A dilemma in British housing - Intl. Herald and Tribune

WTF?_2

http://www.iht.com/articles/2008/11/27/business/col28.php

LONDON: Britain needs to reinvigorate its mortgage markets to save its economy and its banks. The problem is, few want to borrow and there is precious little money to lend.
British property prices are down about 15 percent in a year and mortgage approvals are down 52 percent. Given the freeze in the securitization market and the scarcity of savings in Britain, new net mortgage lending may even fall below zero in 2009, according to James Crosby, former head of the British mortgage bank HBOS, who wrote a government report on the mortgage market.
..
Britons simply do not save enough to supply their banks with enough to lend to fund the debt requirement implied by their housing prices. That circle was squared in the old days by borrowing money from abroad, either through banks borrowing and relending or via securitization.
The solution to this advocated by Britain, as laid out in the Crosby report and endorsed by Finance Minister Alistair Darling, is to plaster a government guarantee on mortgage securities totaling as much as £100 billion, or $154 billion.
..
So, it's looking as if the fall in British house prices will be further than expected.
If you look at the U.S. experience where a higher percentage of loans was securitized and thus tended not to end up on bank balance sheets, that is bad news for the banks.
Bank liabilities in the United States are about 20 percent of the size of the economy. In Britain, the figure is 285 percent.
Ask yourself then what might happen to Britain.

The pain is only just beginning I think - great article, worth taking 5 mins to read in full.

Generali

!!!!!!? wrote: »

Britons simply do not save enough to supply their banks with enough to lend to fund the debt requirement implied by their housing prices.

This line hits the nail on the head.

What many people fail to realise is that funds lent have to come from somewhere, they're not just magic entries in a computer that the bank manager can pull out of thin air.

In the distant past, this money came from British peoples' savings. In the more recent past, this money came from the savings of people all over the world via securitisation of debt (and there is nothing wrong with packaging up debt and selling it on - it's just another way of savers' money being used to make money and thus provide them with a return).

The trouble is, now securitisation has dried up largely, where will the money come from for the banks to lend? It's all very well Gordon Brown exhorting the banks to lend money but it has to come from somewhere.

Mary_Hartnell

Brilliant posting !!!!!!.

Bank liabilities in the United States are about 20 percent of the size of the economy. In Britain, the figure is 285 percent.
Ask yourself then what might happen to Britain.


So our future is better than Iceland.
It is a bit better than Latvia:
http://www.bbc.co.uk/blogs/pm/2008/11/nils_blythe_at_largein_riga_la.shtm
(If you listen to the programme it is 2/3rd of the way through, just before Iceland's I-O-M bank branch).
Over all it is grim.

Where can I emigrate?
What currency should I choose for my money (if its not too late already)?
How long before gold speculation is stopped by fixing the price - or is that now impossible?

WTF?_2

Mary_Hartnell wrote: »

Brilliant posting !!!!!!.

Bank liabilities in the United States are about 20 percent of the size of the economy. In Britain, the figure is 285 percent.
Ask yourself then what might happen to Britain.


So our future is better than Iceland.
It is a bit better than Latvia:
http://www.bbc.co.uk/blogs/pm/2008/11/nils_blythe_at_largein_riga_la.shtm
(If you listen to the programme it is 2/3rd of the way through, just before Iceland's I-O-M bank branch).
Over all it is grim.

Where can I emigrate?
What currency should I choose for my money (if its not too late already)?
How long before gold speculation is stopped by fixing the price - or is that now impossible?

As I keep saying - we need to borrow less, save more, let asset classes deflate to their 'true' value (not the value inflated by easy credit) and only then can we expect to get out of this mess. In the meantime, lots of pain. It's unavoidable so the priority should go to protecting the vulnerable and trying to save as much of the viable economy as possible not trying to bail out every bank and debtor in sight.

There is no way to keep the party going - short of outright printing money which although offering quick relief in the short term will be disastrous.

It's no coincidence that gold is holding up while other asset classes and commodities deflate strongly. Personally, I think money-printing will be the way that the governments go if they can do it in a co-ordinated manner. Basically, if people won't put their own savings into the system to bail it out then the government will take it from them via inflation. :mad:

ad9898_3

Generali wrote: »

This line hits the nail on the head.

What many people fail to realise is that funds lent have to come from somewhere, they're not just magic entries in a computer that the bank manager can pull out of thin air.

This is the problem, money was pulled from thin air, on the perceived value of the asset, housing in this case. Now that prices are falling off a cliff there is a massive shortfall in the funding that banks can supply, hence very tight lending criteria. This set to continue unless the government start printing.

kennyboy66_2

"Bank liabilities in the United States are about 20 percent of the size of the economy. In Britain, the figure is 285 percent.
Ask yourself then what might happen to Britain."

Have you got similar figures for Switzerland & The Netherlands ?

What are the liabilities of HSBC ?
Are they included in the UK figures because it is listed in the UK, although it is a truly international bank operating in almost 100 countries ?

Net lending has been close to nil recently, if prices fall by lets say 10-15%, surely we are likely to see repayments out-stripping new loans.

IT_nerd

I can't believe I'm saying this but I wish we went with the Euro...

bengee1977

Generali wrote: »

What many people fail to realise is that funds lent have to come from somewhere, they're not just magic entries in a computer that the bank manager can pull out of thin air.

Wrong (as someone else here pointed out. Most money *IS* pulled out of thin air!

Something to do with Fractional reserve banking too, read this wikipedia:

http://en.wikipedia.org/wiki/Fractional-reserve_banking

Jonbvn

Already posted....

http://forums.moneysavingexpert.com/showthread.html?t=1318961

But we can't get enough bad news can we?;)

Edited to added the ";) "

purch

But we can't get enough bad news can we?

No....from now on I vote that all really :eek: bad news story's should have 2 threads devoted to them....

Anyway !!!!!! needed a thread of his own to say:

As I keep saying - we need to borrow less, save more, let asset classes deflate to their 'true' value (not the value inflated by easy credit) and only then can we expect to get out of this mess. In the meantime, lots of pain. It's unavoidable so the priority should go to protecting the vulnerable and trying to save as much of the viable economy as possible nottrying to bail out every bank and debtor in sight

......cos if he don't get to type that at least once a day he gets withdrawal symtoms and they have to get out the prozac :rotfl:

WTF?_2

purch wrote: »

No....from now on I vote that all really :eek: bad news story's should have 2 threads devoted to them....

Anyway !!!!!! needed a thread of his own to say:



......cos if he don't get to type that at least once a day he gets withdrawal symtoms and they have to get out the prozac :rotfl:

I do apologise for expressing an opinion.

What was I thinking doing so in a discussion forum? :rolleyes: