大象传媒

When will heads roll in the banking sector.

People seem to want the rewards for success but are unwilling to accept that they have to shoulder the responsibility for total abject failure.

The issue is that the problems exist from top to bottom. People did as they were told and now the price is being paid.

People have shirked their responsibilities and anybody who knew anything should have spoken up. Where exactly were the whistle blowers.

We know of one famous trader who ended up in jail over the demise of a very famous bank, when can we expect the boys in blue to be visiting some head offices to find out exactly what has been going on?

So, with house prices about to collapse by as much as 35%, they think it wise to increase exposure to the UK mortgage market. Market capitalisation has halved since its peak a few years ago; hardly a vote of confidence. Expect further declines with present management strategies.

You state that the 70% drop in profits is a shock and towards the end of your article intimate that this is poor perfromance.

A key word you don't emphasise in your article is "profit". Yes the profit's aren't as large as previous years but in the current climate where many businesses are floundering "profit" is surely a positive sign.

Yes, Lloyds TSB results are not good. But they are still making a profit and although they may have only made 10.1p per share in this half of the year, I'd bet that they'd return to their previous levels of profitability in the comming years and make around 50p earnings per share over the course of a year.

Follow the money, eh ? It was always known in the City that Lloyds was the best-placed - see for example way back in September when the Northern Crock dam burst and Barclays had some little local difficulties ...

Just as, way back at the start of 2007 it was always known that NR was in the worst shape - known in the City, if not at the FSA !

The last decade of world economic growth has been largely fuelled by bogus lending. Gordon Brown has been praised for his work as chancellor when in actual fact he was doing nothing, just surfing the wave of global prosperity and spending the proceeds. Now that the merry go round has stopped and we have been told how the banks created these bogus loans, they are wanting the government to get the tax payer to bail them out. The whole thing stinks!
There is a growing number of people who want to see heads role for this. Greedy bankers are at the top of the list along with incompetant government officials within the FSA. This fiasco is going to cost this country an arm and a leg whatever happens next.
Do not bail out the banks and mortgage industry. Let market forces dictate their destiny and let house prices fall. It will solve the affordable housing problem and make banks more efficient if nothing else.

I assume that Lloyds TSB are looking to use the world dislocation in its anatomical meaning and hope we follow this meaning of the word.

For them the market is dislocated like a dislocated wrist which can be easily put back into its normal place with not too much pain rather than the geoligical meaning of the word i.e to be a fault. In the sense that California is dislocated from the rest of the United States by the San Andreas Fault.

I however believe that the market is dislocated in the goelogical rather than the anatomical sense.

In fairness, 拢170m of the "market dislocation" hit relates to downgrades on monoline insurance - p.10 of the trading statement.

Essentially, 3rd party 'insurance' that Lloyds bought against credit losses on its ABS portfolio has had to be written off because the monoline insurer(s?) is no longer considered sufficiently robust to be able to honour the full value of the default swap (if the underlying instruments default and require the swaps to be called - the exposure is all senior with no mezzanine ABS).

It's slightly disingenuous to call the losses "real" - as yet, many of them are paper losses, leaving open the possibility that some of them will be written back as paper profits in later years. Can't imagine Robert writing an article calling such paper wins "real" profits, so not sure why they all constitute "real" losses.

Lloyds seem to be masters of euphemism ("market disclocation" etc.). I heard a talk last autumn by their chief economist in which he described the turmoil of August 2007 onwards - popularly know, of course, as the "credit crunch" - as a "credit event".

"Lloyds TSB was supposed to be the British bank relatively immune to the credit-crunch losses afflicting most of the world's big banks."

It has TIER 1 Capital ratio of 8.6%.

So what will be the CR's of the other banks, in particular, HSBC? Those not "immune to the credit-crunch". Do the recent equity raising doo-doos get included to increase their CR's?

"Its share of new lending in a depressed British mortgage market has soared to more than 24%, and it has made these new homeloans "at significantly increased new business margins and at an average new loan-to-value ratio of 63%".

The above statement is music, sweet music, a Bank doing what it is supposed to do, lend money responsibly and therefore make money for it and its shareholders.

The result if continued to be followed through by the financial survivors ( only 70% will probably make it through this without being aquired) will be a return to the mortgage market of a sustained period of 3 to 3.5 X salary borrowing along with stringent deposit requirements.

