Banks- (insurance) take a nose dive

[GaryPanic]

OK - someone had to start this ,....

My take on this and who's to blame -

firstly the Morgage brokers (and mainly the US ones- sorry America - this isn't a bash the yanks post -so please read on)

secondly the people buying a morgage - a discount morgage is great - but if thats all you can afford then you know you are going to be hit for higher morgage -(short term thinking) again mainly america- however not completely
Thirdly
Finaincial(?) instutions and dodgey business plans (Northern Rock - here in the UK funding was borrowing from other banks to fund its morgages- good in principle - however real life is a bitch and NR got its fingers burnt due to reluntant of banks to lend
forth
Goverments **** handed approach (Speaking here for the UK goverment, ) they could of handled Northern Rock a lot better

fifth
Regulation - too much and not the right amount in the right place
the regulation is over bearing on the customer front - but should of been on the back end of the balance sheets -

then you have on top of this over valued Stock markets - together with changes in Goverments (USA shortly , and here in the UK - most people would vote for a dead mouse rather than Gordon Brown -so assume a change here as well - leads to a unstable short term period -.

The morgage brokers should of looked at the long term and only offered morgages to people who would fit the standard rules (these rules have been tried and tested and are pretty robust)
rules in the UK are 3.25 your annual salary (single) or 2.5 of your joint income
with a minimum deposit of 5-10% ,
OK so this sounds a bit steep given that a property in the South East of England cost average 189,000 you are going to need £20K deposit and a salary of £50K - however if the rules were stuck to then the prices would have to drop (or salaries increased)

your views

 

[GaryPanic]

quick update - (because my post kinda looks like a yank Bash)

If we make some assumptions (pretty valid ones but the numbers might be out)

if we say that 1 in 10 morgages in the past 3-4 years has been mis-sold
UK and USA ..
then the UK has sold (making the figures up ) 100,000 in the past 3-4 years
then the same ratio for USA the numbers for the USA are 10 fold
so the UK £10,000,000 mis-sold suddenly becomes USA$100,000,000

the numbers are made up but you get the gist - its the pure number of morgages purely due to a larger population , there may also of been sloppy sales - but that not what I am getting at ..

 

[Fifty2One]

Basic rules did not apply to the morgages that generated the collapse of the greedy lenders. When someone over 25 years old is offered a 40 year morgage with no credit check and no money down on the house there is very little control over the money lending situation. Just the basic math of 25+40 will show that you would pay off just in time for your fixed income pension to kick in at 65 and finally the home is yours.
Loans were tended with the payments based on the maximum someone could afford on their income, so with no margin for unanticipated expenses these were loans destined to fail. The loans were allowed with the short sighted greed of being able to collect payments on a home destined for default, then the financial institution could foreclose and put the home back on the market and start the money grab all over again.
Unfortunately there is a limited number of consumers who are willing to get screwed more than once so the con has finally reached the end. The fraud artists have to close their companies and take their big fat CEO severence packages and start the next scam.
It is not a yank bash either because on the news last night they interviewed some people on the street who were scrambling here in Canada to get their applications for their no money down 40 year morgage before the Canadian government passes legislation to disallow the practice.

 

[David Eagar]

Welcome to the world of 'free enterprise'. As far as I can see, most governments in the western world formulate their policies for the the sole benfit of CEO's of major companies (ps, how DO they manage to get a performance bonus for losing billions?) simply because they are mostly in charge of

a) Campaign funds (where else are these millions coming from) and
b) they usually have some interests in media compaines 9good for the PR spin)

all of which leaves us poor saps to carry the can

 

[statsman]

There are currently new, large housing tracts outside major US cities which are totally abandoned. Some houses have been sold but none were ever moved into.
Why??
It takes time to build these estates and they were planned and built at a time when interest rates were rock bottom and mortgages were easier to get then a dentist's appointment. Now, the sub-prime mortgage market has collapsed taking the regular mortgage market down with it. No one can afford to buy because no one has the down payment or the income to support a regular mortgage (these folks already own houses). In anticipation of the future mortgage income, many of these developments were financed by mortgage companies.
Result
Look for more mortgages companies to go bankrupt or into receivership. There is one whopper of a recession on it's way.

 

[ajetrumpet]

There is one whopper of a recession on it's way.

No argument here.

 

[redneckgeek]

"One whopper of a recession on it's way"

Agreed. Maybe next quarter - maybe 20 years from now... but eventually we'll have one.

My guess... we're in a correction, not a recession. The Fed is trying to manipulate things by pumping all this money into the market and bailing these companies out. THAT will cause a big inflationary period, but inflation doesn't ALWAYS cause a recession.

Hopefully, you all saw this coming late last year and adjusted your 401k (or other portfolios) accordingly.

 

[Fifty2One]

Hmmmm 85billion loan to bail out AIG from the US government means each US taxpayer has basically passed along about $500 to a grossly mismanaged company.
So does each taxpayer get some sort of shares like other investors?

