Mortgage madness will end in inflation, inflation, inflation THERE ARE two kinds of chancellor", said Gordon Brown famously, "failures, and those who get out in time". No surprises for guessing which category Gordon fits into. And what is French for "Aprés moi le deluge", by the way?
Poor Alistair Darling (I still can't get used yet to calling him the chancellor) has been left to cope with the consequences of a decade of Gordonomics. The air is ringing to the sound of stable doors slamming as the livestock disappear over the hill.
On Thursday, Darling gave the City a stern lecture on how it wasn't the government's job to bail out banks which had indulged in irresponsible lending and borrowing. It was time to get back, he said, to "good old-fashioned banking". The very next day, Darling bailed out Northern Rock, a byword for irrational exuberance in the mortgage market. It had been financing its too-good-to-miss mortgages by dabbling in American sub-prime.
It's very nice of Mr Darling to use our money to bail out this company and its managers. I'm sure Northern Rock will be equally eager to help those low-income home owners who will be unable to pay the increased mortgage rates the bank will be charging in future as it tries to rebuild its finances. Of course, everyone insists that NR is a "very sound, solvent business" with "solid assets and good prospects". Everyone, that is, except investors, who have been dumping Northern Rock shares as if they were radioactive. If the FSA is right, and this is such a good business, why does it need to fall on the mercy of the Bank of England to avoid going bust? After all the banking scandals of recent years, it's hardly surprising that people are queuing up to get their money out of Northern Rock's few outlets. I would.
But, at least we don't have any sub-prime to worry about here, do we? Good old British banks have been prudent lenders, ensuring mortgages have been given only to people who can pay, and on the basis of rock-solid assets. Have they heck. In fact, the British banks have been throwing money at home buyers without a thought for the consequences for most of the past decade. Just ring up one of the websites. You don't even have to prove your earnings.
Even at the height of the ruinous US housing boom, US banks weren't offering 125% mortgages or six times your earnings to people earning as little as £18,000 a year. Yet that is what British high rollers such as Alliance and Leicester and Northern Rock have been doing. They have been "helping" first-time buyers get on to the "housing ladder" by offering interest-only mortgages over 40 years - mortgages so good you don't even get to own the house after you've paid for it.
Irresponsible lending in Britain has prolonged the craziest housing bubble in the world. In America, house prices peaked 18 months ago at an average of $267,000 dollars; that's only about £140,000 for a pretty substantial house. Here, that sum wouldn't buy you a basement in Edinburgh.
Yet somehow, we are told, the British housing market is more solid, and values here are more reliable; that British house prices can only go up. Well, the laws of economic gravity can only be suspended for so long.
Politicians and central bankers are beginning to realise the danger of having let the housing market get out of control. Prices have tripled in the 10 years since Brown promised he would keep them stable. But Gordon's bargain with the devil was that as long as house prices kept going up, the economy would appear to be booming. Cheap credit and house price inflation made everyone feel rich, even though we were building up £1.3 trillion in debts - debts which will now have to be repaid at higher rates.
Actually, if Northern Rock had been allowed to go under, it might have brought some sanity into the housing market by precipitating the long-delayed fall in house prices. But following this rescue, political pressure is now mounting on the Bank of England to cut interest rates to keep the party going a little longer. Mortgages would become more "affordable" again and people would continue buying houses they, er, can't afford.
To give him credit, Mervyn King, the governor of the Bank of England, realises that this would only defer the pain for another few years, and so far he has resisted because he has a sense of history. Central banks cut interest rates in 1998 after the Asian stock market crash; they cut them again after the dot.com crash of 2000; and they cut them again after the last housing wobble in 2004/5. The cheap credit unleashed by these actions is the real cause of the US financial crisis, and now ours. But cheap credit is a drug, and we are well and truly hooked.
What the credit crunch is telling us is that the inflated asset values that underpin the debt economy are no longer sustainable. House prices must come down to earth, either by raising the cost of borrowing or by allowing inflation to rip and erode asset values by debasing the currency. Inflation is the weakest and sneakiest way of re-pricing inflated assets - it ruins savings and the livelihoods of people on fixed incomes - so it's a slam-dunk certainty that this is what the government will do.
The Bank of England is supposed to be the independent and resolute guardian against inflation; that's what its charter says. But in saving Northern Rock it has blinked first. Other banks will see this as a sign that they can continue to behave recklessly, secure in the knowledge that the Bank will come to their aid in the end.
But the inflation unleashed by cuts in interest rates could be sensational, for we are entering a much more expensive world. Oil is stabilising at well over $70 a barrel with no signs of a fall, and food prices are increasing for the first time in a generation. A world wheat shortage has led to bread prices going up 25%, and supermarkets are forecasting shortages of eggs, and even bacon, for the first time since the second world war. Meanwhile, America is running up a huge post-Iraq deficit, China is booming out of control and stock markets are all over the place.
It's all beginning to look like a nightmare on Downing Street ... for Alistair Darling. But look on the bright side. Northern Rock may finally have crushed the prospect of an early election. If Brown went to the country now, it would look like panic, and voters might want to withdraw their political credit from the Bank of Labour. You can't call in the Bank of England to halt that.
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Posted by: Young Methusila, 1973 on 9:59pm Sat 15 Sep 07
Well done, Iain - I guess you had to leave the Brownite Broadcasting Corporation's regular part-time employment to be able to write this stuff. Inflation is just utterly unfair taxation, but no doubt Gordon will go on telling us he always did the right thing at the time, and of course, blame Alistair Darling!
Well done, Iain - I guess you had to leave the Brownite Broadcasting Corporation's regular part-time employment to be able to write this stuff. Inflation is just utterly unfair taxation, but no doubt Gordon will go on telling us he always did the right thing at the time, and of course, blame Alistair Darling!
Posted by: Mick, Glasgow on 11:01pm Sat 15 Sep 07
Spot on Ian, look forward to part 2 on how gordonomics has planned how to house and pay the unemployed once things come crashing down. Seems like everyone is employed in the public sector these days so can't see anything other than a domino effect and its a pretty desperate scenario once it starts.
Spot on Ian, look forward to part 2 on how gordonomics has planned how to house and pay the unemployed once things come crashing down. Seems like everyone is employed in the public sector these days so can't see anything other than a domino effect and its a pretty desperate scenario once it starts.
Posted by: Dave Hall, Stafford on 11:34pm Sat 15 Sep 07
A cracking analysis, the most concise i've read - and i've read a lot. It exposes the 'no subprime in the UK' as the amateur jedi mind trick that it is.
I do believe though, that the die are cast now, and sentiment has turned for the UK property market regardless of what happens to Northern Rock, and irrespective of any future bailouts.
I'd even prefer to wait and see how punitive the BoE rate is for the Northern Rock debacle, before labelling it a bailout, rather than a last shot of morphine.
Brown might as well have tried holding back the sea, with his uninformed 'no more boom and bust' bombast. Such pomposity only serves to show how little he understands of market dynamics, and that sentiment is everything. Cycles and trends...
A cracking analysis, the most concise i've read - and i've read a lot. It exposes the 'no subprime in the UK' as the amateur jedi mind trick that it is.
I do believe though, that the die are cast now, and sentiment has turned for the UK property market regardless of what happens to Northern Rock, and irrespective of any future bailouts.
I'd even prefer to wait and see how punitive the BoE rate is for the Northern Rock debacle, before labelling it a bailout, rather than a last shot of morphine.
Brown might as well have tried holding back the sea, with his uninformed 'no more boom and bust' bombast. Such pomposity only serves to show how little he understands of market dynamics, and that sentiment is everything. Cycles and trends...
Posted by: art1000, Dunfermline on 12:10am Sun 16 Sep 07
Sobering piece. You have expressed what a lot of us have been worried about for a long time. Looks like you've burned your bridges with NuLab now though Iain.
Sobering piece. You have expressed what a lot of us have been worried about for a long time. Looks like you've burned your bridges with NuLab now though Iain.
Posted by: Andy Link, Chipping Ongar on 12:24am Sun 16 Sep 07
Bravo! At least someone it telling it as it is. Sterling is going to get punished by the wreckless management of Brown and the whole BoE circus. The Pound Euro is already at a 12 month low. Look for parity with the Euro soon.
