut.
It is a 14% reduction in the tax rate.
However is is only a 2.13% reduction in the consumer price.
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Robert this is why these toxic institutations should have been allowed to fail.Im afraid that Brown has missed a real trick yesterday to solve this crisis in one fell swoop ie stop anymore govt money going into failed institutations let them rot and wither away and get the goverment through the lender of last resort to start lending money directly to the business and households that needs it and will circulate it back into the economy on normal commercial lending rates although interest rates should be cut today to 1% this would have ensured that employment was maintained and the practices of the hidious banks would be dommed for evermore
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As part of my job I have to research the housing market from all angles. There are two really serious issues which are going to arise in the next year which could decide the immediate future of the market.
First is the Buy to Let market (or should that be Lie to Let?). Over the last couple of years there were increasingly hysterical claims about investment potential and increasingly attractive offers being made to tempt buyers. One of the most popular was the 'guaranteed rent for 2 years' offer.
On the face of it, it seemed like a good deal, you paid 10%, you were guaranteed a rent which would cover the mortgage and the property was certain to double in value over the next five years or so. What could possibly go wrong?
As any fule kno, if it seems to good to be true, it probably is. Whilst most of the BTL landlords in this secanrio are certainly aware that their flats have gone down in value and their mortgages may go up, what they are not expecting is to find that the developers were horribly over optimistic with their prices. I recently spoke to one who offered a £1,000 per week flat for £400, as that was the current market value. He didn't care, the developer was paying the rest for the next year or so and the landlord was none the wiser. The landlord is in for a horrible shock next year when he finds that the rent he was taking for granted is halved or worse - on top of the other problems that he is already experierencing.
Many landlords will be caught out by this, and new build city flats are about as easy to sell as US foreign policy at the moment. Quite a number will inevitably get repossessed which brings me on to the second topic.
What, at the moment, is the point of repossession? The banks are simply incurring more losses every time a property is taken back. In the current market they have no hope of realising more than 50-75% of the original price, which in most cases means a loss for the bank - and that is if they can in fact sell it.
Why is there not government guidance to stop repossessions and institute a form of rent-back scheme like they do in Australia.
Oh and one last thing - anyone spoken to a Canadian bank recently?
The ones I have spoken to seem to be doing very nicely indeed. Why? Because they weren't allowed to get involved in trading in dodgy mortgage backed securities. So for Crash Gordon and his 'chancellor' to claim it's not their fault is rubbish. Other countries aren't having the problems we are so it is clear that with better regulation the problem would not have occurred.
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Sir James with respect hasn't got a clue!
Isn?t it Sir James and his opposite numbers who have caused our problems?
And now they want a bigger buffer and a bigger margin for all the loans they made to people who should never have been given a car loan, much less a mortgage on a house.
Anyone with any sense will be looking at property for his or her future income the stock markets and bond markets have proven to be a far higher risk.
Come on Robert do the numbers please.
20-year periods since 1960 etc?
You know how to add up don?t you?
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Brilliant
At last the end of the era of CRAZY house
prices.
How long before BROWNS era comes to an
END???
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So having 'bust' HBOS, Sir James now wants to do the whole country by suggesting the same approach to lending.
It has now been said numerous times on this blog and hundreds of others that house prices are just too high. Even the BBC has woken up to this and is answering serious questions of Darling and Brown.
Net lending needs to turn negative in order for the market to return to anywhere near normality. For the last few years lending has been reckless and now it is payback time.
In the meantime, Darling and Brown are confused about whether this whole mess was the banks fault for the reckless lending in the first place, or whether the banks should be forced to lend at those levels again. Yesterday's PBR was actually quite reassuring that despite the hot air, Darling seemed to suggest nothing to prop up the housing market.
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Please remember Sir james is a huge shareholder in HBOS which in turn owns large stakes in many of the housebuilders and whose business is also 20% of the UK mortgage market.
Much of this statement is feathering his won nest so to speak. House prices need to fall 50% top to bottom to go back to a median average and with this in mind we should expect falls next year.
And over-extended housebuilders going out of business.
Glad to see though yesterday that the BBC is finally looking past the New Labour spin a little and at reality instead.
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@18
Poeple will be wanting to be repossed. would you want a mortgage worth ten of thousands less than you payed for it? I think not. the flood gates will be opening to get rid of there keys and the massive debt incurred from these over priced homes
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This surely is an entirely foreseeable re-balancing of house costs. House prices went up because the mortgage market was inflated by the money market short term fixed mortgages. The funding for this will inevitably dry up and more people will have to move to the standard variable rate of old.
House prices will fall then the market will move again.
What it does however question is the ever increasing cost of nationalising Northern Rock. I cannot ever see us getting that money back.
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#13 "I am starting to doubt everything now as it is quite clear to me that stability is only about supporting a greedy and incompetent ruling caste in their privileged positions and comfortable pensions."
Interesting point.
Wouldn't have been cheaper to let the banks go under and pay the savers deposits up to the level of £35,000 as they were set before the Northern Rock crisis? Few have more savings and most far less. Well run banks like Santander would have picked up the banking assets. This "stability" means a class of failed financiers and bankers and bank overseers are still in place, and the rich are being funded by the poor.
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EVERYONE
PLEASE take the time to consider the mathematical probabilities and full implications of this comment. I need an informed assessment of the beyond- chancenesss -anyone qualified to comment out there - PLEASE.
(#3-the information below indicates that the current banking system is working exactly as Bush anticipated)
I first posted this prediction on 8 Oct on another site and later on Have Your Say. It read:
" Added: Friday, 24 October, 2008, 15:25 GMT 16:25 UK
Re: Dow Jones closing price.
I see the next significant low being 7,6ish (7,652 to give almost certainly unreliable detail).The significance of 7,6.. is-
- It occurs when Bush is less affected by share prices and no longer seems to take responsibility for the markets, indicating it will be at least not until very close to the election.
-After it occurs, trends become much less chaotic as the full implications of actions taken by Bush in the first week of Oct become known."
On 23 Nov I posted the result:
"Context - DOW closed at 9,447 on 7 Oct.
SINCE 7 Oct there has been a continual downward trend in the closing
price.
ON 20 Nov the DOW closed at 7,552
"NEW YORK, Nov 21 (Reuters) - U.S. stocks surged on Friday to cap
another volatile week as investors greeted with relief reports that
President-elect Barack Obama has chosen his point person to combat the
U.S. economic crisis, lifting a major uncertainty from markets.
Stocks limped into the day after a back-to-back pummeling that had
left the S&P 500 at an 11-year low, and spent most of the day drifting
in and out of positive territory. They shot higher around 3 p.m. when
NBC news reported that Timothy Geithner, president of the Federal
Reserve Bank of New York, would be nominated as U.S. Treasury secretary."
Comment
The prediction was the sum of two parts. First, I identified the
APPROXIMATE closing price at it's next significant low. I took this
to be 7,6(ish). Then the same technique was applied to find the
detail (i.e. the last two numbers). I took these to be 52 and simply
added them to 7,600 without considering the issue of rounding. I
neglected to take into account the fact that 7,552 is nearer to 7,600
than 7,652. I inadvertently rounded up, I shoud have rounded down.
It is interesting that I chose to share the detail I regarded as
"almost certainly unreliable" and that it has lead to such a valuable
learning experience for me."
This prediction came from remote viewing Bush's thoughts regarding how bad things would get whilst he was still accountable. I consider my prediction was at least broadly correct, therefore I deduce he had been provided with very accurate forecasts and the current situation was anticipated.
With best intent
Loraine Connon
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Mortgages should be pegged to a multiple of the TAX the borrower has paid over the previous three years.
That way the price rises are linked to Government income and the prices will not rise out of control. This would also increase government revenue.
The Government must introduce systems, which stop BANKS competing for business in a way which causes financial bubbles.
REVOLUTION!!!
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#11 as opposed to the reports by Derek Wanless - the failure at Natwest - or Martin Taylor - failure at Barclays etc etc.
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This is the kind of irresponsible reporting that has exacerbated the current crisis.
This is one man's take on the problem, an ex boss of a failed Bank.
We are told we need confidence back in the market and this kind of irresponsible talk will do nothing.
However if he is right and the banks are seriously underfunded because of total incompetence, mismanagement or even possibly fraud then maybe its time for an inverstigation by the Serious Crime Squad because bonus were still being paid in the City when quite honestly the accounts were quite clearly not showing the full scale of the crisis.
Who was hiding what?
the Banks have had unprecendented support by the Government/us so now owe it to the Country to get things moving again.
They messed up for the rest of us.
Maybe the Government claws back the money from the Banks, sets up a totally nationalised Building Society and gives affordable mortgages to first time buyers, so that the housing market can start moving again.
If the Banks won't, can't then we need to side step them. The Country cannot be held to ransome by a few incompetent City, not so, slickers.
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#14.
Yes there would be a point in removing VAT from building work as it would encourage people to commision the work in the first place. The fact a builder can claim back the VAT is entirely moot if no one is having any work done.
The removal of VAT would be to act as a stimulus for demand (with all the additional benefits for the building materials supply industry).
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#8, i missed that. Did she claim it all started in the US, mention global recession, 15% tax under Tories, lowest rate of debt, best-placed for the recession and taking the lead?
Why we don't just replace the entire government with tape recorders I don't know. Think of the savings....
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@ 20
You can't really believe that the Tories will be any better can you?
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If you look at affordability of houses in terms of average income over the last 40 years, then from _today_ house prices probably have another _40%_ to fall before they reach the bottom of the last three cycles which were between x3 & x3.5.
You can talk about increasing demand and limited supply due to increasing population, more single people and restrictive planning, but ultimately, most people were only willing to stretch themselves to the recent extreme levels because they thought houses were a one-way bet and that to not be on the ladder meant they would never own a house.
They don't think this any longer and believe that house prices are now going to fall and that they can't afford as much anyway.
The best thing that can happen is that the fall happens quickly and we get on with the recovery and dealing with the fallout.
This budget will do nothing but make the fall deeper and the recovery slower, because the promise of future tax rises will make people even less likely to spend. This is perfectly rational and is exactly the reason why Keynesian policies fell out of favour - they don't work if people understand the implications of the governments actions...
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The terms "UK" and "economic collapse" seem to be moving ever closer together, eh Mr Peston? So much for the garbage being churned out by all political parties at the moment.
As usual, Vince Cable stands out as the only politician in the Kingdom able to talk any sense right now. However, even he hasn't yet espoused the killer answer to this increasingly disastrous looking problems we're facing.
The simple answer, in fact, lies in the dreaded term "deleverage". We have to wind back from our gross indebtedness and live within our means, and we have to do it now. The pain will be agonising.
The politicians are scared witless about the implications and consequences of such deleveraging and so, er, they borrow cosmic sums of money in order to defer the pain. Meaning that the eventual agony will be little short of unbearable when it comes.
This is why we have politicians: to tell us what we want to hear, not to do what needs to be done. You have to get on and do that yourself.
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All this means is that more mortgages will be paid up rather than new money handed out.
There isn't much sense trying to force property to turn over at bubble prices, which they still are. Until regulation (whether self- or official) allowed the loan-to-value ratio to go crazy in the past few years there was the yardstick that mortgages were within 3 to 3.5 times a given salary. That went out of the window. Prices are still 4 to 4.5 times salary so they are a dodgy proposition for most potential buyers.
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@26
'This prediction came from remote viewing Bush's thoughts'
__________________________________
'Remote viewing'?
Er, how does that work then?
I bet you can't 'remote view' what I'm thinking right now.......
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All this means is that more mortgages will be paid up rather than new money handed out.
There isn't much sense trying to force property to turn over at bubble prices, which they still are. Until regulation, whether self- or official, allowed the loan-to-value ratio to go crazy in the past few years there was the yardstick that mortgages were within 3 to 3.5 times a given salary. That went out of the window. Prices are still 4 to 4.5 times salary so they are a dodgy proposition for most potential buyers.
There's no sense in trapping Mr & Mrs Average into repayments that will be unaffordable for most of the their lives so I hope prices will continue to fall.
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We should all look on the bright side people. We will all get to know our neighbours better when where poping around to see if we can borrow that bit of sugar or milk, they where the good old days and maybe it wont be such a bad thing to return to them. Communities where much better and closer then.
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Given that we are expecting deflation (at least in RPI terms any way) and a reduction in GDP why should it be suprising that mortgage lending is to contract - this is before taking the bond turnover/repayment issue in to account.
What about contraction due to the other 100s of bn GBP that was pumped in to the mortgage system via the money markets since 2001 (the last year it was net funded by deposits) as that will have to work it way out of the system too. This is not just a next 3 year problem it keeps going until we have worked the excess money out of the system. No one will want to invest in UK proprerty bond products for a long time. Does any one think there are going to be enough buyers for these proposed insurances given the government is trying to raise 1.02tr GBP anyway given alot of other countries will try to do the same?
Re 18: Yes I did the employees seemed happy about their job security too...
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no housebuilders - fine
no supply pent up demand - hey presto prices back up and we are all saved
it'll take a couple of years but trust me
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All this means is that more mortgages will be paid up rather than new money handed out.
There isn't much sense trying to force property to turn over at bubble prices, which they still are. Until regulation, whether self- or official, allowed the loan-to-value ratio to go crazy in the past few years there was the yardstick that mortgages were within 3 to 3.5 times a given salary. That went out of the window. Prices are still 4 to 4.5 times salary so they are a dodgy proposition for most potential buyers.
There's no sense in trapping Mr & Mrs Average into repayments that will be unaffordable for most of the their lives so I hope prices will continue to fall. The news
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Crosby a major architect of HBOS 's demise is giving advice to the Government,give us a break and disappear again.
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There has always been some merit to me of a political system run by a benign dictatorship, as opposed to elected by an uninformed democracy.
Sadly we now have an uninformed dictatorship, and a democracy becoming rapidly malignant.
How much worse does the government need to get before the electorate see what is really happening to them - ALL of them, rich or poor.
If the Tories or Lib Dems can't enage the voting public at times like this, then nothing will raise voters form their slumber.
If Brown & Darling were Chairman and CEO of a listed Company they would been voted out long ago by shareholders for creating and implementing policy not in the shareholders best interest.
The core ability to plan ahead, set a budget, and make relevant decsions. No wonder Brown and Darling are languishing in the payscales just below the £150k mark, well off the Chief Execs of Tesco et al - people who actually do something!!
When will the public wake up to this incompetence, and stop swallowing random soundbites in total belief they are right.
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re #9.
Not everyone will be in negative equity.
I, like 40% of people do not have a mortgage.
Why?
Because I paid it off. In the good times, I still watched the pennies and put most of the spare into the mortgage rather than keeping you with the Joneses or spending on stuff I did not need.
Now, things are tight, I am sitting pretty, busy using savings to buy shares in good companies at prices that in 5 years time will look cheap.
Smug? No.
Saving in goods times to ride out the bad times is just good sense.
Shame, that Gordon believed his own hype and failed to do it.
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#26
Lorraine, you posted this yesterday and for the first 3/4 paragraphs would have prompted some thought.
By trying to justify why your original prediction was out and was actually correct, you started the alarm bells.
You really blew it in the last paragraph - remote viewing, please!!!!
Anyone with the skills to propose an answer is also likely to be clever enough not to rise to providing an answer.
You are trying to get some specious proof that your remote viewing prediction cannot be by pure chance or is so unlikely that the number is very large. You are patently not trying to prove Bush or anyone else knew what the figures were.
I suggest you probably acquired the base 7600 ish figure from many reports which were available at the time from market reports of their expected floor level at the time. Albeit not conciously.
I suggest you post this on a flat earth website or similar where some obliging fool will provide the numbers you seek to justify your belief in this twaddle.
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Robert - on the whole, excellent and balanced analysis these past few blogs.
However, I am desperately sad for the people of this country.
Labour has ruined our public finances to the point where, by their own figures, they will take almost a generation to put right. According to Labour's figures, Britain will have higher real terms public debt that we had at the end of WWII. Terrifying. And, the whole basis of these figures is rose-tinted. If it's worse, we'd all better start praying - or leaving the country.
I remember pretty vividly the bitterness of the 1980's when Thatcher had no choice but to impose incrediably tough measures after Labour's IMF bailout and winter of discontent. It took the best part of a decade to put right, and the pain was such that much of the north of the country remains scarred even today. That's a big part of the reason why some people viscerally hate the Tories. Even today, let's face it, many in the BBC and elsewhere view the Tories as the 'nasty' party. But let's remember the mess Thatcher inherited in 1979: she didn't have a choice. And as a country, we couldn't even afford to ease the pain.
And yet, having been through all that pain to achieve such hard earned gains, here we go all over again. Labour haven't learned. And once again, it will most likely be the unfortunate Tories who have to administer the bitter medicine. No doubt with the Left spitting blame from the sidelines, without irony.
We are going to have to go through the early 1980's all over again: public strikes, protests, the lot. And all because Labour have so fundamentally mis-managed our finances. For those with a memory, it's enough to make one weep. Can't wait for 2010 or whenever the public money runs out, which it will. I hope Labour can afford the police overtime because they're going to need it.
Maybe the international markets will save us by simply refusing the buy the government's debt, but I doubt it. They'll put the interest rate up and bet the Tories get in to sort it all out. Their job after all is to make money, not care about our country. Whoopee.
For the record, and before the Labour monitors cry foul, I voted for Labour and believed them when they promised prudence and better public services. They did a great job for the first 8 years. But I guess winning a third term was just too much to expect.
For those who say, 'we've got to do something,' you don't solve a debt induced problem by making it worse. If the public finances were under control, I agree that a fiscal stimulus is absolutely the right choice. However, they aren't and we simply can't afford it, as yesterday's rose tinted figures prove. Prepare for the worst.
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Re 18.
I totally agree with all you say about buy to let. it was greed driven, spurred on not only by lenders but by the press and TV programmes that showed you 'how easy it was to make a million!!!!'
Of course 100% mortgages + was a crass idea
Self certification let open the door to stupidity.
Bubbles always burst we all know that!
I also agree that stricter regulations should have been imposed on the Banking sector but you know as well as I do the that interference by the Government is always opposed by those affected,also by the media and always by opposition politicians particularly the Tories, who advocate less Government interference, more freedom in the market place.
Countries where Governments are allowed to Govern and not bullied by the private sector will not be suffering to the extent those who have embraced free markets economies are.
Free market, capitalism etc sadly thrives on greed and how much can I get away with.
If that is what people of this Country want fine but if they want a civilised society personal, social, public, corporate responsibility is paramount but sadly 'man' cannot be trusted and needs regulations or at least rails to run on.
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I do wish Mr Peston would write in better English. That second sentence is almost unintelligible.
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Mortgages being squeezed is not a surprise. The issue is liquidity, and the problem is made worse by low interest rates. If customers can only secure 80% of the value of a property, rather than the 100% of a year ago, it takes time to save to achieve the level of deposit required. If interest rates fall, inevitably it takes longer to save this deposit. To get a housing market recovery quicker, we surely need to have higher interest rates on deposits, and a lower requirement by lenders for a deposit (say no more than 10%).
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MERVIN KING, as just said on the BBC the banks will need more money in the near future to cover future losses.
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I understand that the main reason for the lack of lending is related to the "setting aside" of huge sums by the lenders to pay for the enormous overcharges that they and their brokers have been charging consumers.
According to figures produced by the UK's largest consumer representative organisation in this area, The Loancheck Foundation, these sums aggregate to a staggering £35bn.
Interestingly, this issue has been discussed in Parliament and even been published in Hansard.
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Ever since we all took the notion that salaries had to be paid directly to the banks then the majority of the country, have been rightly shafted by all and sundry in that sector.
Isn?t it about time that we all by law had the option to be paid in cash and then manage our affairs in accordance with our held net worth.
Is society a better place or a better managed place with the banks taking our cash from source and then toying with it and us the customer?
Would we be where we are today post the financial sector bubble if we had not been forced down that route? Indeed the bubble would not have happened.
You don?t have to go to the LSE to know that spending money you do not have is asking for trouble, or to understand that shareholder profit above everything else will always twist management actions over and above the greater good.
To be bailed out for this by governments who do not really have the cash to manage the situation just takes us closer to the brink of catastrophe.
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#8 correction
It was Philip Hammond for the Conservatives - some of the shadows are a bit clone-like.
Apologies for the mistake!
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Dear Robert,
Yet more worrying news - I just wondered if you felt all this doom and gloom in the media was making things worse or if you feel it?s the media?s duty to tell it how it is however bad it gets.
Reason I ask is I saw a story this morning that said you?re more trusted on the economy than Gordon Brown and David Cameron!
?The corporation?s business editor was rated a reliable source of information by a quarter of those polled for the McCann Erickson advertising agency, compared with seven per cent for the prime minister and four per cent for the Tory leader.?
Does the weight of responsibility ever get to you??
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Robert
Net New lending. Presumably you mean completions less redemptions and capital repayments - which is net lending not NEW. Picky I know, but you need to get it right. For whatever reason millions seem to hang on your every word, so please fulfil your obligations and help drive up the quality of reporting and comment.
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I read with wonder the comments posted here.
Filled with partisan thoughts, self interest and misunderstanding.
So here is my two-penneth-worth of irrational/conspiratorial thinking:
It seems to amaze most of us that no one in the banking sector or Gov could see that any down turn in the market (here or US) would cause the collapse of our economy.
So maybe they could - maybe for the past few years they have been desperately trying to prevent a fall, and in doing so have driven the market upwards, causing even more problems..........
You're not telling me that no leading bank executive or Exchequer whizz kid spotted the potential for this
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Britons have 700bn net debt, according to your own reports, Robert. Negative net lending is the only way to get Britain out of the red.
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Will the last person to leave the country please switch ON the light.
At least the energy companys wont be able to overcharge anymore.
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So when did records begin? I accept this will be a relatively unprecedented thing if it happens but I'm extremely doubtful of that 'never.'
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It is obvious we are in the midst of an economical crash. The government can't prevent the crash but it can build air bags and strengthen the system to minimise the damage. However, what they are actually doing is mad. They are telling us to drive faster, buy more plasma TVs!
This government has not got the courage to admit it got it wrong. GB is so proud that he would rather drive the economy off a cliff and blame the US than to admit his policies were incompetent.
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Robert,
Sometimes I wonder if you appreciate the impact the media and in particular your (the BBC) comments and speculation have on perception. As they say " perception is reality" - the confidence of the general public is based on our own experience and what we see in the media.
In my view the problem with the housing market is relatively simple and not a mystery of the financial world.
House prices are dropping leaving less equity to pay large stamp duty costs, mortgages are more expensive and less easy to obtain. Some have negative equity. People are worried about their jobs and increasing food and energy costs. So feel less affluent. Result: if you don't really need to move then you stay put.
Buy to Let has major problems and is the source of a number of repossessions but those people are not necessarily losing their homes.
