Boomer life according to the economist

[OoopsVoss]

havoc said:

Short-term would have been worse than a car-crash, but once everyone sorted themselves out I'm inclined to agree. It'd certainly have removed the hubris from that industry (and arguably the speculators too), and might have moved us back towards something sustainable.


As it, all that's happened is the taxpayer has funded shareholder losses and banker bonuses, and they've all carried on as before once the dust settled. Hardly a good example of capitalism in action.

Another one. Where do you guys learn this stuff? Packets of Pokemon?

Look, the banks got bigger because the govts set up the Central Banks to do loose or expansive monetary policy. The only to get that from a Central Bank IS through the banking sector. Its not magic, there is no "piff, paff pooooof", but massive private sector financial plumbing.

No one carried on as before, they can't. SVB and a like didn't blow up because they were casino operations punting (its basically impossible in a properly regulated bank), but incompetence in interest rate management. Post crisis banks are largely back to 2 functions. Extend leverage, maturity transformation. Nothing else. Forget about IPOs etc, that's Mickey Mouse stuff.

It might be a good idea if people figured out the difference between banks, hedge funds etc.

Bailouts were expensive, but the crisis response engineered something far more sinister. They co-opted the banks into mandatory support of public se tor debt balloon.

Undoubtedly a lot of bankers dodged some bullets in 2008 (as in legal ones) - but they are not at the wheelhouse of the great wealth divide. In fact they are playing their part to a T. I'm not a Banker BTW, it's just a really good idea to know how who you do business with works.

[havoc]

No need for the insults, and I think I've a fair understanding of the banking sector - dealt with a few of them in my time.

I also think you're gilding the lily rather a lot:-
- regulation (or lack thereof) was the core driver of the 2008 crash. That same regulation was tightened after 2008 and has more recently been relaxed again. Specifically but not exclusively liquidity ratios. There is no magic safety net to stop 2008 happening again. There is no legal or systemic recourse to change things.
- Legislators (i.e. governments) have decided that the banking sector are more important left unchained than the risk they pose through doing so, because the risk is essentially taxpayer funded (i.e. a non-specific future risk), whereas the benefits are increased economic growth now (something governments can claim credit for).
- Hedge funds (and commodity trading in general) are the tail that wags the economic dog, and frankly are a fking liability to everyone but themselves. Consummate middle-men, and make Estate Agents look like saints.
- Public Sector debt balloon - has nothing to do with the banking sector (except they chose to buy into it, but what else were they going to do?) and everything to do with governments playing loose with (future) taxpayer money. The bailouts were a significant beneficiary of all this largesse at our expense, but that is all.
- Wealth divide. Agreed - driven by government policy not by banks. Loose fiscal policy and loose banking regs helped drive unrealistic asset-value growth, but that is all.

[NickZ24]

Scootersp said:

Ignorance is partly fair enough, because we are never really sat down and explained much about money, commercial banking, central banks etc? I'd argue that it's not even that easy to find out definitively exactly what does go on, what exactly all the parties do, the fact there are crisis points to at least those running the show don't know all the in and outs, the pathways are options and the fixes vary, depending on which set of professionals/economists you ask?

We are all born ignorant and it is in our power to change that stage in life.

Knowing the way differs much from walking it.
You can know how things work, but it's up to you to remain a correct person. How many politicians fall for the temptations of government funds? And partly it's legal. I bet there is a commission paid to the people making a schoolbook nationwide a requirement in schools.

You push a credit to a City like London and 0.5% is legally yours. That is how the system works. It supports and pushes people who do good to other party members.

[WayOutWest]

Panamax said:

brickwall said:

According to RS’ tax summary most of his income is investment gains, subject to CGT at 20%.

Yup, that's the way it works. The wealthy don't need to trouble themselves too much about income tax of 40%, 45%, 60% when their reward can be pocketed in the form of capital gains. Mr Starmer and his crew will probably have rather different ideas on this subject when their first budget rolls around.

Rachel Reeves likes to say they will clamp down on tax avoidance. Her ideas of tax avoidance go rather wider than the conventional definition. She will tell you that you're "avoiding tax" unless you're " paying your fair share"...