This in turn will lead to house prices retreating to 60-65% of recent highs because people can only buy what they can afford.

Oh hold on - and it has made these new homeloans "at significantly increased new business margins and at an average new loan-to-value ratio of 63%".

This is only new business so whats the combined loan-to-value ratio? Something tells me that this bank will be left with more mortgage writedowns

This is our strongest Bank!

Please go back to the falls in the US stock market in 1928. Action was taken to solve 'the problem' only by the time 1929 came along all the money was gone and we all know what happened next.

The situation is more dire than many realise and some of us did see this coming so batten down the hatches and just hope that the storm goes over your head.

The old adage is coming true yet again 'cash is king'. In the words of William Blake 'abandon hope all you who enter here' the here for me being financial markets.

#2 - you missed the LTV of 63%. So even if a 35% drop occurs, there is still 2% expected equity in their mortgage book on average, therefore writedowns should not be expected, even in the event of default. That is actually pretty good business.

Lloyds now writting morgages with an average LTV of 63% ....wow!

Put that another way that's an average deposit of 37% or if you prefer, to buy a 2bed terrace in Ipswich, currently valued at 拢120,000 you would need a deposit of 拢44,400 ....wow again!

How many ftb's have got that sort of money?

What sort of cushion against near future declines in value are Lloyds trying to give themselves?

Oh dear.

In the months and years to come there will be just two types of business: those that make a profit and those going into administration.

Lloyds TSB made a profit. This is good news.

Sure, it was down heavily on last year but last year was the last year of the NICE decade. At least the business can absorb the lessons learned and move on; which is very good news.

Speaking more generally, we can be thankful that the ludicrous fantasy of New Labours economic policy is now over.

We are now back in reality. It is now time to get to some real work done. Many people are going to find that strange.

"Oh hold on - and it has made these new homeloans "at significantly increased new business margins and at an average new loan-to-value ratio of 63%".

This is only new business so whats the combined loan-to-value ratio? Something tells me that this bank will be left with more mortgage writedowns

This is our strongest Bank!"

_________________

#10
Their LTV on their overall mortgage portfolio is 47% - much lower than the LTV on their new business flow.

Why don't you check the facts before you go off panic mongering?

(see [Unsuitable/Broken URL removed by Moderator]Page 21, last para

#13 fingerbob69

"2bed terrace in Ipswich, currently valued at 120,000 pounds you would need a deposit of pounds 44,400"

OK so what about a very modest end of terrace 2 bed for an agricultural worker in Hampshire price 240,000 pounds - that is a 88,800 pounds deposit. It is OK for some! (well actually it isn't even in Ipswich - but you know what I mean, I hope!)

Second homes and long distance commuting really need to be curtailed as a matter of urgency.

Grade 6 (the highest) minimum wage Table 4.1 The Agricultural Wages Order 2007 is under 16,500 a year. Yet the house price is nearly 15 times income.

Now at 3.5 times income = a house price of about 60,000 pounds - so houses need to fall by 75 per cent for the local people to be able to live in their local villages!

This the real measure of what needs to be done/happen! (or of course Agricultural Wages could alternatively be quadrupled!)

I'm not an expert, but would imagine that Banks do hold financial assets and these will go up and down depending on the market. I would guess that as capital ratios are increased they will hold more assets.

I imagien that if these assets go down then the bank can offset these losses against operating profits and pay less tax. I am unclear if they have to trade them to trigger a loss - ala capital gains tax.

It will be interesting to see what happens when the market recovers. There should be a tax windfall for the government.

Is this a problem, is it wrong, many businesses have these attributes (I recall Microsoft lost several $billion of investments around the 2001 fall).

I would guess that the other Banks will have the same issue, to Robert's huge surprise and dismay.

I also agree that many bankers earn far too much money for taking little personal risk.

Life will go on...........

The division in which these losses occurred was/is run by an exec hired from CIBC, with his entire team. The same team the same exec took to CIBC from an American bank. Lloyds senior management can just about read reports and add up so this exec has created an impenetrable empire, supported by the team that has been loyal to him for 20 years. Such execs also know how to manipulate the difference (that only exists in a commercial bank and not an investment bank) between the trading book that is marked-to-market, and the "investment book", which isn't, or only at year-end. They know how to create early profits which make them fireproof in the corporate structure - since they are filling the bonus pools of their seniors (you know the story). Look for a CV that starts with Swaps Backoffice at Manufacturers Hanover Limited in the late 1980s, then goes to the DEM Derivatives Trading Desk at ManLimited, then Chemical Bank and you will get on the trail of someone whose surname differs from your own by only one letter...

