Stock Markets Bombing!

Generali

So that means less risk for the banks then. So long as the speculative builder can borrow the money to build.

That's the problem with credit squeezes/crunches. If some of the biggest banks in the world are struggling to borrow money, what chance do you reckon Dave the Chippie has got?

sm9ai

Also as the banks don't trust each other effectively the interest rates just went up a percent or two without the MPC doing anything. (Until the central bank stepped in that is) But the problem still exists.

sm9ai

Now one bit I don't quite get is where has this money come from?

Has it been made out of thin air hence creating (yet) more inflation? and devaluing savings?

wolvoman

I'm always amazed how so many people consider property to be the surest bet over the long term, so I did some digging.

The Halifax house index and the FTSE100 share index were both re-based (or actually based) in 1983. The house one on January 1st of that year and the stock index on December 31st of that year.

The Halifax index is now at 643.8 an increase of 543.8%.
The FTSE is now at 6200 an increase of 520%.

However the stock index excludes dividend payments which would have brought an average income of approx 3% per year plus the stock index was based 12 months after the house index.



PS. The FTSE100 in that time has one correction (1987) and one major downturn (2000-2003) whereas the housing index only has the one downturn (that of 1990-1995)

Generali

The problem exists while the uncertainty exists IMO. That's why the Central Banks have been injecting short term liquidity into the system. There's no point in perfectly decent banks going bust because of a little short term difficulty. This is what central banks do (or one of the things that they do).

The biggest problem, potentially, with the current credit problems (not just sub prime but also corporate, potentially, due to 'cov lite' lending and lending waay too much to UK consumers and BTL investors) is that the end isn't necessarily a clear cut thing, this could go on for quite some time; years possibly. So what do the central banks do then?

Stepping into the money markets for a few days doesn't create inflation as it's only a temporary boost to the money supply. However, where do we go from here? I reckon that some central banks (Fed?) will be tempted to make the temporary boost perminant by buying these MBSs and CDOs from banks. The Fed has already taken the usual step of taking MBSs as secutrity when they have lent money overnight to the banks (normally they only accept US Govt Bonds).

mystic_trev

Generali wrote: »

Stepping into the money markets for a few days doesn't create inflation as it's only a temporary boost to the money supply. However, where do we go from here? I reckon that some central banks (Fed?) will be tempted to make the temporary boost perminant by buying these MBSs and CDOs from banks. The Fed has already taken the usual step of taking MBSs as secutrity when they have lent money overnight to the banks (normally they only accept US Govt Bonds).

But who ends up paying for it when it all goes wrong? The Tax payer?

Generali

mystic_trev wrote: »

But who ends up paying for it when it all goes wrong? The Tax payer?

Well the US taxpayer picked up the tab for the Savings and Loan mess. Or, to be more precise, the children of the US taxpayer as the US govt was running a defecit at the time.

We've had the 'Greenspan put' in place for a number of years now (where Alan Greenspan of the Federal Reserve cut interest rates at the first sign of asset prices dropping from 1998 onwards).

Who do you think is going to pick up the tab this time around?

Guy_Montag

Generali wrote: »

Well the US taxpayer picked up the tab for the Savings and Loan mess. Or, to be more precise, the children of the US taxpayer as the US govt was running a defecit at the time.

We've had the 'Greenspan put' in place for a number of years now (where Alan Greenspan of the Federal Reserve cut interest rates at the first sign of asset prices dropping from 1998 onwards).

Who do you think is going to pick up the tab this time around?

So why aren't you buying a house?

Generali

Because if you owe the bank £250k you're in trouble. If you owe the bank £2.5 billion, the bank's in trouble.

Guy_Montag

Generali wrote: »

Because if you owe the bank £250k you're in trouble. If you owe the bank £2.5 billion, the bank's in trouble.

So, can we get together with some other moneysavers & borrow £2.5b, maybe buy Hawaii or something.