Bank of England Asks Government for New Powers Over Housing

ManAtHome

Generali wrote: »

Where's the risk to the banking system at the moment?

The staggering amount of cheap money provided by Central Banks... I reckon we'll be living in interesting times when/if CBs ever stop printing and allow financial assets to find their true value - YMMV.

ManAtHome

purch wrote: »

Should the Bank have been warning the Government of the dangers they may or may not have seen in the run up to 2007 ?.

We won't know exactly what was said for a few years yet, but certainly in public the Bank were too quiet.

Or maybe they were too "I see no ships" - may be of interest http://www.mindfulmoney.co.uk/wp/shaun-richards/mervyn-king-has-failed-and-as-he-will-not-be-sacked-it-is-time-for-some-democracy-at-the-bank-of-england/

Generali

ManAtHome wrote: »

The staggering amount of cheap money provided by Central Banks... I reckon we'll be living in interesting times when/if CBs ever stop printing and allow financial assets to find their true value - YMMV.

Central banks are providing huge amounts of cheap liquidity and the Fed has given an end date for printing, October 2014.

However, part of the point of a central bank is to manipulate market interest rates these days. As assets paying an income will refer to the market interest rate there will never be a true value for assets, only a relative one.

Thrugelmir

ManAtHome wrote: »

The staggering amount of cheap money provided by Central Banks... I reckon we'll be living in interesting times when/if CBs ever stop printing and allow financial assets to find their true value - YMMV.

The offset to this is that banks are contracting their balance sheets. So the broader global money supply is contracting.

ManAtHome

Generali wrote: »

As assets paying an income will refer to the market interest rate there will never be a true value for assets, only a relative one.

Fair point, but with current rates being abnormally low, even a small move up in rates is massive in relative terms.

CKhalvashi

ukcarper wrote: »

How many people get 6x salary mortgages let alone 7 or 8x.

Our house is worth about 4x our joint income, but we paid what was about 8x at the time (borrowing around 7x, in 2007).

Affordable, yes, but only over a 35 year fixed term and no chance in hell if the rates were to rise.

We're lucky enough now to have only a small mortgage due to various circumstances, however borrowing that much isn't a situation I'd like to find myself in again, and I feel that it should be regulated.

ManAtHome

Thrugelmir wrote: »

The offset to this is that banks are contracting their balance sheets. So the broader global money supply is contracting.

Do you have any recommended reading? From my relative numpty perspective and UK only, since GFC BoE balance sheet has gone up by £400bn+ (QE+SLS+FLS), personal debt has gone up a bit (less than £10bn?) and banks have written off a heap (£60bn ish?), govt debt up around £700bn? (probably half of that included in B0E QE). I believe lending to business has dropped, but does that even come close to balancing?

Generali

ManAtHome wrote: »

Do you have any recommended reading? From my relative numpty perspective and UK only, since GFC BoE balance sheet has gone up by £400bn+ (QE+SLS+FLS), personal debt has gone up a bit (less than £10bn?) and banks have written off a heap (£60bn ish?), govt debt up around £700bn? (probably half of that included in B0E QE). I believe lending to business has dropped, but does that even come close to balancing?

It won't balance because the money multiplier is variable. Text books always give it as a fixed number but in reality it's a variable.

Thrugelmir

ManAtHome wrote: »

Do you have any recommended reading? From my relative numpty perspective and UK only, since GFC BoE balance sheet has gone up by £400bn+ (QE+SLS+FLS), personal debt has gone up a bit (less than £10bn?) and banks have written off a heap (£60bn ish?), govt debt up around £700bn? (probably half of that included in B0E QE). I believe lending to business has dropped, but does that even come close to balancing?

Try googling Barclays or RBS shrink Balance Sheet. The sums involved are considerable and run into hundreds of billions.

Over 50% of bank lending activity at the peak in 2007/08. Amounted to intra bank activity. This is the balloon that's been deflated over the past few years.

For an interesting alternative read I would recommend Andrew Smithers - The Road to Recovery. or John Lancaster - Whoops!: Why everyone owes everyone and no one can pay
.