The issue is not so much the value of the write down but that of trust.

Trust in what the banks are presently doing, trust in their ability to manage our money in a manner that is secure and effective.

Trust also in the government to show strong leadership and trust in the regulatlory authorities to do a good job.

Without trust write downs are academic.
What we need to know is that when our banks say something there is value and credibility in it.

Lloyds TSB may not be the biggest but its management is the smartest and that is why the public have flocked to put their money there.

Have they bitten they bullet fully? I doubt it which means my ability to trust them is not as good as it could be but they have steered a steady if soemwhat boring line and deserve more credit that you are giving them Robert.

The problem of trust is worst with the other banks and what they intend to do about valuing their unwanted and overvalued liabilities.

Banks still on balance feel spin is more effective than the truth, my question is why?

American banks have written down poor performigh loans by as much as 80% UK banks have done little to nothing.

Leadership from our prudent government is as much use as a chocolate tea pot, and our regulators facing a possible financial meltdown are crowing over some possible insider dealers and one and treating customers fairly when the banks that have caused so much trouble and are in major potential straights appear left to their own devices.

We have a lame duck government and a lame duck Chair of the FSA till he officially goes in September unable to address matters of importance that affect us all?

Trust is key where banking is concerned and their outrageous greed has handicapped us all,.

Yesterdays comments appear to universally condemn the idea of tax payers money being used to defend the indefensible practises of the banks and we will no doubt all need tissues and violins palying as each clearer pleads they need help.

They need no help they need to do what we all have to do and get a life and be honest with their depositers and shareholders.

Have fire sales get their houses in order and lets move ahead. Access to money is not limited to the UK alone when buying assets as we have seen all too clearly with this goivernment selling off the family silver with impunity.

The present government is passed its sell by date and must go and the remit of what the regulators at the FSA should be doing must be fully addressed by the next administration as a priority.

The irony of all this is what the banks would tell any customer who was having a rough time appears to be non applicable when the tables are turned. How mad is that?

The Lloyds TSB figure will only matter if they say in days to come there are no more googlies in the wings, then we can have some confidence and more importantly trust.

As for the other banks, with all the time they have had to date they still have not earned any credibility and lost all trust.It is a disgrace to us as customers, a sham to teh great tradition we have had for banking in this country and no I do not work for Lloyds TSB or any bank.

#10

Thank you so much, I repeat what I said:

This is only new business so whats the combined loan-to-value ratio?

Note the ? mark at the end and thanks for answering it.

So now you telling us that the Bank is lending new business at a higher LTV ratio during tighter constraints than its overall LTV
ratio?

Now i may panic!

Ill treat your last sentence with contempt

I worked for Lloydstsb for many years as a mortgage manager, I was forced to sell sub prime mortgages as they were seen as more profitable. They became key targets for me and the branch.Having met all my targets in other areas except this sub prime area, it resulted in me and other managers losing our jobs with the group. Directors who set the business direction remain employed, this can not be right and perhaps shareholders should wake up and vote them out, without big pay offs!

Oh dear:

'Market dislocation', they must have brought in the management consultants for that abstraction. Another 2 million quid wasted. It doesn't matter though, send the bill to the treasury.

#15

Thank you so much, I repeat what I said:

This is only new business so whats the combined loan-to-value ratio?

Note the ? mark at the end and thanks for answering it.

So now you telling us that the Bank is lending new business at a higher LTV ratio during tighter constraints than its overall LTV
ratio?

Now i may panic!

Ill treat your last sentence with contempt

21 derekgolf

My friend you have a moral compass, those you worked for don't.

20. At 12:32pm on 30 Jul 2008, PetersKitchen wrote:
#10

Thank you so much, I repeat what I said:

This is only new business so whats the combined loan-to-value ratio?

Note the ? mark at the end and thanks for answering it.

So now you telling us that the Bank is lending new business at a higher LTV ratio during tighter constraints than its overall LTV
ratio?

Now i may panic!

