Lack of interest

[E10 Rifle]

Lack of interest

AG, nationalised banks aren't much more transparent unless they're reformed to be more accountable and democratic.

At the moment, I fear we're heading towards the worst of all worlds - governments pouring millions into banks, getting nothing back from it, then selling them as soon as they become profitable again, ensuring that we get nothing back in the future either. It is indeed state capitalism, or corporate welfare.

I'm not a banking expert, I hasten to add, but understanding the basic democratic principle of 'no taxation without representation' is important here too.

[Ek weet nie]

Lack of interest

Nil Arshavin wrote:

Speculation in the papers and on the news here that the ECB will drop it's rate by 0.5% next month and will reduce it down to 2% or less. Are we heading for very low inflation or possibly deflation?

They cut it by 0.75% to 2.5%. Are these cuts actually effective?

[Tactical Genius]

Lack of interest

2% in the uk.
Add to that the government offering to cover the mortgage payments of the irresponsible for two years, what happened to the days where those who were financially prudent were rewarded?

[Rogin the Armchair fan]

Lack of interest

Blimey, 2%. So my tracker mortgage rate (set up 6 months ago) is now 2.5%. I think if I'd have taken the option of the 5-year fixed rate deal pushed at me at the time (6.75%) I'd now be marching on Lloyd's TSB with a pitchfork. Given that virtually everyone who took out a 5-year fixed-rate deal any time between 2004 and September 2008 is now paying at least double in interest what they "should" be, the Government should look seriously at forcing the banks to waive early redemption penalties and allow people to benefit from the new rates on offer. That would do far more to help homeowners who are struggling on those fixed rates than simply giving them periods of grace to find more money (from where?).

[Ginger Yellow]

Lack of interest

They're only covering people who become unemployed or suffer a big loss of income. How exactly are these people being imprudent? Are you only supposed to buy a house if you can afford to keep paying after being out of work for two years?

[Evariste Euler Gauss]

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Rogin, fixed rate mortgages are not supposed to be a free one-way bet for consumers. You get the upside of protection when market rates go up, you get the downside of missing out when market rates fall. It's the deal. The banks, in turn, will have hedged their interest rate exposure (i.e. the risk to them of receiving fixed rate payments from borrowers on loans which the banks have funded in the floating rate money markets) by entering into interest rate swaps with other financial market participants. When borrowers redeem early and the banks break the related swaps early, the banks incur break costs under the swaps. What you are suggesting would be nothing other than a financial penalty on the banks to give a windfall to one particular class of mortgage borrower.

[Rogin the Armchair fan]

Lack of interest

I agree with that to an extent LM, but these are unprecedented times. Back in June when I took my tracker rate out, it began at 5.75%, and the fixed rate was 6.75%. Neither I nor the bank could have foreseen base rates being cut by 3.25% in the months since; there's no way they'd have offered a 5-year tracker product to me, if they had foreseen that (and in fact I think they no longer do offer base rate trackers to anyone).

[Tactical Genius]

Lack of interest

GY,
"They're only covering people who become unemployed or suffer a big loss of income. How exactly are these people being imprudent? Are you only supposed to buy a house if you can afford to keep paying after being out of work for two years?"

There is already a provision in place from the governemtn and the banks for people who become unemployed or suffer a large decrease in income.

In my opinion, Imprudency is when people mortgage themselves to the hilt, do not save any money for a rainy day and live of their credit cards.

I have alot of money in the bank right now, not because i am rich, but because i lived well within my means and always made sure i had plenty of money put by to tide me over during the bad times.

It is the same people who splurged during the days of cheap credit that got us into this problem in the first place, why should they be getting the majority of the bailout?

Rogin.
"Neither I nor the bank could have foreseen base rates being cut by 3.25% in the months since; there's no way they'd have offered a 5-year tracker product to me, if they had foreseen that"

Well that's just tough, the annoying thing about this financial problem is that many people like to gamble with thier finances and when it comes off, they whing about having to pay tax on their profits, but when they get burned, they want the rest of us to bail them out.

[Ginger Yellow]

Lack of interest

There is already a provision in place from the governemtn and the banks for people who become unemployed or suffer a large decrease in income.

Presumably you mean mortgage payment insurance. Given that the Competition Commission has said that the insurance is not worth the money and wants to ban lenders from providing it when giving a loan, you can hardly accuse people who don't take it out of being foolhardy.

