We’d like to remind Forumites to please avoid political debate on the Forum.
This is to keep it a safe and useful space for MoneySaving discussions. Threads that are – or become – political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
Debate House Prices
In order to help keep the Forum a useful, safe and friendly place for our users, discussions around non MoneySaving matters are no longer permitted. This includes wider debates about general house prices, the economy and politics. As a result, we have taken the decision to keep this board permanently closed, but it remains viewable for users who may find some useful information in it. Thank you for your understanding.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
The Forum now has a brand new text editor, adding a bunch of handy features to use when creating posts. Read more in our how-to guide
Bank warns of 'deep recession'
Comments
-
There are problems with that: no one knows what the assets are really worth. A propeller head would say the present value of future cashflows however one cannot predict defaults with any degree of certainty.
Furthermore the market value of such assets is so depressed at the moment as to under value them.
.
So buying them at current write down levels will not leave surplus cash on the banks balance sheets?
0 -
This is why the write downs are an issue. they dont have the cash to pay their depositors without QE!!!!
That is incorrect. Under current accounting rules banks are obliged to account for assets under what's called marked to market valuation. As the market for such assets is effectively dead, such assets hold very little value forcing banks to take significant book losses. Such book losses do not result in a cash outflow.
Can you explain how QE will enable the banks to repay depositors? If a bank cannot pay its depositors, when they withdraw then it is insolvent. I don't see queues of depositors being unable to withdraw from banks...0 -
Buying toxic debt will be the least inflationary option in my opinion, and the one they go with. They should try to get the money back off the banks though in the long term, even if that takes 150 years!
I always said they'd end up monetising the bad debts.
However, it will be extemely inflationary. The whole point of allowing banks to create 'money' though bank credit is that the resulting money is essentially 'removed' from the economy when it is paid back. The bank pockets the interest.
If we allow a failed debt to be made good through money printing, that means that the original loaned money is still out there in the system. Assuming full recapitalisation of the banks this way that is going to leave a huge excess of money sluicing around - guaranteed strong inflation. If they don't take steps to curb this excess of cash and stop lax lending we'll see asset prices going through the roof and the banks again starting to lend against overpriced assets - meaning we get the same mess but worse.--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0 -
So buying them at current write down levels will not leave surplus cash on the banks balance sheets?
No, unfortunately not... Many of the previously triple A rated securities are now worth 10p in the pound... some are worthless.
Alt-A, the next big tranche of modern, superfantastic (NOT) retail mortgage backed assets that will hit the banks balance sheets are looking at 50p in the pound at current forecast house price levels for 2010-2012, meaning the banks need investment simply to survive. I don't even want to hazard a guess as to the level of exposure UK banks have to these assets. Its not small though, and I reckon Alt-A is going to hit harder than subprime. reason? well, its all to do with stages of the market, and the biggest suckers always pay top dollar near the top. Most risky investments, highest cost. This is why this crisis will get worse and worse till it just... stops. Once all the write downs have happened, around 6 months after the last mortgage reset.
Wookie, I ask you this, what is the money velocity of cash generated to buy an asset so illiquid that you cant even give them away to other banks to get them off your balance sheets? I understand where you come from, that banks could get reckless again, but I seriously dont think they will. far too much political pressure, together with wholescale revision in regulation, together with a suppressed economy that has over 3 million unemployed, is not going to burst into life and generate oodles of inflation. Remember, cash can be destroyed just as easily as it can be created. If Inflation starts to rear its ugly head, better to reduce money supply directly than hike rates hard causing further hardship. What the banks need is time. QE can offer the banks that time to recover, time they need.0 -
Exactly, your life, your childrens life etc. is worth a lot more than going back in the dark ages so some can get a cheap house.
Wow, so this massive economic crash is happening "so some can get a cheap house"! Who'd have thought it.--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0 -
I always said they'd end up monetising the bad debts.
However, it will be extemely inflationary. The whole point of allowing banks to create 'money' though bank credit is that the resulting money is essentially 'removed' from the economy when it is paid back. The bank pockets the interest.
If we allow a failed debt to be made good through money printing, that means that the original loaned money is still out there in the system. Assuming full recapitalisation of the banks this way that is going to leave a huge excess of money sluicing around - guaranteed strong inflation. If they don't take steps to curb this excess of cash and stop lax lending we'll see asset prices going through the roof and the banks again starting to lend against overpriced assets - meaning we get the same mess but worse.
But the point is they would be purchased at there current written down state.
Which as most say is virtualy worthless.
Current toxic debts (exposure for UK banks) they say is around £90 billion not exactly the trillions needed to cause hyper inflation.
the banks will have taken a huge loss on them if they are purchased or not so I still fail to see where the trillions to create hyper-inflation is going to come from.0 -
But M4 has been >10% for years! unless there is money velocity, (which, if you dont know, there is none) the economy deflates! You cant have inflation without the will to spend cash, which, of course there is none at the moment!
Yes - but all that money is still building up even if it is not 'moving' around the system.
Think of a dam where the sluice gate has blocked. It it getting fuller and fuller - sooner or later it will all flood out into the real economy. If the dam breaks as it may well do, we get flooded with cash.--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0 -
However, it will be extemely inflationary. The whole point of allowing banks to create 'money' though bank credit is that the resulting money is essentially 'removed' from the economy when it is paid back. The bank pockets the interest.
If we allow a failed debt to be made good through money printing, that means that the original loaned money is still out there in the system. Assuming full recapitalisation of the banks this way that is going to leave a huge excess of money sluicing around - guaranteed strong inflation. If they don't take steps to curb this excess of cash and stop lax lending we'll see asset prices going through the roof and the banks again starting to lend against overpriced assets - meaning we get the same mess but worse.
!!!!!!, but the money they loaned to subprime is now destroyed! It doesnt Exist!
http://community.travelchinaguide.com/forum2.asp?i=48801
houses are selling for a dollar in the US, previously selling for 65,000! you cant say that that money will be spent because it wont! It DOESNT EXIST ANY MORE!!! HOUSE PRICE CRASHES ARE DEFLATIONARY! (Price crash is the clue!)
The banks now know they cant get into the same cycle or it will be worse next time. Regulation will follow, the tories are already talking about bringing in regulation to control hpi after the next election!
The banks arent going to make money from the QE, as said before, this keeps them afloat, it doesnt generate new lending! Over 4 trillion is still outstanding WRT dodgy loans. Even if only 25% of that is written down, banks will be unable to pay their depositors and then we are up to our necks in sh*t!0 -
But the point is they would be purchased at there current written down state.
Which as most say is virtualy worthless.
Current toxic debts they say is around £90 billion not exactly the trillions needed to cause hyper inflation.
the banks will have taken a huge loss on them if they are purchased or not so I still fail to see where the trillions to create hyper-inflation is going to come from.
There's absolutely no point in purchasing them at the written down value - if it is accurate then the bank could simply sell the asset on the market for the same result!
The whole problem is that assets are now worth a whole lot less than they were originally booked at. That's a huge markdown leaving the banks short of capital, looking shaky as regards solvency and unwilling to lend to each other as a result.
In order to restore the banks ability to lend like it was 2007 - the governments stated aim - the toxic crap would have to be purchased at whatever stupid amount the bank originally valued it at.--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 354.4K Banking & Borrowing
- 254.4K Reduce Debt & Boost Income
- 455.4K Spending & Discounts
- 247.3K Work, Benefits & Business
- 604.1K Mortgages, Homes & Bills
- 178.4K Life & Family
- 261.6K Travel & Transport
- 1.5M Hobbies & Leisure
- 16K Discuss & Feedback
- 37.7K Read-Only Boards