Ill treat your last sentence with contempt

-----------------------------------

The LTV ratio on a bank's mortgage back book always tends to be much lower than the new business as:

- customers pay down their mortgage, reducing their loan and creating equity

- most of their mortgage customers wil have benefited from rapid house price increases up until about a year ago

...so it is totally expected that a back book LTV would be lower than the LTV for new business, and not a reason to panic

I'm sorry, but I do think that you are panic mongering.

NS1664

That is good news, thanks for that.

Im not panic mongering, im panicing because my investment is currently off a further 10%

But never mind the Management seems to of kept the staff that continued to sell sub prime and got rid of staff that did not meet these targets ( post #21)

What is the VALUE part worth at this time? You cant answer because it is acually OVERVALUE and will continue to be overvalue until first time buyers can purchase a place based on borrowing 3-3.5 earnings and a 10%-15% deposit.

Answering this equation will provide the answer to the real VALUE of mortgage assets.

To have a LTV 63% of new business is actually made up almost entirely of remortgages (unless your suggesting to me that the ave deposit is that high)

There lies the crux, no new REAL business and a masive fall in profits

panic what panic?

It is true that a loss is only realised when an asset is disposed of.

But it is prudent for the Banks to mark to market certain classes of asset.

By raising Capital to restore their balance sheets, again they are trying to be prudent.

In the end, many of the paper losses may not actually arise.

The actual repossession rate is one to watch, however, even in that situation a significant proportion (sometimes all) of the Mortgage will be recovered.

So the actual losses being incurred may not be known for certain for many years.

They may even be less than allowed for, afterall, even if a Bond cannot be sold, if it is held until redemption its yield and redemption value (whatever that turns out to be) will be received by the Bond Holder.

Only time will tell.

By the way, it would cost the Taxpayer less to guarantee Mortgage Bonds than to pay for Homeless families.

More Social Housing should be built, and in the areas where it is needed.

I do wonder why some people are obssessed with Home ownership ?

In Europe many people rent, and many prefer to do so.

Times have changed.

The days when an individual can just get a job and expect to buy a House similar to his or her Parents have long gone.

Why is this ?

It's called distribution of wealth.

The People who inherit money can use that money to augment any Mortgage they care to have, and therefore can afford to pay more for the Houses they want.

So folks whose relatives have not bestowed cash upon them are going to be outbid, at least in the more fashionable areas.

In fact Houses in the more fashionable areas are still selling least round my way, they don't stay on the market long.

Now in the cheaper areas they are struggling to sell, but then these are the families who have struggled the most to get on the housing ladder.

And they will be the ones who end up repossessed.

So when you argue for higher Interest on your Deposit Account spare a thought for the poor family whose parents never gave them a penny, and whose higher repayments to pay your Interest may put them out on the street.

At 2:01pm on 30 Jul 2008, PetersKitchen wrote:
NS1664

Answering this equation will provide the answer to the real VALUE of mortgage assets.

To have a LTV 63% of new business is actually made up almost entirely of remortgages (unless your suggesting to me that the ave deposit is that high)

There lies the crux, no new REAL business and a masive fall in profits

panic what panic?


--------------------------------------------------

I think you want to go and have a lie down as you are mixing several issues when coming to your conclusion.

The profits fall is due write offs as explained in other posts - the day to day business has done well and that means that the figures should look that much better next year (any bets on a 20% increase in profits).

LloydsTSB may well have increased their mortgage share on the back of people switching lenders but that it still real new business for them!

I do broadly agree with your view on how far the housing market may need to fall before it becomes affordable to first time buyers. However with LTSB's low overall LTV ration this shouldn't prove a problem as a credit risk and the vast majority of borrowers will keep servicing the debt regardles of their property value position.

"....and is a worrying possible augury of horrors that may in the coming days be disclosed at our other banks, as they too disclose their results".

Horrific? Is that appropriate?

Why is it horrific that banks are going through some pain still, and they re-evaluate their assets each time they publish new accounts?

Why is it such a big surprise that LTSB profits are lower than a year ago, even by a large drop? It鈥檚 not a surprise to me, and I don鈥檛 even label myself an 鈥渆xpert鈥�.

It wouldn鈥檛 be horrific if the banks flushed out more write downs, surely that will help clean the system for a fresh start.