IMO anyone who's awake and paying attention could usefully make sure their ISA allowances are fully utilised and and any CGT in the pipeline is paid while the rate remains relatively benign. And that 25% tax free lump sum for pensioners could easily be caught within the net as well.

I was surprised when Rachel Reeves said she would not increase CGT to at least equalise with Income Tax rates.
I understand they need to not scare off the middle classes or business owners until they gain power, and want to be seen as different to the Corbyn era, but ruling it out will make it harder to u turn. Although having "no plans to" is basically an excuse to blatantly lie about their intentions.

[OoopsVoss]

havoc said:

No need for the insults, and I think I've a fair understanding of the banking sector - dealt with a few of them in my time.

I also think you're gilding the lily rather a lot:-
1 - regulation (or lack thereof) was the core driver of the 2008 crash. That same regulation was tightened after 2008 and has more recently been relaxed again. Specifically but not exclusively liquidity ratios. There is no magic safety net to stop 2008 happening again. There is no legal or systemic recourse to change things.
2 - Legislators (i.e. governments) have decided that the banking sector are more important left unchained than the risk they pose through doing so, because the risk is essentially taxpayer funded (i.e. a non-specific future risk), whereas the benefits are increased economic growth now (something governments can claim credit for).
3 - Hedge funds (and commodity trading in general) are the tail that wags the economic dog, and frankly are a fking liability to everyone but themselves. Consummate middle-men, and make Estate Agents look like saints.
4 - Public Sector debt balloon - has nothing to do with the banking sector (except they chose to buy into it, but what else were they going to do?) and everything to do with governments playing loose with (future) taxpayer money. The bailouts were a significant beneficiary of all this largesse at our expense, but that is all.
5 - Wealth divide. Agreed - driven by government policy not by banks. Loose fiscal policy and loose banking regs helped drive unrealistic asset-value growth, but that is all.

Its not an insult, you either used far too much brevity or are making stuff up. If the former, I apologise (which is quite likely given my next point) - the later, not so much.

Gilding the lilly, it might look like that - but its a thread on Boomers not a dissection of banks. In the boomer / great wealth divide issue the banks play a tiny part in. The wealth divide was juiced in from the late 70s (reaction to) and 80's Thatcher / Reagan-nomics. The banks had been proper naughty boys in the run up to the GFC - but it wasn't like no one knew what they were doing. And if you think about what they were doing in ballooning leverage on shaky mortgages - they were actually "trying" to get people on the asset ladder (badly and via lots of fraud - there is a truck load of complicity out there). If the regulatory fun police were turning a blind eye - can you really blame the banks for doing - exactly what they are supposed to do?

Some people in here have advocated more QE in response to our current situation - not dissimilar to banks pre-07! (if you squinted).

Its pretty obvious the post GFC reg response and the need to run ultra loose Monetary Policy are paradoxical. BASEL aimed to implement leverage / liquidity ratios to effectively increase banks loss absorption capability - which you means you shrink your book, or it costs more to offer credit. Concurrently the Central Banks are cutting rates and pushing QE. And the only way that hits the real economy is through banks.

If you ignore the shocking behaviour and avarice - they are a cog in the machine. There are much worse & more shiesty areas of banks than the policy transmission.

But since you have brought some points up and for consideration, I shall offer:

1. I'm interested to hear why you think they are watering down liquidity rules, since Credit Suisse went - all the noise has been the other way. In fact with sensible Prime Money Market fund regulations finally landing (and that's a spivvy business) - banks are going to be paying a lot more and get / need quality liability financing. They actually have a big problem, they can't kick the can anymore on BASEL3 and have to solve for NSFR (which given the size of balance sheet there isn't enough off). There is nothing credible I've seen to back up laxer rules - and IF it lands as intended - cost of liquidity is going to orbit. Which will be deleveraging (just as the CBs start cutting).

2. There are not unchained (IMHO). Pillar 1 BASEL shackles the banks to Public Sector debt support. Arguably some of the assumptions made in that gift are Daily Express level economics, ergo spurious.

3. Probably agree

4. I don't think they choose. See point 2 - the regulators gamed it. The biggest buyers are pension funds / asset managers etc - not everyone knows the difference, but the substance of the regs are BS.

