Interest Rates - BoE should cut them or the governer should go!

SuperV

http://www.ft.com/cms/s/0/4cc9637a-4c8a-11de-a6c5-00144feabdc0.html

Banking regulators identified Northern Rock as the weak link in Britain’s banking system during secret “war games” held as long ago as 2004, the Financial Times has learned.
The risk simulation planning, conducted by the Financial Services Authority, the Bank of England and the Treasury, made clear the systemic risks posed by Northern Rock’s business model, and its domino effect on HBOS, then the UK’s largest mortgage lender.
The revelation is at odds with the notion that no one could have foreseen the September 2007 collapse of Northern Rock or the subsequent rescue of HBOS, which was sold to Lloyds Bank.
The FT has found the troubled lender and HBOS were at the centre of a 2004 war game that regulators held to test how banks would cope with sudden turmoil in mortgage markets and the withdrawal of the money from foreign banks on which Northern Rock’s business model relied.

Wow... what to say now? Who is responsible for price bubble?

If I remember well, NR introduced 125% mortgages around that year?

SuperV

http://news.bbc.co.uk/1/hi/business/8050737.stm

Undoubtedly, such additional cash injections will reap benefits in the economies concerned.
But if "violence", or the threat of such, is economically beneficial, then peace - the "absence of violence" - is even more valuable, according to the Global Peace Index, which has calculated its value in US dollar terms.
"Ideally, living without the threat of instability would mean the violence dollars could be redeployed into areas that would cause other less destructive markets to grow," the report says.
The economic bonus of peace - or the removal of the cost of "lost peace" - would be $7.2tn a year, based on latest data from 2007, the report has found.
"There is a very, very strong correlation between peace and wealth," Steve Killelea, founder of the Global Peace Index.


Compare the UK and Germany. The UK spends double per head comparing to Germany, taxation level is bigger in the UK and the services offered by the states are almost non-comparable - the level is much higher in Germany.

The lesson? Cut military spending, the gun produced today will destroy wealth tomorrow! Much more than it is created because of the production of that gun!

SuperV

http://www.telegraph.co.uk/finance/personalfinance/investing/shares/5558180/Labour-governments-are-bad-for-the-stock-market.html

"We can also compare with other countries. During the Blair/Brown years, out of nine advanced countries, the stock markets of three are either no higher than 12 years ago or lower (now I am leaving out any inflation adjustment). Britain is one of the members of this badly performing set. All the stock markets of the remaining six countries have risen substantially. The Canadian stock market has virtually doubled and the Spanish market has done even better.

Now we get to the intriguing part. Why has the stock market done so badly under Labour ever since the war?


The pamphlet offers no real analysis of this but provides a table which gives a pointer. It shows the percentage of Gross Domestic Product – the total economic activity in a country – taken up by governments in the nine different countries at the beginning and end of the past twelve years.


In Britain, the proportion taken by government has risen from 40.6pc to 45.4pc over the Blair/Brown years. But here is the striking thing: in the other two countries where stock markets have performed badly, the proportion spent by government has also gone up.



In contrast, in all the six countries where there has been a decrease in the proportion of GDP spent by governments, the stock markets have risen. In Germany, for example, the proportion of GDP has fallen from 48.3pc to 43.4pc. The stock market has jumped by 70.6pc."


Answer is obvious - cut subsidies, cut military budget, cut civil and para-civil servents perks (private companies has to pay 25-50% on top of salaries to provide the same pension), cut tax and increase investements.

The state should become smaller, not grow!

steve237

SuperV - very interesting to see your predictions come true over the last 12 months...

What I would like to know, is do you think I have made the right decision fixing for 7 years at 5.39%?? (I am just about to come off a below base-rate tracker)

Would love to hear your views on how you think it will pan out over the next year and ahead!

buzz6620

I just wish the building societies which the government bailed out (Bradford & Bingley) would reduce their basic rate mortgages in line with B of E rate instead of keeping them inflated. My fixed rate with Mortgage express has just come to an end and the rates still 4.84%. I don't suppose there is anything I can do about that though!

SuperV

steve237 wrote: »

SuperV - very interesting to see your predictions come true over the last 12 months...

What I would like to know, is do you think I have made the right decision fixing for 7 years at 5.39%?? (I am just about to come off a below base-rate tracker)

Would love to hear your views on how you think it will pan out over the next year and ahead!

This is my opinion, no market analysis. 7 years - two elections - in the current climate you may be very right or a bit wrong, so probably (50%) it is a good decision. It is also a question which ship did you jump from (NR, B&B, A&L, LLoyds)?

Till the end of this year there is a high probability that the interest rate will stay at the current level meaning that you may be paying more than svr (banks may change their opinions...). Next year elections are coming - so I expect that around elections or after there will be a jump.

Depending on a debt increase of the current Government and the next, mortgage interest rates (they may disconnect from BoE basic rate) will go up more or less.