Most releases of financial/economic data are reported so negatively, so lazilly. Is it a big surprise people bought fewer fridge-freezers last month? No. Maybe people are delaying unnessary purchases at the moment. High strreet sales might suffer, that might have knock on consequences, but maybe people are starting to build up their savings. Not such a bad thing then?

26. At 2:01pm on 30 Jul 2008, PetersKitchen wrote:
NS1664

That is good news, thanks for that.

Im not panic mongering, im panicing because my investment is currently off a further 10%

But never mind the Management seems to of kept the staff that continued to sell sub prime and got rid of staff that did not meet these targets ( post #21)

What is the VALUE part worth at this time? You cant answer because it is acually OVERVALUE and will continue to be overvalue until first time buyers can purchase a place based on borrowing 3-3.5 earnings and a 10%-15% deposit.

Answering this equation will provide the answer to the real VALUE of mortgage assets.

To have a LTV 63% of new business is actually made up almost entirely of remortgages (unless your suggesting to me that the ave deposit is that high)

There lies the crux, no new REAL business and a masive fall in profits

panic what panic

-------------------------

I think that you mis-understand

1. Lloyds haven't been playing directly in sub-prime mortgages. They do have exposure ro US sub-prime through CDOs. The actual mortgage lending Lloyds have done has tended to be very good quality mortgage book. Their mortgage impairment charge is only 0.09% of average outstanding balances. I don't know what #21 is talking about.

2. Lloyds have been growing their business with new lending won from the competition. A remortgage is real new business if it is won from the competition, as opposed to churned business. It would be ridiculous just to count business from First Time Buyers as new business.

3. Income multiples are an out dated method of calculating how much to lend - affordability is what matters. Yo can have two people on the same salary, but their committments (eg to dependants) may be very different. Income multiples are also very arbitary, and don't take into account the level of interest rates, and we should n't go back to them

Last time I looked, Lloyds were down 9 pence, which I think is a reflection of worse than expected losses in CDOs and investment fluctuations at Scottish Widows, rather than concerns about their mortgage book.

But you go ahead and panic anyway if it makes you feel better.

Over 拢500 mil was lost in structured credit investments; that doesn't have to be anything to do with mortgages. Lloyds has its in-house structured treasury group (ex-CIBC and ex-American banks) that buy assets where they see "value" and try and hedge the risks. No external customers will know they are involved. The hedges are as good as their own IT programmers, their experience and the hedging instruments available. At CIBC they had their own systems and programmers separate from the bank's main IT platforms.. which got fed "Management Information" after the raw data had been xyd'd around with in the structured treasury's systems. I met their main in-their-pocket programmer: "We're always ahead of the game here. Zero development time.." He had this kind of etch-a-sketch IT development tool and kept rattling on about if the gamma takes a dive in Tokyo we can adjust the delta by going long in the T-Bills... A prize snake-oil merchant and bamboozler of auditors, senior management... He was a lap dog for the division head at CIBC, a guy by the name of Preston: no relative of yours, Robert?

I have had a lie down and yes, I have mixed and matched my post conclusions. Sorry

The five key elements a borrower should have to obtain credit: character (integrity), capacity (sufficient cash flow to service the obligation), capital (net worth), collateral (assets to secure the debt), and conditions (of the borrower and the overall economy).

However, you are stating income multiples are out of date -


If I wanted to borrow money in the days of starched shirts and Bowler hats I had to satisfy certain requirements

1. Pass a credit check
2. A held down job
3. savings
4. An interest rate that makes a profit for the lender
5. The asset you ar borrowing against


The sum of which pretty well covers all events to protect the person lending the money.


ERRRRR.

Your advocating the syatem used until recently

1. Find a Financial advisor who will fiddle your salary and /or self certify
2. What job? I've prooved my earnings look I have wage slips
3. Savings, cor blimey mate im buying a house, I cant afford a deposit
4. Your house will always go up in value so we will lend you more than its worth, it a future asset, thats good enough
5. Dont worry about interest rates, ignore the fact that a 3% nudge upwards which is quite reasonable during an economic cycle WILL ONLY DOUBLE YOUR OUTGOINGS

By the way Affordability - thats easy, you can always remortgage or get a credit card

I might have heat stroke, but you are surely a Banker NS1664 if you really think that way

:-)

There are a a couple of things that have always bothered me about the way banks and other financial institutions seem to devalue and revalue their assets to suit their own needs as well as the prevailing circumstances, in this case the credit crunch.

