Guarduan/Reuters: BoE to cut to 1.5% in Dec

worldwheeler

[quote=StevieJ;15885135]Given that it was dodgy securitization in the USA which made possible the credit bubble and therefore HPI in the UK

How does british banks buying dodgy CDO's provide credit in the UK housing market?

As far as I understand this the system of fractional reserve banking inevitably results in bubbles.
The CDO's were sold to banks who enter them as an asset (debt owed to them). This in turn enable the bank to treat this "asset" as leverage to lend 10x its' value. Thus with a debt based economy the growth of debt become exponential. This means that boom and bust is built in to the system to make it work. The banks had several years where they made billions from fees and interest on loans which were backed in reality by 1/10th of the value of these loans. The money for these loans was simply created by the banks from nothing. As The ever increasing debt is 10x the original asset, then 10x the assets "created" from this financial tool, then 10x this "created" asset and so on. It's a financial instrument of a "pyramid scheme". At some point you will have to lend to "sub prime" markets to satisfy the system. And then IT ALL FALLS DOWN.
The bankers do not lose as they have repossessed homes around the world AND hand a free hand out directly from the taxpayers pocket via our esteemed leaders, thanks.
Just look at politics as a tool of the CORPORATE world. It has increasingly worked to channel more and more tax money directly to corporations.
PFI and the bank bail out are the largest and most shocking testament to this practise.

WTF?_2

worldwheeler wrote: »

[quote=StevieJ;15885135]Given that it was dodgy securitization in the USA which made possible the credit bubble and therefore HPI in the UK

How does british banks buying dodgy CDO's provide credit in the UK housing market?

As far as I understand this the system of fractional reserve banking inevitably results in bubbles.
The CDO's were sold to banks who enter them as an asset (debt owed to them). This in turn enable the bank to treat this "asset" as leverage to lend 10x its' value. Thus with a debt based economy the growth of debt become exponential. This means that boom and bust is built in to the system to make it work. The banks had several years where they made billions from fees and interest on loans which were backed in reality by 1/10th of the value of these loans. The money for these loans was simply created by the banks from nothing. As The ever increasing debt is 10x the original asset, then 10x the assets "created" from this financial tool, then 10x this "created" asset and so on. It's a financial instrument of a "pyramid scheme". At some point you will have to lend to "sub prime" markets to satisfy the system. And then IT ALL FALLS DOWN.
The bankers do not lose as they have repossessed homes around the world AND hand a free hand out directly from the taxpayers pocket via our esteemed leaders, thanks.
Just look at politics as a tool of the CORPORATE world. It has increasingly worked to channel more and more tax money directly to corporations.
PFI and the bank bail out are the largest and most shocking testament to this practise.

Yep - the US market housing market was the engine pumping out the credit that inflated the credit bubble beyond all reason.

The credit bubble was what made it possible to hand out 100% mortgages to practically anyone who asked for one, turbocharging the property market into a bubble itself and feeding back into more credit creation.

The problem with credit is that no matter how creative you get with making it - and those new financial instruments were very creative indeed - it all falls down when you've given out so much credit to so many unsuitable people that defaults start to hit.

Plus, all those financial instruments were predicated on continually rising prices and leveraged to the max. Hence when the market ran out of steam the collapse of the pyramid was rapid and violent leading to a very sudden drying up of credit - the credit crunch.

setmefree2

Plus the Yanks have a tax scheme equivalent to our old MIRAS which encourages people to never pay of their mortgage as it's not seen as tax efficient. Plus they can just walk away from their property and leave the keys with the lender (jingle mail) without recourse on the borrower. :rolleyes:

pickles110564

!!!!!!? you dont really think they will cut again in december do you?

WTF?_2

pickles110564 wrote: »

!!!!!!? you dont really think they will cut again in december do you?

I don't know if it will be December but they will keep cutting until they see some sort of recovery in the market. All the way to zero and I wouldn't rule out the return of something like MIRAS either.

WTF?_2

setmefree2 wrote: »

Plus the Yanks have a tax scheme equivalent to our old MIRAS which encourages people to never pay of their mortgage as it's not seen as tax efficient. Plus they can just walk away from their property and leave the keys with the lender (jingle mail) without recourse on the borrower. :rolleyes:

Given the non-recourse nature of mortgage lending in many US states, you have to wonder (even more) what the lenders were thinking of. I think that link posted recently to the guy who wrote the book about the last market crash probably gave the best insight.

setmefree2

!!!!!!? wrote: »

I don't know if it will be December but they will keep cutting until they see some sort of recovery in the market. All the way to zero and I wouldn't rule out the return of something like MIRAS either.

Now now the BOE cut rates to stop deflation not to support the housing market and I think you know that. Any tax relief will all most certainly be aimed at the poorest - probably something to do with tax credits - 'cos they'll spend it. I doubt the government believe high house prices are a good thing - like most people - they would rather see a slow decline than a collapse, however.

All the indications are from BOE, chancellor, analysts, etc that we will see further rate cuts in December.