Bravo! At least someone it telling it as it is. Sterling is going to get punished by the wreckless management of Brown and the whole BoE circus. The Pound Euro is already at a 12 month low. Look for parity with the Euro soon.
Posted by: Paul Voltaire on 12:29am Sun 16 Sep 07
I am well and truly skint anyway and would love to see a bank go belly-up, HBOS if I had a choice.
I am well and truly skint anyway and would love to see a bank go belly-up, HBOS if I had a choice.
Posted by: urban poacher, too near the numptorium on 12:38am Sun 16 Sep 07
hmm don't know much about the finance markets otherwise you would see that lending NR money at above usual rate of interest is not a bailout. NR assets are all mortgages which BofE takes as security. Barclays borrowed over £300m last month since the interbsnk market is a bit slow. Another of those expert journalists couple of attempts on google and a £1000 article.
hmm don't know much about the finance markets otherwise you would see that lending NR money at above usual rate of interest is not a bailout. NR assets are all mortgages which BofE takes as security. Barclays borrowed over £300m last month since the interbsnk market is a bit slow. Another of those expert journalists couple of attempts on google and a £1000 article.
Posted by: Dave, Bedford on 12:40am Sun 16 Sep 07
The best, most accurate analysis I have ever read of where this country is today.
Just a great pity that more journalists are not as concise and incisive as you Iain. Sadly the UK public has had their brains fried by years of spin & bul***t from those who tried to perpetuate the new Brown miracle economy based on borrowing ad-infinitum .
The chickens have finally come home to roost.
2008 will be a sad year for many.
The best, most accurate analysis I have ever read of where this country is today.
Just a great pity that more journalists are not as concise and incisive as you Iain. Sadly the UK public has had their brains fried by years of spin & bul***t from those who tried to perpetuate the new Brown miracle economy based on borrowing ad-infinitum .
The chickens have finally come home to roost.
2008 will be a sad year for many.
Posted by: Albert, Glasgow on 1:04am Sun 16 Sep 07
Mr McWhirter,why did you not write about this before 3rd May?
It has been obvious to all but the the politically blind and the greedy (rising house prices - whooppee, I feel good brigade)that "pension thief" Brown has been a complete phoney as the "prudent Chancellor".
He sold the UK's gold at a 20 year low price, he plundered pension funds, he taxed the poor by abolishing the 10 pence rate, he has introduced dozens of stealth taxes, he sooked up to the City by allowing fat cats to pay less tax than their cleaners and he has allowed a house price bubble to grow and grow because he knew the lumpen masses would think they were rich and feel good about NuLabour.
The Netherlands' tulipmania, the South Sea Bubble, Japan's ongoing economic depression (caused by reliance on property values over a decade ago)and now the UK's banks borrowing from each other short term, to fund lending long term to people who can't afford it!
Bankers is a mis-spelling for what these people really are.
Mr McWhirter,why did you not write about this before 3rd May?
It has been obvious to all but the the politically blind and the greedy (rising house prices - whooppee, I feel good brigade)that "pension thief" Brown has been a complete phoney as the "prudent Chancellor".
He sold the UK's gold at a 20 year low price, he plundered pension funds, he taxed the poor by abolishing the 10 pence rate, he has introduced dozens of stealth taxes, he sooked up to the City by allowing fat cats to pay less tax than their cleaners and he has allowed a house price bubble to grow and grow because he knew the lumpen masses would think they were rich and feel good about NuLabour.
The Netherlands' tulipmania, the South Sea Bubble, Japan's ongoing economic depression (caused by reliance on property values over a decade ago)and now the UK's banks borrowing from each other short term, to fund lending long term to people who can't afford it!
Bankers is a mis-spelling for what these people really are.
Posted by: Im no really here on 1:14am Sun 16 Sep 07
If the housing bubble bursts, there is one thing for sure. The value of your property for Council Tax purposes WON'T come down.
We'll be getting people paying more in Council Tax than for their mortgage.
And what does Wendy want to do - REVALUE!! Do you thing any would be revalued DOWNWARD?
If the housing bubble bursts, there is one thing for sure. The value of your property for Council Tax purposes WON'T come down.
We'll be getting people paying more in Council Tax than for their mortgage.
And what does Wendy want to do - REVALUE!! Do you thing any would be revalued DOWNWARD?
Posted by: post traumatic crash disorder, manchester on 1:21am Sun 16 Sep 07
well said, but alas 3 years too late.[bold][bold]bold[/bold] [/bold]
well said, but alas 3 years too late.
Posted by: Im no really here on 1:26am Sun 16 Sep 07
[quote][bold]Paul Voltaire[/bold] wrote:
I am well and truly skint anyway and would love to see a bank go belly-up, HBOS if I had a choice.[/quote] Problem is that you're income is probably also "fixed" and won't rise with the level of inflation. ALL of the Politicians, B(W)ankers, Westminster Mandarines, and those heading financial institutions have their income/pensions inflation protected - and they couldn't give a **** about you.
So a bank going "belly-up" will only hurt the poorest who rely on those savings and investments. It certainly won't hurt the bosses of that bank. At worst they might have a red face when they buy a round at the club.
Paul Voltaire wrote:
I am well and truly skint anyway and would love to see a bank go belly-up, HBOS if I had a choice.
Problem is that you're income is probably also "fixed" and won't rise with the level of inflation. ALL of the Politicians, B(W)ankers, Westminster Mandarines, and those heading financial institutions have their income/pensions inflation protected - and they couldn't give a **** about you.
So a bank going "belly-up" will only hurt the poorest who rely on those savings and investments. It certainly won't hurt the bosses of that bank. At worst they might have a red face when they buy a round at the club.
Posted by: Mike, Edinburgh on 1:46am Sun 16 Sep 07
I feel vindicated by this article which is one of the very few truthful accounts of the dangerous route that the Gordon Brown/Tony Blair spend spend spend New Labour Government.It isnt rocket science to realise that spending money you dont have has a consequence and that is medicine we are going to have to take for the next few years whether we like it or not.The era of returning savings to back under the matress may be just be upon us.
Scotland are probably lucky that we no longer have Englands New Labour Party Controlled Scottish Government continuing its huge spending of public funds for very little benefit are over.The new Government appears to be very focussed on fiscal prudence. Unfortunately I have had to smile at the recent discussions about the need to enable young Scots to get on the housing ladder when in fact the discussions should have been focussed on preparation for those who have over extended themselves in the last few years loosing their equity and roof over their heads.
Yes recently we have seen a few attempts by this bubble to in fact burst because of the weight, but fingers were placed to stop the leaks. When it bursts it will be all hands to the pumps to keep the ship afloat. Scotland would be far better off leaving the Union in light of the Countries ability to generate new investment by decreasing Corporate costs and its current reserves of natural recources being more able to ease the problems of a country with such a low population.
I feel vindicated by this article which is one of the very few truthful accounts of the dangerous route that the Gordon Brown/Tony Blair spend spend spend New Labour Government.It isnt rocket science to realise that spending money you dont have has a consequence and that is medicine we are going to have to take for the next few years whether we like it or not.The era of returning savings to back under the matress may be just be upon us.
Scotland are probably lucky that we no longer have Englands New Labour Party Controlled Scottish Government continuing its huge spending of public funds for very little benefit are over.The new Government appears to be very focussed on fiscal prudence. Unfortunately I have had to smile at the recent discussions about the need to enable young Scots to get on the housing ladder when in fact the discussions should have been focussed on preparation for those who have over extended themselves in the last few years loosing their equity and roof over their heads.
Yes recently we have seen a few attempts by this bubble to in fact burst because of the weight, but fingers were placed to stop the leaks. When it bursts it will be all hands to the pumps to keep the ship afloat. Scotland would be far better off leaving the Union in light of the Countries ability to generate new investment by decreasing Corporate costs and its current reserves of natural recources being more able to ease the problems of a country with such a low population.
Posted by: Tom McAlister on 2:01am Sun 16 Sep 07
.
No comment, this excellent article speaks volumes. Thanks Iain.
.
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No comment, this excellent article speaks volumes. Thanks Iain.
.
