10 years since the start of the financial crisis.
Discussion
Lucas Ayde said:
Whilst ultimately it's the banks who create the credit and then risk collapsing the system and trashing the economy when they overextend themselves, I'd have to say that people who took on such stupid debts are feckless idiots too.
Of course, from the banks point of view why worry? The more you lend, the more you can potentially make and if it all goes belly up, a nice word with the politicians you've been carefully cultivating and the taxpayer steps in to clean up the mess and make your losses good. It certainly worked out nicely for most of the banking sector (other than NR and Lehmans of course) who have been doing nicely out of a decade of bank-friendly fiscal repression and bailouts/stimuli.
The only surprise is that Northern Rock got to where it was; Today it would have been bailed out or provided with as much liquidity as needed behind the scenes - I believe they changed the law shortly afterwards to allow the BoE to keep banks on life support without telling the public who are effectively back-stopping the banks losses.
What the public really need to do is inform themselves of the difference between bank credit and money ... and how the banking sector effectively creates about 90% of the 'money' supply through interest bearing loans. Maybe then people wouldn't be so laissez-faire about letting the bankers get away with what they do.
i don't think many will argue your first paragraph. i still find it hard to believe how easy it is for people to get into serious debt even today. what exactly passes for due diligence with those that do the lending ?Of course, from the banks point of view why worry? The more you lend, the more you can potentially make and if it all goes belly up, a nice word with the politicians you've been carefully cultivating and the taxpayer steps in to clean up the mess and make your losses good. It certainly worked out nicely for most of the banking sector (other than NR and Lehmans of course) who have been doing nicely out of a decade of bank-friendly fiscal repression and bailouts/stimuli.
The only surprise is that Northern Rock got to where it was; Today it would have been bailed out or provided with as much liquidity as needed behind the scenes - I believe they changed the law shortly afterwards to allow the BoE to keep banks on life support without telling the public who are effectively back-stopping the banks losses.
What the public really need to do is inform themselves of the difference between bank credit and money ... and how the banking sector effectively creates about 90% of the 'money' supply through interest bearing loans. Maybe then people wouldn't be so laissez-faire about letting the bankers get away with what they do.
heebeegeetee said:
But again, isn't that like blaming the police for crime? I mean yes, if the police don't do their job properly then crime will rise, but that doesn't make people choose to be thieves.
No, it really isn’t.Again, equating much of the bank behaviour to criminal activity is fundamentally flawed.
fesuvious said:
andy_s said:
Lucas Ayde said:
V8 Fettler said:
One example is the Northern Rock business model, which was based on liquidity being pemanently available, it wasn't, NR crashed.
Handing out 125% percent mortgages probably didn't help either .....Just because a product is on sale it doesn't get bought until somebody decides, for themselves that they would like it.
Those same individuals saw the repayment structure , interest rates and term before they signed for it.
I took a daft self-cert mortgage in 2006. It was absolutely more than I could afford and I lied about my earnings to get it. I made A decision that I could make it work and earn my way out of it. I did.
However, if I'd failed, I wouldn't have blamed the bank. I made the choice.
wc98 said:
Lucas Ayde said:
Whilst ultimately it's the banks who create the credit and then risk collapsing the system and trashing the economy when they overextend themselves, I'd have to say that people who took on such stupid debts are feckless idiots too.
Of course, from the banks point of view why worry? The more you lend, the more you can potentially make and if it all goes belly up, a nice word with the politicians you've been carefully cultivating and the taxpayer steps in to clean up the mess and make your losses good. It certainly worked out nicely for most of the banking sector (other than NR and Lehmans of course) who have been doing nicely out of a decade of bank-friendly fiscal repression and bailouts/stimuli.
The only surprise is that Northern Rock got to where it was; Today it would have been bailed out or provided with as much liquidity as needed behind the scenes - I believe they changed the law shortly afterwards to allow the BoE to keep banks on life support without telling the public who are effectively back-stopping the banks losses.
What the public really need to do is inform themselves of the difference between bank credit and money ... and how the banking sector effectively creates about 90% of the 'money' supply through interest bearing loans. Maybe then people wouldn't be so laissez-faire about letting the bankers get away with what they do.
i don't think many will argue your first paragraph. i still find it hard to believe how easy it is for people to get into serious debt even today. what exactly passes for due diligence with those that do the lending ?Of course, from the banks point of view why worry? The more you lend, the more you can potentially make and if it all goes belly up, a nice word with the politicians you've been carefully cultivating and the taxpayer steps in to clean up the mess and make your losses good. It certainly worked out nicely for most of the banking sector (other than NR and Lehmans of course) who have been doing nicely out of a decade of bank-friendly fiscal repression and bailouts/stimuli.
