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Is the credit crunch really ending?
merlinthehappypig
Posts: 1,106 Forumite
[FONT=Verdana, Arial, Helvetica, sans-serif]An interesting article from Moneyweek[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Is the credit crunch really ending?[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]The Bank of England reckons the credit crisis may be coming to an end. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Now, this view is probably too cheerful. As the Bank itself points out, there could be another “lapse into a ‘vicious circle’” of falling confidence. The trouble is, there are still plenty of areas of the real economy where losses are yet to feed through to balance sheets. Even if the credit crunch eases up, banks won’t be keen to lend for a long time to come. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]There’s the small matter of the commercial property market. The Financial Stability Report points out that even though commercial property is “in the midst of its biggest crash in more than a decade”, banks haven’t yet reported any serious write-downs from the slump. The Bank reckons that if 10% of commercial property loans turn bad, the banking sector is looking at a £5.1bn loss – that’s about a fifth of annual profits, says the Telegraph.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]And commercial property is far from the only problem. There’s all the leveraged loans (giving too much money to private equity groups to fund buy-outs), not to mention exposure to companies going bust as the economy hits the wall.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif][/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]While all this stuff is still lurking on balance sheets, the idea that banks will return to lending individuals reckless amounts of money to buy houses is a forlorn hope, which only Gordon Brown and Alistair Darling still cling to.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]It seems the UK residential property crash is no longer even news. There’s been so much about it recently – Monetary Policy Committee member David Blanchflower’s warning of a 30% crash in prices over the next two years, for example – that the news that Nationwide building society recorded the first annual fall in 12 years in April barely made the news pages.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]But this is a big deal. This is one of the most respected of the house price indices, and it’s based on real sales. It’s not one of the Johnny-come-lately statistical releases that jumped on the property boom bandwagon. It’s not a ‘survey’, or based on ‘opinions’. It’s the real thing.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]So the fact that Nationwide says house prices fell 1% year-on-year in April, and 1.1% on the month, is quite a watershed. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Brown blames America - but who's really responsible? [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]The Government is still scrabbling to convince us that it’s on the case. Mr Brown told the Today programme on the BBC yesterday that one of his main priorities was to lead Britain through these hard times. He kept blaming America. It’s all down to subprime, was his message. We’re the innocent victims. Just as he’d lead us through one slowdown as Chancellor (the post-dotcom collapse - also America’s fault, reminded Mr Brown), he’d do the same as Prime Minister. Now there were falling house prices, that “we’ve got to deal with.”[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]But “deal with” how? As I’ve argued before, the state of the housing market (by which I mean, the fact that prices are so much higher than average earnings, not the fact that they’re now falling) is a massive indictment of the Government, however you look at it. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]If prices are artificially high largely because of careless lending – as MoneyWeek has always argued - then there’s been a massive regulatory failure. The Bank of England should have been allowed to pay some sort of attention to asset-price inflation instead of fiddling with dubious consumer price statistics. We’re also looking at a mis-selling scandal of massive proportions. All the naïve unfortunates who were convinced by brokers that borrowing 100% on a house interest-only was OK, because mortgage rates wouldn’t go up, will be lining up to make claims as the repossession notices come through their doors. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]If – as Mr Brown would probably rather argue – they are high because of a lack of supply, then the failure is on the part of a planning system which can’t even supply a sufficient amount of housing for its population in the middle of the biggest property boom in history. That’s down to bad Government too.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Of course, now that prices are coming down, the supply and demand argument looks a lot weaker, and meanwhile, affordability for all those key workers and first-time buyers will eventually stop being an issue. Problem solved. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]But I suspect this Government won’t survive to see it.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Is the credit crunch really ending?[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]The Bank of England reckons the credit crisis may be coming to an end. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Now, this view is probably too cheerful. As the Bank itself points out, there could be another “lapse into a ‘vicious circle’” of falling confidence. The trouble is, there are still plenty of areas of the real economy where losses are yet to feed through to balance sheets. Even if the credit crunch eases up, banks won’t be keen to lend for a long time to come. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]There’s the small matter of the commercial property market. The Financial Stability Report points out that even though commercial property is “in the midst of its biggest crash in more than a decade”, banks haven’t yet reported any serious write-downs from the slump. The Bank reckons that if 10% of commercial property loans turn bad, the banking sector is looking at a £5.1bn loss – that’s about a fifth of annual profits, says the Telegraph.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]And commercial property is far from the only problem. There’s all the leveraged loans (giving too much money to private equity groups to fund buy-outs), not to mention exposure to companies going bust as the economy hits the wall.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif][/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]While all this stuff is still lurking on balance sheets, the idea that banks will return to lending individuals reckless amounts of money to buy houses is a forlorn hope, which only Gordon Brown and Alistair Darling still cling to.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]It seems the UK residential property crash is no longer even news. There’s been so much about it recently – Monetary Policy Committee member David Blanchflower’s warning of a 30% crash in prices over the next two years, for example – that the news that Nationwide building society recorded the first annual fall in 12 years in April barely made the news pages.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]But this is a big deal. This is one of the most respected of the house price indices, and it’s based on real sales. It’s not one of the Johnny-come-lately statistical releases that jumped on the property boom bandwagon. It’s not a ‘survey’, or based on ‘opinions’. It’s the real thing.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]So the fact that Nationwide says house prices fell 1% year-on-year in April, and 1.1% on the month, is quite a watershed. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Brown blames America - but who's really responsible? [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]The Government is still scrabbling to convince us that it’s on the case. Mr Brown told the Today programme on the BBC yesterday that one of his main priorities was to lead Britain through these hard times. He kept blaming America. It’s all down to subprime, was his message. We’re the innocent victims. Just as he’d lead us through one slowdown as Chancellor (the post-dotcom collapse - also America’s fault, reminded Mr Brown), he’d do the same as Prime Minister. Now there were falling house prices, that “we’ve got to deal with.”[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]But “deal with” how? As I’ve argued before, the state of the housing market (by which I mean, the fact that prices are so much higher than average earnings, not the fact that they’re now falling) is a massive indictment of the Government, however you look at it. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]If prices are artificially high largely because of careless lending – as MoneyWeek has always argued - then there’s been a massive regulatory failure. The Bank of England should have been allowed to pay some sort of attention to asset-price inflation instead of fiddling with dubious consumer price statistics. We’re also looking at a mis-selling scandal of massive proportions. All the naïve unfortunates who were convinced by brokers that borrowing 100% on a house interest-only was OK, because mortgage rates wouldn’t go up, will be lining up to make claims as the repossession notices come through their doors. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]If – as Mr Brown would probably rather argue – they are high because of a lack of supply, then the failure is on the part of a planning system which can’t even supply a sufficient amount of housing for its population in the middle of the biggest property boom in history. That’s down to bad Government too.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Of course, now that prices are coming down, the supply and demand argument looks a lot weaker, and meanwhile, affordability for all those key workers and first-time buyers will eventually stop being an issue. Problem solved. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]But I suspect this Government won’t survive to see it.[/FONT]
0
Comments
-
Well, as I've said before, one of three things can happen here as a result of what is happening in the markets and the Central Banks' response:
* We get dangerous deflation
* We get dangerous inflation
* The Central Banks get their response exactly right (after completely failing to see any of this coming) and it all works out more or less OK.--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0 -
The Credit Crunch is over and the markets are currently undervalued, buy buy buy.0
-
merlinthehappypig wrote: »[FONT=Verdana, Arial, Helvetica, sans-serif]An interesting article from Moneyweek[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Is the credit crunch really ending?[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]The Bank of England reckons the credit crisis may be coming to an end. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Now, this view is probably too cheerful. As the Bank itself points out, there could be another “lapse into a ‘vicious circle’” of falling confidence. The trouble is, there are still plenty of areas of the real economy where losses are yet to feed through to balance sheets. Even if the credit crunch eases up, banks won’t be keen to lend for a long time to come. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]There’s the small matter of the commercial property market. The Financial Stability Report points out that even though commercial property is “in the midst of its biggest crash in more than a decade”, banks haven’t yet reported any serious write-downs from the slump. The Bank reckons that if 10% of commercial property loans turn bad, the banking sector is looking at a £5.1bn loss – that’s about a fifth of annual profits, says the Telegraph.