10 years since the start of the financial crisis.
Discussion
crankedup said:
How does the 2008 financial crash compare to the 1929 version. By this I mean in technical senses, my basic notion is that the early crash was brought about by investments in shares being over inflated by every tom, dick & harry piling into them. The 2008 crash brought about by bad lending to every tom, dick & harry. Don’t seem to learn do we?
It's human nature. If there's a chance for profit people will push it as much as possible, until it blows up in their face. If you're in and out early enough then you can make loads, if you're in late and out late it might take you down, if there's enough people doing it then it collapses the system for a while.Lucas Ayde said:
I got rejected when applying for my first credit card and only got one because the manager for student accounts at my bank put a supporting reference in my second application (I was doing a year of work experience as part of my degree so actually was drawing a salary). Credit limit was £200. Back then you really had to make a case that you could actually pay back any money that you borrowed and the focus was on getting people to save and deposit their money with the bank.
Flash forward to today and going in to one of the few remaining high street branches these days means being accosted by offers of credit. They have just become focused on pushing as much credit (ie. debt) as possible onto their customer base. Interest rates for the few people who want to deposit savings are risible - you'd not be much worse off keeping your money in a suitcase under the bed and at least you wouldn't have to worry about bank solvency/counter party risk.
Indeed and this on top of all their enforced student loans these days!Flash forward to today and going in to one of the few remaining high street branches these days means being accosted by offers of credit. They have just become focused on pushing as much credit (ie. debt) as possible onto their customer base. Interest rates for the few people who want to deposit savings are risible - you'd not be much worse off keeping your money in a suitcase under the bed and at least you wouldn't have to worry about bank solvency/counter party risk.
Massive change around really and like I say it's 100% not been driven by customers/consumers/the public, 'we' would have taken advantage of offers/deals back then just as (the royal) we do now but we weren't allowed to.
So it seems, loosening of regulations, caused many banks to seek to maximise profits and in so doing moving a away from 100% ethical/or at least partially towards dubious practices, more risk taking by some, a subtle change over the years but ending up with this sea change over say 25 years.
The 'too big to fail' line was rolled out back then is this true to any extent now? the worst part of our situation now seems to be the global effect ie Bundesbank having problems means we will have problems, are we all as intrinsically linked as I have seen reported?
I sort of think lots of western countries are all like households running at excess expenditure over income, they know they shouldn't but the other option of beans on toast, no holidays and return the badge car for a snotter to balance the books is unattractive and ultimately not worth it all the time the creidt is there, fair?
Even worse for countries is a public move to be the frugal "let's fix this mess" would be launched on by 'markets' and investors and we'd be out on the street while the credit plunderers carry on as normal!?
Is this correct, any all or none!?
andy_s said:
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?Was it perhaps not a case of the law allowed banks to lend with a certian level of diligence and to rate belneded asserts in a certain way (goverment fault). Banks took advantage and assumed this would go on forever (Banks fault). Customers own greed led them to over stretch an not think about the future (public's fault)
Gecko1978 said:
andy_s said:
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?Was it perhaps not a case of the law allowed banks to lend with a certian level of diligence and to rate belneded asserts in a certain way (goverment fault). Banks took advantage and assumed this would go on forever (Banks fault). Customers own greed led them to over stretch an not think about the future (public's fault)
Mrr T said:
It’s not often I agree with sidicks but in this case I agree with most of his post. I do have a slightly different view on what the government (G Brown) did wrong. While GB’s first act as chancellor was to make the BOE interest rating setting independent. When house price rises increased inflation which would cause a rate rise GB changed the inflation measure to exclude all impacts of house price inflation. He was also very slow to fill vacancies on the committee and choose who would follow the governor.
If in the 2 years before the crisis the BOE had increased rates to slow the growth of house prices, the crash would have been much less serious.