First time buyers need more deposit and mortgages are not so freely available. They are also worried about jobs so are nervous about spending money. They also see house prices falling and would want to see them bottom out so will continue renting or living with parents etc.
The people who have real problems are those who lose their jobs and cannot pay the mortgage - this is the real fear in the economy and the Government should focus on creating a simple and effective safety net and keeping the job market going as best as possible via public spending and other means.
Re VAT decrease: human nature again... would £12.50 off a £500 TV make you go out and spend - not really. BUT - if you had been planning a purchase and there was talk weeks ago of a VAT reduction (5% was mentioned) then would you delay a purchase - yes. I suspect that on Monday 1st Dec that all the people planning significant purchases but delayed to see what happened with VAT will go out and make those purchases. Hence November 2008 figures will look bad (people delaying purchases) and December 2008 will look much better - so the Chancellor will say "look, it worked".
The key to it all is consumer confidence. What will really make a difference? While people are genuinely concerned about losing their jobs it will be hard. If consumer confidence is low then any VAT or tax reductions will not work as people will probably save the money.
Another thing: spin and statistics - if repossessions go from about 1.4 % to 2% then why is the headline "50% rise in repossessions" - same information, correct info but very negative headline. The number is still very low and the picture is complicated (normally hidden on page 6 or somewhere).
The media must think about the role they play in creating perceptions and their effect on consumer confidence.
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Dear Robert
OFCD, STATES --- the recession in the UK, will be the worse any where in developed countries.---
Stand by for hell on earth.
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Banks must not be allowed to 'stuff' the country even further. The Chancellor needs to give them no excuses not to lend and to unblock any areas that are likely to cause a problem.
Close (very close) monitoring of the behaviour of banks is going to have to be the norm from now on. Promised new regulation of the banking system and bankers needs to be tough, but fair and equitable - banks may find 'fair and equitable' a little difficult to understand.
The Prime Minister and the Chancellor should be congratulated for showing strong leadership yesterday. In the House of Commons, 'Larry Lightweight' and the sixth form debating society opposite looked completely nonplussed. As the Sergeant Major said to a nervous Officer Cadet - with a strong resemblance to our 'Larry' - "I wouldn't follow you Sir, not even out of curiosity!"
How things change...
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I do wonder sometimes about how people perceive this whole thing!!
I am sure some people here, think Mr Brown and Mr Darling sat down with a mug of coffee, back of an envelope and a pencil and cobbled the thing together!!
Sadly that is not how it works!!
The Treasury is full of career Civil Servants, some of whom served under the last Tory Government and who will still be there after the next election.
Then there are all the 'experts who are called in to No 11 to give their take on the problem and the solutions.
I know of someone who was recently called to No 11 to give their advice on a vey small aspect of the whole matter.
Then there are all those with vested interests in getting their point across too i.e banks, housebuilders etc etc.
At the end of the day no-one knows the solution to a problem that no-one apparently saw coming, until it was too late.
There are so many factors, so many unknown aspects both here in the Uk but also Globally that may or may not affect us in the months and years to come. No-one is capable of predicting any of it.
What we do need is for everyone to pull together and work for each other- that would be a novelty for a start. The press & the media need to get behind the Country because there are people out there suffering as a direct result of all this and they need our help.
All this negativity and irresponsible reporting by the media is so unhelpful because all they are doing is speculating, they know no more than the rest of us.
Reading ones Horoscope would be about as sensible as reading some of the 'experts' predictions.
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Question:
Why would banks want to lend on a depreciating asset?
Hence why the deposit requested is now rather large.
Next Question:
Why haven't mortgage rates come down closer to bank rates?
Identify the banks offering the deals.
Now consider this, who are the ones offering the closest deals to the base rate?
These are the banks with the best capitalisation and also the banks that other banks will lend to because they are the lowest risk.
And the expensive deals? Well, tells you all you need to know about the banks.
And then factor in, repossession percentages increasing, prices falling, chance of unemployment, increases in the cost of insuring the loan (indemnity).
Banks need more bad debts like a hole in the head.
That's the reason why banks aren't offering mortgage.
Joe Public is a credit risk.
After all, it's not as if we borrowed 1.5tn pounds already is it?
I also remember one BBC business pundit saying that the massive borrowing by UK consumers was nothing to worry.
Oh really?
It seems it is.
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Everyone on negative equity!!! I don't think so. I own three house, our main home, the one my parents live in, and our holiday home on the south coast - yes we are lucky.
Am I a rich fat cat banker? No, unemployed operations specialist caught at the backend of an perverse thought that offshoring call centres is the solution to everything, and having the nerve to say it won't work and the customers won't like it.
Through what I feel has been good financial planning, dont' borrow what you can't afford, think ahead..... I own the main house outright, so difficult to go negative on that, and if house prices drop to 30% of where they were, it might loom, but only if I want to make my mum and dad homeless or stop enjoying the sea. ( By the the way the mother in law owns hers house outright too, so she can't go negative either!)
Smug? No
Had negative equity in the past? - yes but we bounced back, and it is only really negative if you sell and realise the "loss".
I know negative thoughts sell papers and boost TV ratings, but we are in danger of tlaking ourselves into more trouble than there is, and there is enough of it already.
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One major thing is missing from the medicine dolled out by A Darling and this is a [much overdue] reduction of Government spending on Government employees including final salary pensions and, not least, reduction of the largely wasteful Quangos which often overlap and add little to the countries wealth. Sadly, no political party seems to be concerned about the ever increasing burden of the public workforce being paid for by the ever decreasing numbers of private sector workers.
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# 46 bluntjeremy
"They did a great job for the first 8 years"
Are you joking (in an otherwise sensible post)?
The reason we're in this unprecedented mess is really very simple. Labour did an appalling job every single day it was in power - that's precisely why the situation is so unimaginably dreadful: now we're paying for it.
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I was wrong. There I admit it.
I bought my flat in April 2007, at the height of the boom, and overpaid for it. Now it is worth about 25% less, but luckily it was not a new build, so it shouldn't fall much lower. Most importantly, I do not plan to sell any time soon.
But let me tell you what I know now that I did not know then: Yes, I was aware of buy-to-let. But I was not aware of the silly mortgages that banks were giving to justa bout anyone, people who should never have qualified in the first place, thus inflating the market beyond proportion.
I now understand that prices were inflated so much because you had single mothers working as checkout-assistans buying 3-bed houses with a monthly payment that was more than their salary! You had unemployed people on benefits purchasing flats! And inexperienced buy-to-letters buying 7 flats at a time on spec! No offence, but how were these people expecting to make their payments? They are now blaming the banks, but they are both to blame as far as I'm concerned. Shame on all of them. Disgusting.
Now they just default, so what for them, nothing ventured nothing gained, but it is people like me who pay the real price. People who could afford our property, who planned carefully and bought within our means, and who now are trapped in negative equity, after paying more than we should have because the people above created a bubble that they jumped out of, leaving the rest of us to suffer.
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No 46
Buntjeremy save your crocodile tears. Don't blame Labour for the housing crisis. Blame the indolent and ill-informed who put
foot on the 'housing ladder' in order to
stand still and do nothing while they gained huge profits from our own 21st Century South Sea Bubble.
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Fear ROBERT-----
The OFCD,---------- has stated that the recession in the uk, WILL be the worse of all the Idustrialised Countries,
"Hell is on us.!"
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I am bored with getting angry about this and have decided to treat it all as some kind of situation comedy.
I would have loved to cast the late, great Brian Rix as the Chancellor. He would have done the pre-budget announcement but realise halfway through he hasn't got his trousers on (just like Alistair did yesterday)!
Richard Wilson would be Gordon Brown, delivering his classic "I don't believe it!", but with the twist that he really doesn't believe it. None of it.
It could spawn a whole generation of immortal catch-phrases; "We must do something!" or "Don't blame me, it's the Yank Banks" might be in there, but why not adapt an old favourite and have a camp player flounce into the Cabinet budget discussion shouting "We're free!!!"?
It's either this, or we go the other way and commission a dramatisation based on Gordon in the Berlin bunker, deploying non-existent funds to "maintain investment" while panic-striken Londoners await the arrival of the Russians. That bit would be quite realistic actually.
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Comment 18 : eddixon
"Oh and one last thing - anyone spoken to a Canadian bank recently?
The ones I have spoken to seem to be doing very nicely indeed. Why? Because they weren't allowed to get involved in trading in dodgy mortgage backed securities. So for Crash Gordon and his 'chancellor' to claim it's not their fault is rubbish. Other countries aren't having the problems we are so it is clear that with better regulation the problem would not have occurred."
Yes, but according to Brownian logic, the Canadians actually made an incompetent decision to prohibit their banks from participating in the MBS trade. The correct real-time decision would have been to allow such participation, as the UK did. The fact that things haven't turned out as expected for us is no commentary on the quality of the decision made. The Canadians have just been lucky, that's all. By rights, we should be flying high, and they should have gone down the pan.
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?Prudence has left the building? I heard someone say, and there was me thinking he was never in it!
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#64
You're wrong, many of us saw it coming. I have the correspondence with government ministers to prove it.
And the answer? Help the weakest individuals out just because we're a civilised country, then pour everything else into incentives for businesses to become competitive and be based here.
Announce 125% 1st year plant allowances to stimulate business investment, same for new buildings.
Penalise businesses offloading employment abroad with tax hits.
Place tarfiffs on low wage imports, not to stop imports but to give domestic manufacturing half a chance.
Unless you get business moving it's all screwed anyway. All this give-away is garbage, papering over the cracks until the balance of trade finally kills us.
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I wonder whether the Blairs managed to sell their two penthouse flats in Bristol before the crash?
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#56
Yes, someone predicted it. Dr Nouriel Roubini, a NY economics professor. Look him up.
For years, he was ridiculed by "free market-no regulation-trust the banks" idiots/experts.
They nick-named him: "Dr Doom"
Who's laughing now? Sadly, no one. Well, not true. The bankers that pocketed billions in bonuses are STILL LAUGHING.
OSTRACISE THEM
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Robert
"Net new mortgage lending is likely to fall to less than zero next year"
Sorry if this has been commented on already, but how can lending fall below zero? Logic tells me that if that happens then people will be owing money without borrowing any. That just cannot be right, now can it? Or is this a sneaky way of leaking a new sinister stragegy of the banks Hmmmmmm?
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#68 - not sure I agree with you, though I didn't like the lies over Iraq etc. Let's also face facts, the Tories had become tired . . .
Anyway, I hope you can 'forgive the sinner that repenteth . . . '
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#14
Pick up a copy of the yellow pages and phone a builder and tell them you would like an estimate for a 'cash' job. They will be round in no time.
Half of them probably dont know what VAT stands for.
The 'Black Economy' is the only one growing in the UK.
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The real issue is do people want to take out a new mortgage? How many mortgages are being turned down? If there isn't the demand then the only thing lenders can do is reduce mortgage rates to intice people to borrow, but if only one does it then they get swamped out. Understandable at monment they have to repair their capital base.
Problem now is that people realise it isn't a sure bet that you will make money on property. And with lenders going back to sensible income multiples its going to be a very long time before pay increases enough to enable historic 3+1 lending to enable people to even be able to consider borrowing, unless house proces fall a long way. On new estate where I rent 3 beds cost £180k, who earns enough to be able to afford that? Average earnings max £25k, so means houses can't be worth more than £110k. House builder has written down value, so why don't they sell them at an affordable price?
In 89 I bought a house at peak at auction, it took 7 years before house was worth same, and about 10 years before it was worth the same in real terms. Only way this problem could be quickly fixed is by a period of high inflation where pay shoots ahead to enable 3+1 ratio to increase amount people can borrow. Houseowners would be happy, but investors would loose out. At least that way there wouldn't be negative equity - Bradley Stoke near Bristol was known as "Sadly Broke" and there were Panorama programmes on problems of negative equity there.
This is going to be a long haul and even though I have cash i wont be buying for at least 5 years.
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But Robert, the Government has stated that it is not shortage of demand for homes at "the right price" but a shortage of mortgages "at the right prices for people to buy"[1].
However, is this really the truth? Especially when we consider other articles that detail how house prices will have recovered by 2013[2]. If this were the case, the average wage would have to explode to £45K p.a. to pay for the average property costing £200K, based on the following terms.
- £20K deposit (90% LTV),
- £180K borrowed at x4 multiple of income of £45K p.a.,
- 25 year term.
So we?re either looking at a real crash in house prices (not just flats and apartments) or a return to irresponsible and risky lending. This begs the question; do we believe that the Government has a real commitment to lending regulation and reform?
I see so much contradiction that my confidence in the Government is totally shot. There just does not seem to be a coherent plan of action yet they continue to hose our money at the problem.
I believe the Government need to state their aspiration for mortgage lending in 12 months time in terms of Loan-To-Value (LTV) ratio, multiples of annual income, and loan duration. If you agree please sign this petition:
http://petitions.number10.gov.uk/LendingReform/
This would provide a better understanding of their stance towards future lending, and enable us the voting public to make our own judgment of the likelihood of lending regulation and reform.
[1] http://news.bbc.co.uk/1/hi/uk_politics/7667284.stm
[2] http://news.bbc.co.uk/1/hi/business/7692814.stm
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#46
Can't wait for 2010 or whenever the public money runs out, which it will. I hope Labour can afford the police overtime because they're going to need it.
Is this why Taser stun guns are being introduced?
I can think of no other justifiable reason
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18 eddixon
What is the point of repo of houses..
The point is to recover the bank losses on the mortgage against the insurance policy paid for by the housholder. That is what drives repo. The only way to stop it is negative equity trading and HMG is not interested in providing a support mechanism. Repo to continue. The lower house prices drop the higher the likelyhood of negative equity and the more likely repo figures rise. It is not just repayment costs it is change in circumstances also, and the longer it goes on the more those figures are likely to rise. Negative equity locks the householder in.
.......
Cutting VAT by a couple of percent makes no effective difference when shops are discounting at 25 % and the pressure is deflationary. The economy will not pick up until the housing market picks up. Darling and Brown have the pedal flat to the floor heading to jump the gap. Lets hope it is not a cliff. I can see no reason for house building to suddenly pick up. I can see no reason for the City to suddenly pick up. Overly stupid lenders have been culled, overly stupid borrowers have been culled. Who is goin to rush forward to borrow which is what is needed to get the economy moving. Where is the growth going to come from, other than a very slow relaxation in spending by people who by their nature are cautious, which is why they have savings left.
This is Darlings only shot. If there is no uplift, or it arrives late he cannot go back to the pot without discrediting himself (more?). At this stage it is far from certain that uplift will turn up in the form Darling/Brown wants. It is very difficult to see how Public Spending will not be cut in a few years time. I cannot for the life of me see why Darling/Brown has to all intents and purposes politically closed off any other route forward, it can only be desperation.
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You'd have thought they could have got rid of stamp duty on house purchase, that could have been introduced immediately!
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I worked as a mortgage advisor for Barclays up untill 3 years ago. I had only being doing the job 2 years but having studied the relavant qualifications (cemap) and learned the basic workings of the economy even I could see that this was a ticking bomb.
First time buyers were non-existent and the only growth in the market was coming from buy to lets and second properties funded by stripping the bubble equity out of thier own homes.
Everything coming from the banks over the last dozen years has been designed to keep this dream alive. Everything in thier eyes would be fine if prices continue to rise by 10% pa but there was never a chance that they could but were never brave enough to say this because of the brown nosing to the city that was essentail.
First rule of economics = Every bubble bursts
and blimey this is a monster!!
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The Second Great Stink:
This report smells a bit fishy to me, given who it has come from. Sounds like they are trying to prepare the ground for some further bailing out of the banks, with the bailing out of homeowners an afterthought.
House prices have to go down in real terms for several years as part of the necessary adjustment, which is clearly going to have to be a lot larger than it would have been if we had been sensible and not left it all to the great god of market forces. The gov't was negligent in not attempting to apply the brakes to an overheating housing market in about 2004. This could have been done by introducing new regulations to limit mortgages to 90% LTV etc but you can be sure that everyone, including the awful Tories, would have complained bitterly -- and I seem to recall that there was an election to win in 2005....
The problems really got going just after 9/11 when the US govt told people to go out and spend spend spend, and cut interest rates way too far. As usual the UK was keenest to copy the US right or wrong.
Prudent and well-run countries like Canada, whose banking system is favourably mentioned by #18, didn't fall for it and retained regulations and restrictions on mortgage lending. No liar's mortgages or 125% deals etc, though even there the housing market overheated in the bigger urban centres like Vancouver and Toronto and is now cooling down (well it is November.....)
The US may be a bigger villain in all this boom and bust stuff than even the UK but they are a very big and powerful country whose $ is effectively the world's reserve currency so have a much better chance of cheating the hangman through fiscal stimulus etc. Where is the UK in comparison? Well the £ sign doesn't even work on the BBC blog - that sums it up I think!
Guess us poor Brits will have to get through a long downturn the best we can now. Looks like it will take quite a while; we still have commercial property downturns, credit card and hire-purchase deal meltdowns to come and then there is the inexorable rise of unemployment during 2009 and 2010. There is still a lot of money around in the UK but even the people who are well off will feel poorer with all this irrational talk about house price changes etc, so won't spend it. A perfect storm and classic case of the self-fulfilling prophecy await us.
We're going to have a long time to think about all this and should try to develop virtues such as patience, self-restraint and a modicum of self-sufficiency. And the next time we get the chance to vote for somebody listen to what Vince Cable has to say. We should lobby for Arsene Wenger to go into politics. He is truly intelligent and prudent so might make a good PM compared to Brown, Blair or Cameron. With Cable as chancellor and William Gallas at the Home Office.......
150 years ago, the UK Parliament was on the verge of abandoning the newly built Palace of Westminster on account of the ?Great Stink? emanating from the River Thames: ?a Stygian pool reeking with ineffable and unbearable horror?.
It's time for us to abandon our faith in that stinking place again and all of its political parties. Use your noggins people: there is no such thing as a free lunch.
We could do with a bit of govt support for public works and infrastructure though.
The first great stink prompted parliament to approve Sir Joseph Bazalgette?s public health scheme and construction of 85 miles of brick-built sewer to Bexley, and the Crossness Pumping Station, where four of the world?s largest rotative beam engines pumped the treated sewage into a 27 million gallon reservoir, eventually to be released into the Thames.
The thing to remember is that the politicians only acted when the smell of sewage was directly making their lives unpleasant; the rest of us Londoners had been putting up with it for centuries.
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#46 bluntjeremy
Labour did not do a good job for the first 8 years. I recall they scarcely managed 8 hours, before abdicating responsibility for Monetary Policy to the Bank of England.
An absurd decison at the time, made for changes sake, that now has come home to haunt them.
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@66
Dear Sir/ Madam. I am glad that your in such a lucky postion, and maybe you should of been running the country, but the fact remains what ever your houses where worth in the heights of 2007, you can be sure they will be worth far less than that by 2010. By sum 50% at least.
A mortgage is paid over 25 years at considerably interest. unless of course your a wealthly person. and anyone who thinks house prices are going to rise again like they have this time are quite simple living on another planet, the banks are just not going to do that again, Thats why the govt are planning to build just social housing.
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Just one point - We all know the Government likes to put a positive spin on ANYTHING to show us how great it is doing.
So can someone explain this.
With £500 billion spending (minimum - an approxiamation by their own admission) over the next 7/8 years, why haven't I heard ANYTHING about the return of monies given for the nationalisation of the banks?
We were told that the shares would be sold at a later date (one of the many wacky promises given at the time).
And yesterday, if I were Capt'n Darling, I would have been saying 'But wait, we might be spending £500 bn, but we expect to get back in the next whatever years this amount...'
Strange eh?
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It's a Mad World
I'm a consumer who is now supposed to spend, not because I want or need goods or services, but because my whole economic purpose is to save someone else's job.
I'm a pensioner on a fixed income, but I'm told falling prices are a 'bad thing'. Inflation is the new saviour and we have to keep it UP. Do these people remember the 70s?
I'm a parent, trying to help my son buy his first flat anywhere in London, looking day after day at grim shoe boxes he'd spend his whole life working to pay off. And I'm told the collapsing housing market is a bad thing and that banks should be helped to lend again, the way they did in 2007.
I'm a taxpayer, who is supposed to take comfort from the notion that the rich will pay £2 billion more through a rise in income tax. As it's pantomime season, let me just say 'Oh no they won't!' Anyone with common sense and a decent accountant will set up a limited liability company through which to sell his or her services to an employer. Pay yourself a tiny salary, only up to the limit of personal tax relief. No PAYE or NI involved. Bung some of the money to your spouse as well, if oyu have one. Then pay yourself the balance in quarterly dividends. Now you're a small company, you'll even benefit from the Chancellor's largesse there too. The better paid will end up paying LESS not more, (as Vince Cable, as usual the only one, has articulated. Make that man PM!)
And don't blame the better paid for doing this. Once you tip the balance between the individual and the state, so that a man goes from working for himself and paying a tithe to the government, to working for the government and being thrown whatever leftover bone his fellow citizens deem it OK for him to have, then you have broken the contract that underpins our whole system. You have placed the very people whose talents and energies we need to drive our economy OUTSIDE THE SYSTEM. You have taken away the moral basis of their commitment to it.
The one good thing about all this is that it forces us to think again about politics. What is the purpose of government? What do we want it to do and what do we accept that we have to do for ourselves? What should the relationship be between the state and the individual family? Maybe we will stop believing politicians' promises that they can solve all our problems and realise that their promises must all be paid for by us. Maybe we will finally grow up and realise that any society can only be as civilised as it can afford to be. That we were never really as rich as we thought we were. All we were doing these last ten years was spending our future.
Not that anyone is debating any of this or asking what moral principles should lie behind decisions on taxation. Oh no, it's all about panic and the need keep the system working just long enough to win an election in 18 months time.
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Dear Robert,
Oh how the constant barrage of blame beats through the heart of Britain. Its the lenders fault, the estate agents, Gordon Brown and new Labour. Actually, just about all of us are to blame. Oh yes banks chose to lend us too much, but the British also chose to borrow too much, shop too much, eat too much, drink too much and for too long forgot to settle the bill! Now we are here there are some, mainly Conservative politicians, that claim that had they been in power this wouldn't have happened, an impossible claim to prove of course, but these same politicians are just about the only ones in the G20 not up for the kind of stimulus package anmnounced yesterday.
The British have had their confidence knocked, a recession/depression is a little like a war and requires that all political parties show some unity, which will also help the British public, in return, to feel more confident. I am no fan of Brown and Darling, but at least they have the guts to do the necessary, even if it appears a little suicidal politically and risky economically.
Incidentally, I spoke with the owners of several small retailers this morning who roundly welcomed the changes in VAT. Granted, yesterdays package may well not work, neither perhaps will Obama's future plans or those of any of the major economies, including the Chinese. The British I suspect have little interest in whether New Labour is moving towards the left and the Tories to the right, what they are interested in is how they can pay the rent, the mortgage, the gas and the council tax in the coming months, how they will be able to feed and dress their children and themselves. What was abundantly clear during yesterdays PBR in parliament was the amount of laughter coming from the Tory benches as Darling delivered his speech. I don't hear the people of Britain laughing about this, any of it, its no laughing matter after all!