So I expect sometimes 2010-2012 to have higher mortgage rates that will drop down sometimes during 2012-2013, depending on money printing machines, hence how big the budget deficit is.

Politics... is in our lives.

p.s.
The better question is what would I do? If you are prepared to pay more for a while, I will try tracker. I think (and I may be wrong) that at the moment banks are charging a lot in order to recover their balance sheets. And because nobody really knows what will happen in the next few years.

SuperV

buzz6620 wrote: »

I just wish the building societies which the government bailed out (Bradford & Bingley) would reduce their basic rate mortgages in line with B of E rate instead of keeping them inflated. My fixed rate with Mortgage express has just come to an end and the rates still 4.84%. I don't suppose there is anything I can do about that though!

Very interesting question. More or less, they are charging a ransom, allowed to create a bubble by FSA/BoE/Treasury and it seems that they will try to continue with such a practice - it is your fault when you are in arrears and it is your fault when you accept so much money that we willingly gave to you knowing that you will almost end up in a prison if you don't pay.

Yes, the only difference between current system in the UK and in some Middle-east countries is that in the UK you loose everything, in Dubai you finish in a prison as well.

Your options? I am thinking to start an action as in my opinion, FSA and banks should accept responsibility for price bubble and cut mortgages for those that didn't want to speculate - up to some decent salary multiplier of for example 4.

SuperV

SuperV wrote: »

The better question is what would I do? If you are prepared to pay more for a while, I will try tracker. I think (and I may be wrong) that at the moment banks are charging a lot in order to recover their balance sheets. And because nobody really knows what will happen in the next few years.

Additional explanation - I believe oil price will be above U$70, probably between 80 and 90. It will affect inflation. I believe that the lesson had been learned and that BoE will not try to stop inflation with a fire - bigger base rate. So, I believe that the base rate will stay low.

On the other hand, BoE printed or is about to print additional £125 billions ~ 15% of the UK GDP (please correct me if I am wrong). If in normal times you expect ~5% for your gilts, now you will expect 15% more ~ 0.75-1%. So, the more money is printed, the more will banks have to increase mortgage rates.

The answer? Cut unnecessary expenses, cut tax and increase investments. The UK economy doesn't exist to support the state and public servants' perks, ideas and ideals, it is there to support all citizens. Second: BoE should open "the window" for the house-owners - that will bring money in economy much faster.

Those £125 billions should be there only until the Governement manages to balance its account. The sooner, teh better.

steve237

SuperV wrote: »

This is my opinion, no market analysis. 7 years - two elections - in the current climate you may be very right or a bit wrong, so probably (50%) it is a good decision. It is also a question which ship did you jump from (NR, B&B, A&L, LLoyds)?

Till the end of this year there is a high probability that the interest rate will stay at the current level meaning that you may be paying more than svr (banks may change their opinions...). Next year elections are coming - so I expect that around elections or after there will be a jump.

Depending on a debt increase of the current Government and the next, mortgage interest rates (they may disconnect from BoE basic rate) will go up more or less.

So I expect sometimes 2010-2012 to have higher mortgage rates that will drop down sometimes during 2012-2013, depending on money printing machines, hence how big the budget deficit is.

Politics... is in our lives.

p.s.
The better question is what would I do? If you are prepared to pay more for a while, I will try tracker. I think (and I may be wrong) that at the moment banks are charging a lot in order to recover their balance sheets. And because nobody really knows what will happen in the next few years.

In answer to your question, I am an existing Abbey customer and they gave me 75% LTV rates when it was closer to 80%, and with only £125 fee. Plus I got this fixed just before they pulled it from their product range earlier this week. The 7-year 5.39% I secured is now cheaper than their 5-year fix. If I hadn't fixed, I would have dropped onto their SVR of 4.24%, which isn't very competitive. A good decision?

SuperV

steve237 wrote: »

In answer to your question, I am an existing Abbey customer and they gave me 75% LTV rates when it was closer to 80%, and with only £125 fee. Plus I got this fixed just before they pulled it from their product range earlier this week. The 7-year 5.39% I secured is now cheaper than their 5-year fix. If I hadn't fixed, I would have dropped onto their SVR of 4.24%, which isn't very competitive. A good decision?

SVR is still at the moment cheaper than the fixed rate, but it tells you what all banks expect.

A lot depends on the Government. If it continues to behave as it does (as it probably will), you have a good deal. If it start cuts, depends. Conservative government will be against unions (that finance Labour, so no self-interest in strike threats...) and will need time to implements cuts. Strikes will affect GDP and sterling (so the rate is up...) but after the cuts are implemented (sometimes in the future) the rate will come down.

Banks seems to expect back to normality sometimes between 2014 & 2016. Should I be more optimistic with the current political and economical establishment?

I don't know, experience says no. Military cuts will be needed and it seems to me nobody is really willing to cut them.

p.s.
By the way, when someone says he or she is an Atlantist, I say I am a Pacifist.