As regards the BoE and interest rates they did. They went from 4.5% -5.75% from 2005-2007, little difference it made, as it was the interbank liquidity that was the problem, not the rates of interest people were paying.If in the 2 years before the crisis the BOE had increased rates to slow the growth of house prices, the crash would have been much less serious.
Gecko1978 said:
So the tens of thoudands of people who defualted were stupid well that's that cleared up then.
Tens of thousands of people didn't default.Gecko1978 said:
Was it perhaps not a case of the law allowed banks to lend with a certian level of diligence and to rate belneded asserts in a certain way (goverment fault).
Nothing work with the rating process, just a lack of understanding from many people as to how it worked. (And in some cases some incorrect assumptions).Gecko1978 said:
. Banks took advantage and assumed this would go on forever (Banks fault). Customers own greed led them to over stretch an not think about the future (public's fault)
hmm..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 ?
surely pcp is better than what went before ? the people i saw get into trouble with debt in the past all bought cars on credit , i thought the deal with pcp was they were able to hand them back with a small penalty or no penalty at all depending how far into the agreement they were ?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 ?
wc98 said:
surely pcp is better than what went before ? the people i saw get into trouble with debt in the past all bought cars on credit , i thought the deal with pcp was they were able to hand them back with a small penalty or no penalty at all depending how far into the agreement they were ?
I think it’s like any other consumer credit product, do your sums,borrow and behave responsibly and the wheels (literally) keep turning. I really do struggle to see why so many people seem to feel so strongly about it and sit in such judgement.
Scootersp said:
The 'too big to fail' line was rolled out back then is this true to any extent now? the worst part of our situation now seems to be the global effect ie Bundesbank having problems means we will have problems, are we all as intrinsically linked as I have seen reported?
Yes, this is the heart of the matter. Too big to fail means you get a huge asymmetry. Risk pressures inevitably build up again, because there is no penalty to a business if you cannot fail. It is not the banker's fault (if no laws are broken). They climb out of the mud, brush off and start pushing for profit like any business should.The world's key central banks have been intrinsically linked since 1930 when the bank for international settlements (BIS) was set up to sort out Germany's WW1 reparations. It's a system that's worked well except when it hasn't. Boom & bust is not a local issue that can be fixed by the Chancellor, it is global and structural. We'll only get out of the boom-bust cycles if asymmetries like too big to fail can be removed, but we can't remove the asymmetry because there'll be a society imploding collapse if big players fail. Catch 22.
Behemoth said:
Boom & bust is not a local issue that can be fixed by the Chancellor, it is global and structural.
No country is immune, but compare the housing bubbles, both before and after the crash will show you that some countries have larger speculative bubbles than others. Just requires a chancellor brave enough to lean into the wind when the party is in full flow. Mrr T said:
If in the 2 years before the crisis the BOE had increased rates to slow the growth of house prices, the crash would have been much less serious.
Property prices were going up by 20% a year around 2000-2003 I seem to remember - it was pretty obvious back then we were heading into trouble. Action should've been taken then.sidicks said:
desolate said:
Don't you think that the banks were complicit?
I’ve explained on numerous occasions that the blame should be shared amongst banks (senior management and a relatively small number of individuals), regulators, the government and customers.wc98 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 ?
surely pcp is better than what went before ? the people i saw get into trouble with debt in the past all bought cars on credit , i thought the deal with pcp was they were able to hand them back with a small penalty or no penalty at all depending how far into the agreement they were ?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 ?
jimPH said:
wc98 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 ?
surely pcp is better than what went before ? the people i saw get into trouble with debt in the past all bought cars on credit , i thought the deal with pcp was they were able to hand them back with a small penalty or no penalty at all depending how far into the agreement they were ?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 ?
That assumes a doomsday scenario where massive numbers of customers default
As much as the anti pCPers assume every punter using an auto credit product is one day off the breadline, as Sidicks commented earlier the majority of punters do not default.
It’s been covered so many times but once again automotive credit does not present a systemic risk.