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Well we are on a downward trend we are told ???
Several people have mentioned things that have proved to be too good to be true. Returns on buy to let, house price increases, why even rising share prices.....
Now all the pundits are trying to get us to invest in "safe" government bonds. These are just bits of paper saying I will pay you if I have the money...... The Icelandic government went bust or very nearly didn't it ?
Money under the matress (or in Barclays or a proper Building Society) might be better I think !!!!!
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STOP THE DISPOSSESSION!
A moratorium on repossessions and foreclosures!
GC
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The people who are predicting catastrophic falls in house prices are forgetting one thing. A house is more than a financial vehicle it is also a place of residence.
The sad fact of the matter is that due to a lack of socila cohesion there continues to exist demand for homes that outstrips supply and hence at a fundamental economic level there exists good reasons for high house prices particularly in areas of strong economic activity.
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moraymint @ 34
Excellent posts (I looked at some of your 'previous').
I agree with your sentiments, there is now a massive deleveraging taking place, which will be extremely painful.
Ultimately, I blame ourselves.
We elect these politicians, they make bad policy e.g. a credit-fuelled property bubble, and in parallel, are nearly always afraid to tell us the truth ... because generally we do not want to hear it.
In the end, you get the politicians you deserve.
That is it from me ... see you all on the other side.
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Net new mortgage lending negative? Does that mean we are lending to them?
73 Excellence: Irony?
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Bankers could and should revert to selling or financing low energy Dutch tulip bulbs
Bankers will wait till housing prices halve ,wages will fall and accumulated debt will start to look like a mountain of unscaleable horror for many .
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96 John:
Thanks for link posted the other day (Crash Course), I enjoyed that, cheers.
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Let's get this right: the credit crunch was caused by people unable to pay off their mortgages.
Now you are saying that if people do decide to pay off their mortgages it will have a disastrous effect on house prices, and everyone will be thrown into negative equity.
What kind of Mickey Mouse economy are we running here?
It ultimately all comes down to fractional reserve banking and the inevitable collapse of a system built on usury and credit.
No amount of huffing and puffing by Brown and Darling can change that.
Now I understand why Jacqui Smith is rushing to arm all our police with torture weapons, sorry tasers. They will need them to prevent a mass revolt against the government and the bankers.
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Forgive me but did I get it wrong when the banks were bailed-out? I thought that part of the rescue package was that banks would be made to support both consumers and business by re-opening the lines of credit.
Now we are told that the banks have to re-build their balance sheet strength before they will even think about re-opening their purse strings. Sorry, but the bankers (oops nearly used a w instead of an r) were a major factor in getting us into this mess. Therefore the government (on our behalf) should be ordering the banks to work in this best interest of the economy rather than in their own best interests.
So the banks get rid of their debts at our expense - charge us an arm and a leg for doing so and then charge again when we need finance. Even Shylock would say that there is something rotten in the state of Britain.
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#92 who are you? why did your comment get posted so quickly? why are you pretending to be so even-handed and reasonable? are you one of Robert's friends in the gov't? Yvette Cooper is that you?
If important gov't types are reading this blog then could I beg you please to help us save the £ sign! Bring back the £ sign now. Replace the $ with a little box!
And I have a house I'd like to sell so that I can emigrate to Canada, where things are run properly, though it is a bit cold in the winters. So please bring back irresponsible lending as soon as possible!
I didn't really mean what I said about politicians and the Great Stink by the way
xx
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Fall to less than Zero, so what is Less than Zero; Minus Zero?
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91. At 11:24am on 25 Nov 2008, wharfgirl wrote:
Excellent, brilliant and shows the other up themselves bloggers for what they are
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Didn't anyone else watch BBC 2 last night...
The American Time Bomb....
"Is America facing an even greater threat to its economy than the meltdown of its banking system? David Walker, the former Comptroller General of the United States believes that his country is about to drown in an ocean of debt. He's so concerned that he quit his job to raise public awareness on the issue. He believes his message to be the financial equivalent of former president Al Gore's warning about the environment, An Inconvenient Truth."
Be afraid...
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56 That's spot on! I think the relevant US and UK institutions were in fact keen to keep the bubble growing and growing as they were well aware that anything else would have meant a crash. That way they turned the prospect from bad to worse. Now that the crash was no longer avoidable, they still try and fiddle, try to stop it from deflating, try to re-inflate it and thus delay any recovery, no matter how long it may take already. Short term manipulation is all that I can see in terms of response. There is no plan whatsoever how to live in a future without a bubble.
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#91
So right. The issue over here is our Parliament replaced the Monarch and took its power. We are ruled, just by an "elected" discatorship rather than an inherited one. At least in the States they started with the concept of limited government and this remains a principle they hang on to.
It makes for a cruel society, and they might be able to adjust the relationship a bit to protect their weakest, but they are resilient and self-relient all right.
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This comment was removed because the moderators found it broke the House Rules.
Look, let's stop hammering the banks, shall we?
Has anyone asked how many people want mortgages? I mean, who wants to buy a property while prices are still falling?
The government has in effect got the banks over a barrel crying for them to recapitalize with one voice and the next asking them to lend as frivolously as before. You can't blame the banks for wanting to cover potential losses in larger deposits. And don't forget that the government was more than willing to grab its tax take while the going was good.
Recession or not, now is surely the time to return to prudent lending. Stop trying to kickstart a housing market by keeping the turnover at bubble prices.
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Average house prices will return to 4 times national average income, which means they will return to about 100k.
NOT the 200k that the dopey overpaid bankers thought they were worth.
This will mean pain and disaster for millions, including all those young families and the buy-to-lets.
Mr Prudence Brown and his City chums have shafted us all with sheer incompetence.
Pre-Brown Britain and post-Brown Britain will be 2 very different countries...one stable and prosperous, the other broke.
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Heard Mr Darling doing the usual stuff on the radio this morning: denying New Labour's role in the mess. I just love how he kept to the script about poor old UK PLC being a victim of external economic 'factors'. Wow! what a porky. I also love his and his party's sudden U-turn on their core economic beliefs. Let's not forget here, good old Gordon and his merry band of woodentops were well and truly overwhelmed by the mystique that 'was' the city. They were seen time and time again drooling at the feet of these now discredited financial wizards. It must have been wonderful to hob-knob with people who seemed to have the ability to conjure-up money out of thin air, but who were, in reality, recklessly gambling with our money. Trouble is the circus that is New labour thought they'd have a go at the same thing, and that's what they're doing now: being reckless with our money. God knows what's going to happen when all this debt has to be repaid: when our money, through punitive taxation, is taken from us to sort-out this reckless experiment.
So nice of him to take out a loan on my and your behalf to let me and you have a little binge at xmas. Wouldn't want the xmas sales figures to be too dire would we? The problem is more than economic, it is political, the political class on both sides of the pond have been reckless. They have failed to do the kind of politics that would have protected the people from financial chicanery. Look at Brown, hanging on the coat-tails of Obama thinking OOoo let's try to convince the electorate that we're really just like him, that we're the future, not the past. Well hard cheese, they are the past and come the election when the sheer scale of their economic mismanagement dawns on us, we'll boot the lot of them out.
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82 total injustice
Reform of lending
Expect the government to duck. At present there is effectively no housing market therefore no need to regulate. There is nothing to regulate this or next year. The government prefers self-regulation anyway. The principle of the deposit is to ensure that the funds are available to cover the forced sale of the house, therefore minimise the losses which have to be recovered, and also to ensure the household is committed to maintaining ownership to prevent equity loss. As the market price heads down then the deposit has to grow to include projected losses. As the price stablises then the deposit requirement should ease. There is no reason why the deposit has to be huge, it simple has to be a functioning buffer. Realistically the government is most unlikely to put restrictions on lending when lending is badly needed to get the housing market going, and the banks are most unlikely to take risky borrowing on for some considerable time. Unfortunately the opportunity to intervene productively and regulate is history, and with it becoming history the immediate need for regulation is also suspended in the current environment.
If you tell people they are wealthy on paper they spend, if you tell them they are poor they don't spend. At present everything is telling people they are poor, or may be poor, or could be poorer in the future, whether that is the case or not is a different matter. Until this message stops spending will not significantly uplift on big ticket items. It is the collapse in big commitment item sales, cars, houses, house improvements, which is the problem, small ticket items are still selling, even if with discounting measures. The question is will the measures announced stimulate big ticket sales, and the answer has to be almost certainly not. As such it probably has to be of psychological impact only, and it shows the limitations of action which can be taken by HMG in addressing the root problem. And has to be questionable.
As house prices continue to slide, and funds gradually return, and people feel that most of the job losses have occurred, a point will be reached where borrowing will occur, and therefore uplift will occur, however quite when that will occur is a guess and saying for definate when it will occur is beyond Darling or anybody else. If it does not occur before the GE and there is not a war then Labour are in a difficult position.
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If 74 knew the problem was coming then I guess there were many in the City who knew, so WHY did no-one do anything to stem the tide before it became a flood!!
Possibly because they were still enjoying the fruits of their ill gotten gains!!
and hoped it would all go away.
The press and media have too played a huge part in this crisis and have certainly exacerbated it by talking things down.
The housing market had slowed at the end of last year and would possibly have continued to do so in a calm manner but along came the media and killed it stone dead.
I know I am trying to sell my late father's house!!
The press and media have huge responsibilities, which I don't think they take at all seriously. They are in a unique position because there is no forum or avenue to oppose them.
They make huge banner headlines about repossessions and the percentage increase but never give the total number of home owners, which is something in the region of 11 million. So 11, 000 as reported last week can be taken in context.
Their reporting just scares the hell out of everyone, with no justification because the vast majority of the public are not hugely affected but are still worried.
My son is because he lost his job, so for him its huge but for those in employment, able to pay their mortgages they are just scared because of the unknown being played out on TV screens and front pages.
The media have to take into account the lemming factor.
A few years ago they reported an isolated incident of glue sniffing, suddenly it became a national problem, as with tombstoning, happyslapping etc etc.
Why is there millions spent on advertising if we are not swayed by what we read and see?
Cynically I think this was politically motivated by a Tory press, to undermine Gordon Brown and get him out of office and it has totally backfired. They should take this as a warning because if they continue to undermine confidence they too could find themselves on the dole!!
They could be so positive and start a Backing Britain campaign, as in the past because there are people out there seriously affected by this crisis who need help and help now.
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92 simon the blog
Tunnel vision helps in some instances
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#91, thanks for that, captures my feelings perfectly but articulated in a far more engaging and eloquent way than I could have managed.
Where's SuperCalmdown today? When will we nationalize the house builders etc..? This thread was made for him/her.
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#44, I'm with you, although I didn't pay off my mortgage completely, kept 2k outstanding to ensure an open credit line should I need it in the future (easier to increase existing mortgage than get a new one). Not buying shares quite yet either but getting ready, just as soon as I see capitulation and no body wants to touch them with a barge pole.
On another note, the people here who advocate giving the keys back on negitive equity houses should understand what happens next. The bank auction the property for whatever they can get and then the send the ex-homeowner the bill for the difference between what you owed less auction price, costs, fees etc. They WILL make you bankrupt in pursuit of their money. Mortgage insurance works in a similar way except that the insurance company will pay the bank and then come after you for the difference.
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@ 101
Its called spin, and dam outright lying, remember they have had 10 years to perfect this art. everybody with any common sence knew that the money for the banks was not for keeping lines of credit open, but to stop the banks from collapsing.
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Darling has really cocked up with this VAT wheeze hasn't he?
Yes the intention is good but the implementation is truly awful!
If I were Chancellor this is what I would do to get the money people have into the hands of the retailers.
Stage 1. Reduce VAT to zero for 3 months.
Stage 2. Increase VAT to 7.5% for the next 3 months
Stage 3. Increase VAT to 10% for the next 3 months.
Stage 4. Increase VAT to 15% for the next 3 months.
Stage 5 Increase VAT to 20% forever after 12 months.
This strategy would give consumers per perpeual perssure to spend spend spend thus creating an improving floor in economy.
Darling approach is just not bold or imaginative enough to get people into the shops immediately!
Now, with the housing market. That is simple too!
All the Gov't needs to do is announce (and fund) a scheme giving anyone buying a house under 120K a 20% deposit guarantee as a charge against the property on a shareholder basis.
This 20% charge would be up to £24K on my proposals but wouldn't be a "cost" just a varying asset to the Gov't books. However it would mean that the buyer who may have a deposit would use this for new items for the house i.e.furniture, carpets, etc thus injecting thousands back into the economy immediately. However it get better because all those chains above these first time buyers then get going too with works for removals, solicitors, retailers, gardeners, banks and estate agents, builder and even stamp duty for the Gov't.
Result? Well each house sale chain has about 4 transactions on average and with an average level of economic activity generated per transaction about £7,500 this would inject at least £30,000 back into the economy immediately so it would be self-financing.
In fact the Gov't/taxpayer would have a 20% stake in the property which would eventually rise, the lenders would be more than happy to lend only 80% LTV and many people would start moving again thus stopping the halt in falling property prices.
I sometimes think Politicians and Economists are just plain stupid!
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Hmm,
The trouble with the situation now, is that it is more and more likely that housebuilding will remain suppressed for the next few years.
Especially with rising unemployment and falling wages.
I applaud the boost to Pensions next year but thought it should have been larger.
Ten percent would have been a better increase, for people who have been hit hardest by fuel bills and rising costs of living.
Remember the Pensioners start from a low starting point income wise.
Now, a sensible pay rise for the Public sector as a whole say at least five percent, would help inject demand back into the economy.
I'm not sure just how helpful the two and a half percent Vat cut will be.
I think most people will not notice its benefits.
Especially as so many shops have fifty percent (or more) off sales already.
So an extra two percent does not seem significant.
Unfortunately no party has advanced practical ideas for the creation of new manufacturing industry in the UK.
We need a balanced economy in order to pay our way in the world.
It is unfortunate but the Nationalization of the Banks is going to cast a long shadow over the British economy for years to come.
Some compensation for the Shareholders of Northern Rock and Bradford and Bingley, would help, but the beggar the Banks attitude of the Gov't with regards to funding will hang over the market for years to come.
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As one who has lost a job ( in Scotland) and just found another on ( in England) my future still looks bleak as trying to sell my house in order to buy one elsewhere seems to be impossible unless I go for one of these 'trade in' deals with new builders which I don't want to do given the inevitability that I will be paying over the odds for it.
My family is therefore not seeing much of me, my partner is taking on all the responsibilities we shared ( childcare, after school activities, food shopping etc) whilst also trying to hold down own job.
We are paying for two homes now ( our own one, mortgaged at 3X salary five years ago with a 35% deposit from years of thrift having been hit hard by the negative equity of the early 90s. This deposit was real money which has probably been wiped out by now. We are also paying for a rented flat in England so facing two lots of bills, council tax etc plus the cost of commuting back at weekends, exhausted.
So my question is: Is getting on your bike really possible or sustainable in this climate or do we need to return to the old fashioned one working/one stay at home parent? If so then house prices will really need to drop and/or childcare will need to be given the same kind of gov boost that the banks are getting.
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everybody knew that house prices are/were overinflated, the government encouraged it because of the high income from house sales ect(stamp tax).now with interest rates next to nothing who on earth will invest in banks? I myself have no job are under 60 savings of just over £16000.so i get no help what so ever.I wonder whether all this is really worth it.I have always voted labour and feel desperatly let down, the tories are no better,libs non existant. who helps people like me ? always kept within my means done all the right things and im left high and dry on the scrap heap.
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Simontheblog 92
Well Simon, so you think that:
'... the constant barrage of blame beats through the heart of Britain. Its the lenders fault, the estate agents, Gordon Brown and new Labour. Actually, just about all of us are to blame.'
Mmmmmm. I hate this wishy washy 'lets look to ourselves argument'. Come on, I didn't, and I suspect you didn't, really have much say in how these banks gambled with our money. I also suspect that your evangelical tone stems from a desire to deflect attention from New Labour's mismanagement of UK PLC. I also suspect that you're just a little concerned that we have cobbled onto your party's failings, and that we are going to punish you come the election. There are people to blame and these people have to be brought to the courts. Pheeew, a frightening thought hey? That maybe we'll convict a few fraudsters, con merchants and possibly politicians for their role in bankrupting our country.
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Dont get so excited.
Darlings efforts are nothing to do with the economy or the countrys beloved property market, it is about the next election.
It is simply cynical political posturing designed to confuse the electorate that with nuLabour there are no losers only winners in waiting.
That is what we want to believe and that is the thread of nuLabours desperate message.
Sadly, having been a nation obsessed with the equity accumulation of our homes as the method to make easy money, we are not willing to accept this recession as the consequence in part of our folly, it is everyone elses fault.
There is no solution to to the fragility of human greed, only hard disappointments and a time to reflect, in this recession it will be a long time.
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I'm with crunchedup @40. If we had a shortfall in housing before the credit crisis and the forecasted numbers of new builds fell so short that the govt had to encourage builders to build faster to keep up with demand (both for now and for the future), then surely there is going to be an even greater shortfall if the builders have stopped building, isn't there?
With credit in short supply it is no wonder that house-prices are falling: it's a buyer's market. But as soon as we get ANY kind of liquidity returning to the market there will be a feeding frenzy as people try to snap up bargains, and after a couple of months there will be a huge shortage of properties available, so prices will inevitably rocket again.
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Have any figures for the cost of the Iraqistan war been published, and the impact on public spending figures since 2002.
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~43 What is the point in voting when it has become obvious that the people we think are in charge are not.
If i, A local self employed builder could forsee the problems we are having now and our government claimed not to have there really is something not quite right. They have done nothing at all to make things better. If anything they have made it worse.
I read an excellent post by a lady yesterday which contained a bit about over consumption by the planet which is actually more important than the financial crisis.
And today i heard AD state that in 20 years the world economy will be double what it is now. The future is bleak unless you happen to be very wealthy
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A cunning plan!
We must all praise GB and AD...
We must go out and spend a little...
We must make viewings to see houses...
We must say - when asked -
Yes... the government are doing a great job.
We now have every faith in them.
When stopped in the street say - Yes - we will vote labour at the next election.
This way... GB will go ahead in the OP's...
He will become brave and call an early election...
Then, we go into that booth... :)
If we don't we will have another 18 months of this gang and remember - that is another 2 full budgets and another pbr's...
We must be cunning to rid this country of the worst government we have ever had...
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I have to say that I empathise completely with all the comments about the Banks. They are all having aright laugh at us for helping to bail them out. Mortgages at the moment are practically non-exisitent. I have a 90% endowment with Nothern Rock and pretty much nil chance of moving to anyone else within the forseeable future. As a nationalised bank I pretty much thought that NR would have some obligation to help out hard pushed borrowers at this time. I had assumed from the media that they were passing on the recent BoE 1.5% rate cut. In fact they have passed me on 0.15% - i.e. one 10th !! Plus they didn't pass on ANY of the 0.5% cut from a couple of months ago. I have complained to them but they have pretty much told me to "go and do one!" I think this is unacceptable. Does Robert Peston or anyone know what more can be done to better manage these self-centered banking institutions??? I even thought about writing to Mr Darling personally but what's the point - all he seems interested in doing is borrowing more and more of our money to feed the greedy banks?!?
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Comment 97 : selfevidenttruths
"73 Excellence: Irony?"
No, not actually.
I'm slowly learning the philosophical process that enables people to say that black equals white, without fear of contradiction.
It's really no more than sophisticated begging the question:-
1. Brown's judgement structure is built on a series of fixed, assumed truths.
2. Every decision he makes is consistent with his judgement structure
Therefore:-
3. Every decision he makes is the right one, irrespective of the outcome.
and:-
4. All criticism is unwarranted, because it has to be based on the critic assuming a falsehood.
and:-
5. Pursuit of his goals, by whatever means possible, is correct action, irrespective of popular sentiment.
and:-
6. It's incorrect to allow any of life's customs or standards of behaviour to get in the way of the pursuit of his goals.
So, for example, one of Brown's assumed truths is that it is correct that the individual is subordinate to the State. All value resides in the State, and residual income after tax is a concession by the State, to the individual, for good behaviour. So when times get tough, there should be no doubt that it is correct for the State to husband its store of value by cutting back on the amount it hands out to individuals. Anyone who disputes this can only be doing so from the standpoint of the State not being superior to the individual, and as this is unquestionably wrong, the dispute can have no standing.
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So, The Treasury has commissioned a report from Sir James Crosby. But what credibility does a report by a failed banker have ? In 1999 Sir Derek Wanless was ousted from NatWest as a failed banker - he also went on to be commissioned by The Treasury for a report, and earned himself a Knighthood. The Wanless NHS Funding Report poured c.£50 billion into the pockets of GP's, Consulants and NHS Mandarins !
Wanless was subsequently lambasted by The Commons Treasury Select Committee for his failure at Northern Rock, where he was a Non-Executive Director and Head of Risk. That failure cost the taxpayer further billions. I ask again - what credibility is there in a report by a failed banker ? As for yesterday's pre-budget report, I thought the intention was to 'put money in the pockets of the least well off' ? As it is, Bernie Excclestone and his chums will be saving 2.5% VAT at Harrods, and I will be saving 2.5% at Woolworths. As for the upper tax hike, there remains plenty of time for the properous to find loopholes and havens for their lucre !
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91
The impending UK economic calamity for all its enormity is but a symptom of a much deeper spiritual malaise in British society.
We are I fear about to learn the hard way that remorselessly secularist societies barely survive for one generation and are quite certain to collapse within two. Children not yet born will be rather less inclined to sneer I fancy when it is taught to them how the sins of the fathers are visited even unto the third and the fourth generation.
That is one good reason why I've included Rowan Williams ahead of Robert Peston among my twelve to follow for the new season.
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#64 timetoponder i have been raving about your posts an then i read post 64.
You say the media are making things worse and they need to get behind the country. They are actually tredding on eggshells at the minute. What they need to do is start asking the questions we want answered and not let the polititions spout out the same old drival.
I would love to see paxman ask someone to leave his show for being evasive.The interveiws all our polititions give are nothing more than free pr
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#113
Classic shooting the messanger.
It's the FUNDAMENTALS that are wrong, not the sentiment. Sentiment has sustained a basically bust economy for 10 years or so, now it's come crashing down.
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The main thing everyone needs to agree on is that this current financial mess the world finds itself in does represent the end of free market capitalism.
By allowing market forces, which are largely driven by greed, to regulate themselves we have created this debt fuelled way of life.
We need to look at the whole fabric of society, such as advertising. A couple of years ago Finance Companies where advertising loans on TV (usually during the daytime) to get homeowners to take out loans for holidays etc. Why on earth borrow money to go on holiday? If you can't afford then dont go, simple as that.