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]And commercial property is far from the only problem. There’s all the leveraged loans (giving too much money to private equity groups to fund buy-outs), not to mention exposure to companies going bust as the economy hits the wall.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]While all this stuff is still lurking on balance sheets, the idea that banks will return to lending individuals reckless amounts of money to buy houses is a forlorn hope, which only Gordon Brown and Alistair Darling still cling to.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]It seems the UK residential property crash is no longer even news. There’s been so much about it recently – Monetary Policy Committee member David Blanchflower’s warning of a 30% crash in prices over the next two years, for example – that the news that Nationwide building society recorded the first annual fall in 12 years in April barely made the news pages.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]But this is a big deal. This is one of the most respected of the house price indices, and it’s based on real sales. It’s not one of the Johnny-come-lately statistical releases that jumped on the property boom bandwagon. It’s not a ‘survey’, or based on ‘opinions’. It’s the real thing.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]So the fact that Nationwide says house prices fell 1% year-on-year in April, and 1.1% on the month, is quite a watershed. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Brown blames America - but who's really responsible? [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]The Government is still scrabbling to convince us that it’s on the case. Mr Brown told the Today programme on the BBC yesterday that one of his main priorities was to lead Britain through these hard times. He kept blaming America. It’s all down to subprime, was his message. We’re the innocent victims. Just as he’d lead us through one slowdown as Chancellor (the post-dotcom collapse - also America’s fault, reminded Mr Brown), he’d do the same as Prime Minister. Now there were falling house prices, that “we’ve got to deal with.”[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]But “deal with” how? As I’ve argued before, the state of the housing market (by which I mean, the fact that prices are so much higher than average earnings, not the fact that they’re now falling) is a massive indictment of the Government, however you look at it. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]If prices are artificially high largely because of careless lending – as MoneyWeek has always argued - then there’s been a massive regulatory failure. The Bank of England should have been allowed to pay some sort of attention to asset-price inflation instead of fiddling with dubious consumer price statistics. We’re also looking at a mis-selling scandal of massive proportions. All the naïve unfortunates who were convinced by brokers that borrowing 100% on a house interest-only was OK, because mortgage rates wouldn’t go up, will be lining up to make claims as the repossession notices come through their doors. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]If – as Mr Brown would probably rather argue – they are high because of a lack of supply, then the failure is on the part of a planning system which can’t even supply a sufficient amount of housing for its population in the middle of the biggest property boom in history. That’s down to bad Government too.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Of course, now that prices are coming down, the supply and demand argument looks a lot weaker, and meanwhile, affordability for all those key workers and first-time buyers will eventually stop being an issue. Problem solved. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]But I suspect this Government won’t survive to see it.[/FONT]
exactly.
the BoE has engaged in educated guesswork and nothing else.
how could it be otherwise while the bank has yet to establish exactly who owes what?miladdo0 -
The BoE would not go out on a limb unless there was some truth in what they are saying, I reckon the Credit Crunch has mostly passed and the banks are now just profiteering.0
-
Well, as I've said before, one of three things can happen here as a result of what is happening in the markets and the Central Banks' response:
* We get dangerous deflation
* We get dangerous inflation
* The Central Banks get their response exactly right (after completely failing to see any of this coming) and it all works out more or less OK.
:rotfl:
grrrrr character limit0 -
No the credit crunch isn't over, it is very clear it isn't over.
Reasons.- International banks still haven't come clean about all there debts.
- US House prices are still falling creating even larger loses for the banks.
- House price falls have now effected the US prime housing market affecting the higher credit worthy offloading vehicles now. Where are these vehicles?
- The British side of sub prime has only started to get going (liar loans, 100% mortgages, interest only, newbuild mortgage fraud)
- Bradford & Bingley and Alliance & Leicester likely to go under in the next couple of months.
- HBOS also highly unstable.
To get this thing over all banks need to declare all losses and project worst case future loses simultaneously. This isn't happening it is still a news trickle of information than the needed flood.
All this talk of it being over is an attempt to stop panic.:exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.
Save our Savers
0 -
It appears the sub prime crisis was over exaggerated.0
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or that king is putting a gloss on things.
the report goes on to mention 'recession' as other assets fall.miladdo0 -
jamescredmond wrote: »or that king is putting a gloss on things.
on the basis that his remit is cpi, and inflation. Not the housing market.0 -
So its over in the UK but not the US?
Hmmm, I find that hard to believe considering banks on both sides of the pond invested in the same toxic waste. Sounds more like lip service the eve of local elections.0
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