In my opinion, Imprudency is when people mortgage themselves to the hilt, do not save any money for a rainy day and live of their credit cards.

There are plenty of those people, sure, but there are also plenty of people who take out a reasonably sized mortgage, don't living off their credit cards and then lose their jobs through no fault of their own and can't keep up payments after their savings run out. I really can't see how they're being imprudent. Whether or not it's the right thing economically to bail them out, I don't see how it's a moral issue.

It is the same people who splurged during the days of cheap credit that got us into this problem in the first place, why should they be getting the majority of the bailout?

For the obvious reason that the government wants to slow the rate of foreclosures. Again, regardless of whether this is economically the right thing to do, it's not going to achieve that goal by bailing out people who can pay their mortgages.

[Rogin the Armchair fan]

Lack of interest

It is the same people who splurged during the days of cheap credit that got us into this problem in the first place, why should they be getting the majority of the bailout?

That's a simple moral question to answer, TG: they shouldn't. Even if the Church, in its teaching about the parable of the prodigal son, would disagree.

For an economist, however, it's a more complicated answer. The entire reason you were able to earn decent money as a computer programmer for years was because you worked (and still work) for companies that were splashing out loads of dosh on computer systems they probably didn't really need, but could afford precisely because their customers were buying their products on credit. When credit dries up and customers decide to stop buying, everyone who works for those companies stops earning. Including you.

So in a sense, the "bailout" is only a dramatically enforced way of keeping the money-go-round working. You pay more tax, the government gives it to middle class people with mortgages, they keep buying products on-line, you stay in work. QED.

[Moonlight Shadow]

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I share TG anger eventhough I realise it is quite a simplistic and self-righteous view of a complicated issue as GY has hinted. But allow me a little anger, I never got in debt, I've saved money, I've restrained myself to buy silly things and all my efforts seem to be swapped aside in order to save people who lived 50K a year lifestyle whilst earning 15K thanks to cheap credit and a speculative bubble. Now the buble has burst, it seems the one thing they want to do is to start inflating it again as soon as possible.

I mean, give me back Rhine capitalism over that screwed "liberalisme a l'anglo-saxonne" nonsense...

[Tactical Genius]

Lack of interest

GY, thanks for responding to my points.
And my response to yours.

"Presumably you mean mortgage payment insurance"
I wasn't actually, If you are on unemployment benefit and have a mortgage, the government will pay your mortgage interest payments for a period of time.

Plus if you see your bank nice and early, they will give you a payment window.
If you were prudent enough to put some money by, this should be enough to ride out the worse of the recession.

"There are plenty of those people, sure, but there are also plenty of people who take out a reasonably sized mortgage, don't living off their credit cards and then lose their jobs through no fault of their own and can't keep up payments after their savings run out. I really can't see how they're being imprudent."

OK, but if you have savings and credit cards without any debt on them, you should be able to last a pretty long time before losing your house. I am not being cold or cynical nor will i gloat if anyone on here loses their home.

"For the obvious reason that the government wants to slow the rate of foreclosures."

Yes but paying the mortgages of people who should not be in thoese houses in the first place is not the way to go ethically or financially. In my opinion.

Rogin, 1890. I am giving a simplistic slant on this and your criticisms are fair.

However Rogin, like people companies have stopped saving or using their earnings to invest and instead have gorged on the cheap and easy credit.
when all is said and done, it is the prudent and savers who will be hardest hit as we will have to exhaust all our savings before we get any help.

If i earn more than 70% of my current wage in my next job, i'll be a happy man.

[Rogin the Armchair fan]

Lack of interest

Well, for all us cod macroeconomists out there, the Bank of England's expected to cut base interest rates again today - possibly, just possibly, all the way down to zero per cent - and is also expected to leverage an increase in the money supply, which should have the knock-on effect of allowing competitive lenders across the economy to drop their rates by even slightly more than the base rate cut (the theory being that with more money in supply, the "price" of borrowing it - the interest rate - should drop).

There is, literally, nothing else the Bank can do after this to stimulate the overall economy (as we're pretty neutral on our Balance of Payments, a massive devaluation or revaluation of the £ wouldn't have much of a net effect). So if this doesn't get the economy moving, it's back in Mr Brown's lap. And all he's got available to him are Keynesian tools which he may have to fund through slashing benefit handouts and increasing taxes. Neither of which have been election winners in recent history. I almost feel a bit sorry for the bloke, in the kind of way I did for Graham Taylor towards the end.

