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Excellent article by Stephanie Flanders
Comments
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According to the FSA default rates for the areas I mention with mortgages of 90% plus stood at about 8% compared to about 2.5% for the normal market. Umployment in early 2008 was the same as 2006 and standard mortgages including 100% mortgages were widely available in spring of 2008 months after the crash here started.
Therefore something triggered the crash here before the credit crunch took hold in late 2008.
no, the mortgage product withdrawal had already started in earnest in spring 2008 and it was the global credit crunch itself which triggered the problems here in the uk. the 100% mortgage disappeared literally within a matter of days in march/april 2008.
the default rates that you quote aren't much of a surprise, i'd expect those ratios to endure because it's rather obvious that a mortgage with a larger amount outstanding and thus lower flexibility to refinance would be more likely to be defaulted.
the credit crunch itself led to banks either bringing the shutters down on lending or, in the case of northern rock, being literally shut down themselves. consumer confidence went through the floor, so businesses started struggling and unemployment started soaring.
a good timeline here -
http://news.bbc.co.uk/1/hi/7521250.stm'Be not deceived; God is not mocked: for whatsoever a man soweth, that shall he also reap.'
GALATIANS 6: 7 (KJV)0 -
Debts are assets on lenders balance sheets.
It's a very well balanced article, and it is starting to introduce the idea that there isn't a significant personal debt problem in the UK, which is precisely what the evidence suggests. The credit crunch was caused by bad lending in the US which banks took onto their balance sheets in securitised form, not by any structural problems with the UK credit market. In the UK personal debt default is miniscule and perfectly well managed by the banks.
While this is a very interesting article, both SF and BB miss a point IMO. While it is an interesting approach to treat the aggregate of household finances as if they were a company it isn't necessarily the right one.
When a company takes on extra debt, it (usually) increases its productive capacity and thus it's ability to service that debt. With a household, it often doesn't borrow to invest. A quick look at the DFW board shows you that people often borrow to maintain a standard of living that isn't available from income alone. Even if you borrow to invest (eg by buying a home) as a household, many people 'overborrow' to buy more housing than they 'need'. The excess of housing bought over need can be seen as consumption and if a loan is taken out to support that extra housing then that is borrowing to fuel consumption, albeit to consume something that may retain or increase its value.
As households appear to have taken on a huge amount of extra debt to fuel consumption, all they have done is move consumption in time from tomorrow to today. As banks are no longer in a position to support that raised level of debt which in turn supports higher consumption, consumption instead has had to fall so people live within their income, or at least come closer to it.
One part of that has been continuing falls in real (inflation adjusted) house prices as banks are equally unable to support the 'excessive consumption' of housing as they are of cars and foreign holidays.
The difference between buying housing 'need' and housing as 'consumption' is probably worth a new thread.0 -
........and how much "funny money" in the form of quantitative easing has been thrown at the problem?
Where has the money gone? Into "funk holes" in an attempt to preserve its value. Commodity price speculation. High end asset speculation.
Did taxation by inflation really peak at 5% last summer?
Is the price of oil just another tax on a debilitated economy?
It is interesting to see someone with an Australian perspective commenting on an economy where the problems have been kicked down the road.
Next week's budget will be interesting. Probably go down in history as a turning point.
Please someone show me the entrepreneurial flare that is going to pull this economy out of if deficit spending and exchange rate downward spirals.
Where are "the green shoots" have I missed something?
Even in the 1930's they could be found if you looked hard enough but that was before half the employees in the country were dependant on the level of government spending.
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It's alive and well and living in the Tory imagination.John_Pierpoint wrote: »Please someone show me the entrepreneurial flare
But Cameron and the Right love the debt-crisis morality tale, and they love the excuse to decimate the public sector and reduce welfare claimants to penury.
Which is all completely at odds with the attempts of the Treasury and the Bank to generate growth and reduce debt by stoking up inflation.
Carry on the way we are, we'll reach a point where the Chancellor doesn't want to sell as many gilts as the Bank wants to buy.