The only surprise is that Northern Rock got to where it was; Today it would have been bailed out or provided with as much liquidity as needed behind the scenes - I believe they changed the law shortly afterwards to allow the BoE to keep banks on life support without telling the public who are effectively back-stopping the banks losses.
What the public really need to do is inform themselves of the difference between bank credit and money ... and how the banking sector effectively creates about 90% of the 'money' supply through interest bearing loans. Maybe then people wouldn't be so laissez-faire about letting the bankers get away with what they do.
But when I first became independent around 5 years ago I was shocked how easy it was to borrow money. Perhaps it was the way I was brought up but I kind of expected borrowing money to be a really big deal with loads of checks and lots of waiting while the powers at be decided I could have it.
The reality of course was that I went to look at a new BMW sales men said its X amount a month I said yes. Signed on the dotted line there and then, that was that I had borrowed money for a car. Was much the same with my house just more paperwork but actually sorting the mortgage was again very easy.
As I have said maybe it is me. I do think it should be made harder to borrow or more weight put on what you are actually committing yourself to. I have plenty of friends who dug themselves into big holes by not really sitting down and figuring it out. They are stupid for doing it on the other had it shouldn't go as far.
There is probably a middle ground some where.
Lucas Ayde said:
sidicks said:
Read about the introduction is the Community Reinvestment Act (CRA) and the pressure put on banks to comply.
Uh huh.What penalties were in place for banks who wouldn't recklessly extend credit then? Was anyone is the banking industry prosecuted for being prudent instead of reckless?
Of course not, no-one was 'making' the banks hand out money to anyone who could fog a mirror.
Clinton's bigger crime was the part he played in effectively killing off the Glass-Steagal act which allowed investment banks to play with depositors funds and which gave them the pretext to stick their hands out for a massive socialist-style bailout once their greed caught up with them.
And whilst certainly many individual took the p155, the hand of government and shareholders were in this all along. The biggest equity owners of banks are mainly Black rock, Vanguard, State Street etc so many of the shs are sitting in people's retirement vehicles. Shs holders were pushing for the profits, and money is made the closer you sail to the wind (which very easily becomes roguish ala RBS).
Ultimately banks have 2 functions maturity transformation and leverage extension. It was far too easy to print profits on carry trading (borrow open / lend term); or create super size leverage (via shenanigans of CDO squared) - especially if you can get the rating agents in on it.
ntiz said:
As you say it take 2 sides for the system to work.
But when I first became independent around 5 years ago I was shocked how easy it was to borrow money. Perhaps it was the way I was brought up but I kind of expected borrowing money to be a really big deal with loads of checks and lots of waiting while the powers at be decided I could have it.
The reality of course was that I went to look at a new BMW sales men said its X amount a month I said yes. Signed on the dotted line there and then, that was that I had borrowed money for a car. Was much the same with my house just more paperwork but actually sorting the mortgage was again very easy.
As I have said maybe it is me. I do think it should be made harder to borrow or more weight put on what you are actually committing yourself to. I have plenty of friends who dug themselves into big holes by not really sitting down and figuring it out. They are stupid for doing it on the other had it shouldn't go as far.
There is probably a middle ground some where.
this is my outlook as well. the most i ever borrowed for a car was 7k when i bought a vr6 (wife was on a holiday,pure coincidence But when I first became independent around 5 years ago I was shocked how easy it was to borrow money. Perhaps it was the way I was brought up but I kind of expected borrowing money to be a really big deal with loads of checks and lots of waiting while the powers at be decided I could have it.
The reality of course was that I went to look at a new BMW sales men said its X amount a month I said yes. Signed on the dotted line there and then, that was that I had borrowed money for a car. Was much the same with my house just more paperwork but actually sorting the mortgage was again very easy.
As I have said maybe it is me. I do think it should be made harder to borrow or more weight put on what you are actually committing yourself to. I have plenty of friends who dug themselves into big holes by not really sitting down and figuring it out. They are stupid for doing it on the other had it shouldn't go as far.
There is probably a middle ground some where.
) in the mid nineties. i remember thinking it was a big loan at the time even though both of us were working with a combined income (poverty level for ph) of 45 k and our mortgage was 150 quid a month.i saw too many mates end up wage slaves once their income rose. instead of having more fun they bought into the status symbol house and new car every couple of years.fine when everything is going well. many ended up in trouble, broken marriages due to arguments over money and those that lost good jobs in the downturn ended up working mental hours for lower pay just to keep their heads above water.