The whole principle of paying huge dividends and bonuses also has to change. Companies, large and small, need to be less shareholder focused and look more at their most important assets, Customers and Employees. Without them there are no shareholders.
Finally i think it is about time we had some new polictical and social theories. Surely there are some great minds out there who can now start to think about how we can build a fairer and less volatile society. Maybe some of this would then filter through to our useless politicians.
I hope they hurry up though because I can hear the rumblings of discontent already.
The man in the street does not like being out of a job and unable to buy what he wants for himself or his family........and ultimately that anger will be turned against those he feels is responsible for his predicament, and history tells us that there is an ugly side to human nature, and when angry and desperate people get together they can quickly become a very powerful force, sometimes without rationale.
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Banks are not offering mortgages, because they are sill being asked to secure these loans against overvalued assets. At least one and possibly both of two things have to happen before the mortgage and housing markets will free up:
1) House prices need to fall to a sustainable level, probably a further 25%
2) It has to be made easier for banks to recover the residual debt in the event of repossession, for instance by increasing the minimum time for discharge from bankruptcy
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#124
At last someone who can see beyond the shorterm. Property prices have risen in the UK due to a fundamental short supply caused in part due to restictive planning fueled by "not in my back yard" politics. Banks did not force people to buy, property prices where driven up by a rising population chasing a reducing number of properties in % terms. The situation has only become much worse with the restriction in available credit and therefore much reducing building. The shortage of properties in the UK is becoming far worse therfore when normal credit conditions return which they will as banks can only survive if they lend, property prices will again accelerate.
Many people on this blog trot out statements such banks should return to lending 3 X earnings and the like, what nonsense if long term interest rates have halved which they have in the last ten years then obviously you can borrow twice as much and be no worse off. The same is true for national debt, what was sebsible in times of high interest rates is no longer true today. If rate fall as expected to 1or2% then goverments can also borrow a far larger percentage of GDP.
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I am disappointed with you. I care less abouit the other financial journalists who have been crowing about other trivia.
But i expected you to come ouit charging..and damn the Chancellor for NOT addressing the housing slump. All he nedded to do was raise the the stamp duty threshold for a year to say £400K..and he could have kept the rest of his borrowed money.
That would have got the housng markety going again.
NOT A SINGLE JOURNO..mentioned that.
Any previous attempt has failed as this govt surely will.
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@26 - Okay Lorraine, I'm impressed.
so what are your visions for the next 2 years? Is it disaster or will we start pulling out in late 2009? How low will it go?
And finally (and most importantly) will Liverpool FC finally win the English Premiership?
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Robert
This sounds like good news to me. At last the people of this country. albeit under duress from the banks are going to begin paying back a bit of the £1.5 trillion personal debt mountain.
Naturally if people are paying back as opposed to increasing the debt in an attempt to build a tower all the way to man on the moon then their will be negative mortgage lending.
Sir James Crosby should go quietly and tend to the roses in the grounds of his mansion that was paid for by dodgy lending and huge bonuses during his time as head of HBOS.
His plan is to issue a worthless guarantee to cover the borrowing so we can return to the inflation of the property bubble.
In a world in which i was boss he would be flogged for this outragous nonsense.
Few people in the country are interested in the ramblings of one of the main fools who took us to the brink.
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135 ozymandias
The residual debt on repo is recovered against the housholders insurance held as part of the martgage purchase. The insurance company then pursues the householder for any losses following forced sale and can force bankruptcy. Once proceeding are undertaken the householder, despite being liable has no say in charges for administration, solicitors costs stc. Although the banks legally have to seek a fair sale price for the property it was acknowledge that this was not the case in the early nineties. I think you are very misguided to believe that more draconian measures are the solution. The situation seems very one sided to me. Mortgages are agreed for 25 years and within that period a matter of months can cause the loss of a property.
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#118
The good old EU apparently forbids VAT to be set at less than 15%, hence Darling's hands were tied as to how far he could cut.
On house prices: In a free market, house prices are driven by supply and demand. In this case mortgage availability is distorting the market hugely, so demand is severely restrained.
With the supply side drying up as new builds stop, does the number of houses needed to house single parents, immigrants, low cost social housing etc increase??. I fear we are beyond simple economic modelling - the past is no longer a guide to the future.
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#118 - VAT - looking good. An engineer like me would have tackled the budget very differently from Darling with his little percentage points here and there.
A step in the right direction? Time to think big I say. Why? The Chancellor of course multiplies all gains and losses by, what, millions to come up with his predicted P&L.
However it's a very different story down at business level. 2.5% reduction - not even on sale price but only on the VAT on sales, well, it won't make a blind bit of difference. In the present (and forthcoming) environment it's might hard to know if ANYTHING is going to sell.
Sooner or later the Chancellor might hear the penny drop. And when it does he'll realise he has to axe VAT or NIC to make any impact at all and to gauge the reaction. You sometimes gotta 'think big'. It's a bit like the cylinder head development I do routinely. Sometimes to determine a difference it's quick to remove a whole chunk of metal and see what happens on the flow bench, rather than fiddling around with incremental removal.
Now, the immediate reply to such a move would tend, historically, to be 'yes but how are you going to fund it?' Well, sooner or later someone with his head screwed on the right way round, and with nerve, will respond, 'you don't need to fund it, it will fund itself in improved fiscal revenue from the improved sales that companies will generate'. And quite right too.
Too many fiddly little tax add-ons, or things masquerading as taxes, get RID of them. Rely on income tax revenues alone, build the economy around that - watch this space. Imagine no vat! NO VAT FRAUD!
Sack all the bossy bureaucrats administering all that unwanted guff, vat returns, NIC paperwork, all that red tape and calculations, vat inspections, quarterly EU sales returns blah blah blah, send them out to get proper jobs instead of wasting everyone's time and patience.
We should definitely have a THINK BIG week.
GC
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33 - the mean average of house prices is 3.35 x average income (as opposed to average wage which is lower) is approx 90% of price
Average income is presently 26.8K, therefore 90% an average house in the average part of the country (somewhere around the East Midlands I'm led to believe) should be
26.8 x 3.35 = 89,780 as 90% plus a deposit of the other 10% of 9976 arriving at the final 100% price of 99,756 for an average house (3 bed semi) in the average part of the country.
If house prices fall that low the economy will collapse.
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Fantastic news about the housing market. All the first time buyers are loving this. It turns out that not having debts and a job is the new black.
I think it will still be another year or 2 before prices have fallen by 50% and flatten.
The young are reclaiming that which has been stolen by the greedy baby boomers who thought they could own 10 Buy to Lets and retire to St Tropez or millions of others who having achieved little professionally felt that their luck was somehow connected to their choices.
No more £2m for a 4 bed in Barnes.
Tough Luck.
You will have to earn money now.
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@ 124 and 136
You have to read between the lines of what was said yesterday by Ally D. He said taxes would rise and these taxes would take some years to pay back. he also mention very quitely of a social housing building program. so has social housing grows over the next 3 or 4 years we will be paying of this debt by higher taxes. housing prices will not rise from where they bottom out in 2010 for some years. by the time it comes for them to start rising there will be a far bigger choice, either social housing or private. thus leading to house prices rising at a much slower rate,. there is a hugh cost to pay for this for the people who keep there homes. that is the likely hood of paying of your mortgage and actual making any money on it is very unlikely. infact for people who bought there houses in the last 5 or 6 years who where first time buyers will make a loss
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Perhaps planning permission should be expired, say ten years after issue; this could force people to complete their projects - which they may have only made a token start on. Using this stick, private individuals will be encouraged financially to invest in construction.
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LEGALISED THEFT ON EPIC SCALE BY BANKS
Manufacturing money and forcing people to borrow
Just a little thought I have to get off my chest. It keeps nagging away at me.
You?ll be noticing how house prices have been sinking like a stone recently as the banks hold onto all the money and refuse to lend it out to anyone - particularly for mortgages as well as businesses and even each other ?
Well then, you might also remember how everyone used to complain how house prices were becoming ever more ridiculously expensive as they climbed up from two or three times an annual salary to many, many times an annual salary.
The ordinary little flat I bought in Bristol in 1971 for three times my annual salary as a junior newspaper reporter was selling for fifteen times the current annual salary of exactly the same kind of job just over a year ago. The same thing happened all over the property market.
Why do you suppose there was this vast change in value ? Think about it carefully for a moment. In 1971 I had to work for just three years for my entire annual earnings to buy a home. A year ago, doing the same job, I would have to work for fifteen years for my complete annual earnings to buy the same home. As we all know, this grotesque distortion in house values caused lots and lots of problems as it progressively destabilised the whole housing market for all of us.
Now, within just a few weeks of the banks creating this Worldwide financial crisis, property prices in the UK and other parts of the World are plummeting as the supply of money everywhere withers and shrinks to almost nothing as the banks simply stop lending to anyone.
This is an extreme state of affairs. It is caused only by banks very suddenly refusing to lend any money because they are fearful the unstable economic circumstances they actually created will mean they won?t get their loans paid back because all the borrowers are busy going bust as a recession roars in from just over the visible horizon. This is the opposite of the banks previously conjuring up too much new money into existence and ramming it down people?s unwilling throats.
Thank you very much all you ?Masters of the Universe?. Obviously you lot weren?t really as clever as you liked everyone else to think. Perhaps after all, you were just really greedy, rapacious conmen, disguising your dishonesty in a complete fiction of incomprehensible jargon and meaningless garbage which even most of you lot couldn?t understand - never mind the ordinary members of the public.
Now we are paying the price as people lose their jobs and their homes as thousands and thousands of people are catapulted by the banks into extreme poverty.
So what then, was the reason for all this distortion as house prices rose remorselessly to unrealistic, dizzying heights ?
Everyone complained about it but no one seemed to know why it was happening. People tried to think of why it might be happening. They blamed it on a ?housing shortage?, on ?too many immigrants coming into the country?, on ?families disintegrating and more people living on their own as society broke apart at the seams in an orgy of self destruction?, and so on.
But the real reason was quite simply that banks were creating too much money and they had to lend it somewhere. They discovered one of the best and most profitable places to force loans down nearly everybody?s throat was by means of increasingly large mortgages as people were forced to compete with each to offer higher and higher prices for houses just because banks wanted to lend larger and larger sums of money - so they could make more money for themselves ! They quite simply ran out of places to lend money and so dreamed up a whole new bottomless pit of possibility for more lending.
This meant that when anyone bought a house, they could only do it by making sure they offered more money than anyone else. The banks were always happy to keep on increasing the size of mortgages because they knew they had a complete stranglehold on each borrower.
It was one of the safest and most profitable ways of lending huge amounts of money over a long period of time. Much better, the banks thought, than all this tedious hard work of lending money to businesses over short periods of time. Businesses were much more risky and often went bust; then there was no one to pay loans back to the bank.
Individual householders were easier to pursue and were permanently chained to the banks until they either paid off their loans or died. A much better wheeze, thought the banks.
So, there we have it. Banks can create unlimited amounts of money if they can find somewhere to lend it. This is fine if the lending is sensibly organised and not rapacious and dishonest, or dangerously stupid because it wrecks economies and destroys people?s lives.
But the banks didn?t think of that. They were too immersed in their own greed to care less about what they were doing. As long as they could get away with it anything goes; that was fine by them.
Never mind the damage done to so many other people - or even whole nations. The whole country of Iceland has been made bankrupt and flung into instant poverty and even starvation by the nasty behaviour of the banks ! But the banks are OK, so that?s alright then ?
The ?Masters of the Universe? will just keep their heads down low for a bit until the recession blows over, then they will start again; effectively engaging once more in a form of legalised theft on an absolutely epic scale.
If bankers have the legal means of simply conjuring new money into existence, which they do, then there ought to be sensible law to control them and stop the gargantuan amounts of grasping dishonesty we have seen displayed by these dishonest little worms in Modern Times.
Now over to you Prime Minister !
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#92 simontheblog
Oh how the constant barrage of blame beats through the heart of Britain. Its the lenders fault, the estate agents, Gordon Brown and new Labour. Actually, just about all of us are to blame. Oh yes banks chose to lend us too much, but the British also chose to borrow too much, shop too much, eat too much, drink too much and for too long forgot to settle the bill!
Agreed. Everyone seems to blame someone else for the current economic problems. People are blaming Brown, Blair, Thatcher, the banks, house prices, debt, and even the public sector. Nobody has put any notion of blame on the moronic masses of turkeys that voted for Christmas in the first place.
If any government tried to put brakes on this 'economic growth' the morons would have kicked them out! These morons deserve everything they get!
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@118
A cunning plan indeed, except you forgot that 15% is the minimum rate for VAT inside the EU. Any lower and the UK would face a trade embargo.
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Robert - whilst it is true 'that banks are having to redeem £160bn of bonds backed by mortgages over the coming three years, when it expects to receive just £150bn in deposits from ordinary savers' what is confusing people -and it has taken me time recently to get to the bottom of it, is that the £250 billion in temporary underwriting announced on 8th October allows the banks to issue unsecured loan debt with a government guarantee. So far this has had at least 2 banks, Llloyds and HBOS take advantage of this and I believe Nationwide is in there as well. Although the maturing bonds cannot be 'reissued' becuase of current market conditions as I understand it there is no reason why the banks Treasury cannot issue unsecured debt to fund the repayment of the due bonds. Maybe you with your influence can check this out.
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#145 lionsomebody
You raised a point or two on house building. Is central government going to pay for all this new social housing? If so, are the rents for these properties going to go to local government? Is this going to reduce Council Tax?
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#26 In-Sight RV
You need to talk to The Celtic Lion
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I'm sure many must be in a similar position to me right now.
Graduated in 2004 - saved a deposit for 2 years and then first time buyer in 2006 (when the credit crunch was being dreamt up by McVities to rival the kit-kat)
I borrowed 90% at 2.7 times my salary so as not to stretch myself.
Now with the expected forecast contraction in prices - I could be left a large amount of negative equity - It seems that by walking away from my 1 bedroom flat, and waiting a year or two I could buy a 3 bedroom house with a similar mortgage and be a whole lot better off.
I borrowed sensibly and paid the market value for my flat at the time when I wanted to get on the property ladder. Looks like I'll be punished for my timing and the legacy of the banks lending policies - wonder if the government will bail me out?
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If you could buy something for which there was massive unmet demand for less than its construction cost would you?
Money is cheap, supply is weak, demand is stronger than ever. The only thing slowing the housing market in the UK is the money supply. Money supply will inevitably recover in time.
Having lived through the last housing crash (caused by sky high interest rates and cured by lower interest rates) here is what I think will happen when money supply is re established. Values will begin to recover, people will dive in to catch a bargain driving price rises higher, housebuilding capacity will take time to recover limiting supply driving prices higher still. I believe values recoverd at about twice the speed they had declined and then kept going. I wonder why it would be different this time.
You can already buy flats from desperate developers for below cost in many areas. Unless you believe houses have gone out of fashion this could be an interesting market for the less easily discouraged.
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What if you could only buy one property - the one you lived in? This should have the following benefits:
* houses remain affordable (since investors couldn't bid)
* occupants would care more about the neighbourhood (since this would have a bigger effect on house prices)
* investors would be forced to invest in useful things, like the development of renewable energy and recycling
Just an idea.
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148 deceilar:
Thanks for that mate. I'll tell you what clean the spilt gravy off your shirt and tidy yourself up before you venture out from your hidaway. Does the sunlight hurt your eyes? Bet it does. I mean, fancy waking-up from your slumbers to find the world run by all of us bleating morons. It must feel like something off Doctor Who hey? Oh didn't you know he's back on the box again. Feeling sleepy? Oh well, back to bed for you. Have sweet dreams and don't forget to turn out the light. We morons'll keep the electricity running, clean your streets and try not to disturb you while you sleep.
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#147 Well said and eloquently put.
All that I would add, is that the crazy system pressurised banks into competing with each other to "win" this crazy rigged game. Some, like the ex building societies had particular pressure upon them because of their skewed business profiles. Of course, as in 1929, some apparently intelligent people thought there really was no financial law of gravity.
Intelligence is very dangerous when combined with a determination to deceive oneself. To paraphrase Disraeli: their intellect was not so much their guide, as their accomplice.
(Disraeli said of Gladstone: "His conscience is not so much his guide, as his accomplice.")
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Comment 136 : petersym
"#124
At last someone who can see beyond the shorterm. Property prices have risen in the UK due to a fundamental short supply caused in part due to restictive planning fueled by "not in my back yard" politics. Banks did not force people to buy, property prices where driven up by a rising population chasing a reducing number of properties in % terms."
OK. Let's assume that you are correct and that there has been an underlying trend that has pushed up prices due to an excess of demand over supply. And also that low interest rates have contributed to the escalation in prices through easing the burden of repayment.
Tell me, aren't these conditions also ideal for speculative demand to be created? How much of the buy-to-let market, for example, was driven by the idea that there's a profit to be gained from the difference between rent and mortgage interest? And how much by the idea that the property will go up in value to such an extent that as long as the rent makes a reasonable contribution to the mortgage cost, the decision to buy's a no-brainer?
Moving on from buy-to-let, how many own-occupancy purchases were driven by the apparently downside-free decision to "get on the property ladder"? How many people went into property ownership out of fear that next year houses will be even more expensive? How many people took out borrowing to add an extension, or a conservatory, not because this was what they wanted, or needed, but because it would "add" more value to their property than it would cost?
In other words, how much was the speculative tail wagging the rational dog?
I've always had reservations about the received wisdom of low interest rates causing house prices to rise so as to maintain a more or less constant proportion of income committed to housing costs. It's always seemed to me to be one of those New Labour "truths" that are in reality no more than wishful thinking, but which are granted the status of truth because it suits the Party's programme of action for them to be treated as such.
Sure, low interest rates will put some upward pressure on house prices, but I should have thought that the major effect of lowering housing costs would be that people would spend their "bonus" elsewhere. Isn't this more likely than that they will hanker so much for housing to be a major part of their budget that they will bid up house prices to achieve this?
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129 Excellence:
Thanks for the elucidation. I have just looked back at a couple of your previous posts, and I see what you mean.
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#143 RedLenin
"33 - the mean average of house prices is 3.35 x average income ...
... 99,756 for an average house (3 bed semi) in the average part of the country.
If house prices fall that low the economy will collapse. "
Yes.
Sadly it is my strong belief that this is the way things are going. (In fact I sold my house in London late last year and moved somewhere much smaller in a cheaper area for exactly that reason. )
If you look back over the last 40 years you see the cycle repeating time after time.
Some people on this list will argue that low interest rates mean things have fundamentally changed and people can afford more, but
a) there is no reason to believe rates will stay this low, especially once you consider the impact of a weak currency on balance of payments and inflation, and the resulting need to raise rates.
b) even with very long terms, people still have to repay the capital at some point (death, retirement, etc) and the longer the term the bigger impact of even low compound interest.
In any confidence driven market, at the peak it snaps from being "too early to sell" to "too late to sell" and the market has to bottom before confidence returns.
I can't see any way of avoiding this - definitely not the current government policy.
We have at least a decade of suffering to come, with much belt tightening, stirking and cutbacks. :-(
I don't want any of this, but we have lived beyond our means, spending money we don't have, and now our troubles are coming home to roost.
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@151
As it was said yesterday on many ocassions new labour is no more, they have now adapted old labour policies. Ten years to late though. but 2 your question yes central govt as to pay for this, meaning all of us. As for council tax and rents to stay the same for some years, thats where all the white color workers job losses come in. so if your already in a social house then things are looking good, Well compared to those who own there own homes
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Interesting comments from the man on whose watch the advantage of demutualising Halifax was lost when he returned to a mainly building society business without the building society advantages in financing.
Also this is the same person who incresed the holding of asset-backed securities in the books, which turned toxic.
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I agree with many above. A 50% fall in house prices is sensible. We have had our home on the market this summer and not a sniff even though we had dropped the price by 20% from the peak of summer 2007 and would have taken a much lower offer. Looking at achieved auction prices, even these have not yet reached a 50% fall. But they are not far off.
We don't mind because we bought our home in the mid-90s. So what we buy next will be as cheap as what we are selling. It's my sisters' and friends who bought in the last 3 years for whom voluntary repossession and bankrupcy are sensible. And the banks' know it.
I've said it before and I'll say it again. Accepting that house price falls are a given, there are 2 routes to deal with this crisis. Either:-
1/ wage inflation
or
2/ years of stagnation, bankruptcies, repossessions and mass unemployment.
The government is opting for the latter. I think that is a mistake. We don't have the manufacturing and home market strength of 1990 Japan. Look at the north. It has never really recovered from the early 80s. And I fear the failure to apply the "rule of law" and deal harshly with those who created the fraudulent mortgages and their corresponding securities, has fatally undermined international business confidence in the City of London and the British Government.
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Sorry 132 if I disappointed you but I do think that journalists need to appreciate the huge responsibility they have because their influence is massive.
For TV journalists particularly because they are 'in our homes' talking to us directly. People do believe what they say but so much is so subjective and a lot of supposition but they speak with such authority.
I didn't say it to cover or protect politicians either because they are masters of avoiding the issue and saying what suits for party politics or to be populist or one upmanship rather than being completely honest.
Although I recall Mr Darling saying we were facing the worst crisis in 60 years and he was rubbished by all the media as being scaremongering!!
Politicians also like divide and conquer tactics and while we are a divided nation they will always have the whip hand whoever is in power.
We all need to take a step back and ask ourselves what is really important to each and everyone of us and if we really do need all the trappings of modern day life. What do we really need and what could we honestly do without?
So much of what is on our High Streets and in Shopping Malls is actually imported rubbish and much we could all live happily without.
The economy is apparently built on consumerism, which is as I have said before is totally unsustainable, we are all living on borrowed time as regards the resources this planet has.
We cannot mortgage them from someone else, import them from another planet what is here is what we have to survive on!!
Why do people need to go out and buy 'something to go out in on a Friday night' and then discard it in the back of the cupboard just because it was cheap.
That is such a waste of a valuable resource. Individually it might seem futile but collectively its disasterous.
People bought clothes to last not for a season or a night!
We had a fantastic clothing industry but greed got the better of us, so they moved abroad to build sweatshops.
Why do so many things have inbuilt obsolence?
Why do we need the latest gadget or gismo.
We lived without it before and guess we will survive in the future without it to!
We all complain that things are more expensive yet we still all waste money on non-essentials at some point in time.
Shopping feeds a fix for the moment you do it but in the cold light of day many things that are purchased are simply a complete and utter waste of time.
I have no idea whether the Government are right or wrong about our current situation and whether their plans will work but I am very sorry that they think we should plan to buy ourselves out of trouble without putting caution on what we buy, where it comes from and what impact it has on the World's dwindling resources.
