I have an opinion that is slightly contraversial... I hope you can change it

ZTD

lazy&indebt wrote: »

It's to do with the credit crunch. I've been thinking that maybe the reason lenders have started to become VERY strict on who they lend money to is partly to do with everyone going and claiming back their bank charges and late payment charges and now, PPI.

I hope I'm wrong, and I hope someone can put me straight (I don't want to start an argument) it just seems that although everyone thinks banks and lenders are evil, they ARE important and they DO need to make money in order to be there in the first place and if people keep claiming money from them, they are bound to get very selective about who they lend money to.

No. You're confusing two separate things. There is a credit crunch because the times are a changing, and until things become more predictable, then the banks will only lend to safe places. With the government running huge deficits, that place is gilts.

People reclaiming charges will have nothing to do with lending money. How would stopping lending reduce the ratio of charges reclaimed per charges imposed?

lazy&indebt wrote: »

Banks stop lending to people, people can't afford to buy things (from small purchases on the hight street right up to property!)

By definition, if you need to buy it on credit, then you can't afford it.

lazy&indebt wrote: »

businesses stop making as much money, we head into a recession and people loose their jobs.

Just as a question for you - do you think there is any limit on borrowing? What do you think is going to happen if/when that limit is reached?

ZTD

tyllwyd wrote: »

The other thing that I've heard said is that when there is easy credit, the problems are hidden, because people keep borrowing more and more, so they always make their minimum repayments and keep their good credit history. It's like the tide coming in, it's only when the tide turns and the easy credit runs out that you see the nasty big rocks hidden under the surface. I think there are probably a few people in that situation on this forum - and maybe more to come??

Warren Buffet said something along the lines of: "It's only when the tide goes out, that you see who has been swimming naked..."

immoral_angeluk

What the bank man giveth, the bank man taketh away..

ie they give out money people are claiming from ppi, charges etc.... then they take it away again by upping other fees etc to recoup lost profit and revenue to keep the fat cat shareholders happy.

ZTD

immoral_angeluk wrote: »

What the bank man giveth, the bank man taketh away..

ie they give out money people are claiming from ppi, charges etc.... then they take it away again by upping other fees etc to recoup lost profit and revenue to keep the fat cat shareholders happy.

The directors of the bank should be maximising profits in all circumstances. If there is something they can do, that will make more profit - and they haven't been doing it - then the fat-cat shareholders will sack them and bring someone else in who will do it.

Since they're not being sacked - they must already be making as much profit as they possibly can.

tyllwyd

ZTD wrote: »

Warren Buffet said something along the lines of: "It's only when the tide goes out, that you see who has been swimming naked..."

Yes, that's it exactly!

Blackcat_4

This is an interesting topic, but the two issues (credit crunch and bank charge reclaiming) as someone has already stated, are two seperate issues and unconnnected.

Credit Crunch.
This actually started back in the mid 1990s when a Cambridge university graduate called Blythe Masters invented what is now called 'Cedit Default Swap' markets (CDS). Basically this was a way for a bank to give you a mortgage but then pay a % of the money you paid them to another bank as an isurance policy in case you defaulted.

Here is how it worked (works)
example:
You borrow £100k to buy a house from Halifax @ say 5.75%

Halifax pay 'another finance company' 1.25% of the interest as a CDS on a monthly basis.

You fall into arrears and default on the mortgage.

Halifax activate the CDS with the other finance company and are paid the outstanding balance owed.

(this is known in the industry as 'hedging')

Simple really.

In theory this was an acceptable practice and a highly profitable one for both the bank (making 4.5% interest with the risk of default covered by the 'insurance' (CDS) and the fact they still have your house as an asset they can sell), and the company providing the 'insurance' (CDS) because the likelyhood of you defaulting were low risk (because surely the halifax wouldn't borrow money to someone that couldn't afford it!!!!).

From the mid 90s till 2005 all was going well with the amount traded in CDS markets growing from £250m to £45trillion (yes trillion).

But why did this lead to a credit crunch?