5. Agree. I do think the regulations are poor, but I think the G20 baked that in deliberately - it enshrines TBTF and maintain system or else. Its now binary / Dr Strangelove economics. The bank lobbying might look ultra powerful, but a 10 year hiatus on implementing most of BASEL3 is because you can't fk with the system, You can't come out the other side of a banking crisis / collapse. I suspect I'm more cynical about it than many.

[havoc]

Thanks for the considered reply OV (and agreed this is slightly O/T).

Agree with your opening para's on contradiction between regulation and monetary policy. Almost like governments didn't really know what they were doing!

Wasn't aware of the link between BASEL 1 and compulsion to purchase Public Sector debt...that puts an interesting new perspective on things.

BASEL 3 / pushback...my reading had suggested that the UK and US (in particular) were looking to relax the regs to permit the banks to "do more to help the economy" (sic). But i'm not an expert there so that may just as easily be political soundbites as actual policy.

If this was a pub chat it'd be good to continue this in more detail...but it's O/T here so let's get back to bashing boomers, eh?

[Panamax]

havoc said:

I think I've a fair understanding of the banking sector - dealt with a few of them in my time.

Indeed. A world of smoke 'n' mirrors guided by a book that's handed down from generation to generation of the great high priests for true believers to follow, irrespective of its relevance to changed circumstances. Sound familiar?

[anonymous-user]

brickwall said:

If Labour’s landslide is as big as some polls predict, we’re going to have a very different cohort of MPs. For a start it’ll be much younger on average, and we could for first time a House of Commons which is majority renter (rather than owner-occupier).

I think we under-estimate the impact that could have on a government’s direction.

The majority of MP's now are renters it's just at our our expense!

[NickZ24]

Panamax said:

Indeed. A world of smoke 'n' mirrors guided by a book that's handed down from generation to generation of the great high priests for true believers to follow, irrespective of its relevance to changed circumstances. Sound familiar?

Good point.+1

havoc said:

If this was a pub chat it'd be good to continue this in more detail...but it's O/T here so let's get back to bashing boomers, eh?

Who's bashing boomers?
I question the following generation by being too complacent. In the entire western world.

[brickwall]

Bluequay said:

brickwall said:

If Labour’s landslide is as big as some polls predict, we’re going to have a very different cohort of MPs. For a start it’ll be much younger on average, and we could for first time a House of Commons which is majority renter (rather than owner-occupier).

I think we under-estimate the impact that could have on a government’s direction.

The majority of MP's now are renters it's just at our our expense!

Well that strengthens the argument! Right now they’re renters on the public purse, but when it comes to their own cash they’re owner-occupiers (and quite often landlords too).

A world where they are renters on their own dime too might mean their minds are somewhat more focussed on the plight of generation rent.

[Scootersp]

NickZ24 said:

Scootersp said:

Ignorance is partly fair enough, because we are never really sat down and explained much about money, commercial banking, central banks etc? I'd argue that it's not even that easy to find out definitively exactly what does go on, what exactly all the parties do, the fact there are crisis points to at least those running the show don't know all the in and outs, the pathways are options and the fixes vary, depending on which set of professionals/economists you ask?

We are all born ignorant and it is in our power to change that stage in life.

Knowing the way differs much from walking it.
You can know how things work, but it's up to you to remain a correct person. How many politicians fall for the temptations of government funds? And partly it's legal. I bet there is a commission paid to the people making a schoolbook nationwide a requirement in schools.

You push a credit to a City like London and 0.5% is legally yours. That is how the system works. It supports and pushes people who do good to other party members.

We are all born ignorant but one of our first lessons is to learn from those around us, by not starting from scratch we fast track/evolve over time it's the most sensible way? I would argue what your are taught beyond you family though is sometimes poor and as you get older you even wonder if things just left in the "better you don't know" category? or worse, what you are told is enough to understand what others want you to know and the detail is hidden from you?

We start ignorant of many things but are told much early on, sometimes we perhaps don't understand how/why but if we are unsure about what we are told, eg the Earths a sphere and gravity is the force that stops us floating away etc we can look into it in more detail via a book, expert etc.

