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Debate House Prices
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Why is property unaffordable for even the relatively well-off among the population?
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If house prices were at the correct level then there would be no need to have pushed interest rates down to 0.5%
You can talk about incomes all you like but history shows that when interest rates started rising to levels of around 5% in 2007 the underlying loans were exposed as being excessive.
If the value of the loans secured against property were historically consistent then the slashing of rates would not have been necessary.0 -
100% wrongIf house prices were at the correct level then there would be no need to have pushed interest rates down to 0.5%
You can talk about incomes all you like but history shows that when interest rates starting rising to levels of around 5% in 2007 the underlying loans were exposed as being excessive.
If the value of the loans secured against property were historically consistent then the slashing of rates would not have been necessary.0 -
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rates were not lowered to try to maintain house process or assist home owners.
basically they lowered rates to try and create liquidity in the economy along with expanding the amount of money in the system to boost the economy.
They were lowered because there was so much toxic debt in the system and the banks code of trust was destoyed.
But, the primary cause of the toxic debt was exessive lending - be that to the wrong people or the loans being too large. These loans were used to buy property which fuelled the rampant inflation in prices.
Thus, the correction to the excessive lending was to slash rates to compensate. The alternative being to lower the value of debt.0 -
how is a CDO squared trade who's value is 1,000s of times the value of the underlying debt that it was underwritten against be affected by interest rates?They were lowered because there was so much toxic debt in the system and the banks code of trust was destoyed.
But, the primary cause of the toxic debt was exessive lending - be that to the wrong people or the loans being too large. These loans were used to buy property which fulled the rampant inflation in prices.
Thus, the correction to the execessive lending was to slash rates to compensate. The alternative being to lower the value of debt.
the trade portfolios is where the wealth destruction happened not because of excessive lending.0 -
how is a CDO squared trade who's value is 1,000s of times the value of the underlying debt that it was underwritten against be affected by interest rates?
the trade portfolios is where the wealth destruction happened not because of excessive lending.
If the bottom had not fallen out of confidence in asset backed loans - primarily property assets - then the liquidity crisis would not have occured.
The defaults hit faster and harder than ever before which is a direct result of the level of excess in the amounts lent.
This wasnt really about about the technical nature of the underlying financial instruments and how they were constructed and sold (although this maginified the problem). This was a basic problem of fundamentals - too much had been lent and too much lent to people with no ability to pay it back.0 -
UK defaults weren't very high.If the bottom had not fallen out of confidence in asset backed loans - primarily property assets - then the liquidity crisis would not have occured.
The defaults hit faster and harder than ever before which is a direct result of the level of excess in the amounts lent.
This wasnt really about about the technical nature of the underlying financial instruments and how they were constructed and sold (although this maginified the problem). This was a basic problem of fundamentals - too much had been lent and too much lent to people with no ability to pay it back.
the big number of defaults was in the US which ruined bank balance sheets.
remind me again why lowering the Bank of England Base Rate would help with property defaults in the US?0 -
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UK defaults weren't very high.
the big number of defaults was in the US which ruined bank balance sheets.
remind me again why lowering the Bank of England Base Rate would help with property defaults in the US?
The cracks in the global financial system started to appear once interest rates started to rise. This exposed the level of debt as excessive.
The US was the first to go and although the level of default in the UK did not reach the same level this was mainly a timing issue; ergo, rates were slashed and liquidity provided to banks that couldn’t get money from elsewhere because of the huge debts that were going bad and panic in the market.
You know full well that to try to pick apart the chain of events to assert that the level of UK debt is "normal" is at best disingenuous and at worst ignorant.
Abnormally low interest rates exist because of abnormally high amounts of debt.0
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