Under present market conditions it makes sense for LLoyds bank to want to deflate their value of their assests by as much as they possibly can (and without causing too much panic) in order to reduce the ammount of tax they have to pay. Then when the markets improve they will simply re-inflate the value of the same said assets in order to boost shareholder dividens and staff bonus payments.

It would seem that now is an ideal time for the bank/s to write down any goodwill assets, from their previous dealings, that are not worth what they paid for them when the deal was completed. I think it's called now is a good time to bury any bad news

Supercalmdown - can you please please please stop going on about the human tragedy of it, as if renting is some sort of pit of despair to be avoided at all cost, and sensible people only buy their house. Lets take a quick look at the economics of it.

Whether you rent or buy your house, the cost of it is due to consumption.

If you rent, you pay a charge to use the asset, and that charge is generally less than the equivalent monthly cost to purchase the house on a repayment mortgage (if it is not, then the mortgage pricing is probably incorrect, and will correct as seen at the minute).

If you buy, you make a monthly payment on your mortgage which is made up of interest on the outstanding capital, and repayment of the capital to reduce what is outstanding. This will generally be more than the rental charge on a similar asset.

In a tax free world absent inflation, it would probably be more profitable to save the cash and rent property as the money you would be likeley to get from your investment would likeley cover your rent. However, there is then the question of rampant inflation devaluing your cash, or pushing up the rental price. However, this same inflation alters your profit/cost of entry profile on buying your own home.

I suppose what I am trying to say is that the economics of owning your own home largely depend on the state of the market, and if you are buying in an inflated market, you are probably better off renting. However the only thing that makes it really beneficial to own your own home is the possibility of huge fluctuations in price. So please do not come on here and bang on about the human tragedy of people caught in negative equity. If you're incapable of understanding even the basics of the economics of home ownership, you shouldn't really be allowed to buy one. For your own, and for your families sake.

Supercalmdown, it's not my problem if people buy more house than they can afford. Why should I accept a lower rate of interest on my savings (the savings I achieved by buying a house within my means) so that people whose eyes were bigger than their wallets don't have to face the consequences of their actions?

Unfortunately it seems your grasp of economics is matched only by your grasp of the concept of taking responsibility for your own actions. But at least your usage of Capital Letters in unexpected Places provides a source of Amusement once in a While.

re 35 AndrewH

You forget that there is an end to paying a mortgage!! 25 or more years is a very long time I know but when you get there it's a very nice feeling.

There is probably more security in going for buying rather than renting (as long as you can pay the mortgage). Also people tend to have an emotional attachment to their house especially when they have a family. They are more likely to make improvements and end up with a better living environment.

The chief downside is that it costs to maintain a property and carry out improvements. The responsibility for this falls to the homeowner. Also if you need to move it isn't as flexible as renting.

However, don't let me put you off renting. Everybody's circumstances are different. The negative equity thing is a tragedy if you are forced out of a home you love and still have a mortgage debt around your neck even thought he house has been repossessed.

Godfrey

You have kinda missed the point of fair value accounting.

There are basically two sorts of assets that banks own - those which they intend to realise the value of by holding to maturity, and those which they intend to sell. The stuff they hold to maturity (HTM) is valued at cost less impairment whereas the available for sale (AFS) items are held at fair value, on the basis that the market is liquid and they could realise their investment at any time.

With the HTM investments, you have to anticipate any shortfall in repayment on these, whereas on AFS items, you recognise profits and losses as the market fluctuates. The point being that the accounting value of these investments will always follow the market expectations, as this is how they should be accounted for.

As for the notion that Lloyds would massacre their balance sheet to reduce their current tax charge, I have to say that this is complete and utter nonsence, and shows a complete misunderstanding of modern accounting and tax. There are far better ways of reducing your tax charge without detroying shareholder value, and to do as suggested would be a fundamental breach of director duties (and incidentally, any accusation would be libellous).