 

[Rabbie]

Its just like the old saying. If I owe the bank 1000$ I can't repay then I have a problem. If I owe the bank 20Billion$ I can't repay then the bank has a problem

The chaos caused by letting AIG crash would have been so severe they had to be be rescued.

 

[GaryPanic]

Yes in essence you do the goverment gets 80% of all profits( plus tax)

all going well in about 3-5 years the goverment will sell of this stake in chunks and it should be a good return - short term loss - long term profit

its still pants , but I can see all goverments setting up a a tax levy (once the markets have settled) to ensure that there are reserves in place I would imagine 0.5% on gross written premium sounds about right this would be income for x goverment - however this would then be a -reinsurance by goverment (which is what is happening with AIG and others) the return in the long run should be good for goverments whom have funded these banks - but not good for business in general

THe collaspe of AIG would of been almost beyond belief - (which is why I am against large insurers - smaller ones would be a beter way of spreading the risk ) - (ensuring that the re-insurers are equally spread )

g

 

[Banana]

Seems apropos.

 

[ajetrumpet]

Hopefully, you all saw this coming late last year and adjusted your 401k (or other portfolios) accordingly.

I stayed out of it. I don't have one yet. LOL. Lucky me...???

 

[redneckgeek]

Once again, Professor Williams nails it:

http://townhall.com/columnists/WalterEWilliams/2008/09/17/stubborn_ignorance

The problem was CAUSED by government, and their "help" is going to make it worse.

 

[GaryPanic]

that post is pretty close to the nub of the problem - it has been simplfied - for the sake of easy reading ...
and is bais in its take - going down one train of thought - and ignoring others - but at the end it is a pretty good assumption ..

Which goes back to my post that if banks had followed the "Golden Rules" 3.5 salary or2.5 joint application - the problem would of been a lot less painful - howeer if we hang in there it will correct itself (about 18-24 months time you will see us back to pre-crunch )

g

 

[redneckgeek]

I stayed out of it. I don't have one yet. LOL. Lucky me...???

I adjusted mine in Dec/07. I'm going to buy that stuff back at a whole lot less than I sold it for. Lucky Me!!!

 

[Rich]

howeer if we hang in there it will correct itself (about 18-24 months time you will see us back to pre-crunch )

g

Are you joking, every other recession in history has lasted longer, including the last one

 

[redneckgeek]

Are you joking, every other recession in history has lasted longer, including the last one

Correction<>Recession

and not all recessions were preceded by corrections.

 

[Rich]

Correction<>Recession

We're heading for a recession, jobless is up and home repo's are on the up as is bankruptcies, seen it all here before and not that long ago

 

[GaryPanic]

well we are not into a recession like the last one (yet..) and i don't think we will be - what we have here is a market correcting itself a bit like surgey painful but nessary to ease a potentinal recession which would be a killer at the moment .. i tihnk that markets will bouncy back after the US elections (small bounce ) and then possible a slow increase back to where markets were about 12-18 months ago

UK will bounce at a later stage a couple of months after the US and also dependent upon election results -a change of goverment will make people more comfortable..
In a recession enviromnt - Conservatives are probably better suited to manage a enviroment - labour generall spend -conservatives cutback to core services liberal dems make it up as they go along

Now modern Labour is a mix of old con values and new cons is a mx of all sorts - so who knows what will happen - but the finance peole would prefer a con in power on the basis of less administration/regulation (*note less)

regulation here in the UK is over the top , the product (morgage,pension,car insurance,home insurance is x amount of pages long in its quote-policy wording , yet the FSA regualtions that have to go with it are probably longer and the regs are not protecting joe public - i heard a conservative MP make a statement that the FSA would have a major overhaul and it would concenrate on proteting Joe public - in plain english

this would make all of the commerical insurance 5% cheaper ata stroke of a pen as the admin on commerical business is way out of kilt with realitiy given that if your turnover is over £1 million you have no protrection from any FSA or other finance body (£1 million isn't a lot on turnover - )

I rant ......

 

[GaryPanic]

We're heading for a recession, jobless is up and home repo's are on the up as is bankruptcies, seen it all here before and not that long ago

Rich - some of those bankruptcies are people dogging the tax man , after the nrew regs where put in place , People have borrowed and spent without a care on credit cards - (mainly the younger generation)-while those older and somewhat wiser (and those who have had their hands burnt in the last recession, sounds like you had a hard time of it) are wiser and have kept their spending to reasonable levels . these sensible people willb e better off in the long run ,

My sister is one for putting the new car on the morgage and also a nice holiday in the far east working onth e assumption that property will always go up- i tried to warn her that there was a dip coming - but who listens to the voice of doom, now however things are not looking so rosie - i think she will be ok , but she has had to rein in the spending ......