Money/banking is one of the minimal details given ones. In all of your school history lessons did money ever come up, Gold artifacts perhaps but no money chit chat perhaps Weimar hyperinflation comes up in WW1/2 studies these days? No lessons on personal debt/interest general banking, so is it any wonder the average Joe just thinks bank = money in money out. Worse now IMO that students are burdened with debt (not that they see it in the scary way I do!) from the start, it's normalised to such a degree compared to being a student in the 90's, totally unrecognisable and definitely has an effect (negative I'd say) on the way they view money going forward.

In my previous post when I said parties, I wasn't clear, in that I didn't mean political ones, I meant people at the Treasury, BOE and commercial banks) it's just no typical person knows what the mechanisms are around money and debt, you can see that in clueless politicians and just on here, even those on here with an interest argue around points and disagreed with each other and even articles published by institutions that are part of the system. It's not a simple system at all is it, but it really does feel like it should be? This is where the 'smoke and mirrors' comments come from as I'm not sure many that even work in these places know the way it all works from top to bottom, they know enough to be a good cog in the wheel.

How long ago was "it's a wonderful life" made and yet bank runs would still confound most, it's not common knowledge for example that a bank isn't the custodian of your money as such, you have given them your money and it owes you it back. In my opinion the ignorance that exists of such a basic banking concept is a failing of the society than the individual? I'd argue (tinfoil hat donned) purposely so?

You almost can't get to adulthood without someone explaining that the tide goes in and out due to the gravitational pull of the moon? an interesting fact but unless you live near the sea not one that really matters per se) Whereas you could (and no doubt many have) die still ignorant of basic money/banking matters despite that being an ever present in your adult life.

[OoopsVoss]

In the main its the reporting of economics that is the problem. Very few talk with utter certainty on it, what we are often seeing is stress case reported as fact by lazy media. There are always multiple tests, and the mainstream financial entities aren't punting those outcomes they are hedged - its mandatory under market risk regime. Jamie Dimon has been widely reported as saying the Fed could hit 7 or 8% and JPM will prevail on the Beeb. Could NOT a premonition. I "could" sleep with both the Minogue sisters, but the chances are about 250mil to 1.

People don't understand economics, they are filling in the blanks with fear, prejudice or other noises in their heads (a bit like the imagined slights of Boomers / Millennials etc). The mainstream media have no interest in reporting the facts - but stirring up division. And F.Me, the politicians certainly have little interest in solving the division because that gets you elected.

I can see why it might look that those charged with financial stability don't know their arse from elbow, but often they are system constrained and responding when the economy has come out of equilibrium (which is always the aim). In fact structures that are designed to protect financial stability could be become doomsday devices IF contagion runs too far - post crisis the G20 pushed and incentivised risk into Central Counterparties. In a massive stress event, you took disparate and possible containable risks / defaults into one super sized bomb. Its a theoretical science and one were complexity means outcomes are infinite.

Trying to get back to the Boomer bashing. Its very unlikely anyone intended or designed the output of decades of Monetary easing to be runaway house price inflation. Its a 2nd order effect, but has many other contributing factors (particularly here like shortage of supply, planning rules, land banking etc).

[havoc]

OoopsVoss said:

Trying to get back to the Boomer bashing. Its very unlikely anyone intended or designed the output of decades of Monetary easing to be runaway house price inflation. Its a 2nd order effect, but has many other contributing factors (particularly here like shortage of supply, planning rules, land banking etc).

True in its narrowest form.

However, I'll venture that the following HAVE been clear aims of the last c.20 years of government:-

1) Avoid house price crashes...and by that they would err on the side of safety. Foolishly, too many people equate their house price going up with them being "more wealthy" and that being a good thing (it's not if you ever want to move house, as the price-to-change goes up in real terms costing you more money...and how many single-property-owners ever realise that notional gain?)

2) Encourage home ownership, either as a device to wed people into our debt-consume wage slavery economic model (allow me a little hyperbole), or to support #1 above. HTB is exhibit A, but it's there alongside ultra-high LTV mortgages and encouragement of fractional-ownership models - st policies clearly only designed to keep the property treadmill going.

3) Keep the NIMBYs happy, as they're the ones that vote the most. Which has restricted planning approvals, restricting supply...hell, you know the rest...

4) Devolve / muddy the waters around planning decisions and housing policy, in order to avoid/deflect blame. See above.