Posted by: Yok Finney, Ross-shire on 2:30am Sun 16 Sep 07
"It is a basic tenet of my philosophy that a society can be judged on how it treats its weakest members – the sick, the disabled, the young and the elderly. Attacks on social provision for any of those cannot be defended in any humane society. Our concern has always been for the poor, and for those struggling on the margins of society. [bold]We do not seek as our first priority to make the rich richer and the powerful more powerful[/bold] . Those who believe that that is what the aim of the government should be could not support us. Our party was founded on concepts of social justice and equality. [bold]It was founded by working men and women[/bold] who could see from the experience of their daily lives the injustice of prevailing social conditions. They set out to change their society to ensure that the resources of the community were more fairly distributed, so that every member of the community could share in the wealth that the community had created."
-- Helen Clark, Prime Minister of New Zealand
While the UK is in the grip of banksters and fraudsters it is most effective for one party to represent the working people of Scotland. That party is the SNP and they are doing it well. Politics means action.
"It is a basic tenet of my philosophy that a society can be judged on how it treats its weakest members – the sick, the disabled, the young and the elderly. Attacks on social provision for any of those cannot be defended in any humane society. Our concern has always been for the poor, and for those struggling on the margins of society.
We do not seek as our first priority to make the rich richer and the powerful more powerful . Those who believe that that is what the aim of the government should be could not support us. Our party was founded on concepts of social justice and equality.
It was founded by working men and women who could see from the experience of their daily lives the injustice of prevailing social conditions. They set out to change their society to ensure that the resources of the community were more fairly distributed, so that every member of the community could share in the wealth that the community had created."
-- Helen Clark, Prime Minister of New Zealand
While the UK is in the grip of banksters and fraudsters it is most effective for one party to represent the working people of Scotland. That party is the SNP and they are doing it well. Politics means action.
Posted by: donald, glasgow on 4:32am Sun 16 Sep 07
The Jesse James, Younger and Dalton Brothers were held in adulation by the farmers and populace who were ruined by bankers, railroad speculators and carpet baggers.
The Yankee led carpet bagging British Labour Party Jessies in Scotland are also held in such contempt.
The Jesse James, Younger and Dalton Brothers were held in adulation by the farmers and populace who were ruined by bankers, railroad speculators and carpet baggers.
The Yankee led carpet bagging British Labour Party Jessies in Scotland are also held in such contempt.
Posted by: Rab The Man, Was My Uncle on 6:15am Sun 16 Sep 07
There is a certain inevitability about coming mortgage problems in this current house price frenzy in britain.Make the best of the dinner parties where a'body talks about how much there house is going up in price...there is an INEVITABLE major fall coming.
With the huge annual percentage price variations accross the UK, it'll be no time at all before someone sells a broom cupboard in London's West End and buys Perthshire, Mull, or Orkney instead. It's a collective madness and we're all on board sailing off to disaster !!!
There is a certain inevitability about coming mortgage problems in this current house price frenzy in britain.Make the best of the dinner parties where a'body talks about how much there house is going up in price...there is an INEVITABLE major fall coming.
With the huge annual percentage price variations accross the UK, it'll be no time at all before someone sells a broom cupboard in London's West End and buys Perthshire, Mull, or Orkney instead. It's a collective madness and we're all on board sailing off to disaster !!!
Posted by: david, london on 7:13am Sun 16 Sep 07
Brilliant piece, contrasting with the smarmy comments from smooth bank salesmen and their lackeys in much of the English based media who tell us there is "nothing to worry about".
Bail-outs are always bad news. They interfere with efficient market functioning, i.e. if a market overheats, a 'bust' is the only cathartic way to restore sanity.
As you say, the Old Lady's intervention may delay the inevitable, but the problems will just build up more, and more, and more....
Brilliant piece, contrasting with the smarmy comments from smooth bank salesmen and their lackeys in much of the English based media who tell us there is "nothing to worry about".
Bail-outs are always bad news. They interfere with efficient market functioning, i.e. if a market overheats, a 'bust' is the only cathartic way to restore sanity.
As you say, the Old Lady's intervention may delay the inevitable, but the problems will just build up more, and more, and more....
Posted by: tb303 on 8:17am Sun 16 Sep 07
Always the big nasty banks' fault for these sorts of thing.
No metion of people living beyond their means, and to hell with the consequences.
Always the big nasty banks' fault for these sorts of thing.
No metion of people living beyond their means, and to hell with the consequences.
Posted by: Johnboy, fife on 9:56am Sun 16 Sep 07
bt303
when the fact that some people living beyond their means can lead to other people becoming incredibly wealthy(bankers) then it creates a powerful incentive to advertise and manipulate imagery and "truth" relentlessly in oder to GET THEM TO LIVE BEYOND THEIR MEANS. Yes, you may be correct in that it is actually their own fault for making those decisions and signing those forms..... but they were reassured, convinced, encouraged to do so by people who knew better and who cared not a jot for anything other than their own short term gain.
bt303
when the fact that some people living beyond their means can lead to other people becoming incredibly wealthy(bankers) then it creates a powerful incentive to advertise and manipulate imagery and "truth" relentlessly in oder to GET THEM TO LIVE BEYOND THEIR MEANS. Yes, you may be correct in that it is actually their own fault for making those decisions and signing those forms..... but they were reassured, convinced, encouraged to do so by people who knew better and who cared not a jot for anything other than their own short term gain.
Posted by: James, Glasgow on 10:42am Sun 16 Sep 07
bt303
I have practically no income yet the bank I am thirled to constantly bombard me with offers of MONEY! They know my balance and my income and know full well I am sub-sub-prime yet they still hope they'll catch me in a moment of weakness.
When conning is going on it is the con-man not the victim who must carry the greater responsibility.
bt303
I have practically no income yet the bank I am thirled to constantly bombard me with offers of MONEY! They know my balance and my income and know full well I am sub-sub-prime yet they still hope they'll catch me in a moment of weakness.
When conning is going on it is the con-man not the victim who must carry the greater responsibility.
Posted by: Im no really here on 10:54am Sun 16 Sep 07
Well said Johnboy and James
Well said Johnboy and James
Posted by: Chris Cook, Linlithgow on 10:55am Sun 16 Sep 07
Iain's article and virtually all of the comments that follow are based upon the conventional wisdom that retail price inflation may be affected by monetary policy (ie the amount of money that banks create as debt) see
http://video.google.
com/videoplay?docid=
-9050474362583451279
As we see in Zimbabwe, retail price inflation is principally a FISCAL phenomenon ie the result of governments not "living within their means" and printing money hand over fist to meet the shortfall.
Fiscal imprudence (although it exists in the UK)is not, and will not, be on the scale necessary to be a major cause of inflation in the UK.
The vast bulk of the money in circulation today has been lent into existence by banks, and indeed two thirds of it is based upon (existing) mortgage loans.
The only way that existing (largely non-inflationary)lev
els of spending have been, and may continue be, maintained is if banks are prepared to loan more money.
And they are not. That is a big problem, but it's unlikely to cause inflation, rather the reverse (as in Japan after their property bubble ended) as desperate suppliers cut prices drastically to chase what money there is.
Due to our trade deficit - caused by the export of our manufacturing base overseas - and growing requirement for energy imports there is a risk of "imported" inflation as our curency falls relative to those of our suppliers.
But in summary, because Iain's premises are of the "conventional" kind, he draws the conventional - entirely wrong - conclusions about the use of interest-rates in controlling inflation.
He and his colleagues in the Press beat into us that raising wages is inflationary and therefore "Bad".
Whereas raising another business cost, such as interest costs, or businesses raising prices (isn't "raising prices" inflation BY DEFINITION?) to maintain or increase profits is NOT inflationary, then why not?
What is sauce for the Labour goose is surely sauce for the Capital gander...
It's all fairly academic, because we are currently seeing the cracks in an unsustainable "deficit-based" system.
The Irresistible Force of exponential Economic Growth (mandated by the mathematics of compound interest on a deficit-based money supply) is now running up against the Immovable Object of finite resources generally and liquid fuel in particular.
We need a new - asset-based - financial system, that's the reality of it.