#37 - Jan, you miss my point. The interest payments on a mortgage and the rental payments on a house you could buy with that mortgage are roughly equal (give or take c.10% depending on where you are within the financial cycle). Therefore, absent any inflation, if you rented a house and saved the balance between your rental payments and your repayment mortgage, at the end of your 25 years, you would have roughly the same capital as you would have expended on the house, therefore your interest receipts would pay your rent from then on in. Ergo, if you are renting and simultaneously banking your savings, there is and end to bearing the economic cost of rental payments as well. Indeed, once you've factored in the interest as well, your house has to double in value in your 25 years before you have lost out by renting. Ergo, the decision of whether to rent or to buy is very much dependant on where you are in the economic cycle - at times it is madness to buy, at other times it is madness no to. But if you don't get that, as supercalmdown appears not to, it would be madness to buy at any point in time.

#36 : ThoughtCrime2008

I hope you realise that such ideas as yours are verging on the treasonous in the utopia that is the 21st Century. We are required, as upright citizens, to ensure that we are at all times indebted to the maximum amount that anyone will lend us, and to spend this easy-come easy-go cash in consuming whatever delights the modern world has decided that it wants to produce for us.

Without everyone pulling their weight in this way, we cannot hope to achieve the holy grail of human happiness - Maximum Economic Growth.

In the same way that the maximisation of exam grades has performed miracles with the product of the education system, so we need maximum growth to make us all permanently happy.

Every penny saved is a penny wasted!

In fact, I've just run the numbers, and assuming 7% mortgage interest vs 5% investment, and no tax, on the area where I live in West Essex, you are looking at your savings paying your rent after 10 years, absent inflation. And that kinda highlights the only real benefit to buying - it enables you to put a fix on your housing costs, but only to the extent that your interest costs are fixed, and you don't treat your house like another bank account.

Of course a future Government could take action to redistribute wealth:

Inheritance Tax could be raised.

Income Tax could be raised.

Either or both actions would result in some Second Homes being sold.

Those actions would reduce Bidding in the Housing Market, leading to generally lower House prices.

And some of the extra revenue could be used to build more Social Housing.

I've made sure I've used plenty of Capital letters as I know they are loved so much by Readers !

Of course, raising Taxes is never popular, but choices have to be made.

Either more Mortgage Finance for Private Homes.

Or more Taxes to pay for Social Housing.

There is no way around it, the money has to come from somewhere in some form, or the Housing that are needed will not be built.

So a bank continues to make profit, smaller than usual, has not collapsed, and hasn't had a run, and hasn't been Nationalised.

Oh dear.

I am left with the feeling that if Robert had to make a report on the topic of a nice summers day in the British countryside, most of the article would be centered around the dismal news that the sun set yet again.

#40. You are absolutely right. Please accept my apologies for suggesting that we should take any responsibility for our own lives.

Having read your post I see the error of my ways. If we do not borrow the maximum amount anyone will lend us how can we achieve our fundamental human rights of a new widescreen plasma TV every few months, a new car in the driveway and a foreign holiday at least twice every year? Good grief, we have a right to these things, and if we have to lie about our income to get them then that's a small price to pay for success.

And why would we want to take responsibility when there's the lovely taxpayer on hand with a bottomless pit of cash ready to bail us out any time we make a mistake?

#42, supercalmdown - did you ever stop and think that perhaps the Answer to the Problem of the excess of the Housing Market is less regulation?

All the increasing Amounts of regulation have achieved is to make it Easier for people to Acquire housing which is excessively priced. Government Intervention in this instance merely perpetuates the problem.

Let housing Prices fall to a more sustainable Level and the market will sort Itself out. Who knows, the Shortsellers you love so much might even make some extra cash in the process.

@42, supercalmdown

Social housing levels could also be increased by hoofing out some of the troublemakers who make life on some council estates a misery.

Those hoofed out can them meditate on their behaviour, whilst camping out at the soup kitchen, and maybe find the impetus to change their behaviour.

Having lived on council estates I vividly remember some of the 'characters' - people who thought getting the dog to bark and snarl at Asians constituted entertainment and who thought nothing of intimidating or burgling their neighbours.

Get rid of those and you'll increase available social housing, remove much of the stigma of it and significantly increase the quality of life of the many, many decent people who currently find themselves trapped in feral hellholes.

As for what to do with those hoofed out, well I hear cardboards cheap these days.

Of course another way to increase the supply of social housing is to right-size people. On my road we have a 3-bedroom house which the council assigned to a couple with no children.

We might also relegate the long-term users of social housing to something more like a hall of residence, to reduce the demand for private housing for those of us who pay our way.

The biggest problems with social housing are simple.