Brooking10 said:
av185 said:
Different scenario though. The builder being intentionally fraudulent.
By coincidence we have just acted for the police in several cases of itinerant builders defrauding the elderly for unecessary and grossly overpriced building work and they quite rightly have received prison sentences of varying terms.
Yes the lending institutions pushed their products very cleverly. Just like the car pcp 'treadmill' bubble which many are quite rightly predicting as being the next 2008. Many are rolling the debt from their returned vehicle onto the shiny new one. What could possibly go wrong?
But, not unlike the majority of aspirational homeowners pre 2008 no one is forcing the pcpers to take on extra debt to fund their shiny new lifestyle vehicle perhaps solely to impress the neighbours. It is their decision and their decision only. Presumably based on a 'better and more prosperous' future.
Or when everything goes tits up again who will they blame?
Can you explain in more detail how the UK automotive credit market will precipitate events similar to the collapse of several global financial institutions and create a world wide recession ?By coincidence we have just acted for the police in several cases of itinerant builders defrauding the elderly for unecessary and grossly overpriced building work and they quite rightly have received prison sentences of varying terms.
Yes the lending institutions pushed their products very cleverly. Just like the car pcp 'treadmill' bubble which many are quite rightly predicting as being the next 2008. Many are rolling the debt from their returned vehicle onto the shiny new one. What could possibly go wrong?
But, not unlike the majority of aspirational homeowners pre 2008 no one is forcing the pcpers to take on extra debt to fund their shiny new lifestyle vehicle perhaps solely to impress the neighbours. It is their decision and their decision only. Presumably based on a 'better and more prosperous' future.
Or when everything goes tits up again who will they blame?
Presumably you can see that any probable interest rate rises will be passed directly onto mortgagees and those consumers heavily into debt living the dream maxed out on cards and the monthlies etc leaving the door wide open for further debt hitting spending abillity across all sectors and an already fragile property market.
Also factor in the falling relative residuals on even faux 'premium' white goods end of pcp vehicles (around 85% of new Mercedes last year were pcpd reflecting the meteoric rise of this form of 'purchase' many by people who could not afford them) and plummeting residuals on the back of dieselgate further exacerbated by increased supply of these end of pcp vehicles in the auctions.
fesuvious said:
Those that accepted are also the ones who asked!
Just because a product is on sale it doesn't get bought until somebody decides, for themselves that they would like it.
Those same individuals saw the repayment structure , interest rates and term before they signed for it.
I took a daft self-cert mortgage in 2006. It was absolutely more than I could afford and I lied about my earnings to get it. I made A decision that I could make it work and earn my way out of it. I did.
However, if I'd failed, I wouldn't have blamed the bank. I made the choice.
It used to be that the banks would be keeping you in check, were looking out for you, ensuring you weren't being reckless, now not so much.....Just because a product is on sale it doesn't get bought until somebody decides, for themselves that they would like it.
Those same individuals saw the repayment structure , interest rates and term before they signed for it.
I took a daft self-cert mortgage in 2006. It was absolutely more than I could afford and I lied about my earnings to get it. I made A decision that I could make it work and earn my way out of it. I did.
However, if I'd failed, I wouldn't have blamed the bank. I made the choice.
So much like regular businesses you now cannot rely on them/trust them to partially look out for you, but have to assess for yourself all the factors which is ok for some of the population but not all, hence the way it used to be, banks protecting you in order to protect themselves.
Are uni Students fully assessing the ramifications of their loans or are they simple thinking this is the way it has to be, government says so (you should be able to trust them too!)
Very very few direct or implied messages of prudence coming from government, media or banks/businesses.
Scootersp said:
Very very few direct or implied messages of prudence coming from government, media or banks/businesses.
Exactly this. The banks are the on/off ramp for monetary policy to the real economy. Cut rates to stimulate internal demand has a positive effect on growth in an economy. Economies need growth to increase tax take as Govt needs to spend more (some level of inflation is also desirable to reduce cost if servicing legacy debt).The problem (macro), was the western economy used monetary policies AND allowed the ballooning of leverage (banks lending), to substitute for poor wage growth. At the short end, government has little incentive promote consumer prudence.
Other stimulus measures are few on the ground, or frankly terrifying for governments to admit so they resort to can kicking. If Eurozone bank balance sheet is over 3 times the 28 member GDP, every government knows there is a problem.