Brooking10 said:
That assumes a doomsday scenario where massive numbers of customers default
As much as the anti pCPers assume every punter using an auto credit product is one day off the breadline, as Sidicks commented earlier the majority of punters do not default.
It’s been covered so many times but once again automotive credit does not present a systemic risk.
sidicks said:
Brooking10 said:
That assumes a doomsday scenario where massive numbers of customers default
As much as the anti pCPers assume every punter using an auto credit product is one day off the breadline, as Sidicks commented earlier the majority of punters do not default.
It’s been covered so many times but once again automotive credit does not present a systemic risk.
There is a certain type of pher who has convinced himself that;
A) PCP customers are collectively a ticking default time bomb
B) When the bomb goes off “we” will all suffer the repercussions
C) it is therefore analogous to 2008 and sub-prime
Brooking10 said:
No but there is decades of precedent to support the view that in the vast majority of cases on any given consumer credit product the majority of customers do not default.
There is a certain type of pher who has convinced himself that;
A) PCP customers are collectively a ticking default time bomb
B) When the bomb goes off “we” will all suffer the repercussions
C) it is therefore analogous to 2008 and sub-prime
It has the potential to become a systemic risk. Car loans are both profitable and a worldwide business. Auto loan debt is well over $1 trillion in the US, exhibits similar hard sell, and securities backed by sub prime auto loans are packaged up for resale ($25 billion of them last year). What could go wrong? A sudden increase in outstanding debt (caused by a sudden recession event) could tip dominoes over. A mis-selling scandal could equally do the job. It is not without risk.There is a certain type of pher who has convinced himself that;
A) PCP customers are collectively a ticking default time bomb
B) When the bomb goes off “we” will all suffer the repercussions
C) it is therefore analogous to 2008 and sub-prime
Behemoth said:
Brooking10 said:
No but there is decades of precedent to support the view that in the vast majority of cases on any given consumer credit product the majority of customers do not default.
There is a certain type of pher who has convinced himself that;
A) PCP customers are collectively a ticking default time bomb
B) When the bomb goes off “we” will all suffer the repercussions
C) it is therefore analogous to 2008 and sub-prime
It has the potential to become a systemic risk. Car loans are both profitable and a worldwide business. Auto loan debt is well over $1 trillion in the US, exhibits similar hard sell, and securities backed by sub prime auto loans are packaged up for resale ($25 billion of them last year). What could go wrong? A sudden increase in outstanding debt (caused by a sudden recession event) could tip dominoes over. A mis-selling scandal could equally do the job. It is not without risk.There is a certain type of pher who has convinced himself that;
A) PCP customers are collectively a ticking default time bomb
B) When the bomb goes off “we” will all suffer the repercussions
C) it is therefore analogous to 2008 and sub-prime
I’ve looked into the packaging of auto credit in a work capacity and simply could not find enough of it in quantum or concentrated exposure that compares remotely to 2008. Whilst the total
volumes are significant it’s still a long way off the property backed stuff of 2008 spread around more places including large chunks being held on manufacturer balance sheets.
Brooking10 said:
Mis-selling I agree with and I honestly thought this was going to come to a head this year in the UK but the FCA decided not to show their teeth. That said a mis-selling intervention wouldn’t precipate mass hand backs.
I’ve looked into the packaging of auto credit in a work capacity and simply could not find enough of it in quantum or concentrated exposure that compares remotely to 2008. Whilst the total
volumes are significant it’s still a long way off the property backed stuff of 2008 spread around more places including large chunks being held on manufacturer balance sheets.
That's interesting, thank you.I’ve looked into the packaging of auto credit in a work capacity and simply could not find enough of it in quantum or concentrated exposure that compares remotely to 2008. Whilst the total
volumes are significant it’s still a long way off the property backed stuff of 2008 spread around more places including large chunks being held on manufacturer balance sheets.
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