...and surely it doesn't take a rocket scientist to work out that the consequence of these actions is ongoing house price inflation.
And in the last 16 years, has there been ONE policy designed to slow this inflation down? A poltician being an ostrich doesn't exempt them (or the rest of the country) from the consequences of their inaction.

[OoopsVoss]

havoc said:

True in its narrowest form.

However, I'll venture that the following HAVE been clear aims of the last c.20 years of government:-

1) Avoid house price crashes...and by that they would err on the side of safety. Foolishly, too many people equate their house price going up with them being "more wealthy" and that being a good thing (it's not if you ever want to move house, as the price-to-change goes up in real terms costing you more money...and how many single-property-owners ever realise that notional gain?)

2) Encourage home ownership, either as a device to wed people into our debt-consume wage slavery economic model (allow me a little hyperbole), or to support #1 above. HTB is exhibit A, but it's there alongside ultra-high LTV mortgages and encouragement of fractional-ownership models - st policies clearly only designed to keep the property treadmill going.

3) Keep the NIMBYs happy, as they're the ones that vote the most. Which has restricted planning approvals, restricting supply...hell, you know the rest...

4) Devolve / muddy the waters around planning decisions and housing policy, in order to avoid/deflect blame. See above.


...and surely it doesn't take a rocket scientist to work out that the consequence of these actions is ongoing house price inflation.
And in the last 16 years, has there been ONE policy designed to slow this inflation down? A poltician being an ostrich doesn't exempt them (or the rest of the country) from the consequences of their inaction.

Its absolutely critical that once you have inflated the values (even IF unintended) - you probably need to maintain them. 1 and 2 are closely related, the Mk To Mkt value of your house doesn't represent market liquidity and what you get IF you had to sell (and everyone else was at the same time - firesale dynamics are frankly frightening if you read what the academics say about them). 3 and 4 are more granular forms of ensuring short supply.

Once the asset prices are up, deflating them is almost always going to bad - given they are built on leverage. Look up some articles on CRE and look at the risks in that. There could be some very nasty bankside blow back - particularly stateside.

[Scootersp]

OoopsVoss said:

People don't understand economics,

Economists don't always understand it either do they? Professionals can disagree or be in one 'camp' or another? and economics can look different depending on where you are personally positioned?

Lot's of modelling and theories, not so many hard facts, presumably because in part you are dealing with human. so unrepeatable/unreliable, emotions?

[havoc]

OoopsVoss said:

Once the asset prices are up, deflating them is almost always going to bad

For sudden / significant devaluations - your classic "crash", I agree.

For slight / steady devaluations in £-value terms (which become more significant deflation over time as wage inflation eventually bites), I'm not convinced. I still maintain that's the way we need to go. It'll get speculators out of the market quickly (removing that additional driver of price inflation), it'll improve buyer power in negotiations and remove the st-show that is gazumping, and over the course of e.g. 5-10 years we might get back to a sustainable long-term income multiple. It might even temper the inflatory aspect of all these new builds going up for silly money.


The issues are mainly of negative equity and default. (and market confidence, but that just affects transaction volumes)
- The first only affects owners needing to sell/move, and arguably only FTBs who bought with minimal deposit, as a second-mover will have accumulated asset-growth.
- The second again only affects those properties who were bought recently with very high LTV, and forgive me but if a bank offers a risky product then the bank needs to accept that they might have to swallow some of the risk. Did sub-prime and CDOs teach them nothing?

[OoopsVoss]

havoc said:

For sudden / significant devaluations - your classic "crash", I agree.

For slight / steady devaluations in £-value terms (which become more significant deflation over time as wage inflation eventually bites), I'm not convinced. I still maintain that's the way we need to go. It'll get speculators out of the market quickly (removing that additional driver of price inflation), it'll improve buyer power in negotiations and remove the st-show that is gazumping, and over the course of e.g. 5-10 years we might get back to a sustainable long-term income multiple. It might even temper the inflatory aspect of all these new builds going up for silly money.


The issues are mainly of negative equity and default. (and market confidence, but that just affects transaction volumes)
- The first only affects owners needing to sell/move, and arguably only FTBs who bought with minimal deposit, as a second-mover will have accumulated asset-growth.
- The second again only affects those properties who were bought recently with very high LTV, and forgive me but if a bank offers a risky product then the bank needs to accept that they might have to swallow some of the risk. Did sub-prime and CDOs teach them nothing?

