|| posted on 25-2-2008 at 08:17
|I read it in an old book.
|| posted on 24-2-2008 at 23:03
|I was speaking specifically to Simon's thought,
that liberalisation of the banking regulations was the source of the problem.
|| posted on 24-2-2008 at 22:46
|There's a whole trail there. Not just one set of laws.
|| posted on 24-2-2008 at 22:42
|I have looked at the link MaryMary provided. The laws which allowed the kind of lending in the sub-prime market date to 1980 and 1982. That would
have been when the Democrats had the majoirity in Congress (1980 was President Carter's time; 1982 was President Reagen's time).
Simon, when you say are you referring to a United Kingdom connection to the sub-prime problem? In America, it
would certainly be a stretch to refer to laws enacted a quarter century ago as "the current administration."
|| posted on 24-2-2008 at 20:41
|subprime deregulation trail
|| posted on 24-2-2008 at 19:58
|When you say, "the current administration," it is worth noting
that the administration is that of the President, who is elected independently of the legislature which must originate and pass all banking laws.
Can you point me to legislation that "liberalised" the regulations, and the time it was passed? The current crisis has been while the Democrat
party controls both houses of Congress.
|| posted on 24-2-2008 at 08:52
|Actually scholar, as I understand it, the american banks have got off quite lightly as their rules, and their local knowledge, prevented them
investing in the packaged investments that included the off loading (re-financing) of those investments, the European banks were more than happy (and
blind enough) to dive in on what looked like a 'too good to be true' investment.
Your comments about the effect on the property market are much more accurate, however your party political puff at the end, which surely should have
been reserved for the election thread, was unwise as it is the liberalising of banking regulations under the current administration that allowed
no-hopers to be lent the money in the first place and also allowed the dodgy mortgages to be wrapped up in investment vehicles that were worse than
opaque, a party that allows such mal-administration should never be allowed to serve again.
And mmC, Northern Rock wasn't actually involved in the American sub-prime market, it has a strong mortgage book with no worse default rates than was
expected before the sub prime scandal. It had however over reached itself and hadn't taken account of the possibility of a credit crunch. I am also
of the opinion that a certain BBC reporter has a personal grudge against 'the Wreck' as it wasn't the only company to go cap in hand to the
government at the time but which weren't reported on the scale that he 'broke' the story of Northern Rock, and it was that story that caused the
run on the bank and the government's necessary reaction.
giron: Too bloody right, they won't be losing any money out of the situation.
|| posted on 23-2-2008 at 22:32
|Ruddy merchant bankers!
|| posted on 23-2-2008 at 22:31
|Sadly the bunch of bankers who have let this happen also include British banks. Northern Rock has been badly affected by the US sub-prime market.
|| posted on 23-2-2008 at 20:39
|A huge amount of bad sub-prime mortgage loans have hurt the US economy. The sub-prime loans are the ones where the borrower was considered a credit
risk, and the mortgage lender would increase the interest to everyone in that category to cover the expectation that some of them would default--but,
since the value of the home stood behind the loan, it was thought to be good business.
Some people, seeing that home prices were continually going up, judged they were better off to but a home on credit now, instead of waiting until the
price was higher, later. This would also lead people to buy bigger homes--it's no good to wait until you have more children to move into a house
with another bedroom or two, if escalating home prices will make it out of reach, later.
This led to many people buying homes they could not afford. If they had an adjustable rate mortgage, and the payment went up, it meant they could not
keep up the payments. It also meant that if a person lost his job, or was injured and could not work, he was in trouble.
As people tried to sell their homes to get out from their mortgage obligation with some money from what they had already put in, they sometimes found
that other people were doing the same thing. Sometimes banks had homes for sale, on which they had already foreclosed, and they wanted to get rid of
them as quickly as possible. This led to cutting prices, which meant people who had borrowed for a high-value home suddenly could only sell it for a
lot less than the money they had borrowed.
But, there seemed to be hardly anyone willing to buy the homes, for two reasons:
1--People who would need to get a mortgage, to be able to buy a home, found the banks were unwilling to lend to people without excellent credit.
Whole sub-prime loan departments were shut down in some lending institutions. The banks had gotten stricter--they couldn't afford more defaults.
2--Since people urgently needing to sell kept dropping prices, there was always the thought, "Since prices are falling every month, why should I buy
now? If I wait even a few more months, I might get as good a house for thousands of dollars less."
Meanwhile, with fewer people buying homes, the building industry is hurt. Which means all those who sell construction supplies to builders are hurt.
Which means the sources--lumberjacks, dry wall manufacturers, makers of hardware--are hurt. And all the stores and restaurants and entertainment and
travel industries who sell to those people are hurt.
Many of the people who couldn't yet afford to own a home are going to have to rent, as they would have done if no one had loaned them the money. It
will take some time for the adjustment, to get back to more renters and less owners-who-can't-afford-the-mortgage people.
As far as the problem of the prices dropping, which discourages people from buying a house that might cost a lot less in a few months, the market has
to bottom out. And therein is a possible problem. One of the Democrat candidates said she would enact a three-month moratorium on home foreclosures.
That would hurt the banks, it would not enable the people who cannot afford their payments to be able to pay (it would just delay them making
arrangements they could handle as renters, or in a smaller house), and it would keep potential buyers from buying (also delaying the "bottoming
I hope British and Australian bankers do better than ours have done!