Iain's article and virtually all of the comments that follow are based upon the conventional wisdom that retail price inflation may be affected by monetary policy (ie the amount of money that banks create as debt) see
http://video.google.
com/videoplay?docid=
-9050474362583451279
As we see in Zimbabwe, retail price inflation is principally a FISCAL phenomenon ie the result of governments not "living within their means" and printing money hand over fist to meet the shortfall.
Fiscal imprudence (although it exists in the UK)is not, and will not, be on the scale necessary to be a major cause of inflation in the UK.
The vast bulk of the money in circulation today has been lent into existence by banks, and indeed two thirds of it is based upon (existing) mortgage loans.
The only way that existing (largely non-inflationary)lev
els of spending have been, and may continue be, maintained is if banks are prepared to loan more money.
And they are not. That is a big problem, but it's unlikely to cause inflation, rather the reverse (as in Japan after their property bubble ended) as desperate suppliers cut prices drastically to chase what money there is.
Due to our trade deficit - caused by the export of our manufacturing base overseas - and growing requirement for energy imports there is a risk of "imported" inflation as our curency falls relative to those of our suppliers.
But in summary, because Iain's premises are of the "conventional" kind, he draws the conventional - entirely wrong - conclusions about the use of interest-rates in controlling inflation.
He and his colleagues in the Press beat into us that raising wages is inflationary and therefore "Bad".
Whereas raising another business cost, such as interest costs, or businesses raising prices (isn't "raising prices" inflation BY DEFINITION?) to maintain or increase profits is NOT inflationary, then why not?
What is sauce for the Labour goose is surely sauce for the Capital gander...
It's all fairly academic, because we are currently seeing the cracks in an unsustainable "deficit-based" system.
The Irresistible Force of exponential Economic Growth (mandated by the mathematics of compound interest on a deficit-based money supply) is now running up against the Immovable Object of finite resources generally and liquid fuel in particular.
We need a new - asset-based - financial system, that's the reality of it.
Posted by: Ben on 11:30am Sun 16 Sep 07
People doing a run on banks, talk of inflation getting out of control, a property crash, devaluation of a currency... This reminds me of Argentina 2001.
Time to buy euros.
People doing a run on banks, talk of inflation getting out of control, a property crash, devaluation of a currency... This reminds me of Argentina 2001.
Time to buy euros.
Posted by: Rose Darko, a rainy day in Glasgow on 11:37am Sun 16 Sep 07
Brilliant analysis, well done Iain. Some American friends recently visited and directly asked me why cookie-cutter new build homes here cost the equivalent of half a million dollars, but salaries in dollar amounts are still half of the US. I shall email your article to them right away.
Would you not agree that part of the problem lies with the banks' mileu of low base salaries, commission payments on sales of finanical products, and sales targets for everyone from the front line staff to the managers? In shopping around for our own mortgage we were struck by the absolute desperation by which bank staffers who were barely out of their teens tried to push un-payable mortgages on us, including the famed 6x our salary, plus loans on top to buy furniture. People who stand to personally profit from your mortgage are not going to recommend the conservative option. We do indeed need to get back to "good old-fashioned banking", not banking as a series of sales targets and commission schedules.
Brilliant analysis, well done Iain. Some American friends recently visited and directly asked me why cookie-cutter new build homes here cost the equivalent of half a million dollars, but salaries in dollar amounts are still half of the US. I shall email your article to them right away.
Would you not agree that part of the problem lies with the banks' mileu of low base salaries, commission payments on sales of finanical products, and sales targets for everyone from the front line staff to the managers? In shopping around for our own mortgage we were struck by the absolute desperation by which bank staffers who were barely out of their teens tried to push un-payable mortgages on us, including the famed 6x our salary, plus loans on top to buy furniture. People who stand to personally profit from your mortgage are not going to recommend the conservative option. We do indeed need to get back to "good old-fashioned banking", not banking as a series of sales targets and commission schedules.
Posted by: I knew it would happen on 12:57pm Sun 16 Sep 07
Yes this is a good piece, the problem is that its 3 years to late. How could people not see this coming is beyond me.
Someone buys a house for £100000 and five years later buyers are told that it is worth £180000. The buyer now thinks they have £80000 of equity to spend.
It is only profit once the property sold. What is going to happen when houses return to more affordable levels? The house will be worth £130000 but the owner will owe £180000. It does not take a genius to work out that this is now negative equity.
Yes this is a good piece, the problem is that its 3 years to late. How could people not see this coming is beyond me.
Someone buys a house for £100000 and five years later buyers are told that it is worth £180000. The buyer now thinks they have £80000 of equity to spend.
It is only profit once the property sold. What is going to happen when houses return to more affordable levels? The house will be worth £130000 but the owner will owe £180000. It does not take a genius to work out that this is now negative equity.
Posted by: Lucas, London on 1:09pm Sun 16 Sep 07
It's amazing how supposedly intelligent people in government and those sitting on interest rate setting committees fail to learn from their past mistakes and lessons from economic history.
Almost every bubble and subsequent crisis/crash have been created by central banks/governments by keeping interest rates two low for two long.
The BOE now as lost all their creditability as an independent central bank (how it can be truly independent in the first place when Gordon brown was allowed to appoint his mates to the committee I don't know!).
No one is going to take the BOE seriously again in terms of both it's creditability in controlling inflation or preventing further debt led spending or to curb the current house price bubble. The signal it has given is a dangerous one and of twofold; it is a weak body that gives into political pressure too easily, and second its message to the banks to carry on with business as per usual cause they'll be their to bail at last resort.
Through greed, these banks have created their own problems, like any other business, they should be allowed to go under for the mistakes they have made and customers they have ripped off. While it's not the BOE's fault that Northen Rock had a dodgy business model, the BOE (as Eddie George remarked) kept interest rates too low for two long and fuelled this crisis.
And by switching the inflation targets |(RPI to RPI-X and now CPI) the goverment have forced the low interest rate policy. Real inflation in this country is running around 4%, and so interest rates should have been around 6.5% to 7.5% over the last few years to control it. Instead we've had lower rates to control a false meaningless inflation meaure.
It's amazing how supposedly intelligent people in government and those sitting on interest rate setting committees fail to learn from their past mistakes and lessons from economic history.
Almost every bubble and subsequent crisis/crash have been created by central banks/governments by keeping interest rates two low for two long.
The BOE now as lost all their creditability as an independent central bank (how it can be truly independent in the first place when Gordon brown was allowed to appoint his mates to the committee I don't know!).
No one is going to take the BOE seriously again in terms of both it's creditability in controlling inflation or preventing further debt led spending or to curb the current house price bubble. The signal it has given is a dangerous one and of twofold; it is a weak body that gives into political pressure too easily, and second its message to the banks to carry on with business as per usual cause they'll be their to bail at last resort.
Through greed, these banks have created their own problems, like any other business, they should be allowed to go under for the mistakes they have made and customers they have ripped off. While it's not the BOE's fault that Northen Rock had a dodgy business model, the BOE (as Eddie George remarked) kept interest rates too low for two long and fuelled this crisis.
And by switching the inflation targets |(RPI to RPI-X and now CPI) the goverment have forced the low interest rate policy. Real inflation in this country is running around 4%, and so interest rates should have been around 6.5% to 7.5% over the last few years to control it. Instead we've had lower rates to control a false meaningless inflation meaure.
Posted by: Dave Hall, Stafford on 1:15pm Sun 16 Sep 07
[quote][bold]Mike[/bold] wrote:
I feel vindicated by this article which is one of the very few truthful accounts of the dangerous route that the Gordon Brown/Tony Blair spend spend spend New Labour Government.It isnt rocket science to realise that spending money you dont have has a consequence and that is medicine we are going to have to take for the next few years whether we like it or not.The era of returning savings to back under the matress may be just be upon us.
Scotland are probably lucky that we no longer have Englands New Labour Party Controlled Scottish Government continuing its huge spending of public funds for very little benefit are over.The new Government appears to be very focussed on fiscal prudence. Unfortunately I have had to smile at the recent discussions about the need to enable young Scots to get on the housing ladder when in fact the discussions should have been focussed on preparation for those who have over extended themselves in the last few years loosing their equity and roof over their heads.
Yes recently we have seen a few attempts by this bubble to in fact burst because of the weight, but fingers were placed to stop the leaks. When it bursts it will be all hands to the pumps to keep the ship afloat. Scotland would be far better off leaving the Union in light of the Countries ability to generate new investment by decreasing Corporate costs and its current reserves of natural recources being more able to ease the problems of a country with such a low population.[/quote] I'm ambivalent about an independent Scotland - but if it does happen, please take a few politicians with you! Probably no need to list them...
Mike wrote:
I feel vindicated by this article which is one of the very few truthful accounts of the dangerous route that the Gordon Brown/Tony Blair spend spend spend New Labour Government.It isnt rocket science to realise that spending money you dont have has a consequence and that is medicine we are going to have to take for the next few years whether we like it or not.The era of returning savings to back under the matress may be just be upon us.
Scotland are probably lucky that we no longer have Englands New Labour Party Controlled Scottish Government continuing its huge spending of public funds for very little benefit are over.The new Government appears to be very focussed on fiscal prudence. Unfortunately I have had to smile at the recent discussions about the need to enable young Scots to get on the housing ladder when in fact the discussions should have been focussed on preparation for those who have over extended themselves in the last few years loosing their equity and roof over their heads.
Yes recently we have seen a few attempts by this bubble to in fact burst because of the weight, but fingers were placed to stop the leaks. When it bursts it will be all hands to the pumps to keep the ship afloat. Scotland would be far better off leaving the Union in light of the Countries ability to generate new investment by decreasing Corporate costs and its current reserves of natural recources being more able to ease the problems of a country with such a low population.
I'm ambivalent about an independent Scotland - but if it does happen, please take a few politicians with you! Probably no need to list them...
Posted by: Charles McGrory, Glasgow on 1:21pm Sun 16 Sep 07
Gordonius Broonius, the Greatest Chancellor in modern times, makes his first act as Chancellor that the Bank of England will be independent … there must be no boom and bust… … all the while that terror of Inflation must be kept in check to maintain the British economic success story of a consumer boom funded on plastic money and while the cost of any house has in a few years, tripled in debt-value. I guess in Gordon’s balance sheet, if you spend money you don’t have while the roof over your head goes up 300% that is not inflation!
The same Gordonius tells the civil service last week that they must only have 2% income increase because he and the country cannot afford inflation as he holds hands with Thatcher in mutual congratulation of the great London Big Bang Success Story of Deregulation… that has just about to collapse back into its financial black hole.
This week, we find that banks have been lending money they have borrowed themselves and no banks seems to know which bank owes what to whom… banks that last week were planning £ billion takeovers of other banks, funded by more debt are now running to the Bank of England for taxpayers’ money to bail them out from an ‘independent’ Bank of England, newly ‘authorised’ by Alistair Darling to lend the money…
Wait till the Peak Oil shortage – forecast by the National Petroleum Council of the USA to be around 2010 - cuts into the economic ‘growth’ necessary to keep up the inflationary interest bubble from collapsing. Good article Ian - but not Inflation but Deflation… is coming…
I begin to believe in the Greek Gods with their ironic twists of fate and fortune – they represent reality more clearly than the God of the Manse.
Gordonius Broonius, the Greatest Chancellor in modern times, makes his first act as Chancellor that the Bank of England will be independent … there must be no boom and bust… … all the while that terror of Inflation must be kept in check to maintain the British economic success story of a consumer boom funded on plastic money and while the cost of any house has in a few years, tripled in debt-value. I guess in Gordon’s balance sheet, if you spend money you don’t have while the roof over your head goes up 300% that is not inflation!
The same Gordonius tells the civil service last week that they must only have 2% income increase because he and the country cannot afford inflation as he holds hands with Thatcher in mutual congratulation of the great London Big Bang Success Story of Deregulation… that has just about to collapse back into its financial black hole.
This week, we find that banks have been lending money they have borrowed themselves and no banks seems to know which bank owes what to whom… banks that last week were planning £ billion takeovers of other banks, funded by more debt are now running to the Bank of England for taxpayers’ money to bail them out from an ‘independent’ Bank of England, newly ‘authorised’ by Alistair Darling to lend the money…
Wait till the Peak Oil shortage – forecast by the National Petroleum Council of the USA to be around 2010 - cuts into the economic ‘growth’ necessary to keep up the inflationary interest bubble from collapsing. Good article Ian - but not Inflation but Deflation… is coming…
I begin to believe in the Greek Gods with their ironic twists of fate and fortune – they represent reality more clearly than the God of the Manse.
Posted by: Mark, London on 2:00pm Sun 16 Sep 07
Excellent piece of writing but I would have prefered it was written during the growth in the housing bubble rather than as the bubble is popping.
Unfortunately its a long way down from here.
Excellent piece of writing but I would have prefered it was written during the growth in the housing bubble rather than as the bubble is popping.
Unfortunately its a long way down from here.
Posted by: J Wilson, Ayr on 3:20pm Sun 16 Sep 07
I find myself 101% in agreement with your article. Indeed Gordon Brown and his phantom girl friend "Prudence" were bound eventually to be exposed for the abandoned way he has played at economics. Sadly it has taken a long time for even a few of the electorate to realise the errors of his ways. I have been totally bemused by the leads Brown and his party have had in recent opinion polls which have no basis in a common sense look at what Labour is doing under new management. BUT sadly the Tories are mow so deeply in a mess that the electorate are not likely to offer them a vote.
I find myself 101% in agreement with your article. Indeed Gordon Brown and his phantom girl friend "Prudence" were bound eventually to be exposed for the abandoned way he has played at economics. Sadly it has taken a long time for even a few of the electorate to realise the errors of his ways. I have been totally bemused by the leads Brown and his party have had in recent opinion polls which have no basis in a common sense look at what Labour is doing under new management. BUT sadly the Tories are mow so deeply in a mess that the electorate are not likely to offer them a vote.
Posted by: Jeff, London on 4:13pm Sun 16 Sep 07
Exactly. Everyone is aware of this already. If this article had been published before would have merited attention.
We all already know. The only good point is that the media is starting to point out what has, in fact, been pointed out for -years-.
Exactly. Everyone is aware of this already. If this article had been published before would have merited attention.
We all already know. The only good point is that the media is starting to point out what has, in fact, been pointed out for -years-.
Posted by: BrainDeed, Hove on 4:37pm Sun 16 Sep 07
Inflation?....you mean the same inflation that robs my children the chance of the ever owning even a midden(with higher education fees,to boot)? Broon just played the same "winning" hand as Maggie and the grey man, because that is what allowed the game of beggar you neighbour to be played the length and breadth of this dim-witted island. To coin a phrase borrowed from murdoch-world....it'
s show time!!!!
Inflation?....you mean the same inflation that robs my children the chance of the ever owning even a midden(with higher education fees,to boot)? Broon just played the same "winning" hand as Maggie and the grey man, because that is what allowed the game of beggar you neighbour to be played the length and breadth of this dim-witted island. To coin a phrase borrowed from murdoch-world....it'
s show time!!!!
Posted by: Sue, Wilts on 5:16pm Sun 16 Sep 07
Finally, I am reading some news that makes me think I am NOT going mad.
I am so pleased to read this honest account of the economic cycle we are in. It's not nice reading because of the potential hardships that may be ahead, but finally, there is some honest points being made with no bulls***t in site and no rose tinted glasses.
Since returning from a year out travelling in 2004, I have felt the UK is an alien place to be. House prices went up so much. Salaries remaining largely unchanged or even lower. Utility bills increasing by a huge amount, food going up, petrol (oil) prices increasing, and yes, the council tax increasing yet again.
My first job on returning to the UK could barely cover the bills let alone buy a house. I could not understand how people seemed to have so much wealth about them. What I now realise, and I do feel sorry for people, is that they have been led to believe that they can continue to extract equity against properties, or borrow far more than they can really afford due to relaxed lending criteria. This sort of thing has always rung alarm bells for me (having been burned in the last recession). Money is not free, if you borrow it, you have to pay it back with interest. Yet the attitude of many seems to ignore this fact.
If the pound is ruined and house prices are not a stor of wealth and the stock market is overvalued, where should you put your money?
Finally, I am reading some news that makes me think I am NOT going mad.
I am so pleased to read this honest account of the economic cycle we are in. It's not nice reading because of the potential hardships that may be ahead, but finally, there is some honest points being made with no bulls***t in site and no rose tinted glasses.
Since returning from a year out travelling in 2004, I have felt the UK is an alien place to be. House prices went up so much. Salaries remaining largely unchanged or even lower. Utility bills increasing by a huge amount, food going up, petrol (oil) prices increasing, and yes, the council tax increasing yet again.
My first job on returning to the UK could barely cover the bills let alone buy a house. I could not understand how people seemed to have so much wealth about them. What I now realise, and I do feel sorry for people, is that they have been led to believe that they can continue to extract equity against properties, or borrow far more than they can really afford due to relaxed lending criteria. This sort of thing has always rung alarm bells for me (having been burned in the last recession). Money is not free, if you borrow it, you have to pay it back with interest. Yet the attitude of many seems to ignore this fact.
If the pound is ruined and house prices are not a stor of wealth and the stock market is overvalued, where should you put your money?
Posted by: Saad, London on 6:26pm Sun 16 Sep 07
What more can I say?
Posted by: Sean, UK on 6:39pm Sun 16 Sep 07
No one forced these individuals to borrow these huge amounts. And the country also voted for Labour at three successive general elections, knowing quite well their spending plans and fiscal record.
Your right about the inflation angle though. I just hope that Merv and the BOE are willing to stand up to the political pressure and not lower interest rates. In the long run higher inflation will do more damage to the UK economy that a housing crash - better to take our medicine now rather than turn into the next Zimbabwe
No one forced these individuals to borrow these huge amounts. And the country also voted for Labour at three successive general elections, knowing quite well their spending plans and fiscal record.
Your right about the inflation angle though. I just hope that Merv and the BOE are willing to stand up to the political pressure and not lower interest rates. In the long run higher inflation will do more damage to the UK economy that a housing crash - better to take our medicine now rather than turn into the next Zimbabwe
Posted by: John, Pennsylvania US on 7:51pm Sun 16 Sep 07
Thank You for a look at the broader scope and implications of the lending irresponsibility scandal. This will not blow over in a few weeks with an interest rate cut here and there and you are correct that the bailout will not reach all the way down to the unfortunates who would need it most directly.
Thank You for a look at the broader scope and implications of the lending irresponsibility scandal. This will not blow over in a few weeks with an interest rate cut here and there and you are correct that the bailout will not reach all the way down to the unfortunates who would need it most directly.
Posted by: LeanneJones, sheffield england on 8:45pm Sun 16 Sep 07
What is the world coming to? I am a first time buyer and with all what is happenning i feel as though the world will be destined to live in a life of unimaginable debt or residing to the 'old days' where theres mum, dad, grandma, grandad, brothers, sisters under one roof! Myself and partner have been looking for a house of our own for over a year and have our budget, the houses we can actually afford end up going sky high due to blind bidding because everyone is in the same boat or theres the appealing 6x your salary where we'd end up living on a tenner for the rest of the month. Something needs to be done and quickly you'd think by now the governemnt could find a happy-medium for all!
What is the world coming to? I am a first time buyer and with all what is happenning i feel as though the world will be destined to live in a life of unimaginable debt or residing to the 'old days' where theres mum, dad, grandma, grandad, brothers, sisters under one roof! Myself and partner have been looking for a house of our own for over a year and have our budget, the houses we can actually afford end up going sky high due to blind bidding because everyone is in the same boat or theres the appealing 6x your salary where we'd end up living on a tenner for the rest of the month. Something needs to be done and quickly you'd think by now the governemnt could find a happy-medium for all!
Posted by: Keith, Belfast, UK on 9:20pm Sun 16 Sep 07
Well, the main reason, by far, for house price inflation in the UK is very short supply and rising demand. Funny that economists who normally cling to the cross of supply and demand, rely on all sorts of other explanations in this particular case, but the simplest is best: the only way to solve this is to start building in a big way.
There has been very little irresponsible lending in the UK (unlile USA) - people need homes, lets start making them.
Well, the main reason, by far, for house price inflation in the UK is very short supply and rising demand. Funny that economists who normally cling to the cross of supply and demand, rely on all sorts of other explanations in this particular case, but the simplest is best: the only way to solve this is to start building in a big way.
There has been very little irresponsible lending in the UK (unlile USA) - people need homes, lets start making them.
Posted by: Ebob, London on 9:35pm Sun 16 Sep 07
As the Nu Labour scam pushed up house prices, people WERE forced to over-borrow. Thye did not have a choice unles they wanted to house their families on a park bench or worse rent.
People were forced to take on too much debt. A handful of people have benefitted as the majority have lost.
Well done, Nu Labour the party of the common people. You will be punished harshly, political obliteration awaits your party for the crimes you have committed against your electorate.
As the Nu Labour scam pushed up house prices, people WERE forced to over-borrow. Thye did not have a choice unles they wanted to house their families on a park bench or worse rent.
People were forced to take on too much debt. A handful of people have benefitted as the majority have lost.
Well done, Nu Labour the party of the common people. You will be punished harshly, political obliteration awaits your party for the crimes you have committed against your electorate.
Posted by: Tom Broderick, Finland on 10:01pm Sun 16 Sep 07
Dear Mr Mc Whirter
From the Alliance & Leicester Annual Report:
"Alliance and Leicester's asset quality is excellent, with just 0.51% of accounts more than 3 months in arrears at the end of December 2006 significantly lower than the Council of Mortgage Lenders’ industry average of 0.95%."
That to me seems to indicate it lends responsibly rather than recklessly as you seem to suggest.
Also I tried plugging in an income of £18,000 into the mortgage calculator on the company's web site and could not get it to tell me it would lend either 6 times income or 125% of mortgage value.
In the current nervous climate your statement about this lender is highly misleading and inflammatory, and could be well be libellous.
I think you should withdraw that statement or be prepared to justify it.
Dear Mr Mc Whirter
From the Alliance & Leicester Annual Report:
"Alliance and Leicester's asset quality is excellent, with just 0.51% of accounts more than 3 months in arrears at the end of December 2006 significantly lower than the Council of Mortgage Lenders’ industry average of 0.95%."
That to me seems to indicate it lends responsibly rather than recklessly as you seem to suggest.
Also I tried plugging in an income of £18,000 into the mortgage calculator on the company's web site and could not get it to tell me it would lend either 6 times income or 125% of mortgage value.
In the current nervous climate your statement about this lender is highly misleading and inflammatory, and could be well be libellous.
I think you should withdraw that statement or be prepared to justify it.
Posted by: Alex, Derry on 10:56pm Sun 16 Sep 07
[quote][bold]Keith[/bold] wrote:
Well, the main reason, by far, for house price inflation in the UK is very short supply and rising demand. Funny that economists who normally cling to the cross of supply and demand, rely on all sorts of other explanations in this particular case, but the simplest is best: the only way to solve this is to start building in a big way.
There has been very little irresponsible lending in the UK (unlile USA) - people need homes, lets start making them. [/quote] Supply and demand is a very popular but factually incorrect myth. I would like to advise you to read the local paper. How many house are trying to be rent out? Theres too many. How many new housing estates are half empty? Theres plenty of houses, just too many people with rose tinted glasses speculive BTL's. And if BTL isnt working, as seen by the number of adverts, the houses they have to pay mortgages on will soon be a financial burden. Belfast will be massively hit, some strange buyers seem to think Belfast houses are worth comparable prices to major UK cities. Remind me again, what is there to do in Belfast? Just look over the border to see whats coming soon for the North.
Keith wrote:
Well, the main reason, by far, for house price inflation in the UK is very short supply and rising demand. Funny that economists who normally cling to the cross of supply and demand, rely on all sorts of other explanations in this particular case, but the simplest is best: the only way to solve this is to start building in a big way.
There has been very little irresponsible lending in the UK (unlile USA) - people need homes, lets start making them.