There are so many things that do need to be tackled and they could really have been so innovative, so radical but guess because everything moves at such a ridiculous pace things are always a knee jerk reaction instead of calm considered ideas.
If people must spend then why doesn't everyone look at buying local, supporting their local shops, buying British. This would stem the tide of foreign goods and help the balance of payments. The Government cannot be seen to be protectionists but with people power we could do exactly that.
My son is staring out on a new business as a furniture maker ( timing is everything) but will plant a tree for every piece of furniture he makes, so that future generations will still have trees to enjoy. he also buys all his timber from sustainable sources.
Someone buying his furniture will have something unique and will take pleasure in it for years to come. With mass produced its so easy to discard and buy new because you have no connection with it.
I don't suppose for one moment we can expect or encourage a nation of shopaholics to change, even if its for their own personal survival.
People on this blog refer to the 1970, which doesn't seem tht long ago and yet we are told by 2030 we need two planets to survive our current lifestyle let alone any increases in it.
That s what I call really scary because no one can fix that if it happens!
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The Banks had lending targets to meet, even at commercial and branch level. Not surprising they lent to anyone and everyone.
In America, they even lent money to the types of folk who throng onto Jerry Springer and Oprah Winfrey shows. And - they get a vote too!!
For anyone who has not read up on Fractional Reserve Banking, it is a scandal. You cannot create money from thin air. It is nothing more than an illegal pyramid selling scheme, and the line of new people to sign up at the bottom suddenly ran out, and those at the top wanted their money back.
Financial Institutions were fined for Pensions Mis-Selling - how about mortgage mis-selling as well FSA??
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#10 "but you'll know the house will last the life of the mortgage!"
Damn right, you are !! The place I live in now was built in 1900 !! It still has gas pipes in some of the walls for the gaslights of yore !!
And I wouldn't give up this property for any of the fancy new constructions these days where you can quite literally punch through the wall !!
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Maybe we should nationlise the Estate Agents.
Govt appointed Surveyors would provide realistic valuations to prevent another property boom fuelled by greed.
Oh I forgot about Stamp Duty! HM Labour must have done very well out of the Housing Boom of the last ten tears. Maybe that is how they are going to reduce the national debt, by hastening the onset of the next cycle of boom and bust.
Change. Yes we can? Not here we cant.
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Robert
there are a number of issues I would like to make.
Firstly the new mortgage deals are decreasing because the banks are quite simply refusing to lend.They have in recent years flooded the buy to let and second home sectors which has created an oversupply.Now we have repossession and people trying to sell,purchasers can not obtain the finance and therefore take advantage of the current availability.If the banks were sensible in this respect we would see the housing market stabilise.There is still significant demand and there could be a boom according to some analysists,within two years,once the brakes come off in the financial sector.
Secondly,and more worryingly,the lack of finance is causing huge problems in the commercial property market.Investors are being forced to sell properties at reduced values because the bank valuers are,on instruction from the banks in some instances,down valuing assets which means the loan to value ratio changes and therefore sales are forced which creates a downward spiral.
Thirdly owner occupiers are finding it difficult to raise money to buy their own buildings and to develope their companies.
The issue of most concern is that the celebration of doom and gloom in the media is destroying small business.Particulally in the retail sectorThe persistance of bad news headlines has conviced the man in the street that he has no disposable income anrd they have stopped spending-perhaps you and your colleagues could launch a campaign to dissipate the doom and gloom and persuade people to go shopping.
I work in commercial property in yorkshire and i could draw your attention to four very successfull developments which have or are in the proccess of happenning-
I assume you can contact mme should you wish to discuss any of the points raised above
thankyou
nick
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Dear Robert
There is a side to this crisis that is rarely talked about or discussed, and that is Self protectionismn,
"THE GENERAL PUBLIC WOULD like TO THINK THAT THE establishemt, IS LOOKING OUT FOR THEIR INTERESTS"
This is very doubtful, as the general public are being refused ANY help if you look closely, you will see that the Establishment is in fact covering their own losses before giving it out .The Cah Flow is NOT out of the Banks, OR the tax revenue but into them,virtually every penny is on a one way street back to the Financiers and banks who created this problem in the first instance.
There is NO sympathy for the public in all this they are the wrong side of the line and those with vested interest's are protecting themselfs first.
The OFCD, and the Govenor of the Bank Of eNGLAND NOW STATE THAT bRITAIN IS GOING TO SUFFER THE WORSE out of all the industrialised countries, and in Britain under such circumstances the General Public are not part of the discussions when making plans as can be seen by the Latest Budget Report from Darling.
"How long will £60 POUND LAST its basically a con, "?
"Who needs a fridge, when there are now Three years at LEAST of tightening the Family cash flow to cover the now exhorbdent prices Britains have to pay to survive, WE now live on what is called subistance wages, even existing is a better word, People in this country Exist, they do not live, and millions more are going to enter this bracket, in the next 18 months,
"How can a train Company put up rail fares in such an economic climate as we are in now of 11%, its stupid, to say the least??????"
This is how ever the establishment at work,
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I know this is off topic here but I have a request for Robert:
Today the OECD added its voice to those claiming that the UK, far from being the best prepared developed country for weathering the coming recession, is actually the worst. As far as I can see, Messrs Brown and Darling are the ONLY people who think differently. So Robert, knowing how well-informed you are about Govt thinking, PLEASE explain this discrepancy and reveal to the rest of us the basis of the Brown/Darling view. I'm sure we'd ALL like to believe them.
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Robert
The US house price figures came out about half an hour ago.
Grim reading. Price falls have accelarated further this month with the Case Schiller Index falling another 1.9% amounting to 23.1% accross the composite city index in just 2 years.
Their bubble was less severe as ours in terms of price growth over the past decade. Analysts there are saying today that the market here has 50% or more to fall from peak to trough and the government could easlily push us back to the IMF.
Our housing market has seen nothing yet compared to what is to come. A few of my finance friends are now selling up just to be mortgage free.
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No mortages are being granted for the simple reason the grantees do not know if thre securuty will be worth much in a year's time. Until prices stabilise- who would want to stick their neck out for more debt with assets worth lessand less on the open market.
House prices should fall to 2,5 times average earnings- average- then stay at that level. the Government would be better to bring the private houses into Capital Gains Tax net to prevent this continual bidding up of prices, then a house would not be seen as an investment but somehere to live- which is what a house is designed for. Get the speculation out of the housing market.
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I agree with most on here that house prices should fall to affordable levels again. The quicker this is done the better, which means a further fall of about 30% so the average house price is around £ 85,000. This is tough for those who have taken out big mortgages recently, but the problem has been caused entirely by the banks lending out too much, and buying dodgy mortgage backed securities. A buyer should have to put down a minimum of 10% deposit and not be able to borrow more than twice verified annual income. All the government is doing is trying to prolong the mania of recent years when this is no longer possible. Any sensible house buyer will wait, or negotiate at least 20% off the current asking price because prices have much further to fall anyway.
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I appreciate how 153 must feel but a house/flat/cottage or whatever, has to be seen as a longterm investment.
Its your home, a place of refuge from the madness outside and must be seen in that context.
We started out with a mortgage many years ago and brought up our family. It was struggle particularly when we had 14% interest rates, double digit inflation and about 4.5million people were unemployed.
We have stuck with it and when the rates went down we kept paying the same amount because we had been sold by the wonderful banking sector, a superduper Endowment mortgage that was going to give us cover in case either of us died, would pay off the mortgage and give us a super bonus lump sum.
yet another con by the money markets!!
we ended up with no bonus and had to pay an additional sum to cover the shortfall in the endowment policy!!!!
but
in September of this year we finally paid it off, so the home is ours.
We feel its worth the struggle because when we do retire we will not be burdened with either a mortgage or even worse a rent.
If nothing else we can sit in our home knowing it belongs to us!!!
As long as people can see long term and not some hairbrained quick fix to a fortune from property then its well worth it.
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Comment 147 : MUDSHIRES
Well argued, but I think you have to ask yourself whether you are finding fault with the bankers, the specific people, or with the banks as institutions, their culture and expectations, or with the expectations of those who control the banking institutions.
At what stage would you be able to say:-
These are the culprits. If they had behaved in a socially orthodox way, none of this would have happened
You see, I just don't think you can blame "the banks" or "the bankers" for all this. I don't think that it would have been much different if you'ld had an entirely different group of people running the banking sector over the last 15-20 years. I think that the pressures on the new people would have been just as impossible for them to resist as they were for the old ones.
If society rewards people to operate in an immoral way, then people are going to act immorally. It's not a bit of good criticising people for maximising short-term profit when maximising short-term profit is the overriding expectation of their employers, the controllers of their employers and the public to whom the controllers are responsible. If the public want a longer-term approach, they must understand that this means less jam now. What seems to be lacking in the general understanding is that it's not possible to have more in the future, and the same amount of jam today. Out of the question. Totally defunct as an idea. Impossible, even for Labour politicians to conjure up, no matter how they boast they can.
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The US goverment is having to put another USD 800 billion in to try to unfreeze their domestic credit markets.
USD 600 billion for mortgages and USD 200 billion for consumer credit.
http://news.bbc.co.uk/1/hi/business/7748362.stm
How long before the UK government has to buy up securitised mortgages here to try to get the UK mortgage and bank sectors moving again?
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@173
So dont you think that the goverment should give these people who have just bought in the last few years for the 1st time the chance to let there home be bought back into the social housing sector as there homes are going to fall into negitive equity by some 50,000 to 100,000 in some cases.
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Good article but do readers find it slightly ironic that this report is led by James Crosby, the architect of HBOS' wholesale funding model which brought the bank to its knees?
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Post 153 I know exactly how you feel as I was in exactly the same situation as you in the 1990's.
I bought a flat in 1993 and it took until 1999 until I was able to see an increase in value compared to what I paid for my first one bedroom flat.
You seem to have invested reasonably sensibly at less than 3 times your salary so assuming you stay employed you should be ok.
It is difficult to comment without knowing what mortgage or deal you are on but with interest rates low and likely to go lower and unlikely to rise within the next 18 months to two years now is an excellent time to overpay your mortgage, if you can.
Try to put some money aside for a rainy day and clear any credit cards or other loans you may owe on first but if you can overpay your mortgage even by a small amount this will pay off in the long run.
Lets get back to the absolute basics. Your flat is firstly a roof over your head and only secondly an investment. Assuming family commitments don't force you to have to move up in property size over the next couple of years you should be ok.
One thing you need to remember is that every month, assuming you have a repayment mortgage, you are paying off some of your debt. After five years your equity in the property will be reasonable even if prices stay the same.
In three or five years time the prices may not have moved up much but you will have an increased amount of equity in your flat and when you look to move up the property ladder if prices stay stagnant you will save money as the three bedroomed house will be relatively cheaper.
Also one final point re the three bedroom house you might want to buy next year at a cheaper price it could be even cheaper in three years time.
Also whilst you don't need the extra space now why pay to heat and light or pay higher council tax on a bigger property?
Keep the faith it will work out in the end.
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@ 174
I take on board your comments but a 1 bedroom flat isn't going to be able to viable as my home till I'm 50 and pay off the mortgage.
Next year I'm getting married - already we bemoan the lack of space and garden (although we are lucky to have an old tennemant flat rather than the cardoard box new builds)
In the following years we will be wanting to have a family - and I can't see how the flat will be made into a family home.
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This is a horrible sign of what's in store for the future.
Debt will have to be repaid to the banks before they can start to lend again. This will still leave less money available and gradually excess leverage will be squeezed out of the system.
There is no new money. It is the same money being recycled but becoming less and less as the recession takes its toll.
That is just commonsense
Some of the measures already put in place have done more harm than good but they are consistently trying to prop up a failing economy which will cost even more in the long run.
The country is going to be mortgaged up to the hilt with no real plan or ideas on how it will be able to repay this.
At the present time it is just not able to generate enough wealth to pay it back.
We need a much larger exporting base than we have at the moment and a more thriving tourist industry.
This is no longer as easy as it once was with Asia a much more dynamic and cost effective competitor.
We have already had a glimpse of what is instore for the poor taxpayer. There is much more to come.
The vision of the future for our country is very gloomy indeed.
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Sir,
To freecornwell's comment - I say "here, here" but also wish to add of "the enjoyment of greed of the people".
Readers must not forget they have always been part and of it all. So, make your bed and sleep (or even die) in it - at one time you must have seen the risk to be 'worth it'. Now carry your convictions and die like man and let your poor children have whatever's left.
Those that had nothing in the beginning will see again their 'normal' day tomorrow.
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Only $20bn left in the TARP.
Only $20bn left in the TARP
Borrow more
Borrow more
Its the Right thing to do
Its Right that we do it
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Ian_the_chopper #176
I saw this article too, but I don't understand where this money is coming from and why it does not seem to need an OK from congress?
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No. 175 - Excellent First
Good to see someone pointing out the obvious - this is everybody's fault for the 'live now pay later' attitude.
No. 91 Wharfgirl's post is worth another read. It shows exactly how bizarre a situation we find ourselves in as a result of this attitude and the even more bizarre labour govt. solutions.
Despite the tone of comments on this blog, I believe 95% of Joe Public will hardly comprehend what is being discussed, let alone give up any intention of borrowing to the hilt at the first available opportunity in order to get on this mysterious property 'ladder'.
I have never been able to explain to a single-home owner-occupier 'starting out' on the 'first rung' with their 2-bed apartment that his/her standard of life actually FALLS with house price appreciation as the larger family house that will be required in the future will cost that much more and be paid out of the same wages.
The crash is the solution, not the problem.
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At the end of your comment on BBC News last evening you mentioned Robert that the government had taken out insurance against non-payment of the debt. In the event of default who pays out ? surely not the tax payer yet again !
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175 ExcellenceFirst:
Interesting argument excellence first. So you choose the 'cultural' explanation. It's strange how, when large and unexpected 'social/economic' events occur we often assume that these events require an abstract explanation. As with you, you highlight a number of possibilities for blame. You go from the concrete (specific people/bankers) to the abstract (culture/institutions etc.) and then choose the 'expectations' of a specific 'culture' as your focus. By 'expectations' you seem to mean 'public expectations'. So, for you, the 'public' in the abstract, is responsible for this 'culture' of excess. We cannot blame individual bankers etc. as they were simply victims of wider economic/cultural or public values that demanded short term profit over long term gain. The problem is of course, and you may not like it, that there are real people making real decisions about where to invest, where not to invest, and how to invest. These are not abstractions these are concrete facts and there is likely to be plenty of evidence out there which will, in time, allow us to allocate responsibility for this mess. Turning to abstractions for an explanation simply plays into the hands of those who would like this whole mess to simply be forgotten. Who would like to feel that there won't be some one knocking on the door at some time in the future asking very specific questions about their behaviour. And when this happens they'll be laughed at when they state: 'it's not my fault guv I was just following the Zeitgeist of the times.'
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I have read, gratefully, nearly all your blogs especially those since the start of the credit crunch. One thing still puzzles me: in the beginning 'no-one knew' what had been bundled up and sold on so none of the banks would lend etc etc..
But now - don't the holders know much more? haven't they investigated? Is so much still unknown?
There have been many writedowns by the banks, are they still not able to say really where they stand?
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147. At 1:33pm on 25 Nov 2008, MUDSHIRES wrote:
LEGALISED THEFT ON EPIC SCALE BY BANKS
Totally agree with you MUDSHIRES, my first house in Bradford in 1979 was 1.5 times my low wage at the time, the same house last year was priced at 6 times the wage of the same person doing the same job now. The banks try to find new debtors like drug dealers need new customers, and when the existing debtors cannot repay anymore, the whole system collapses. New money should be created by government, not as debt through the private banking system, and banks should only lend what is saved with them.
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If only Mr Darling had zero-rated building repairs and renovations that would have been a real saving and created work for builders. I am afraid 2.5% over the board is too small an amount to make any difference to the average spender. The other thing would be to stop repossessions of owner/occupied homes and, if necessary rent them back until the situation improves. Our local authority does not rehome those who have had their homes repossessed as they are deemed to have deliberately made themselves homeless.
I believe Mr Brown encouraged people to over borrow and spend to avoid a recession earlier this decade now the cure must be much worse. It is very easy to blame the banks for not lending but they are trying to build up a reserve as instructed by the gov.
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44. At 09:59am on 25 Nov 2008, thefunkygibbons wrote:
Not everyone will be in negative equity.
I, like 40% of people do not have a mortgage.
Well sir, do you have cash? Any other commodities? Do you shop? A job?
You see, when the attempt to shore up the financial dam fails - Sir it will fail - you will be left with your paid for house.
Any cash you have will be gone - yes its guaranteed, but the Gmt can not pay it back - it will be gone. Do you have a job? Gone as well as companies firstly shed cost and then downsize and then concentrate on core business and then capitulate. Oh, and that does not include comps that need cash to survive.
Still sitting on your throne? What about food? Still got your 4 by 4 to hit tescos once a week? good, oh but not much stuff on the shelves lately, where is your finest roast beef gone?
Better put some better security on the house, some riots happening lately, lots of upset, homeless and hungry people taking to the streets.
Better not go to tesco today, its not safe. What are those hooligans doing? Why didnt they save more during the good times? you ask. Agh at last you cry, the Police a re doing something about it.
Better get some wood to light the fire and check the candles in your paid for house. Telly is still working though, thats good, lets see whats goin on in the news tonight, you switch on the tv.
Whats this? you startle, whos that man standing there in front of all those people? He's wearing a stupid uniform, whats that logo on his arm? Stupid man, and doesnt he look ridiculous with that moustache?
History or future?
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A free lesson about life...
The Tulip Bubble Burst
The Tech Bubble Burst
Property bubbles always burst and this will be no different.
Another 20% drop takes us to the historical mean but prices usually well undershoot the mean.
Prices will drop by circa another 30-35% from here over the next 2-3 years, then do nothing for the next 8 years before it all starts again.
With Average wages at 25k average houses should cost 75-90k, only when you see these figures will the market have found its bottom..
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A lot of people think that Darling has given them a two and a half percent reduction in prices through VAT. It's not even that meagre sum. It's closer to 2%. Do the sums.
If a retailer has to sell something for £1. VAT adds 17.5p making a total retail price of 117.5p A reduction to 15p means there is a reduction of 2.5p
ie 2.5 x 100/117.5 = 2.1276% reduction in the total retail price of the product. Inotherwords, that is 2.13p in the £1. It's nothing
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Response to #172
Well said! I was thinking along exactly the same lines regarding capital gains tax. In the future, we need to reduce the incentive to view property as a quick win investment opportunity.
I reluctantly hope for (and expect) this house price crash to continue. I am a homeowner and bought my current flat in 2006. Already my property is worth less than I paid for it and my equity (15% deposit) is slowly diminishing. I am trying to sell but, after nearly 40 viewings, have received no offers. The asking price is already £10k less than the purchase price of more than 2 years ago. I live in a very desirable location in South West London where demand was explosive during the boom years. Given the current outlook, I'd be tempted to accept an offer at a level that would see me walk away with all my equity lost. I'd much rather that than end up £75k in negative equity by this time next year!
The age old advice of "riding out the storm" or "batten down the hatches" no longer applies. The landscape is changing for good and the past is no indicator of the future. For those who bought, like me, in the past 3 or 4 years, God only know when prices will return to those inflated levels. The best solution now seems to be to escape from your mortgage debt whilst you can still avoid negative equity!
I felt sorry for a neighbour of mine when I noticed, having seen sold prices in my area, that they paid £90k more than I did for a property of the same size in April this year. I also noticed that their property previously sold for £234k less only 7 years prior. It is when you consider figures such as these you soon realise that this bubble had to burst. The numbers simply don't add up.
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Post 184 I have no idea where the US money is coming from either.
No doubt the same place that all the Citigroup money cam from yesterday!
It seems to me that the mortgage lending got so far beyond its natural level and was at far too low a price for far too long.
I fear the only option in the UK is something similar or we are going to be stuck in a similar situation to japan in the 1990s.
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@174
I pray that neither of you gets a long term illness in your retirement or the Government will force you to sell or mortgage against your asset to pay for your care.
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Hmm,
Let me see.
The Banks are sold worthless paper by American subprime lenders.
The find they have to ask the Bank of England to help.
Shortsellers sell the Banks into the ground so they cannot raise private capital.
The Gov't then ransacks the Banks who could not raise money, wiping out the investments made by Pension Funds etc.
And then the Gov't publicly maons that the Banks can't lend.
Well, after having the carpet pulled out from under them, their Shareholders wiped out, their Staff put on notice of redundancy, is it any wonder the Banks can't lend ?
And of course the Public all hates the Banks for lending other peoples money.
I think the Gov't and people have made their own bed.
And the Gov't will have to lie in it.
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What really worries me Robert is that your opinions go out under the auspices of the BBC's Business Editor which potentially give them a credibility that they do not deserve. Not without the right of reply prior to publication anyway.
Few had heard of you before the Northern Rock fiasco but since then you've made a name for yourself as the prophet of doom and gloom, but without putting forward any plausible alternatives. You remind me of the football fan remorselessly crticising the manager but without remotest clue how to do the job himself.
You are just as entitled as anyone to offer your opinions but publishing them under the banner of the BBC is very dangerous and deserves a very large health warning.
Whilst you continue to do this can I have a refund on my license fee?
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196: Probably won't be any care available by then.
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#176, the uk already has - The special liquidity service of the BoE earlier this year
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Question:
If you lend a friend a fiver do you expect to get it back ?
So if your Bank lends your fiver to a stranger do you expect to get it back?
If your Pension Fund lends your money to a Bank thro Shares do you expect to get it back?
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What we will end up with is very high Inflation.
Far higher than the eleven percent I've estimated.
Maybe back to the bad old days of thirty percent or more of the 1970's.
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#26
Which is exactly why Bush has got it wrong. As outgoing President, he was virtually immune - after the event, however, his Texan friends may have little to thank him for in the long run, it mostly depends on how well they've hidden the stache and whether a wetback gets there first. An interesting concept, emptying the bank before the doors open...
Now, the thing I take greatest exception to in this framework of yours is that it's the banking system. It's a system, certainly, which was once used for common-or-garden banking, but I really must insist on a differentiation between oiling the economy and sucking its insides out like a spider's progeny in a fat caterpillar. If you must, replace the second letter with an 'o' - or a similar euphemism. In any case, we're now facing a world where regulation, legislation, financial probity and industry are going to be things of the past, unless, as the Conservatives are now suggesting, it's replaced by a viable alternative.
It has been said that dictatorship is systems-building top-down, democracy doing it from the bottom up. The odd thing about the Cons is they appear to want to do both at once.
Of course, the one hope the Chancellor's clutching to is that the Banks will repay all this dosh. The man never learns...
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House prices have historically been related to net earnings and the recent deviation from this had to correct at some time. The correction will probably swing to far the other way but the relationship will return.