Unfortunately whilst we can all point to anecodotal incidences of sharp, spivy or borderline immoral outlier behave of some banks, the systemic risks are less greed but keeping the wheels turning. Sure greed played a part, but if you look at post crisis regulatory response it enshrined private sector support of public debt burden (the bailouts are in some ways funded by the banks in the requirement / incentive to hold govt debt). Whilst UK banks had been naughty, houses should be largely in order. The Eurozone however, presents a systemic risk beyond that of 07. Gaming liquidity ratios, ever pushing for lower capital standards (fractional reserve banking with no reserve) and the doomsday device of Target2; is a ticking bomb. Underlying that? Public sector debt crisis.
ntiz said:
As you say it take 2 sides for the system to work.
But when I first became independent around 5 years ago I was shocked how easy it was to borrow money. Perhaps it was the way I was brought up but I kind of expected borrowing money to be a really big deal with loads of checks and lots of waiting while the powers at be decided I could have it.
The reality of course was that I went to look at a new BMW sales men said its X amount a month I said yes. Signed on the dotted line there and then, that was that I had borrowed money for a car. Was much the same with my house just more paperwork but actually sorting the mortgage was again very easy.
As I have said maybe it is me. I do think it should be made harder to borrow or more weight put on what you are actually committing yourself to. I have plenty of friends who dug themselves into big holes by not really sitting down and figuring it out. They are stupid for doing it on the other had it shouldn't go as far.
There is probably a middle ground some where.
You are effectively complaining about being treated like an adult capable of making your own decisions. But when I first became independent around 5 years ago I was shocked how easy it was to borrow money. Perhaps it was the way I was brought up but I kind of expected borrowing money to be a really big deal with loads of checks and lots of waiting while the powers at be decided I could have it.
The reality of course was that I went to look at a new BMW sales men said its X amount a month I said yes. Signed on the dotted line there and then, that was that I had borrowed money for a car. Was much the same with my house just more paperwork but actually sorting the mortgage was again very easy.
As I have said maybe it is me. I do think it should be made harder to borrow or more weight put on what you are actually committing yourself to. I have plenty of friends who dug themselves into big holes by not really sitting down and figuring it out. They are stupid for doing it on the other had it shouldn't go as far.
There is probably a middle ground some where.
andy_s said:
fesuvious said:
andy_s said:
Lucas Ayde said:
V8 Fettler said:
One example is the Northern Rock business model, which was based on liquidity being pemanently available, it wasn't, NR crashed.
Handing out 125% percent mortgages probably didn't help either .....Just because a product is on sale it doesn't get bought until somebody decides, for themselves that they would like it.
Those same individuals saw the repayment structure , interest rates and term before they signed for it.
I took a daft self-cert mortgage in 2006. It was absolutely more than I could afford and I lied about my earnings to get it. I made A decision that I could make it work and earn my way out of it. I did.
However, if I'd failed, I wouldn't have blamed the bank. I made the choice.
av185 said:
Brooking10 said:
av185 said:
Different scenario though. The builder being intentionally fraudulent.
By coincidence we have just acted for the police in several cases of itinerant builders defrauding the elderly for unecessary and grossly overpriced building work and they quite rightly have received prison sentences of varying terms.
Yes the lending institutions pushed their products very cleverly. Just like the car pcp 'treadmill' bubble which many are quite rightly predicting as being the next 2008. Many are rolling the debt from their returned vehicle onto the shiny new one. What could possibly go wrong?
But, not unlike the majority of aspirational homeowners pre 2008 no one is forcing the pcpers to take on extra debt to fund their shiny new lifestyle vehicle perhaps solely to impress the neighbours. It is their decision and their decision only. Presumably based on a 'better and more prosperous' future.
Or when everything goes tits up again who will they blame?
Can you explain in more detail how the UK automotive credit market will precipitate events similar to the collapse of several global financial institutions and create a world wide recession ?By coincidence we have just acted for the police in several cases of itinerant builders defrauding the elderly for unecessary and grossly overpriced building work and they quite rightly have received prison sentences of varying terms.
Yes the lending institutions pushed their products very cleverly. Just like the car pcp 'treadmill' bubble which many are quite rightly predicting as being the next 2008. Many are rolling the debt from their returned vehicle onto the shiny new one. What could possibly go wrong?
But, not unlike the majority of aspirational homeowners pre 2008 no one is forcing the pcpers to take on extra debt to fund their shiny new lifestyle vehicle perhaps solely to impress the neighbours. It is their decision and their decision only. Presumably based on a 'better and more prosperous' future.
Or when everything goes tits up again who will they blame?
Presumably you can see that any probable interest rate rises will be passed directly onto mortgagees and those consumers heavily into debt living the dream maxed out on cards and the monthlies etc leaving the door wide open for further debt hitting spending abillity across all sectors and an already fragile property market.