Supply and demand is a very popular but factually incorrect myth. I would like to advise you to read the local paper. How many house are trying to be rent out? Theres too many. How many new housing estates are half empty? Theres plenty of houses, just too many people with rose tinted glasses speculive BTL's. And if BTL isnt working, as seen by the number of adverts, the houses they have to pay mortgages on will soon be a financial burden. Belfast will be massively hit, some strange buyers seem to think Belfast houses are worth comparable prices to major UK cities. Remind me again, what is there to do in Belfast? Just look over the border to see whats coming soon for the North.
Posted by: Alex, Derry on 11:10pm Sun 16 Sep 07
[quote][bold]Tom Broderick[/bold] wrote:
Dear Mr Mc Whirter
From the Alliance & Leicester Annual Report:
\"Alliance and Leicester\'s asset quality is excellent, with just 0.51% of accounts more than 3 months in arrears at the end of December 2006 significantly lower than the Council of Mortgage Lenders’ industry average of 0.95%.\"
That to me seems to indicate it lends responsibly rather than recklessly as you seem to suggest.
Also I tried plugging in an income of £18,000 into the mortgage calculator on the company\'s web site and could not get it to tell me it would lend either 6 times income or 125% of mortgage value.
In the current nervous climate your statement about this lender is highly misleading and inflammatory, and could be well be libellous.
I think you should withdraw that statement or be prepared to justify it.[/quote] Have you ever experienced being in arrears with A&L, like many similar companies they hassle for payment by any means possible, including the dreaded credit cards.
Second, your typing into a preprogrammed online calculator and using that as evidence. I find this highly amusing. Everybody, including the banks, knows 'independent mortgage advisors' fiddle figures to get anybody any mortgage they want. The online calculator is vastly incorrect to what you can be lent if you swear on your dogs life you'll be able to afford massive repayment.
Lending responsibly means lending within a persons available income. Nobody on an average paying job in the UK can afford and average priced house.
Why is the market nervous, the writer of this article cannot be blamed for that? The article is well supported and as many of the commenter's have agreed is very real.
Withdraw? As noted, this writer isnt censored, and i personally hope whatever hidden feeling of worry on your conscious , be it of making a big financial mistake and ripping off first time buyers, brings its deserts.
Tom Broderick wrote:
Dear Mr Mc Whirter
From the Alliance & Leicester Annual Report:
\"Alliance and Leicester\'s asset quality is excellent, with just 0.51% of accounts more than 3 months in arrears at the end of December 2006 significantly lower than the Council of Mortgage Lenders’ industry average of 0.95%.\"
That to me seems to indicate it lends responsibly rather than recklessly as you seem to suggest.
Also I tried plugging in an income of £18,000 into the mortgage calculator on the company\'s web site and could not get it to tell me it would lend either 6 times income or 125% of mortgage value.
In the current nervous climate your statement about this lender is highly misleading and inflammatory, and could be well be libellous.
I think you should withdraw that statement or be prepared to justify it.
Have you ever experienced being in arrears with A&L, like many similar companies they hassle for payment by any means possible, including the dreaded credit cards.
Second, your typing into a preprogrammed online calculator and using that as evidence. I find this highly amusing. Everybody, including the banks, knows 'independent mortgage advisors' fiddle figures to get anybody any mortgage they want. The online calculator is vastly incorrect to what you can be lent if you swear on your dogs life you'll be able to afford massive repayment.
Lending responsibly means lending within a persons available income. Nobody on an average paying job in the UK can afford and average priced house.
Why is the market nervous, the writer of this article cannot be blamed for that? The article is well supported and as many of the commenter's have agreed is very real.
Withdraw? As noted, this writer isnt censored, and i personally hope whatever hidden feeling of worry on your conscious , be it of making a big financial mistake and ripping off first time buyers, brings its deserts.
Posted by: Bryan, Torquay on 11:57pm Sun 16 Sep 07
[quote][bold]Dave Hall[/bold] wrote:
[quote][bold]Mike[/bold] wrote: I feel vindicated by this article which is one of the very few truthful accounts of the dangerous route that the Gordon Brown/Tony Blair spend spend spend New Labour Government.It isnt rocket science to realise that spending money you dont have has a consequence and that is medicine we are going to have to take for the next few years whether we like it or not.The era of returning savings to back under the matress may be just be upon us. Scotland are probably lucky that we no longer have Englands New Labour Party Controlled Scottish Government continuing its huge spending of public funds for very little benefit are over.The new Government appears to be very focussed on fiscal prudence. Unfortunately I have had to smile at the recent discussions about the need to enable young Scots to get on the housing ladder when in fact the discussions should have been focussed on preparation for those who have over extended themselves in the last few years loosing their equity and roof over their heads. Yes recently we have seen a few attempts by this bubble to in fact burst because of the weight, but fingers were placed to stop the leaks. When it bursts it will be all hands to the pumps to keep the ship afloat. Scotland would be far better off leaving the Union in light of the Countries ability to generate new investment by decreasing Corporate costs and its current reserves of natural recources being more able to ease the problems of a country with such a low population.[/quote] I\'m ambivalent about an independent Scotland - but if it does happen, please take a few politicians with you! Probably no need to list them...[/quote] Gordon Brown (born Glasgow), Tony "mass murderer" Blair (born Edinburgh). Are mostly responsible for this mess. People who live in glass houses comes to mind. Good result against France by the way.
Dave Hall wrote:
Mike wrote: I feel vindicated by this article which is one of the very few truthful accounts of the dangerous route that the Gordon Brown/Tony Blair spend spend spend New Labour Government.It isnt rocket science to realise that spending money you dont have has a consequence and that is medicine we are going to have to take for the next few years whether we like it or not.The era of returning savings to back under the matress may be just be upon us. Scotland are probably lucky that we no longer have Englands New Labour Party Controlled Scottish Government continuing its huge spending of public funds for very little benefit are over.The new Government appears to be very focussed on fiscal prudence. Unfortunately I have had to smile at the recent discussions about the need to enable young Scots to get on the housing ladder when in fact the discussions should have been focussed on preparation for those who have over extended themselves in the last few years loosing their equity and roof over their heads. Yes recently we have seen a few attempts by this bubble to in fact burst because of the weight, but fingers were placed to stop the leaks. When it bursts it will be all hands to the pumps to keep the ship afloat. Scotland would be far better off leaving the Union in light of the Countries ability to generate new investment by decreasing Corporate costs and its current reserves of natural recources being more able to ease the problems of a country with such a low population.
I\'m ambivalent about an independent Scotland - but if it does happen, please take a few politicians with you! Probably no need to list them...
Gordon Brown (born Glasgow), Tony "mass murderer" Blair (born Edinburgh). Are mostly responsible for this mess. People who live in glass houses comes to mind. Good result against France by the way.
Posted by: Mark Graham, Belfast on 12:11am Mon 17 Sep 07
Brilliant piece. Finally someone giving a voice to the sane people who don't believe in this debt-based economy.
Brilliant piece. Finally someone giving a voice to the sane people who don't believe in this debt-based economy.
Posted by: bears all, manchester on 9:24am Mon 17 Sep 07
McWhirter may well be right in his basic assessment of the picture, but he knows nothing about banking and little about economics. Northern Rock has not been "dabbling in American sub-prime" to any significant extent. From memory, less than 1% of its assets are held in these kind of credit derivatives. Its problems have arisen because borrowing short-term but lending long-term depends on the ability to carry on borrowing short-term repeatedly over long periods; American sub-prime has engendered a loss of confidence in the banking sector and so banks like NR can't get the short-term finance they need to carry on lending. It will be interesting to see how long the BoE is prepared to keep extending lines of credit. As for the medium term economic outlook, no, the Labour Government won't be able to take refuge in inflation: this would be as crushing to Brown and Darling's reputations as was Black Wednesday to the Tories. The future lies in economic slow-down and lower interest rates as the Bank tries to pump life into an economy crippled by debt.
McWhirter may well be right in his basic assessment of the picture, but he knows nothing about banking and little about economics. Northern Rock has not been "dabbling in American sub-prime" to any significant extent. From memory, less than 1% of its assets are held in these kind of credit derivatives. Its problems have arisen because borrowing short-term but lending long-term depends on the ability to carry on borrowing short-term repeatedly over long periods; American sub-prime has engendered a loss of confidence in the banking sector and so banks like NR can't get the short-term finance they need to carry on lending. It will be interesting to see how long the BoE is prepared to keep extending lines of credit. As for the medium term economic outlook, no, the Labour Government won't be able to take refuge in inflation: this would be as crushing to Brown and Darling's reputations as was Black Wednesday to the Tories. The future lies in economic slow-down and lower interest rates as the Bank tries to pump life into an economy crippled by debt.