[HORN]

Lack of interest

Tactical Genius wrote:

Plus if you see your bank nice and early, they will give you a payment window.

I informed the Halifax that I wished to take a mortgage payment holiday due to my not having worked for three months.

"But we can't. A payment holiday equates to a loan. You have no means of repaying that loan back as you don't work. Existing government legislation prevents us doing this".

My advice is to lie to them. Say you're going travelling.

[Ginger Yellow]

Lack of interest

There is, literally, nothing else the Bank can do after this to stimulate the overall economy (as we're pretty neutral on our Balance of Payments, a massive devaluation or revaluation of the £ wouldn't have much of a net effect).

Well, there is, it's just not something you want to have to do: quantitative easing, aka printing money. The Bank now has the legal authority to do so, and has given every indication it will do so when it runs out of conventional monetary policy tools, as it will shortly do.

HORN - this isn't really my area of expertise when it comes to mortgages (at least in the UK - I'm fairly well up on the situation in the US, now), but you should try asking formally for a permanent loan modification, eg reducing the rate and extending the term. The bank is probably not going to want to foreclose in this environment and given that the government is the largest shareholder in Lloyds/HBOS and the bank wants government support for up to £300bn of assets, there's a political angle as well. Also, as TG says, there is now a government scheme to reduce payments for people who experience a dramatic drop in income, including unemployment. Have a look here for details.

[Ginger Yellow]

Lack of interest

Told you so:

Accordingly, the Committee concluded that a further easing in the stance of monetary policy was warranted. But the Committee also noted that a very low level of Bank Rate could have counter-productive effects on the operation of some financial markets and on the lending capacity of the banking system. On balance, the Committee decided to reduce Bank Rate by 0.5 percentage points, to 0.5%.

The Committee judged that this reduction in Bank Rate would by itself still leave a substantial risk of undershooting the 2% CPI inflation target in the medium term. Accordingly, the Committee also resolved to undertake further monetary actions, with the aim of boosting the supply of money and credit and thus raising the rate of growth of nominal spending to a level consistent with meeting the inflation target in the medium term.

To that end, and noting the recent exchange of letters between the Governor and the Chancellor of the Exchequer concerning the use of the Asset Purchase Facility for monetary policy purposes, the Committee agreed that the Bank should, in the first instance, finance £75 billion of asset purchases by the issuance of central bank reserves. The Committee recognised that it might take up to three months to carry out this programme of purchases. Part of that sum would finance the Bank of England’s programme of private sector asset purchases through the Asset Purchase Facility, intended to improve the functioning of corporate credit markets. But in order to meet the Committee’s objective of total purchases of £75 billion, the Bank would also buy medium- and long-maturity conventional gilts in the secondary market. It is likely that the majority of the overall purchases by value over the next three months will be of gilts.

[Rogin the Armchair fan]

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the Bank of England's expected to cut base interest rates again today ... and is also expected to leverage an increase in the money supply

Er, told us when?

[Ginger Yellow]

Lack of interest

09:54

[Rogin the Armchair fan]

Lack of interest

I'm being flippant, GY, only in as I predicted so earlier than you did.

But I must confess, it's been nearly twenty years since I studied monetarism as part of any macroeconomic course; I genuinely would appreciate a refresher on what "increasing the money supply" is meant to achieve. It IS to do with - in theory - reducing the "demand-supply" balance for "liquid money", which in turn is meant to be reflected by reduced competitive interest rates, isn't it? Or have I got that wrong?

[Ginger Yellow]

Lack of interest

Macro-economics isn't my field and the mechanics of central bank operations make my head hurt, so it's probably best for me to leave it to other people to explain. If nobody steps up, I'll do my best.

[WOM]

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Yeah...I don't there's much risk of that. Maybe you'd just better go ahead.

[Bill Poster]

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In the land of the blind, the one-eyed man is king. Go for it GY.

[Ginger Yellow]

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DGLH knows a lot more about this than I do, seriously.

[Bill Poster]

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Yeah but you know more about this than we do. I always appreciate your economics posts, even if I don't fully understand them.

[Tactical Genius]

Lack of interest

Just make it up GY.
You will be no more wrong or right than all the "experts" out there.