There was a recent article in the Economist (I think) by a risk manager in a US investment bank in which he stated that the sales team always won the internal battles; risk was ignored. I had always thought that the problem with banks was incompetence but clearly greed was also an issue.
We are told that the reduction in VAT will help small businesses. But like much of the debate a small business is not defined. If what is meant is a business operating below the VAT threshold of 67k UKP then they will benefit from the reduction in VAT on purchases. There would have been a bigger incentive if the threshold had been increased to 100k+. For any normal business with a turnover above the threshold there is no benefit since in effect businesses are collectors of net VAT for the exchequer.
Probably the single best action to help business would be to have a mandatory settlement for invoices of 30 days. A small business is probably lucky to get better than 30 days on purchases and probably 90 days on sales meaning that it it is difficult to collect the VAT on its sales in time to pay its VAT return.
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#122, you a net lender or borrower?
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Oh I know that 196 as my late father went in to care at £1000.00 per week!!!! in 2007.
Obviously one cannot plan for every eventuality! What I was trying to convey was that far too many people have seen property as a get rich quick potential instead of seeing a property as a home and a long term investment.
Sadly, greed is for many their only motivation and cannot see beyond their noses.
I am just so pleased that we have achieved what we have achieved and never wanted more than that.
Our children knew the home they grew up in and that was good enough for me.
I guess we could have been gamblers like many have and still been Ok but we were never prepared to take that risk.
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What a farce - the BoE and the Government couldn't have got it more wrong than if they had tried to.
I now ignore anything King says - he has zero credibility with me.
We need government guarantees for the major housebuilders' debt until the mortgage market recovers - otherwise viable businesses will be acquired for peanuts by private equity or foreign investors, and huge landbanks mothballed for years until they can make super profits on them - which they will when the cycle turns.
Meanwhile unemployment will increase by the hundreds of thousands employed directly and indirectly by the major housebuilders, not to mention their materials suppliers.
Wake up Darling and Brown and act quickly.
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Gordon proposes to borrow a great amount of money. Who, I wonder, will the willing lender/s be?
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It's OK guys... The oil price is on its way back up following Obama's various announcements.
Add to this that OPEC and others are looking at further production cuts then the oil price should hit at least 100 bucks shortly after the new year.
That means inflation... It also means even higher fuel prices especially now that Crash Gordon and his wee chum have decided to increase fuel tax...
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Anyone know why 178 to 180 haven't been moderated?
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Mr Peston do you have a view on what can ease lending? Perhaps the establishment of a new solely owned government bank run in accordance with current mores but backed by the Treasury may provide a competitive pressure in which other banks would be forced to lend rather than hoard.
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Comment 187 : doctor-gloom75
"The problem is of course, and you may not like it, that there are real people making real decisions about where to invest, where not to invest, and how to invest. These are not abstractions these are concrete facts and there is likely to be plenty of evidence out there which will, in time, allow us to allocate responsibility for this mess."
I don't doubt you are right. In fact this is already happening, and, in time, as at Nuremburg, certain people will be charged with responsibility and they will defend themselves as only following orders. Individuals will be found guilty, not because they done anything that anyone else wouldn't have done, but because without their guilt, wider humanity would have to accept causal responsibility.
We live in a capitalist society. Legally acquiring someone else's property for less-than-reciprocal consideration is the focal point of the entire process. For better or for worse, this is the basic concept behind every transaction, large or small, throughout the whole market. What right have we to say that bankers are at fault for pursuing this philosophy with the same vigour and ruthlessness as we all would, if we were in their position?
"Turning to abstractions for an explanation simply plays into the hands of those who would like this whole mess to simply be forgotten."
On the contrary, I think that what will "draw a line" under this will be the identification of a bunch of scapegoats, which will absolve society generally from any responsibility, and allow the same sort of thing to happen all over again when the next generation comes through. Blaming by default every bad happening on the human wickedness of a few is a surefire way of confirming that Warren Buffett was correct when he said "what we learn from history is that people don't learn from history"
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''Off a cliff'' as said previously....
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The real value of a house is its use value, but houses have become traded commodities and status symbols as well as (now palsied) stores of wealth.
This has been hugely to the detriment of the UK economy because capital that might have been invested in economically and socially productive industry and services has been diverted into housing, thus stoking a boom and now a bust.
It is not merely futile to try to revive the UK economy by pumping up a still inflated housing market; it is counterproductive for thus the seeds of the next boom would be sown.
Better by far to encourage the diversion of wealth from housing to more productive assets and let house prices drift down to the level at which working men and wormen can actually afford to buy them.
I for one will not be putting my money into building societies but into those companies and the few remaining banks that might actually invest in the innovations necessary to address the environmental challenges we face.
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No 175 EF and 167 doc gloom.
Niice reasoned, balanced and eloquent posts.
However cultural, institutional, organisational or family pressures caused British banks and investment houses to act. the fact remains the drive was sheer greed and ignorance and there was someone ready to feed that drive.
The UK market, while extremely ballooned was/is extremely constrained by size and price. We are a small island, land IS expensive and property had risen too much
BUT
Alone it was due for maybe a 25% reset.
And here is where the Americans came in. Sell a load of dodgy contracts, mix 60/40 with ordinary (not AA) grade mortgages. Insure the package on a risk basis and sell it on.
In Londons rush to become world financial centre No.1 the greed and ignorance provided a fertile feeding ground for 'The Sharks'
Now we have a game of musical chairs. The music is stopping more often. The lesser players have missed the chairs or got out of the game.
London, the worlds largest financial centre will be left holding the biggest package.
The perpetrators of the fraud, the americans, get away relatively lightly.
We cant sue americans.
We cant sue the banks. There is no law against ignorance.
We COULD sue the private risk management companies, some UK based ratings agencies and maybe some independant advisors.
It is Ignorance and Greed. The Basics. The Old Old errors. And no amount of erudite meditations can shade this in any other colour than black and white.
Sorry.
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Now here?s a thing that I am not sure has been picked up yet ? if spending beyond our means and building up the massive debt levels we now see, essentially underwritten by property has caused so much sharper pain here than other European counties, then why on earth is the government positively incentivizing us to spend more with a cut in VAT.
With the essentials of food, energy and children stuff already either at zero or very low rates of VAT, and car fuel, drink and fags being excluded by way of duty hike, who is this VAT rate reduction targeted at, those in the market for luxuries?, surely a lower tax would have been the way to help, then we might have a choice how to spend it ? or even that old fashion discipline called saving ? surely that is what banks are for, our cash - not the governments.
Not only are the government spending their way out of this mess there telling us to. Who would think that ? any CFO, any where on this planet would tell you ? cash in hand is king right now. Sorry the plasma TV can wait whatever the price is !
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I want my moneymummy, sorry
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Ladies and Gentlemen.
Many have posted their political views here. Some for some against HMG.
Whilst I am not enamoured of GB/AD I would like to remind the little c conservatives of a solution.
May I commend to the house............
The future saviour of Britain..............
NORMAN LAMONT
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Is there anyone here who thinks that buying a bombed out house at 60% off-peak price perhaps at auction sometime next year for cash (no mortgage) is a safer way to preserve that wealth than holding cash ?(currently usd and some gbp)
It will be ironical indeed, but such may be one of the consequences of ditching the dollar and reverting to gold. Any views? How long can the Americans keep printing money that the world will treat as wealth?
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Plenty of calls to restore the Housing Market??
House prices need to fall to a level where the average cost is no more than 3 times average earnings.
Houses in Manchester FIT FOR DEMOLITION have been selling at over 100K,LUNACY.
If uk plc is going to compete in the REAL world,living costs must fall.
That means asset prices must DROP,the Credit shortage will see to that.
Lets just have the SHARP SHOCK and get it over with.
A good detatched house in many parts of the country is well over 1.5 million,in greater london think 2.5 million.
I am sorry but its crazy.
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#36
We are a little off topic but remote viewing is not baloney.
Theories abound as to how remote viewing works, as yet non are proven and research continues.
Practice is well established - ANYONE can remote view anything, anytime, anyplace, but it does take about an hour and half to view a target.
#45
Please direct us all to ANY of these MANY reports you say were available around 8 Oct showing the base 7,600ish figure for 20 Nov.
If they exist, readers here would surely love to know who produced them and what their current forecasts are predicting!
With best intent
Loraine Connon
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#73
"The Canadians have just been lucky, that's all. By rights, we should be flying high, and they should have gone down the pan."
"Should have" - wrong tense. What makes you think we Canadians are not headed down the pan? It isn't over until it is over. I for one believe it is a very long way from being over.
If the objective of terrorism is to instill fear in the population and wreak financial havoc on countries, we have witnessed an are still witnessing the greatest and most brilliant terrorist attack in history. The real and most formidable weapons of mass destruction were on Wall Street all along. They never were in Iraq.
The huge upside to a financial terrorist attack versus a military offensive is that the spoils of a financial offensive are left largely intact, ready for the taking at mere pennies on the dollar or less by those few elitists who are left standing.
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$800bn jackpot produced from thin air
$800bn jackpot from thin air
TARP the herald angels sing,
Glory to the newborn King!
Peace on earth and mercy mild
bankers and debtors reconciled
Joyful, all ye indebted nations rise
Join the triumph of too many pies
With the angelic PM proclaim:
"debt is born in everyones name"
Hark! The herald angels sing
"Glory to the newborn King!"
Merry Christmas
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Well - at least Yvette Cooper reads the blog
GC
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The system is in trouble because the banks lent vast sums of money to people who didn't really have any chance of paying it back, not just the self-declaration mortgagees quadrupling their estimated incomes, but the swathes of other credit loans, banks encouraged us to take just to stay competitive. Now we have a generation who have large debts and little chance of ever paying it back (not just the new student loans scheme either) who also don't care if they do become bankrupt, no assets, no stigma and no shame!
What grinds my gears is that the Govt. seems to want to throw my meagre (but hard earned) savings into this losing hand, just to ensure it's a total wipeout! I now wish I'd spent it on fast cars, loose drugs and Class A women like everyone else
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Our economy has be largely run for the last 10 years on the basis of consumer spending,(mostly on imported goods) with money borrowed on the basis of rising house prices.It's falling house prices that have caused this recession which therefore will not end until they start moving upwards again.And banks are not going to lend either,nor why should they,until they do and they are sure they will get their money back.
The way out of this has therefore got to come from some sort of stimulus to the housing market and we didn't get any of that yesterday.
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# 192 "house should cost 75 - 95k"
I take it you're assuming any house could possibly be built for this figure?
Until costs for land, materials and labour drop by a concomitant proportional amount, such figures will never be reached. If they do, most of the householders in the country will be in negative equity and total anarchy will reign - but don't worry, Bob Peston will still be on your TV screen gleefully talking the market down still further and the "Downturn" arrow will have a slightly longer tail!
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in other news....
The US central bank said that it had created a new vehicle called:
Term Asset Backed Securities
which will offer $200 billion of loans to holders of troubled bonds
Nice, I used to run up tabs at my local which had to be repaid regularly...
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post 225 pandatank
Lets have a load of bankruptcy and get it over with.
Student Loans remain due regardless.
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212, ExcellenceFirst
-What right have we to say that bankers are at fault for pursuing this philosophy with the same vigour and ruthlessness as we all would, if we were in their position?-
Ah the big collective ?we? argument. Using that logic why bother having laws at all. Since it?s really society?s fault for everything why punish anyone for anything, ever.
WE may or may not have made similar decisions if we were in power, but the fact is, WE WEREN?T, some-one else was.
People were paid handsomely to make the decisions that have resulted in the current mess. Those people got it wrong, and badly. Those people need to be punished. It is that simple.
If they haven?t got the guts to come forward and accept responsibility and whatever reparations there are that society decides they have to pay, then they shouldn?t have held the jobs and positions of power that they did. They should have got jobs as road sweepers instead.
You can?t absolve our leaders and our bankers from responsibility or blame. Doing so gives them Carte-Blanche to do anything they please without fear of retribution.
And there is already enough arrogance and egomania in Parliament and the City as it is.
A little humility is called for, and some semblance of justice.
I don?t think we?re going to get it.
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84, Glanfan asks,
Whats the point in repo, then goes on to say about banks recovering their losses.
My question to you is : What losses? The made the money up from this air (thin reserve ratios) anyway? They still won out of the deal!!!
They are greedy Bankers
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#224 Yvette Cooper
You're right she does!
I had a good blog exchange with her when she was Housing Minister and she did seem to have a good grasp of her brief (less so now it seems!).
She did take exception to my reference to GB's eco-towns as Stalinist however.......
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229,
Student loans are not exempt from bankruptcy arrangements, and I can prove it.
The only thing that is not is a court order.
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You can either have the banks deleverage to a point at which they are solvent again or you can have a (brief) return to historically high levels of mortgage credit right before the whole thing crashes. Not both, because they are mutually exclusive.
Which will it be?
I would prefer the banks to be solvent again, am I alone?
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One very simple solution to all our problems would be to simply declare ourselves bankrupt as a nation and refuse to honour debts made to foreigners.
I mean, it is not as though China and the middle east will actually invade us it - there would be nothing of value for them to repossess.
Actually I am very surporsed the USA have not considered this - it could be done at a stroke of the pen by rendering Treasury Bills worthless.
In effect we would be simply refusing to pay for all the oil and chinese-made goods which we have already consumed.
Sounds pretty shocking I know, but this is what happens when an individual can no longer keep up payments on his debts. We no longer have the Marshalsea, although if we did I would recommend we make Gordon Brown the 'Father of the Marshalsea' like Mr Dorrit, with Alistair Darling as Tip.
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#226
As a purveyor of houses large and small I can only agree wholeheartedly.
Don't worry though, supply and demand will kick back in eventually - when no new houses have been constructed for 2 years and all the major housebuilders have gone to the wall!!
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Comment 215 : traducer
Thanks for your comment.
You make it sound as though US CDO packages were viewed as some sort of pongy, high-yield pieces of trickery at the time they were sold. This just isn't the case. On the sort of Brownian logic that was all-pervading at the time, they couldn't fail. Really good yields on loans adequately covered by appreciating security - there's nothing to go wrong. And, for those who prefer the gluttonous side of high-living, a nice level of defaults to bring in a healthy profit from the mega charges for the repossession process. Perfect!
Because, you see, the assumed truth was that no government could afford, politically, to let house prices fall. Especially the US government, which had been instrumental in coercing American mortgage companies into lending to less-than-attractive borrowers. You have to make certain assumptions about the future, and the only commercially viable assumption at the time was that governments would never allow any significant drop in house prices.
This was the atmosphere of the time. And if you followed a policy that rejected it, you couldn't make anywhere near the returns of your competitors. Who's going to risk being thrown out on his butt for being a maverick, when there's a six-figure bonus available just for following the herd?
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#235 wrote: "One very simple solution to all our problems would be to ... refuse to honour debts made to foreigners. In effect we would be simply refusing to pay for all the oil and chinese-made goods which we have already consumed."
Then you don't get any more goods, like food.
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#191 Peterskitchen
I have been reading these blogs for some weeks now but never commented. However your entry today was brilliant.
Many people appear too terrified to admit the terrible mess we are in and accept the only remedy is a recession/depression that brings asset prices down and deleverages debt. Instead they prefer to attempt to label all those who have been warning about this for years as 'doom merchants'.
We are not. We are just 5 or 10 years ahead of the curve the whole time. We we worried about Gordon Brown' phoney boom by 2005. We were predicting a house price crash a few years ago. The fact it has taken so long has only made it worse.
The truth is that if taken to its natural conclusion heaping more and more of the debt onto the nation as a whole will truely lead to calamity; and like you Peterskitchen i am not talking about high unemployment or the necessary house price crash as the ultimate disaster. No just look at history.
I have not seen much talk on this site about the genious and largely unrecognised economist/philosopher Ludvig Von Mises who predicted so much of the horrors of the twentieth century from as early as 1912.
On bubbles he said.
"No one should expect that any logical argument or any experience could ever shake the almost religious fervor of those who believe in salvation through spending and credit expansion.
We all heard and some hear have said 'house prices don't fall' or 'its different this time' and then gone on to give us spurious analysis which is no more than what psychologists define as 'confirmation bias'. Because it supports our starting position which is set by self interest alone.
On booms and busts he said.
"The boom produces impoverishment. But still more disastrous are its moral ravages. It makes people despondent and dispirited. The more optimistic they were under the illusory prosperity of the boom, the greater is their despair and their feeling of frustration upon its bust."
Today the US government have ignored 300 years of experience to buy themselves a few months or years more and added another huge $800bn to the national debt to support still more borrowing.
We must stop this government before it is too late.
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Robert - you should look at the following Treasury link page for a statement today:
http://www.hm-treasury.gov.uk/press_126_08.htm
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The comments here overemotionally have the ability to find and prosecute the reasons. They have the ability to predict the outcome and some even read the minds of others remotely to predict the present.
Is it not judicious to allow the conveyor belt to run and see what falls off the end?
The medium provided to pronounce your expertise, language and / or comprehension is not the vehicle that will solve the problem.
So my advice to all you budding leaders or followers is to save your valuable time. Your posts appeal to few. They get the air time of an internet messenger and the author never responds. Some jokes, however are amusing.
Stop giving credence to an author that disrespects your view and refuses debate and use your time wisely.
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I had no idea there were so many Yvette Cooper fans on this blog and it's kind of creepy if you ask me.....
Anyway #222 you say Canada is not out of the woods either and that is true but they have been prudent and are in better shape generally. They have restrictions on bank lending and enforced down payments etc. In small town Ontario you can today buy a 3-bed detached house for $80,000 - that's less than £50,000. It will be an old clapboard or stone house, not a fancy new MacMansion, but that's fine and it means ordinary working Joes can own a place to live. Canadian average salaries are about the same as UK, so 2 years annual salary would buy a house in rural areas.
So Canada would be sitting in the cat-bird's seat, except that it sits next to the US, which is it's largest trading partner. And unfortunately it's in human nature to be greedy, so a lot of Canadians have used the money saved on cheap housing to buy giant SUVs or to borrow as much as they can and build vast 5,000 sq. ft. mansions that they don't need and which damage the environment.
Humans are a disappointment sometimes ..... even Yvette Cooper I bet.
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#75
this was the most sensible blog I have read for a while. Your previous entries were pretty good too.
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There?s loss-sharing to encourage write-downs of mortgages. It was done in Mexico in 1995. If holders can arrive at a write-down in lieu of foreclosure that leads to sustainable mortgage, we as taxpayers would sustain the rest. It lets the market work the problem out and creates the motivation for doing it quickly. You could also have the government offer to buy any mortgage for 40 cents on the dollar. It would create immediate liquidity, because mortgage backed securities would rise on that scenario, all would be truncated at 40 cents. Third, we could refinance all healthy mortgages at 5%, at 30-year fixed financing. Allan Meltzer has idea about giving tax credits for buying homes, they?re all good ideas. The problem with what we?re hearing from Paulson does not have much to do with any of this.
http://blogs.wsj.com/deals/2008/11/25/the-paulson-plan-truly-idiotic/
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No return to boom and bust said Brown to the glee of all his cohorts!
The only thing we shoudl never forget amongst all these doomsayers is that nothing goes up or down in a straight line.
Either there has been a mass level of emigration or the demand side for housing has totally evaporated. Given neither has happened we nopw more tan anytikmng need to ensure that Agents are qualified to sell and not allow anyne to set up overnight.
Agents must agree to be part of the Ombudsman scheme and not do it voluntarily and we must all rtealise that dross can not be compared to high grade properties.
When agents start using bijou or inventing a 'village' attachment to an area that was never a village we need to steer clear.
Banks need proper valuers and surveyors must stop extricating themselves from what they say they can't see.
Banks blew it and the best way to get their acts together is to seel off what is nt usual banking assets. If R Peston and Co were to look at the banks annual reports you would be amazed what hey hold .
Teh sooner banks return to banking supermarkets stopmn selling financial products as though they were baked beans and politicians only spoke when they had some understanding of events the better off we will be next time around.
That of course could be all happen sooner if Brown did the right thing and resigned. Their actions will damn this great country's reputation for generations.
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Mr EF,
Brief apology. I did not mean to imply that the sub prime market was considered risky at the time, in the UK. But the risks were known in the USA.
Clearly many US institutions & investors steered clear or managed the risks in a slightly healthier manner. (W Buffet, Morgan Stanley)
http://tinyurl.com/65b2t6
The URL links to a morgan stanley report from April 08.
It indicates that as early as April in the USA M Stanley (and by inference, other US houses) were prepared in some small manner for this.
However MS got eaten..
http://tinyurl.com/6ggmp6
Link to the wall street journal.
I trust this illustrates in some small way the thinking behind my post.
The USA has some extremely intelligent people. I mean extremely. I dont think that they lost sight of the risk, just did not predict when the music would stop. I dont believe from my contacts or reading that London knew the risks. I could be persuaded otherwise with evidence.
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#214
no likes a smart arse
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And in other news, again from Switzerland.
'Three former bosses at Swiss bank UBS are to forgo 33m Swiss francs ($27.7m; £18.1m) in salary and other payments.'
'Ex-chairman Marcel Ospel, former vice president Stephan Haeringer and ex-chief financial officer Marco Suter oversaw huge losses at the bank.'
'UBS welcomed the voluntary gesture by the former bosses'
Too much to expect any sign of humility, responsibility, sorrow or integrity from top management in the UK.
British justice and fairness..... heads firmly in the trough.
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Sorry, but you are following the same track as the national newspapers ... formally with...an expert...was known as... All these so called experts are has beens - they did not see this crisis coming, they all grew fat on bonuses. The real problem is that there is really no-one, if they are honest, who can make a firm judgement of the present financial woes. Not even Mr Preston. I have heard flatulent bowels making more sense than Mr Peston. Please, do us all a favour, step back for 48 hours, chill-out and then return to the subject of the economy. You will be surprised and vaunted for your renewed clarity and perseption on the subject.
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I've been saying it FOR MONTHS: you can either have NO LENDING at low interest rates, or REASONABLE AMOUNTS OF LENDING at higher interest rates.
Lower interest rates are not the solution to the UK's current economic crisis; in fact, they will exacerbate it. The only solution is HIGHER INTEREST RATES. But, as they said on this week's episode of "Apparitions", the patient often prefers the disease to the cure.
Higher interest rates will necessitate substantially lower property prices... which, in case you hadn't noticed, is happening (and will continue to happen) anyway - again, as I have been banging on about for months and months.
I should also like to bring a rather salient point to your attention: the BofE recently slashed Bank Rate to 3% and has indicated that it fully expects it to fall close to 0%. Savers can therefore expect a negligible return from their deposits (if indeed they decide to grace the bank with them - don't discount a savers revolt). And yet, the Government recently forced the banks to issue them with preferred shares YIELDING 12% in return for an injection of liquidity - funds which they then expect the banks to lend out at ~4%! So, having rescued the banks from the brink of bankruptcy, they are now pretty overtly forcing them to pursue policies which will result in bankruptcy! Yep, great business model: borrow at 12% and lend at 4%.