Posted by: Tom Broderick, Finland on 10:46am Mon 17 Sep 07
Another thing from A&L's accounts. They have actually been securitising and selling their mortgages. £2.5 billion of their loans and as of 31 December 2006 were actually held by others (only £0.06 billion in 2005). In other words they have removed a huge chunk of their lending and passed the risk onto the buyers of the securities. Exactly what the US banks have been doing.
Given their good lending history, these securities are likely to be valuable (unlike the junk loans sold by the US banks). There is nothing illegal or worrying about what A&L have done. It helps them keep in the mortgage business whilst keeping their capital base strong. They do retain some interest in these securities as they are subordinated lenders to the vehicles issuing the loans, but the amount is relatively small (£54m).
The accounts don't say if these are new loans or old ones. If they are the new ones then they will be inherently more risky than the old book of loans where the ratio of loan value to property value will be much lower. Securitising newer loans would have been a very smart move indeed.
I think there is every reason to think that this bank is strong and better placed than many others to withstand the current climate.
Another thing from A&L's accounts. They have actually been securitising and selling their mortgages. £2.5 billion of their loans and as of 31 December 2006 were actually held by others (only £0.06 billion in 2005). In other words they have removed a huge chunk of their lending and passed the risk onto the buyers of the securities. Exactly what the US banks have been doing.
Given their good lending history, these securities are likely to be valuable (unlike the junk loans sold by the US banks). There is nothing illegal or worrying about what A&L have done. It helps them keep in the mortgage business whilst keeping their capital base strong. They do retain some interest in these securities as they are subordinated lenders to the vehicles issuing the loans, but the amount is relatively small (£54m).
The accounts don't say if these are new loans or old ones. If they are the new ones then they will be inherently more risky than the old book of loans where the ratio of loan value to property value will be much lower. Securitising newer loans would have been a very smart move indeed.
I think there is every reason to think that this bank is strong and better placed than many others to withstand the current climate.
Posted by: Harold Scott, dDundee on 2:13pm Mon 17 Sep 07
[quote][bold]I knew it would happen[/bold] wrote:
Yes this is a good piece, the problem is that its 3 years to late. How could people not see this coming is beyond me. Someone buys a house for £100000 and five years later buyers are told that it is worth £180000. The buyer now thinks they have £80000 of equity to spend. It is only profit once the property sold. What is going to happen when houses return to more affordable levels? The house will be worth £130000 but the owner will owe £180000. It does not take a genius to work out that this is now negative equity. [/quote] Your maths are barmy mate !!...the guy DOES have £80K equity if it sells for £180K and £30K equity if it sells for £130K.
Who owes £180K...ANSWER....No
-one !!!
I knew it would happen wrote:
Yes this is a good piece, the problem is that its 3 years to late. How could people not see this coming is beyond me. Someone buys a house for £100000 and five years later buyers are told that it is worth £180000. The buyer now thinks they have £80000 of equity to spend. It is only profit once the property sold. What is going to happen when houses return to more affordable levels? The house will be worth £130000 but the owner will owe £180000. It does not take a genius to work out that this is now negative equity.
Your maths are barmy mate !!...the guy DOES have £80K equity if it sells for £180K and £30K equity if it sells for £130K.
Who owes £180K...ANSWER....No
-one !!!
Posted by: 163-046, Glasgow on 3:30pm Mon 17 Sep 07
[quote][bold]Alex[/bold] wrote:
[quote][bold]Tom Broderick[/bold] wrote: Dear Mr Mc Whirter From the Alliance & Leicester Annual Report: \\\"Alliance and Leicester\\\'s asset quality is excellent, with just 0.51% of accounts more than 3 months in arrears at the end of December 2006 significantly lower than the Council of Mortgage Lenders’ industry average of 0.95%.\\\" That to me seems to indicate it lends responsibly rather than recklessly as you seem to suggest. Also I tried plugging in an income of £18,000 into the mortgage calculator on the company\\\'s web site and could not get it to tell me it would lend either 6 times income or 125% of mortgage value. In the current nervous climate your statement about this lender is highly misleading and inflammatory, and could be well be libellous. I think you should withdraw that statement or be prepared to justify it.[/quote] Have you ever experienced being in arrears with A&L, like many similar companies they hassle for payment by any means possible, including the dreaded credit cards. Second, your typing into a preprogrammed online calculator and using that as evidence. I find this highly amusing. Everybody, including the banks, knows \'independent mortgage advisors\' fiddle figures to get anybody any mortgage they want. The online calculator is vastly incorrect to what you can be lent if you swear on your dogs life you\'ll be able to afford massive repayment. Lending responsibly means lending within a persons available income. Nobody on an average paying job in the UK can afford and average priced house. Why is the market nervous, the writer of this article cannot be blamed for that? The article is well supported and as many of the commenter\'s have agreed is very real. Withdraw? As noted, this writer isnt censored, and i personally hope whatever hidden feeling of worry on your conscious , be it of making a big financial mistake and ripping off first time buyers, brings its deserts. [/quote] Funny thing is, A&L unleashed their worst on my partner even though he was [italic]not[/italic] in arrears and was absolutely in the clear with a healthy account. We've gotten used to the debt collection thugs from Frederickson International phoning up at 8AM on Saturdays to bully and abuse whoever answers the phone, even though only my partner was a signatory to the account. We have the documentation to prove we were in the right, and have even sent it to them, but they refuse to accept it. And so their abusive quest goes on, much to our amusement. The A&L crew would rather beat their chests in their obsession with playing God with people's lives than admit they were in the wrong.
This treatment at the hands of A&L belies the general arrogance of the banking system in this country, as epitomised by the troll above (google Tom of Finland, but not if you're at work.)
Alex wrote:
Tom Broderick wrote: Dear Mr Mc Whirter From the Alliance & Leicester Annual Report: \\\"Alliance and Leicester's asset quality is excellent, with just 0.51% of accounts more than 3 months in arrears at the end of December 2006 significantly lower than the Council of Mortgage Lenders’ industry average of 0.95%.\\\" That to me seems to indicate it lends responsibly rather than recklessly as you seem to suggest. Also I tried plugging in an income of £18,000 into the mortgage calculator on the company's web site and could not get it to tell me it would lend either 6 times income or 125% of mortgage value. In the current nervous climate your statement about this lender is highly misleading and inflammatory, and could be well be libellous. I think you should withdraw that statement or be prepared to justify it.
Have you ever experienced being in arrears with A&L, like many similar companies they hassle for payment by any means possible, including the dreaded credit cards. Second, your typing into a preprogrammed online calculator and using that as evidence. I find this highly amusing. Everybody, including the banks, knows \'independent mortgage advisors\' fiddle figures to get anybody any mortgage they want. The online calculator is vastly incorrect to what you can be lent if you swear on your dogs life you\'ll be able to afford massive repayment. Lending responsibly means lending within a persons available income. Nobody on an average paying job in the UK can afford and average priced house. Why is the market nervous, the writer of this article cannot be blamed for that? The article is well supported and as many of the commenter\'s have agreed is very real. Withdraw? As noted, this writer isnt censored, and i personally hope whatever hidden feeling of worry on your conscious , be it of making a big financial mistake and ripping off first time buyers, brings its deserts.
Funny thing is, A&L unleashed their worst on my partner even though he was
not in arrears and was absolutely in the clear with a healthy account. We've gotten used to the debt collection thugs from Frederickson International phoning up at 8AM on Saturdays to bully and abuse whoever answers the phone, even though only my partner was a signatory to the account. We have the documentation to prove we were in the right, and have even sent it to them, but they refuse to accept it. And so their abusive quest goes on, much to our amusement. The A&L crew would rather beat their chests in their obsession with playing God with people's lives than admit they were in the wrong.
This treatment at the hands of A&L belies the general arrogance of the banking system in this country, as epitomised by the troll above (google Tom of Finland, but not if you're at work.)
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