1. It becomes a trap - when someone has their rent paid without doing anything it makes it very difficult for them to find a job that pays enough to cover the rent and other benefits, and still provide enough on top to make it worth their while bothering.

2. It increases demand, giving private landlords an easy option to simply let their property through the council. This removes properties from the regular market and reduces the value of surrounding properties, as anyone who has lived near one of the council's less desirable tenants will testify.

Banklash wrote "So, with house prices about to collapse by as much as 35%, they think it wise to increase exposure to the UK mortgage market. Market capitalisation has halved since its peak a few years ago; hardly a vote of confidence. Expect further declines with present management strategies".

So market capitalisation has halved........you should be so lucky. HBOS has lost 75% of its value in the last 12 months.

Re: Post 38

Andrew,

I accept that your knowledge and understanding of the strict accountancey rules governing the way banks and businesses can re-value their different assets is far greater than mine.

Also let me say that I would never venture to suggest that any reputable bank or business would deliberately flout these governance rules.

None the less there is right now a very real problem in the financial and banking sector of the economy, even though it is supposed to be tightly regulated, that is now impacting on the wider economy. So that must raise real questions about the rules of governance or the competence of the people managing these institutions.

I do venture to suggest that in times of gloom and doom, such as now, accountants and finacial experts will usually take an overly pessimistic view of events when it comes to re-assessing and downgrading assets. Unfortunately it always seems to happen after Conversley when things are going well, the same group of people frequently take an overly optimistic view when it comes to upgrading their assets. Then of course they become over exuberant. Over recent months we have had more than a lifetimes fill of such behaviour. For some strange reason these decisions are usually reactive and rarely proactive.

Its usually the economists that take the overly optimistic view of things - if bonds really are trading at par, then they must be worth par, despite an apparent failure by anyone to correctly price the risk associated with them. Bond prices for the past 10 years have been trading on the basis of a liquid market - I won't be holding them when they default - and therefore, the risk of default hasn't been priced in when valuing them. And because the banks have been treating them as available for sale, the most appropriate price to hold them at (per the new accounting standards) is at their fair market value (whereas under old accuonting standards, there may have been write-downs earlier). Therefore, accountants/auditors haven't had the tools available to them to prevent this hubris in the world's financial markets. The irony is that fair value accounting was brought in to prevent big derivative collapses (see Metallgesellschaft, Barings, Johnson Matthey etc).

It is worth remembering that Social Housing is used by many different types of people.

Pensioners

Disabled People

Working people (many Disabled people work too)

Social Housing is not solely inhabited by the unemployed.

And not all unemployed people are criminals, in fact there are possibly more working criminals than unemployed ones !

Most criminals seem to do crime part time and work at some other business or occupation during the day......

Who yelled 'in the City!' ?

Let's all go and buy Gilts shall we. A sure way to lose your capital if you look at the current prices. Remember the government promises to redeem them at GBP100. That is even when you buy them at GBP120-130 or whatever.

Exactly where is the money going to come from.

No 52

this is true about Gilts. But Gilts aren't really aimed at small investors.

Small Investors are expected to save their money with National Savings, or a Bank or Building Society.

Gilts are aimed at Institutions (who buy lots of them regularly and average out their effects over time, generally working out ahead).

Likewise Shares, though Shares are generally not redeemed, though some classes of Equity such as Preference Shares can be issued as redeemable Shares.

Like Gilts the intrinsic value of Shares can vary sometimes enormously from their Market price.

That is something that has annoyed me about the Banks. If a banks Net asset value is higher than its Share price and it is taken over , then the poor old Shareholder has (potentially) been robbed of value.

The Ft website had an article speculating on the value of the smaller British Banks, a week or two ago, suggesting that the actual asset values might be double the current Market prices.

Great if your about to take one over on the cheap.

Lousy if you are a Shareholder wondering whether or not to subscribe to a Rights issue.

And the Banks have stayed coy about it.

You would think they would use this to sell their Rights issues to their Shareholders.

But instead they seem happy to let things drift.

Hey ho.

No 34 Godfreybrown

Staff bonuses?? Ha ha ha ha ha ha ha ha ha ha ha ha ha !!

I have worked for Ltsb for 28 years and have yet to see one. If you are not an outstanding seller, bonuses are just a figment of the imagination, a word that means nothing to thousands of ordinary staff.