And so the New Labour Alice in Wonderland economics continues...
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#241 wrote: "Stop giving credence to an author that disrespects your view and refuses debate and use your time wisely."
I know the audience for whose benefit I am writing and it is neither Robert Peston nor the general public, nor is it a waste of time. The message gets through if enough people take the time.
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Comment 230 : maroon3
Those who've broken the law should clearly be held to account. But I don't see how we can hold to account people who have broken no law. Yes, some of them have veered very close to the boundary of the law, and some of them have made decisions that have had catastrophic outcomes, but is it correct to judge them for actions taken without the ability we have to look at them retrospectively?
If what was going on was so obviously injurious to future general prosperity, it was up to society, via its legislators, to do something about it. Largely, legislators chose not to.
Maybe you feel that there is a sort of extra-legal code of honour that should have prevented the excesses of recent years. There isn't though, is there? I'd be very supportive of the idea that there should be such a code of honour. In fact, I'd go so far as to say that I don't think society can properly function without a set of orthodox behaviours, unwritten laws that adult humans are expected to follow. But there's a generation out there that hasn't been reared under such arrangements. In fact, they've been raised in an environment where every piddling piece of so-called antisocial behaviour has been criminalised by a rampant mega-State authority. Is it any wonder that so many operate by the rule of thumb "if it's not illegal, it's OK"?
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Comment 239 : maxrelax
If all your comments are going to be as good as your opening salvo, keep them coming!
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239. At 6:09pm on 25 Nov 2008, maxrelax wrote:
''#191 Peterskitchen
I have been reading these blogs for some weeks now but never commented. However your entry today was brilliant.
Many people appear too terrified to admit the terrible mess we are in and accept the only remedy is a recession/depression that brings asset prices down and deleverages debt. Instead they prefer to attempt to label all those who have been warning about this for years as 'doom merchants'.
I hae tried to be serious, funny and damn right nutty (subject to alcohol) on the blogs I happen upon, but the over-riding content is either 'I know better' or 'you know nothing'.
People forget too quickly, that when an animals 'comfort' levels are challenged they rebel.
The establishment has contained rebellion for many years. The recent being the poll tax riots and the miners strike. Both very localised and polarised in extent.
It is only when an event that effects all 'classes' raises above establishment do you have the seeds of rebellion.
As history reveals, the people that feel betrayed muster before the lethargic upon their throne and it is here the devil is reincarnate
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#186
Lorraine,
this will be my last reply because the rule I broke of never trying to have a rational arguement with people with irrational beliefs will be reinstated.
1: CNN Money.com - prediction was 10% off the dow close which was 8400ish -840 = 7660. Others predicted anwhere down to the previous bear low of 7250 but the base support level was quoted as being if it went through 8500 level nxt critical point was 7500.
2: You got the timing badly out - you predicted close to the election rather than 17 days afterwards.
3: You got the reason wrong - it has turned up again becuase citigroupp was bailed and Obama named someone the markets respect to be treasury - so nothing to do with Bush.
So having got the number, timing and reason wrong - I call you zero for 3 on your prediction. Ergo RV is twaddle as James Randi demonstrated very well indeed.
If you want to try to convince me - go knock on my parents door tomorrow or leave them a note - and I'll post you did it - fair enough?
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RE: 112 & 82
glanafon, thanks for the response.
I too believe that I will not get an answer. I agree with your points although I think the situation is still totally unacceptable.
- The Government's preference for self regulation is most concerning. There was no self regulation, just a run away housing market fuelled by greed and exploited by the Government as a source of income.
- Deposits have been non existent, so little or no commitment has been established between the lender and buyer to maintain ownership and prevent equity loss.
The point of the petition is that the Government shouldn't commit such a vast amount of tax payer's money, and demand increased lending, without a good idea of what they want the outcome to be. If they don't have an idea then they are just gambling with our money.
So if the Government isn't gambling, and wants to prove it, then they must at least have an aspiration for lending levels in say 12 months time. So why not let the public know what this is, so we can make our own judgment of the likelihood of lending regulation and reform?
However, I realise that the chances of getting a straight answer are virtually nil.
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No. 234
The banks will not be solvent again until they are no longer stuffed with toxic assets. No amount of de-leveraging, or at least any amount that is practical, can overcome the basic ailment. Given that they are unable to determine what is toxic and what is not, since that is the extent of the mess that they are in, we are likely to be in for a very long haul.
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I went to Work every day....
I never borrowed more than I could afford...
I saved hard to protect my future.....
They robbed my pension pot....
Devalued my currency and savings by 25%
Almost Bankrupt my country...
and are now going to charge me for the pleasure....
Why did i bother?
Answers on a postcard.............
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Comment 246 : traducer
Thanks for the links. I'll see if I can read them.
EF
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I was captivated by The Governor of the Bank of Canada speaking on the World Service on Saturday and recommend it to listeners. Mark Carney managed to avoid any smugness in telling us how Canada has avoided the mess that the rest of us find ourselves in because he resisted pressure from banks to behave like the US, Iceland UK etc. He also described how one day he had to take a phone call at home regarding some major unfolding crisis whilst trying to shake off his two year old child clinging to his ankles because his wife had gone out for the day. Seems like a really normal bloke. Carney Says some bankers are focused on opera, not lending. Perhaps Mervin could learn from this young and refreshingly normal person.
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I was captivated by the Governor of the Bank of Canada speaking on the World Service on Saturday and recommend it to listeners. Mark Carney managed to avoid any smugness in telling us how Canada has avoided the mess that the rest of us find ourselves in because he resisted pressure from banks to behave like the US, Iceland UK etc. He also described how one day he had to take a phone call at home regarding some major unfolding crisis whilst trying to shake off his two year old child clinging to his ankles because his wife had gone out for the day. Seems like a really normal bloke. Carney Says some bankers are focused on opera, not lending. Perhaps Mervin could learn from this young and refreshingly normal person.
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Has anyone listened to michael robionsons podcast on the state of the housing market?
Terrifying stuff!
http://news.bbc.co.uk/1/hi/programmes/file_on_4/default.stm
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As much as it is sad to see all people from all walks of life trying to clutch at straws for some kind of financial solution to this mess until it gets to the bottom then it cant start to go back up
Remember man with full belly have many problems man with empty belly only have one problem
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231 java man
Ref your comment on my post number 84
I did not ask 'what is the point of repo', eddixon at post 18 did, and I referred to that post.
I simply said why the banks insist on repo, it is their way out. I oppose repo which can be deferred reasonably due to exceptional circumstances. The fact is people do not understand the motivation for the banks to undertake repo, and I am saying what happens. The banks make no loss from repo even when the property sells for a price lower than the mortgage and costs. The loss is recovered from the insurance company (via the householders insurance policy attatched to the mortgage) who then have option of bankrupting the ex-householder. A fiver in negative equity is enough to lock you into a position where you cannot sell your property. The householder effectively loses all rights. The repo can then turn that into a 5K loss, or a very great deal more, but the loss is not the banks. That is the mechanism. That is why the banks are not interested in negociation, they simply want to preserve a no loss situation and begger the householder. Mortgages are usually over 25 years, why can a problem for a matter of a few months cause the loss of a property, it is a totally inflexible system. Incidently in the US you can throw your keys across the counter and walk away without being chased. That law was introduced in the 1930s in response to the depression. In the UK there is no question of walking away. The UK situation is in need of reform but surprise surprise nobody is interested.
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252. ExcellenceFirst:
-Those who've broken the law should clearly be held to account. But I don't see how we can hold to account people who have broken no law. Yes, some of them have veered very close to the boundary of the law, and some of them have made decisions that have had catastrophic outcomes, but is it correct to judge them for actions taken without the ability we have to look at them retrospectively?-
I agree with much of what you say. However, you claim that no one has broken any laws regarding this unholy mess. Do you know that for sure? Has anyone even checked?
You can?t have a screw up this big and this bad and not even have a proper investigation.
When aeroplanes crash, investigators are called in and any negligence, criminal wrong doing or human error is brought to account.
When economies do the same thing nothing at all is done. How can this be right?
Surely the first thing that should have happened would have been to have sent in the fraud squad to turn over a few stones and interview a few suspects. But instead what has happened is that those who were in charge at the time have said: ?nope wasn?t our fault, no way we could have seen it coming, these things just happen, it?s a once in a century event blah blah, please move on.?
And like mugs we?re supposed to take them at their word. If the police were to do that habitually during their enquiries, the prisons would be empty.
It simply isn?t good enough. What is especially galling is that many of these people have been allowed to keep their jobs. They?re still referred to as expert bankers, the top in their fields, when they should have at least been disgraced and banned from banking for ever more.
We have a terrible habit in this country of letting our so called betters get away with murder. We let them sweep Iraq under the carpet and we?re probably going to let them sweep this whole nasty business under there as well.
They have to learn from their mistakes other wise they will keep making them.
Incompetence should not be rewarded with Knighthoods, taxpayer bailouts and generous retirement packages.
This is the whole essence of moral hazard.
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251. At 7:40pm on 25 Nov 2008, WerringtonSilent wrote:
#241 wrote: "Stop giving credence to an author that disrespects your view and refuses debate and use your time wisely."
I know the audience for whose benefit I am writing and it is neither Robert Peston nor the general public, nor is it a waste of time. The message gets through if enough people take the time.
If you feel you have the ear of many, become a councillor or MP?
239. At 6:09pm on 25 Nov 2008, maxrelax wrote: about #191 Peterskitchen
"The boom produces impoverishment. But still more disastrous are its moral ravages"
Debate will outdo comment and I look forward to your further contributions
191:
Whats this? you startle, whos that man standing there in front of all those people? He's wearing a stupid uniform, whats that logo on his arm? Stupid man, and doesnt he look ridiculous with that moustache?
The innocence of (false) security explained.
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#148 "If any government tried to put brakes on this 'economic growth' the morons would have kicked them out!"
Too right - if the chairman of Northern Rock or B&B had stood up at an AGM and said "last year we could have made 2x bn profit, but due to government control we only made half that" all the pundits would have been demanding that the government stopped interfering and left business to the experts.
Strangely enough, all the one-time advocates of hands-off government are now complaining because it didn't impose enough controls! Personally, I thought that asking hard questions and holding directors to account was the job of the shareholders, especially the large institutional ones.
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There is now a Number 10 web petition to have fractional reserve banking banned and replaced with full reserve banking.
http://moneyredeemer.webs.com/links.html
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hey robert take a look at this
http://www.conservatives.com/
hahahahaha
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Ultimate betrayal/Ivory Towers
Bank chiefs who are the architects of our current crisis appear to be on the brink of a huge betrayal of our (the British Public's) trust and their obligations.... If the Banks deliberatly "choke" the availability of cash to the economy - History will judge them poorly and hopefully they will be held culpable for the collapse of our economy. I hope that the courts will, in the future find that the Boards of Directors of the Banks through negligence and self interest are directly responsible for the combined suffering of families in the UK should warrant, at the very minimum charges of fraud against those Directors.
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I need to know if what has been done in the PBR is likely to have any effect on lending. Will it free up constipated mortgage markets? After the event we now have Merve stating the problem is lack of lending, and the good old US of A have just targeted this particular issue with $800bn. Am I missing the point but was this medicine mis-directed/targeted?
I've decided as we are all playing monopoly I'm gonna write a negotiable bill to the cost of my outstanding mortgage, credit card et al, sign it and post it to my mortgage provider as security he can then comfortably bundle it up and sell it to another bank for 3 times that much, job done, no cash to change hands and no mortgage payments as he can deduct my costs and keep the rest. Dont worry lads we are all sorted. Surely someone will underwrite this........
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Nos. 18 & 260
If the Canadians have indeed escaped the worst of the financial crisis, to what extent is this thanks to the strength of mutual/co-operative institutions there?
When I lived in Canada I banked with my local credit union, which was a member of the Desjardins Group, the largest financial institution in the province of Quebec, and one of the biggest in Canada. Colleagues recommended it to me on the grounds that it supported the local economy of their remote and economically-struggling town, and the money wouldn't simply drain off to Toronto or New York. There was a strong sense of national loyalty too, going back to the days when the Desjardins co-ops offered credit to French-speakers shunned by the 'English' banks in Montreal.
Any lessons for the British here? Time to support our remaining building societies, our credit unions, and our Co-op Bank? Do we still possess loyalties and a sense of solidarity that can overcome individualistic fear and greed?
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Dera Robert
The MISTAKEN 18'5% IN 2011 WAS NO MISTAKE,.IT IS ABSOLUTE --------
tHE GOVERNMENT kNEW exactly what they were doing with this tweak,mnot leak but tweak.mmmmmmn
That is exactley what Brown and Darling are B-------.
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256 Total injustice
I'm certainly not disagreeing with any of your points in principle. I am just commenting on the way governments are most likely to behave, which is to do as little as possible. I personally would like to see all consumer finance regulated at the high street, the point of sale. I would also like to see more consumer protection, and when repo has to occur that there are more safeguards rather than it being an individual versus a monolithic financial institution, with a court system which leans towards the financial house rather than the individual. Similar comment applies to the issue of 30 day legally due settlement of invoices for sole traders and small businesses, which is common on mainland europe but is not present here. This was an issue in the early nineties recession and was lobbied for afterwards, but just brushed aside. My perspective is that generally the public do not understand extent that the 'system' to use a word, is biased towards institutions and large business, who have had centuries to ensure they maintain a strong position. Most of the British public have a touching faith in expecting fair play from something that behaves more like a rabid animal. The behaviour of the banks recently should be seen as typical, not extraordinary. Regards
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@ExcellenceFirst
It may well be the case that we would act the same as the bankers, were we in their position; but the question is, would we, could we, reach their position while still being the people we are now. Or in other words, is the behaviour of bankers not just symptomatic of perverse incentives, but of the type of personality that seeks to be a banker in the first place? Should we not signal our disapproval of this combination of ambition, greed, and reckless short-sightedness.
Regardless, we cannot excuse actions just because we might do the same. It might be that there are many people who are ?good? only because they have never had an opportunity to be bad, but we can only punish people for what they do, not what they might do. In any case, the primary point here, in my view, is not punishment for its own sake, but to deter this behaviour in the next generation of financial wizards. If risk taking is to be controlled, then high rewards for success must be matched with high penalties for failure ? penalties that only the state can enforce. A bank, after all, is not really able to enforce penalties on its employees that match the rewards open to them.
Having said that, I do agree with your central point, that there is a real danger that society will hold the bankers et al solely responsible, to avoid looking at its own culpability. Which is considerable. Anyone who financed a lifestyle they couldn?t afford on the back of other people?s money cannot legitimately escape blame.
Your last point is very interesting. It?s long been my view that the more responsibility that the state takes on, the more people abrogate their responsibilities to it. The idea that, by taking it upon itself to be the sole arbiter of correct behaviour, the state might induce people to abrogate their consciences to it is a logical outgrowth of that phenomenon.
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254 peters kitchen
... people rebel when animal comforts are withdrawn..
Sorry peter but they don't. They move into a state of despair and do nothing. If food and shelter are taken away they are the sole focus, work stops. Take a look at disaster zones where repeat disasters occur. They build, get hit, rebuild and get hit again, the next time they rebuild less, the next time they dont bother and sleep under a plastic sheet. Help has to be provided externally. The historical solution of migration is no longer available, there are no empty fertile areas to move to.
Humans are very vulnerable and frequently overestimate their resilience before being subject to presssure. I have seen people who think they are robust and will tough out a situation for weeks or months crack in a matter of days under pressure.
The problem is how directly an individual is affected by a disaster, manmade or natural. Many on here do not seem to think they will be affected by the current crisis. They have no idea what they are blithely wishing others to confront. And yes, in a western society basic food and shelter are provided but there are many other costs for the dispossessed and redundant with nontransferable skills to face. The majority of the population at large will probably not be dramatically affected by the current economic problems and only see a reduction in asset value and disposable income in real terms. There is an air of complacancy about at all levels at times. The current approach from the establishment is something of a 'Third Way', between capitalism and socialism. This was a 1930s German concept embraced by the Nazis. There is some concern at the potential growth in the far right, again very 1930s. There are real problems in a society which disenfranchises sectors of the population, particularly the younger, en bloc.
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Good old supply and demand. Keynes must be laughing in his grave.
If there is no supply of mortgage money, there is no demand for houses, so prices fall to create demand.
The housing price bubble is a technical correction that is 10 years overdue.
What is now happening is the massive retraction of credit in the global markets and particularly in the UK, which is drying up the mortgage market. Less money, fewer more expensive products, falling house prices. Doesn't take a genius to work that out (although the great and the good in the Square Mile have pondered long and hard about it).
The only good that comes out of this, is that asset prices (food, fuel and utilities apart) are now rebalancing. This means the displaced (i.e. the young and the low income earners) if they can keep their jobs, have a chance to make a start in life after education. Heaven knows we need stability after the year we are enduring. Trouble is, that our own Government is still blind to the problem. Throwing money at it, does not solve the systemic issues. Assets are just over valued all over the world. Now, we are seeing this being unpicked as credit is hard to get.
Of more concern is the worry about commodity prices and most importantly about natural resources. When these are pressured through simple demographic forces, then we are all, in humanity, facing our greatest challenge. This problem, by comparison, in future, will be nothing by comparison.
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#221
Your timing on remote viewing is only good for forced viewing, which also burns out the viewer in fairly short order.
I've done it with a perfect hit on a ten-word text under academic test conditions at a couple of minutes notice. I have done it at shorter notice too, but need to live under heremitic rule beforehand.
The general approach taught by the Intelligence Services uses intensive pelmanism training (use the Wikipedia approach, not the schools which tend towards the fake). My own hit rate used to be sub-70 for 2 packs to be matched card-for-card, although I haven't exercised using it for many years now.
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262 javaman:
Thanks for link, truly scary. Also, as an aside, BBC reporting at its best.
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Just finished watching the News at 10 and Newsnight.
It seems that McFall thinks all banks are "nationalised" just because the two big Scottish ones were !! He said that *ALL* banks should be forced to lend at government dictated rates and levels because they are nationalised. Perhaps he should have a chat with the Arabs (Barclays), Chinese (HSBC) and the South Africans (Standard Chartered) about what they think of their banks being so peremptorily nationalised !!
And Poodle Darling is threatening *DIRE CONSEQUENCES* to any bank that does not toe the Party Line !! I can just visualise him yip-yip-yipping at the banks threatening them with his sharp little teeth while desperately trying to ignore the Rottweilers around him laughing themselves sick at his antics !!
And what happened to Gormless Gordon's promise and solemn oath that the money lent to the banks will be conducted at arms-length and there will be *NO* government interference in how they run their banks ??
What price the word of a faithless man ??
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#265 "When aeroplanes crash, investigators are called in and any negligence, criminal wrong doing or human error is brought to account.
When economies do the same thing nothing at all is done. How can this be right? "
It is when the truth will hurt the government more than they will allow. And since they are the ones to decide whether or not to call in an investigation......
I do believe it was a BRITISH civil servant when first popularised the term "economical with the truth" during the Spycatcher trial !!
In any case, an investigation will give lie to Gormless Gordon's efforts to point fingers at the US sub-prime mess, global recession, any one and every one EXCEPT himself !!
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crikey! Serious moderation blackout! Poor moderators must be seeing double and taking a much needed tea break!
What a mess! Many have been predicting a house price crash for over a year-there was no way things could have continued for as long as they did-the emergency stop has put our national head through the windscreen though, cos our government didn't out on their seatbelts!
The toxic debt originally responsible for all this is now secondary as every mortgage and loan secured on property is in danger of becoming toxic as house prices fall and people lose their jobs in the economy bonfire!
I also recall the most recent unrest over fuel prices when the nation got behind the lorry drivers over the price of fuel-all for one and one for all. Alternatively, united we stand, divided we fall!
We cannot blame those of us who voted labour at the last election-politicians are very good salesmen, and hind sight is a wonderful thing.
More people than ever before are thinking for themselves now. This can only be a good thing-the nation's trust has been well and truly breached by banks and politicians alike.
Extreme civil unrest is here. People are angry and frustrated at been treated as pawns in a political game. This will escalate-nothing makes people more angry than not having the means to keep a roof over their family's head, food on the table and clothes on their back. To most people in this country, taking benefits as their only source of income is abhorrent and soul destroying. Being forced to be a lamb to the slaughter is terrifying. Being impotent to do anything because those in whom we trust stab us in the back offends our deepest sense of fairness.
The justice we seek is retribution and reparation.
Words help. Saying sorry AND meaning it is a massive way of rebuilding belief.
Currently, I expect a massive return to religion-for a huge amount of us this will be the only way to endure what is being thrust on us, and to deal with what is still to come.
In the meantime, there are somethings we, as a nation can do....
Stop buying cigarettes, petrol and alcohol for 1 week. We will be a healthier nation (this is what the government wants anyway). No revenue for Ally to play millionaire with.
Learn to cook, grow our own, decorate our existing homes, buy bicycles and thermal underwear, learn how to knit, sew, crochet etc. Basically, stop buying ready mades and BUY British! (stop buying designer goods and design your own originals).
Push for a Vote of No Confidence
Keep demanding full investigation and public (very) prosecutions of those responsible for the treasonous acts which has brought our country to it's knees.
I'm sure others can think of more!
As Labour seem to think they are the saviour of the world and have basically made such a mess they seem to be doing everything they can to postpone the endgame of this disaster, I would suggest that they have no intention, whatsoever of trying to remain in power.
I would therefore suggest that any party wishing to take their place should follow the campaign strategy in Brewster's Millions (I think it was). In a nutshell 'don't vote for me, vote for them'-or something similar! At the very least say 'let labour fix it'!
You never know, the country may act differently and vote Labour back in so they are in power when they are called to book by the rest of the world for their unmitigated failures.
Make no mistake-the global lynchmob will be out for Gordy's neck when he made out he was the global financial genius with all the answers and they don't work!
Incidentally, one of the myriad of interesting nuggets of info on here today was the fact that labour had a loan from the IMF years ago! Whilst I am old enough to remember miners strikes, docker strikes, power cuts (thought candles and camping gas stoves were very exciting stuff!) 3 day weeks (I thought it was great my Dad was home lots more), I was too young to understand the reasons for all those angry people!
It really does seem to be a case of some people never learn, doesn't it!
Sorry to wax lyrical tonight everyone.
Night all!
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Britain will go into a deep recession if ,spendaholic debt junkies do not resume the taxi payer enhanced retail therapy that will provide a christmas bonus for the delusional inksane inhabitants of loonyland loan promotors and their certifiably inksane back stoppers hiding behind big ben to avoid having to get onto the temperance wagon and admit they have a problem
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#282, what you talking about? There was absolutely no warning, I mean not like they are producing more land, there is shortage of housing, you'll be priced out, renting is just paying someone else's mortgage, you make more money because of the leverage etc etc.