The Thirties turned the corner when people understood that deflationary measures weren't helping and a dose of Keynesianism was called for."It will take, five, 10, 15 years to get back to where we need to be. But it's no longer the individual banks that are in the wrong, it's the banking industry as a whole." - Steven Cooper, head of personal and business banking at Barclays, talking to Martin Lewis0 -
We can debate that all night.
Have you any figures for the deficits in the 1930's and the "restructuring" carried out by capitalism.
I suppose th state then owned an empire to pledge a collateral - does it own anything that has not been mortgaged now?
I'm not sure that moves like subsidising the Southern Railway to build a branch line to Chessington (for example) was all that significant, when compare to the technological switch from heavy industry to consumerism.
Before the experiment was able to run its course we had a command and control war economy.0 -
It's all about building confidence. When all we can see ahead is years of austerity, and a government taking gleeful delight in creating more of it wherever it can think of a way, it hardly seems like the right time to sink capital into setting up shop. Even firms that work for the government are having their margins squeezed.John_Pierpoint wrote: »I'm not sure that moves like subsidising the Southern Railway to build a branch line to Chessington (for example) was all that significant
A corner needs to be turned, and it'll need to be turned by brute force. But British industry doesn't even benefit from wars nowadays."It will take, five, 10, 15 years to get back to where we need to be. But it's no longer the individual banks that are in the wrong, it's the banking industry as a whole." - Steven Cooper, head of personal and business banking at Barclays, talking to Martin Lewis0 -
There is no confidence to build - the UK was raised from "The Sick Man of Europe" by North Sea Oil removing the restraints of deficits in public spending & balance of payments.
The present policies of propping up the prices of non performing assets is just prolonging the recession, Japanese style.
The reality is that the country has a large number of "unemployables" at present wage levels/educational productivity levels.
The gulf between the top of the pile and the bottom, is widening fast.
In this rat race global economy a dose of reality needs to permeate all levels of society as suggested by this poster:
The "Financial Crisis" is a moving of the tectonic economic plates; where a large percentage of the West's wealth will move to the developing countries. Our property prices must reduce to a level where lower wage earners can afford the repayments. BECAUSE for business to compete with BRICS we will need to get used to a much lower standard of living. Low interest rates are delaying the adjustment.0 -
it is pretty clear that the housing market is not functioning very well, if at all.
Why is it 'pretty clear'?
We have a very ordered housing and mortgage market where more than 99.5% of owners retain thier home ongoing.
I've long argued assets are a substantial counterbalance to debt and furthermore income levels according to stats are inaccurate.
Everyday I meet people with millions in wealth and a substantial income that show up in the stats as low earners.
Even in my own case I pay my wife (the company secretary) an income almost the same as mine so we would fall into a statistical category that does not reflect our status. This is completely common.
I get gals who claim a council flat and sub let it as they have a secret property / partner elsewhere just so they get the right to buy gift.
I get lots of enquiries from wide boys with black Range Rovers that live Marbella lifestyles yet show no or minimal incomes, just totaly normalised behaviour. There's a whole counter culture of people like this that are litterly money making dynamos in thier every waking minute and who all know how to play the system.
I get humble asian shop keepers with an old Nissan that own many properties often using relatives / kids names, in fact I cant think of a single Asian shop keeper that doesn't have a substantial portfolio.
I get fireman who all work second jobs, such as owning a pond business who make substantial largely undeclared / manipulated sums (despite holding the bucket out on those days they pretend they are badly off).
In other words people are far better off than stats reveal.0 -
I get fireman who all work second jobs, such as owning a pond business who make substantial largely undeclared / manipulated sums (despite holding the bucket out on those days they pretend they are badly off).
In other words people are far better off than stats reveal.
And in more other words, there seems to be a lot of fraud taking place.
Do you have a duty to report this kind of behaviour ?30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
I get gals who claim a council flat and sub let it as they have a secret property / partner elsewhere just so they get the right to buy gift.
Why are you helping them in their quest and not reporting them?!
The amount of fraud you openly state you are involved in on this forum is worrying.0
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