Feels like the thread is going mega parochial - apologies for those wanting to bash boomers / millennials (no offence havoc)...

These arguments are not without merit, they make a lot of sense at the "end user" experience of expansive monetary policy.

I agree that this asset price inflation is unsustainable - but to solve for economic contraction the solution is more leverage. There is 3 x leverage to global GDP, with correlated financial entities. Banks don't lend to each other unsecured. That's a mugs game (basically anyone who puts money in a bank). The legal system around secured lending means if asset prices contract (used to secure that leverage) fall, you are in an uncontrolled unwind - at speed. Everyone needs cash to cover margin calls - otherwise you are put into default. If Ooops puts Bank X in default because they didn't make a margin call and Bank Havoc gets wind and he doesn't get his margin call, he calls default too; fear is in the system. Then asset prices are tanking you are in a death spiral.

The regulatory regime and leverage growth is incompatible with getting to the righteous solution. Because you couldn't sell ABS/CDO in a stress event, it marks to zero. You are proper fked. You can't lend it to raise cash to cover margin calls. Ergo - you are in default. It doesn't matter that some of those mortgages still get paid, you cant borrow against the packaged product because no one "trusts" it (crypto fans take note). Leverage collapses in on itself.

Boomer asset wealth has been built on a lot of that. Over time, the assets might hit the unleveraged value - but not before the entire banking system has collapsed. Which means no payments.

Its that fragile.

I'm not saying its correct, but read the regulations (its not a secret). Arguably its perverse, but the only way to avoid system collapse is gradual realignment - ergo wealth taxes (or subtle methods). Which are needed.

Edited by OoopsVoss on Wednesday 17th April 21:42

[havoc]

OoopsVoss said:

Its that fragile.

I'm not saying its correct, but read the regulations (its not a secret). Arguably its perverse, but the only way to avoid system collapse is gradual realignment - ergo wealth taxes (or subtle methods). Which are needed.

You mean it's that dysfunctional.

Mark-to-market liquidity / leverage rules that focus on short-term stress not real-world unwind*, meanwhile on the other side of the coin ultra-high-LTV loans (which are most likely to end up in a CDO or otherwise deemed junk) are still permitted. Ditch that, or require alternate security for such loans, and you lose a lot of the risk associated with that tip into asset-price deflation, and the spiral doesn't need to happen because they're no longer operating on a knife-edge.

Wealth taxes / similar levers - absolutely. They seem to get the average (read: affluent) Joe on here into a froth, but if we can't use the market to flatten prices then we sadly need to use blunter instruments.



* A reposessed property is NEVER worth £NIL. Only the bizarre world of banking where they have to assume worst-case, instantaneous release, does such a thing exist. It's like some of the new accounting standards which are ditching substance over form and requiring us to take a more US-GAAP style presentation...makes no sense to any casual readers of the financial statements and in some senses appears misleading, but seemed perfectly logical in the echo chambers of the regulators.

[brickwall]

I’m in agreement with you both. There has to be a level of gradual real-terms asset price deflation that does not lead to systemic collapse. There are legitimate arguments as to what that rate is.

In the residential real estate market (which is where a lot of Boomer wealth is stored), I’m of the opinion that the UK could sustain nominal falls of 2-3% p.a. without enormous consequence. Most levered owners (mortgaged homeowners) will have years of equity buffer at that rate, and will be repaying capital fast enough to keep up.

With inflation at 3%, it wouldn’t take long to re-base income multiples.

The big question is how you achieve that. The preferred option surely would be to increase supply and let the market find its new equilibrium. But if that’s not an option (too slow, or too much NIMBY opposition) then you may need to pull the tax lever.

[funinhounslow]

brickwall said:

The big question is how you achieve that. The preferred option surely would be to increase supply and let the market find its new equilibrium. But if that’s not an option (too slow, or too much NIMBY opposition) then you may need to pull the tax lever.

Won’t S24 (ending mortgage interest being treated as tax deductible ) and recent interest rate increases do this by making BTL unviable for many landlords?