I mean if this guy didn't see it coming how could anyone else?
http://www.youtube.com/watch?v=bNmcf4Y3lGM
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The Gov't has demanded the tax payer loans back first ala Northern Rock, so how do the Banks lend more ?
They have angry taxpayers to repay first !
It amazes me that the media or parts of it want to call a bottom to the Stock market !
The media wanted a crisis, now most of the ordinary shareholders have had their fingers burnt and a major crisis is underway they want to start saying everything is fine again.
Well, no it isn't.
The crisis of confidence is here to stay.
Whilst consumers receive below Inflation pay rises (train fares up between four and eleven percent) demand will remain subdued and the recession will continue.
Unless they have a plan to resurrect British manufacturing industry (and jobs).
Meanwhile, unemployment will continue to grow, businesses will continue to struggle, and the Stockmarket will continue to fall.
FTSE at 3000 by April ?
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House price deflation is here to stay.
The bottom will probably occur when houses are valued at some way under 3 times average earnings as both up and down markets tend to overshoot. This implies falls of maybe 50 percent in some places from where they are now.
Even the government appears to be already discounting falls of up to 25 percent next year if the stories in the press are anything to go by. My guess is that the bottom will be sometime in 2012/2014 and then there will be a period of stability before gently claiming again, but not to present levels in anybody now living's lifetime.
To those that say we are not making any more land and housing is scarce - whilst this is true house prices are at astronomic multiple of income and will inevitably fall to more reasonable levels.
Another indicator is the stock market house prices generally follow the stock market, so a 3000 level market indicates a 50-60 percent decline in prices.
Cash is king, property is pants! A house is to live in NOT an investment and will remain so for decades! The market has taken your money and your future expectation of wealth, and of a pension based on that wealth.
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#282 Tigerjayj
'Brewster's Millions (I think it was). In a nutshell 'don't vote for me, vote for them'
'It was none of the above' and not similar
I don't vote but if there was 'a none of the above vote' I would use it, and I suspect big majority would as well.
'Currently, I expect a massive return to religion-for a huge amount of us this will be the only way to endure what is being thrust on us, and to deal with what is still to come.'
Somehow I very much doubt that.
It took us centuries to leave that dogma behind; I for one will not be dragged back into the mindless ways of the 15th century no matter what happens.
I agree Gordon Brown and his policies are partly responsible for what happened, evident that of all ppl a liberal democrat spotted this a few years ago and was ignored.
His plans and advice have not worked as he hoped and now he is playing a hit or miss policy with little foundation and a lot of assumptions.
What is evident if you listen to what he says he is out of any firm ideas on how to deal with the crises, hense the gamble and the rushing out of laws at a breath taking pace.
Less than a year ago Gordon was In front on all the policy announcements darling was sort of to the side, there was a joke going around Westminster ?Darling will say what Gordon tells him to say?
Northern rock interview darling said little Gordon did a lot of the talking, now darlings in front and brown sits quietly behind him (a fall guy springs to mind)
Over time Gordon?s promises and message changes hoping no one will notice.
Before - Bank bail out - the cash injection will help banks to start lending again (how did he put - 'by putting fluidity back into the gears of the system') everyone should do the same as us Briton will lead the way and they did - result banks still wont lend.
Today - Cash injection was to save the banks not to boost the lending. We need global cooperation for that, a stark change in a couple months.
I suspect they have started not to listen to him, evident by all the caveat's in the g20 so called agreement, and all they firmly agreed to do is hold further a further meeting.
I am not a financial expert by any means I will not attempt to be nor am I politically aligned, the Tories are as clueless as labour are, I do pay attention and this is how I see it.
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The Radio 4 program at 8 pm RE Housing
confirmed the STUPIDITY of the whole
property market & lending policies.
The individual pain will be terrible,regretfully
its got to happen.
Do MORTGAGES NEED A HEALTH WARNING?
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Couple of things really.
1) The bank's have not actually had a penny yet of govt money, the capitalisation will be through soon but not quite yet.
2) Banks have been told by BoE and Govt to have much higher tier 1 capital ratio's, the only way this can be achieved in the short term is to reduce lending, especially with a whole pile of wholesale money being taken away from them by foreign investors
3) Merv wanted "more boring banking" well isn't being more cautious, reducing LTV's etc being that? You can't have it both ways.
GW
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Historically, this type of crisis has led to high Inflation and high unemployment.
This is sad for everyone, no one whose life is connected with the UK or US will be unaffected.
Even the armchair anarchists will be affected.
Even if only thro their shops stocking fewer goods, or indeed being closed down.
Long journeys to a supermarket.........
The longer Gov't delays in addressing the issue of pay suppression (for example below Inflation pay rises in the public sector) the worse this crisis will be.
There really is no other way they can inject enough demand back into the economy.
And the more private sector jobs that are lost the worse the downward spiral will be.
I hate to say this but if you are an investor the best place for your money will be outside of the UK, ironically Switzerland, Malaysia, Singapore etc.
The Pound has stayed very high under the circumstances.
I would have expected it to have fallen further by now.
Now how about some plans to rebuild Britains manufacturing base ?
And what about the Spanish property crash?
It would be interesting to hear how Europe is coping with the financial crisis....
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Government could have done more to stabiles the housing market. But I am not sure, as now new house building has almost stopped, reduce supply could stabiles the market or even increase price.
As thing are at the the moment I will be surprised if average family house prices fall further as there have been lack of supply even in the past, but I expect city centre flat prices to fall further due to over supply.
It might be better to pump money into the market through government control banks at base rate plus 0.5% as this will free the market, but the should be deposits of at least 10%.
What is happening is catch 24 for the first time buyers, there rents are going up but they cannot buy as well.
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Correct me if I am wrong but I believe there was a mortgage squeeze in Japan during the 1990s.
What makes one think that Britain won't experience the sort of length of depression that Japan suffered then?
In 1990 the Nikkei peaked at about 39,000.
and then subsequently crashed . It is now at about 8000.
What are we doing which is different and why didnt Japan try it?
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It's simple: They ran a PYRAMID SCHEME for years, they just called it 21st Century Banking.
SACK THEM ALL AND OSTRACISE THEM
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Perhaps Estate agents should carry a Health/Wealth warning too??
We have just dealt with two in Cheshire both have been dishonest.
Both have breached the Data Protection Act.
Both still living in the land of nod.
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# 290
Let me make sure I understand what you're saying. You think that crises like this lead to inflation and unemployment, and your solution to that is to increase public sector pay. To do so would require either higher taxation or borrowing, both of which would suck demand out of the economy.
The nearest comparator we have to the current crisis is 1929, which most definitely did not lead to inflation. It resulted in the longest and deepest period of deflation since the Industrial Revolution.
I actually take just about a diamatrically opposite view to you on this matter. We need to curtail the public sector in the medium term, as there is a risk that the pre-crisis levels of taxation will not be possible in future, given that pre-crisis, financial services was generating 25% of corporation tax and the income tax on bonus and other incentive schemes was substantial. There is also a medium term need to pay back the short term borrowings Ally D announced this week.
We also have the issue now that most private sector workers will have seen their pension plans fall in value very significantly, meaning either lower income in retirement or a longer working life before they can afford to retire. It is unlikely that the current generous pension provision can be maintained in the public sector. It simply will not command sufficient popular support, ie the idea that private sector workers should effectively continue to provide generous public sector pensions whilst their own have been severly damaged.
I'd also advise caution on constantly linking public sector pay settlements to inflation. Inflation will dip below zero next year, in which case you would appear to be suggesting pay cuts in the public sector next year.
For what it's worth, I live in Ireland and a similar debate is taking place here. The main opposition party has suggested scrapping the national wage agreement that exists here, and giving zero pay rises to the public sector next year. All opinion polls suggest it's a popular policy. I don't think the UK is that different in terms of attitude. Private sector pay is already being reduced, especially in organisations associated with construction which has been very severly hit. In addition, finance sector workers are being encouraged to take time off and go travelling, and receiving up to six months pay in return for taking two years off (that's basically a 75% cut in income over the period).
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One of the reasons banks aren't lending so much is that the government has imposed additional capital requirements on them. They offered to lend them the money directly or allowed them to find the extra capital elsewhere as Barclays did.
What's more, the government have been blaming excessive bank lending for getting us into this mess in the first place.
And of course the government have themselves been borrowing massive quantities of money, and are planning to borrow even more, so they've been grabbing a large chunk of the available money and crowding out the private sector. In normal times, this would have led to higher interest rates and therefore caused a deeper recession. But this government have simply kept interest rates artificially low - resulting in a shortage of credit.
So it's a bit rich for the government to be trying to bully the banks into lending more. At the moment, we have an incredibly lax fiscal policy and relatively tight money. What we actually need is lower interest rates - which would require much lower government spending. But Gordon and Alastair's answer is to spend and borrow even more. Maybe they should both go and do GCSE Economics.
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#278
Hey, it's neat that I singled out another viewer to address my first post to. Thanks for your interest - your advice is well recieved.
Can you explain what you mean by "Your timing on remote viewing"? My prediction was 6 weeks before the event - surely, short notice predictions would not be so useful.
Contact me offline if you prefer to avoid bad vibes from closed minded sceptics who regard this as twaddle.
With best intent
Loraine Connon
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Look it is a simple equation the resi market will drop a further 10%or so in 2009 to a reduction of 30-40% of the 2007 high.
By which time the domestic credit crunch will have eased somewhat and most importantly of all the committed first time buyers who have saved their deposit( what ever % the banks/building societies are told by hometrack is needed as a risk free buffer from negative equity)who have become fed up with living at home and cherish independance and will start buying. Believe me it will happen as sue as eggs are eggs.
The rekindling of the housing market will then begin slowly as the chains start to rekindle.
The extent of the recovery in terms of house price inflation will of course depend on the servicability ratios, (old style or prudent?- we shall see) that the banks will then accept from mortgage applicants and of course the extent of the recession and amount of unemployment that New Labour has generated. ( Darlings pre budget -1.25% and a quick recovery is a grade e economics gcse answer ....... idiot)
It would also help somewhat if Margaret Beckett was replaced as housing minister as she proved as Defra minister to be the most incompetant post war minister of agriculture - ask any farmer you meet. She is small minded queen of the redtape and political correctness and is well well past her sell by date. Old Dogs must eventually be put to sleep. Housing developers and associations if you value your future business growth for heavons sake demand that she is made chairman of New Labour or something equally irrelevant to economic policies.
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# 292
The problem in Japan was that they went into denial for a long period. The banks were not recapitalised, and therefore had insufficient capital to support borrowing. The problem was compounded by Japan going into deflation, resulting in a collapse in consumer spending that took ages to overcome. Once deflation takes hold (ie an expectation of future falls in general price levels), there are very few policy tools that work, especially monetary policy, eg interest rates effectively cannot fall below zero. Fiscal policy also failed, because MPs steered government spending to their constituencies, and did not use it to expand the economy's productive capacity. Go to Japan and you'll find several "bridges to nowhere", eg one that connects two islands, one of which is uninhabited. I'm told there are even river beds that were tarmac-ed.
The steps that have been taken here have included recapitalising the banks (more on this in a moment), cutting VAT in the hope of encouraging people not to cut consumer spending too drastically (though it will fall), and not seeking to compensate for falling tax revenues generally (ie borrowing to cover the shortfall rather than making expenditure fit with revenue). Overall, it should stop a Japan-style recession taking hold.
The one concern in the above, is that the structure of bank recapitalisation will not encourage banks to restart lending (at sensible levels). Investing in pref shares carrying punitive dividends simply encourages banks to generate sufficient capital savings over a short period of time in order to redeem those pref shares. The quickest way to do that is to sell assets and curtail borrowing. Both reduce the risk assets of banks, and the amount of capital required to support them. Both Lloyds and RBS have stated that they aim to redeem the governement prefs by end-2009. That implies not too much by way of increased lending. In fact it undoubtedly requires a reduction in risk assets (this could be achieved by disposing of businesses though).
What the government should do is offer to invest on very cheap terms now, but increase the return required as the economy improves. The dividend payable could be variable, for example, as a "Bank Rate plus" number. With Bank Rate falling at the moment, the cost of capital to the banks would fall, thereby encouraging lending. As the economy improves, Bank rate rises, as does cost of capital, encouraging a slowing in lending by banks. That would make capital adequacy measures counter-cyclical, something which it is widely accepted was missing previously and is a cause of the crisis.
So, the Japan scenario can perhaps happen here if banks constrain lending too much, but otherwise it is highly unlikely we will experience anything similar to that. The recession will still be painful, however. Just not as bad as the example you referred to.
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Dear Robert,
I've not read every comment so perhaps someone's already said this but it seems clear that the government want to both inject more money into the system and they need to reinvigorate the mortgage market.
Would the solution not be to treat mortgage payments as coming from gross income not net? This would only apply to main residence and the banks would have to coordinate the process (after all since the government owns them why not!) by establishing if a mortgage holder qualifies and then charging the net mortgage from the client claiming back the difference. This would be done at lower tax rate so as not to advantage the wealthy unduly. This puts more cash into the system for those who need it, would reinvigorate the ailing mortgage market and be a bold and well received step. The VAT concession is utterly meaningless - only materially benefits those making huge purchases which presumably remains the wealthy anyway...
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#300
That used to be the system. It was called "MIRAS" (Mortgage Interest Relief at Source). It was cut back severely by the Conservatives and finally abolished by Gordon Brown when he was Chancellor.
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post 278
Any RV thoughts on:
1.How long will the New Labour induced recession last?
2.General election date and the number of New Labour seats?
Please have a look inside Gordon's and Alistair's bonces for us all?
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#299. JayPee28bpr wrote:
So, the Japan scenario can perhaps happen here if banks constrain lending too much
But it was not that the banks 'chose' to constrain lending it was that the market 'imposed' the constraint.
There is nothing that governments can do to prevent this they simply do not have enough money.
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# 303
In Japan the constraint was that the banks were not recapitalised quickly enough. That worsened economic decline and asset values, though there were a number of asset price bubbles in Japan in the late 80s. Just check the movement in golf club membership fees around Tokyo for a good indicator of this.
There is a recognition in the present crisis of the need to recapitalise. I just think it's the wrong sort of recapitalisation in the case of UK banks. As a result we are getting a market (ie bank) driven constraint, I agree. Lloyds and RBS are both putting the redemption of the pref shares owned by government, and paying 12% divis, as their #1 priority for 2009. That can only imply a reduction in credit that would otherwise be available and/or disposal of businesses (not itself a bad thing).
I think the big danger here is we go from a position of very obvious excess credit availability, to one of obviously far too little credit availability. Neither is healthy. Both cause unnecessary economic pain.
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I don't see what's so bad about more money being paid back than lent on mortgages. Since the mortgage market was a bubble in the first place there will be fewer mortgages and lower mortgages approved in the next few years anyway, it's basic math.
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DISHONEST, IMMORAL MORTGAGE LENDERS
HOME OWNERS FLEECED BY DEVIOUS BANKS
The Smoking Gun of Predatory Lending
?An important factor behind the increase in mortgage foreclosures is the rise of so-called subprime loans. Subprime loans are made to borrowers with credit deemed insufficient to qualify for a standard home mortgage. They sometimes entail predatory practices including exorbitant interest rates, additional fees and prepayment penalties that make it virtually impossible for the borrower to escape from debt. Subprime lending is targeted disproportionately at the poor, minorities and the elderly.
The increase in home foreclosures is linked to the rise in subprime lending. Studies in Boston and Atlanta conducted during the 1990s showed foreclosures by subprime lenders tripling, while foreclosures by other lenders remained steady or declined. A similar study in Chicago, which began at an earlier date, showed an even more dramatic increase.
During the 1990s the practice of ?risk based? pricing increased. Banks began charging higher than normal interest rates to certain borrowers deemed to have lower than average credit worthiness. This practice was justified on the grounds that it opened home ownership to those who would not otherwise qualify for mortgages. However, by their nature, subprime loans carry a higher risk of default because they impose an additional financial burden on those who are in many cases least able to afford it. Further, subprime loans have become an arena for outright fraud and abuse. Cases of ?redlining? have been documented where whole neighborhoods, usually poor or minority, are deemed to be substandard credit risks, forcing residents with otherwise excellent credit to pay subprime interest rates.
One of the most flagrant offenders is CitiGroup, headed by Bill Clinton?s former treasury secretary Robert Rubin. In March the Federal Trade Commission charged CitiGroup with deliberately ?steering? and ?misleading? borrowers into accepting predatory loans.
It is alleged that CitiGroup, its affiliate Associates First Capital and sister company CitiFinancial engaged in predatory lending practices such as inducing borrowers to take out high-interest loans even though they qualified for prime-rate loans.
It is also charged that CitiGroup engaged in another predatory tactic known as ?flipping,? where borrowers are pushed into progressively higher-interest loans by repeatedly refinancing their mortgages. The bank is also alleged to charge ?excessive and unjustified? fees and impose impossible loan terms that lead to foreclosure.
Despite these serious allegations of a criminal character, CitiGroup and its executives were able to escape any major consequences by paying a mere $215 million in restitution to defrauded home buyers.
Such practices are by no means the exception. Subprime lenders often impose interest rates far higher than anything that could conceivably be justified by factoring in costs associated with added risk. Borrowers are often unaware of provisions hidden in fine print that require additional fees, balloon payments or the payment of compulsory life insurance premiums. In some cases lenders simply lie to borrowers, stating installment amounts that are far lower than what the mortgage holder is actually required to pay.
There are indications that the speed of home foreclosures is increasing. This is also tied to the rise of subprime lenders. For example, the above mentioned study in Washington state noted that of all foreclosures reported in 2000, subprime lenders were responsible for 58 percent of fast foreclosures, defined as foreclosures within the first two years.
Powerful financial interests have intervened to block even token reform. For example, the Ohio legislature enacted a bill in February 2002 prohibiting local communities from passing laws against predatory lending?.
MONSTROUS SOCIAL INEQUALITY
?This is a source of political perspective to those troubled by the monstrous level of social inequality, which has produced an ever-widening chasm between the wealthy few and the mass of the world?s people.
The financial crisis now enveloping the entire world economy sharply poses the need for the international unification of working people. Transnational production and global financial markets have changed the face of capitalism forever.?
( This is from an interesting political website and I just couldn?t resist quoting some of the article as I couldn?t have put it better myself)
The whole of the really interesting research paper by authors Harold L. Bunce, Debbie Gruenstein, Christopher E. Herbert, and Randall M. Scheessele can be seen on the USA Policy Development and Research Information Service website here:
Subprime Foreclosures: The Smoking Gun of Predatory Lending
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WHAT RUBBISH............WHY REPORT LIKE THIS............no mortgage lending, GET REAL, and QUICK.
Forgive my strong comments,however I am absolutely disgusted with the CONSTANT 'media hype' in relation to the 'credit crunch'.
( BBC INCLUDED )
For the last 18 months the media frenzy on this subject has fanned and fueled the flames to an extent that is now WAY, WAY beyond repair.
The media have made the American issue 100000% worse than it should be.
Constant hyping of the problem...constant irresponsible headline making.....constant scaremongering......undermining peoples confidence without a thought about consequences.
Most of these headlines could have been filmed at any time in the last 15 years....People shown sobbing as they can't afford their mortgage....this could be filmed at ANYTIME, so WHY, WHY, WHY choose now to show this type of situation and make a headline of it ?????
To justify the presentors, reportors and Business Editors positions.....thats why.
The BBC should change their tune and GET POSITIVE........... QUICK, or else you might find the comfortable and smug presentors, reportors and Business Editors MIGHT JUST FIND THEIR OWN JOBS ARE AT RISK.
Heaven forbid, what will we do if we don't see vast numbers of presentors, editors making ridiculous and negative predictions, only really boosting their own high profiles, positions and egos night after night, whilst crushing the rest of countries industries and professions.
SORT YOURSELVES OUT..........
The BBC,who are usually reasonable in their reporting, are MAJOR culpits in hyping up the problem.
WATCH OUT PRESENTORS and BUSINESS EDITORS........keep making the negative headlines and your jobs WILL BE NEXT.
Can I suggest that you actually report on what the public believe is making the financial situation worse.........THE MEDIA will be the answer.
REMEBER We pay your salaries...........STOP, STOP what you are doing to the country, AND GIVE US ALL A BREAK, BEFORE YOU PUT YOURSELVES OUT OF A JOB.
I don't want hear a response a responsible reporting of an issue - that is ABSOLUTE RUBBISH.
You CRUSH INDUSTRIES AND BUILDING TRADES for 15 minutes, and drop it like a brick for SOME OTHERR story, paying yet another reporters salary.
Regards
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There is a far too much pointing the finger here.
And I love the people who write "Smug? No" - when you clearly are.
We've all got to take responsibility for this as members of a board, business owners, employees, parents, friends or whatever.
I have a flat that may well go into negative equity, I may get paid off and I may not have enough savings to cover the months it takes to get the salary I need to pay my mortgage repayments.
But I'm not going to blame Gordon Brown, Alastair Darling, Mervyn King and the likes.
Wake up no politcal party is going to "fix" this - if this is the worst crisis to hit the world since the 1930s they are not qualified or experienced enough.
So we are relying on the decision making skills of those in the the most powerful positions. These skills are unfortunately only really tested in bad times - so who is to say the Tories would fare any better? Or all of you who write "they should do this, they should do that..." - why are you not in the positions of power rather than reading Peston's blog.
And stop giving Peston a hard time - this is his job, he's supposed to write the way he does. I'm sure if you put Peston into power he wouldn't be able to sort out the problems we have now.
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BANKS! no thanks!!!!
So we queue up in a branch that is usually well away from a car parking area [if we are lucky u can find a space and pay to park!!] after a boring wait like the russian food queues the 'BANK' takes OUR money and lends it to a 3rd party who may be a lowly paid worker in the usa buying a house that is overpriced and they can never afford the repayments or plenty other risky cases [funny how when u need a genuine loan u cant get 1] so OUR money is lost!!!!!!!
this is after the BRAINS at the top of the banks have taken huge payments for themselves.
so now u cant obtain even a reduced loan which u can more then afford as the 'BANK' has lost it.
the banks have been overseen by the chancellor for years, it so happens he is now the PM!!!!!! not my fault he says it started in the USA!!!!!!
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Robert, your analysis of the limited impact of this scheme is spot on. What is more, I suspect there could be serious unintended consequences for those borrowers that take part.
House prices will be lower in 2 years than they are now, meanwhile deferring 2 years interest will just add to their housing debt and possible negative equity.
Probably this scheme will help very few and is just for headlines. But if it does help more it will just serve to keep the bust going in 2011 when prices would otherwise have bottomed out.
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That's a great article Robert.
I am considering buying a house nowadays and I find that the only option for me due to this economy is a 40 year mortgage... If I don't spread out the monthly payments to keep them low, I doubt I'll be able to keep up with them!
Any other suggestions?
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