In america, this market was directly linked to the 'sub prime market' that borrowed money to high risk households that were unable to afford the monthly mortgage repayments leading to a collapse in the sub prime market which then meant that the banks had to honour the 'insurance' or CDS market at the same time. Property values collapsed in America and the big banks and finance companies were left with near worthless assets and massive CDS claims.

What we are seeing in the credit crunch is the banks having to write-off the difference between the value of US property assets they hold and the money they owe on CDS claims (even after netting off this figures are hugh).

This means they have less money for borrowing.

Why did this happen:
CDS markets are not regulated under the banking code, and many banks (including NRock which was a mojor player in the CDS market) were involved to a greater or lesser degree because it appeared the 'insurance' they had would cover the debts they were owed. But they failed to take account of the fact that they were burning the candle at both ends.
Borrowing money and taking out CDS to reduce liability but also providing CDS cover often at a better interest rate. To the banks this 'insurance' CDS was easy money - you took a nice cut of profit for doing nothing, and for many years the banks shovelled in the profits.


I hope I haven't bored you yet???:rotfl:


Bank charge reclaims:

Although they represent a significant income for the banks the irony is that more people are in the black with their bank accounts than in the red, so the amount they got from overdraft charges only just covered interest payments to those in the black and earning money. That is why current account interest rates for customers in the black are lower than the charges for overdrafts (to balance the books).

Bank recharge claims have had NO direct influence over the credit crunch. But, the banks know that if they have repay the fees they will not be able to 'balance the current account books'

I hope this helped in some small meaningful way.

If you are that interested in the CDS markets then please start here:



http://en.wikipedia.org/wiki/Credit_default_swap

ZTD

Blackcat wrote: »

Credit Crunch.
This actually started back in the mid 1990s when a Cambridge university graduate called Blythe Masters invented what is now called 'Cedit Default Swap' markets (CDS). Basically this was a way for a bank to give you a mortgage but then pay a % of the money you paid them to another bank as an isurance policy in case you defaulted.

The actual term amy have been invented in the 1990's but in esscence it was no different to "Portfolio Insurance" which caused the S&L debacle in the the 80's, and it has run aground for exactly the same reason: The "insurance" market outstrips the real market many times. It's like having £200T worth of house insurance policies when there are only £3T worth of houses to insure.

Blackcat wrote: »

What we are seeing in the credit crunch is the banks having to write-off the difference between the value of US property assets they hold and the money they owe on CDS claims (even after netting off this figures are hugh).

I think you're confusing CDS with MBS and CDO's. (and CDO^2).

CDS's are ultimately held by only a handful of companies, and none of them are big banks.

Of course the fact that these insurance companies have no real way of paying isn't helping the fear factor of the banks, but MBS/CDO's are the first port of call for blame IMHO.

hypno06

Flippin heck........had to get my brain working again for those last posts.......and that HURT

I was *once* intelligent though.......honest :rotfl:

ZTD

hypno06 wrote: »

Flippin heck........had to get my brain working again for those last posts.......and that HURT

I was *once* intelligent though.......honest :rotfl:

Yeah, yeah...spare me the false modesty. I bet you know shed loads more about it than I do...

kel123_2

Mind if I put my 2p in!

We have been in a retail resesion for about 4 years. One of the main problems for this is over borrowing in the late 90's. We are now seeing the same effect within the housing industry due to over borrowing in the early 2000's. When the cons abolished the prices comission (probably knowing theyed loose the next election) this allowed profiterring as the flood gates opened. Since lab took over it is evedent that we went backwards in time to the late 60's - throw as much money at it as possible and pay for it later, couple this with the minimum wage gives rise to government over spending hence we are now where we were in the late 70's early 80's were salary increases are capped below expected inflation. Throw in a war or two to appease the yanks (who by and large hate us) and you get a credit crunch! resession in old money. I have said for a long time that our now priminister will go down in history as our worst ever chancellor again in old money we called it boom and bust!
Blythe Masters didn't invent the system/procedure he only adopted and adapted what booky's have done for years, here it is in old money again....it's called laying off or edging your bets OR! win win no loose. Even if they do loose the stupid prat in whitehall buys them out.

Kel