Also factor in the falling relative residuals on even faux 'premium' white goods end of pcp vehicles (around 85% of new Mercedes last year were pcpd reflecting the meteoric rise of this form of 'purchase' many by people who could not afford them) and plummeting residuals on the back of dieselgate further exacerbated by increased supply of these end of pcp vehicles in the auctions.
Your 2008 inference was that PCP is storing up a potentially systemic threat was it not ? Can you focus on that rather than the cheap jibes at poor people ?
Gecko1978 said:
As a concept a mortgage is simple. There is a house at £x i can lend you £x you will pay back £y. So when customers were asked how much money do you earn did they say £x or £x a made up number
Uhu, that's how it all happened - all of a sudden everyone started to lie to the banks.PCP is not a systemic threat. It’s a simple way into new vehicles, that keeps people in jobs in the manufacturers and support businesses. The individual default risk is tiny compared to the risk the Finance Companies are taking on underlying residuals. Used effectively PCP can be used as an effective hedge against vehicle depreciation – but many do not view it this way. PCPs problem is the manner in which it is sold. By concentrating on monthlies, it’s easy to offload vehicles at inflated list / no discount. That’s why a Mini costs 30bags, but if your monthly is only a 100quid – then a lot of people can bridge that from savings and give it back to the manufacturer at VT point.
Overloading the used market with barges at 27pence is PH porn anyway – no idea why its vilified so much (aside from a way for a few to look down upon others from the seat of their 15year old beige Volvo V78 or whatever).
Overloading the used market with barges at 27pence is PH porn anyway – no idea why its vilified so much (aside from a way for a few to look down upon others from the seat of their 15year old beige Volvo V78 or whatever).
Brooking10 said:
You are simply recycling numerous car credit threads which appear regularly on PH and using the veil of economics to project your often cited personal perspectives about how other people live their lives and the cars they drive.
Your 2008 inference was that PCP is storing up a potentially systemic threat was it not ? Can you focus on that rather than the cheap jibes at poor people ?
Eh?Your 2008 inference was that PCP is storing up a potentially systemic threat was it not ? Can you focus on that rather than the cheap jibes at poor people ?
Try reading my post again.
Seeing as you appear to be unable to grasp the subject for some reason, here are some questions for you to consider.
What percentage of people financing new cars have been forced to cut back elsewhere to meet payments?
Has the meteoric rise in car leasing resulted in a large rise in UK personal debt?
Do you think an increase in vehicles handed back will increase residuals?
Do you think increased pollution awareness and dieselgate will help residuals especially on diesel cars?
Does pcp rely on guaranteed gfvs?
Does a strong used car market affect gfvs?
Will saturation point affect gfvs?
Do you think stretched and indebted households ability to pay will be pressurised in any way following interest rate rises and increased likelihood of unemployment? Will this be good or bad for the economy?
av185 said:
Brooking10 said:
You are simply recycling numerous car credit threads which appear regularly on PH and using the veil of economics to project your often cited personal perspectives about how other people live their lives and the cars they drive.
Your 2008 inference was that PCP is storing up a potentially systemic threat was it not ? Can you focus on that rather than the cheap jibes at poor people ?
Eh?Your 2008 inference was that PCP is storing up a potentially systemic threat was it not ? Can you focus on that rather than the cheap jibes at poor people ?
Try reading my post again.
Seeing as you appear to be unable to grasp the subject for some reason, here are some questions for you to consider.
What percentage of people financing new cars have been forced to cut back elsewhere to meet payments?
Has the meteoric rise in car leasing resulted in a large rise in UK personal debt?
Do you think an increase in vehicles handed back will increase residuals?
Do you think increased pollution awareness and dieselgate will help residuals especially on diesel cars?
Does pcp rely on guaranteed gfvs?
Does a strong used car market affect gfvs?
Will saturation point affect gfvs?
Do you think stretched and indebted households ability to pay will be pressurised in any way following interest rate rises and increased likelihood of unemployment? Will this be good or bad for the economy?
It’s not.
It’s nothing like that.
You don’t like pcp I get that but you’re wide of the mark in your initial assertion.
Consumer spending and the property market are both due a correction., but to pin it all car credit is simplistic to say the least.
sidicks said:
andy_s said:
Uhu, that's how it all happened - all of a sudden everyone started to lie to the banks.
How many people actually defaulted, and how much did this cost the banks?sidicks said:
Countdown said:
Just had a quick look and that’s a piece of US legislation. My question was how did US law force UK banks to behave in the way they did?
Which ‘behaviour’ are you talking about - it was you that referenced ‘sub prime’. What did you mean?Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff