Is the Recession Exaggerated

In his highly readable and entertaining book The Ascent Of Money, Niall Ferguson deals with the sub-prime crisis and indicates that all is not what it seems.

Yes, the banks (and Savings And Loans organisations) are guilty of reckess lending ... but why? He, too, mentions NINJA (see above) but goes on to explain that the roots lie with the US ideal of making everyone a home-owner.

The following may be a surprise - I certainly read the name several times to be sure I understood it correctly:

The American Dream Downpayment Initiative 2003 (ADDI) - see:
http://www.hud.gov/offices/cpd.../programs/home/addi/

aimed at getting people with little or no income (the NINJAs) into home ownership. The idea being that people who own their home care for it and take part in the community.

What it didn't take account of was a combination of falling wages (due to reduction in work), inflation and rising interest rates.

Mr. Ferguson also states that laws limiting the Savings And Loan Organisations lending on properties more than X (I think this was 50 but I would have to check) miles away were removed enabling lenders to advance money on properties much further away ... properties they had never seen.

The banks may be guilty of seeking to expand their loan books but it's not bankers who set the rules. And no, I'm not a banker and I have no love of them either.

quote:

Originally posted by Mick Parry:
Rockingdoc

People like you are just not worth bothering with. I do not mind discussion even with fools but uninformed people like you just take the biscuit.

Best we ignore each other from now on.

But in my view, you are either a cartoon character making ironic postings for our amusement, in which case please continue, or it isn't irony and you are a completely malign influence on the forum. The absence of smilies makes it impossible to tell in such a constrained medium with the absence of voice tone or facial expression.

With your frequent references to people as "idiots", "fools" and "morons", I prick at the pomposity only to determine whether you mean to be so offensive. Simply ignoring that which is unpleasant is the easiest, but not always the correct action.

Nero / Malky

The recession was caused by all of us. You cannot moan at the Banks for lending when we were the people who asked for the loans.

Loans are never forced upon people, in fact people often dress up in their best suit and grovel to the Banks for a loan.

In this instance, each person who borrowed a sub prime mortgage was the architech of his/her misfortune and dropped the rest of the world in the soup. No one forced them to take out a mortgage, they took it out because they did not think the consequences through.

We are now in a situation were we need to reduce debt on a global basis and yet the most common complaint being made against Banks is that they are tight in lending. Somewhat ironic.

Regards

Mick

quote:

With your frequent references to people as "idiots", "fools" and "morons", I prick at the pomposity only to determine whether you mean to be so offensive. Simply ignoring that which is unpleasant is the easiest, but not always the correct action.

Rockingdoc

To be honest I would prefer we did not speak following your ludicrous posting of yesterday.

To answer your specific complaint, I used the term moron to describe the people who where stupid enough to take out a sub prime mortgage. They must be absolutely thick to have done so.

The mortgage was loaded with punitive clauses that only a fool would sign up to.

Regards

Mick

Mick - look out for the homophones

It's an emotive subject for all of us. We are all entitled to a view, even if this may be unpalatable to some of us.

Please try to ensure that the thread stays OT and avoids getting too personal.

Thanks. The Management.

quote:

Please try to ensure that the thread stays OT and avoids getting too personal.

Mick has, for years, given it out, and got as good as he gives in return. Surely we can carry on robust debate and chuck in a few insults without the management getting on our case.

Gratuitously offensive postings should, of course, be dealt with appropriately but you might just be cutting your own throat if you clamp down on the most entertaining aspect of the Padded Cell.

quote:

Surely we can carry on robust debate and chuck in a few insults without the management getting on our case.

I think Richard's point is 'we' can Malky, but Mick & his bad lieutenant certain members are incapable of taking what they give without their 'meltdown' lights coming on. This results in Richard having to reach for his mod' stick, & that never ends well for any of us.

SC - Richard can be much scarier than that mate!

quote:

Originally posted by Mick Parry:
Nero / Malky

The recession was caused by all of us. You cannot moan at the Banks for lending when we were the people who asked for the loans.

Loans are never forced upon people, in fact people often dress up in their best suit and grovel to the Banks for a loan.

In this instance, each person who borrowed a sub prime mortgage was the architech of his/her misfortune and dropped the rest of the world in the soup. No one forced them to take out a mortgage, they took it out because they did not think the consequences through.

We are now in a situation were we need to reduce debt on a global basis and yet the most common complaint being made against Banks is that they are tight in lending. Somewhat ironic.

Regards

Mick

Mick
I'm really trying hard not to get sucked into this, mainly because I really don't understand the financial aspects very well, so my opinions can probably have many holes picked in them, but maybe it's your Daily Mail style of pontification that sticks in the craw.
One minute, you're saying that people should be opportunistic and get on their bikes to clean windows instead of sitting on their backsides complaining, and the second minute, you're admonishing them from taking out loans, ostensibly to improve their lifestyle, simply because they could.
It's not as simple as that, and I know you know that, or at least I'll give you the benefit of the doubt.

Over the last decades, probably starting with Thatcher, it has been politically expedient to promote home ownership as an aspiration, and the increase in house prices has always been used as a feel-good factor. It's been a disappointment that a Labour government has been just as much a slave to this idea.
The dependence of the economy on consumer spending has also increased, fuelled by easier credit and liberalised banking. It is almost considered de rigeur to have a flat panel TV, new computer, Sky subscription, conservatory, new car, etc etc and understandably, the banks have been falling over themselves to fund all that.
But politics is only a small part, as, with globalisation, the power of a national politician to influence things has waned, and most of them run around after the banks to stop them relocating elsewhere.
The danger has arisen from the separation of risk from reality, and the creation of vehicles such as collateralised debt obligations has meant that debt was being bought and sold as a commodity, without anyone knowing what was in the box. The fact that this could be done across borders (globalisation again) meant that the creditworthiness of some NINJA in the USA has a direct impact on our economy.
In the old days of course, if you wanted a mortgage, you went to the local bank, and talked to the bank manager, and he probably knew you or had heard of you, and his kids went to the same school, and he knew absolutely what kind of risk you were.
Now, with self-certified mortgages, internet banking, etc etc, you can't blame the banks entirely for not knowing the level of risk, but what happened to self-control?

I'm afraid I'm rather boring - I rarely borrow money, and if I do, I make damn sure I will be able to pay it back. I only use credit cards as a means of payment, and in the old days, for saving 50 odd days of interest (not much point now).

Ironically, as a result of that, I've probably 'underperformed' compared to bigger borrowing peers, who live in bigger houses as a result. But hey.

These are all contributory factors to the recession, and we all knew two years ago that the bubble would burst, but ignored it. How could the government introduce legislation to control credit, etc when it's been happening all over the world? Local political suicide. So the powers that be simply go along for the ride.
As it happens, I have no confidence that Cameron's lot will behave any differently. They won't have a choice.

So to get back on topic, is the recession exaggerated? I don't think so, but it could be argued that the BBC's capacity for schadenfreude probably hasn't helped.

I'm sure I have probably not completely thought through my opinions, but I'm happy to learn from others.

Mick - it would do no harm if you occasionally include an 'IMHO' in your posts, or I dare say, a smiley. Otherwise, you simply come across as that boorish bloke in the pub, who we all try to ignore, or walk away from. The forum 'pub' had a nice intelligent atmosphere until recently - I don't blame a few members for choosing to drink elsewhere

Cheers
John

Nero

I do not recall insulting anyone here and following a complaint to Naim I have agreed to depart from the forum.

Regards

Mick

Perhaps you need to have your memory tested Mick?

quote:

financial aspects

Hi John

This is an area in to which I have much insight, although I find it tedious!
I can confirm your instinct is correct.
Mick does not understand what he is talking about.

The recession was triggered by the 'financial meltdown' of 2007.
I summary inter-bank lending locked up (banks lending to each other) because banks no longer trusted each other.
Banks knew they all had $trillions of so called toxic assets (assorted high risk loans inc' sub prime mortgages & their derivatives - complex exotic financial instruments) on their books.

For many years prior to 2007 in the UK, US & many other economies banks recklessly lent money to anyone.
This appears to have been driven by the vast commissions banks earn each time they made a loan.
They then bundled up these high risk loans with better quality loans into derivatives,
the idea being to present an 'investment opportunity' which appeared much safer then it in fact was.
Amazingly all the major banks did this, & traded derivatives between each other as well.
Again each time a trade happened another fat cat (no offence to that fine member!) commision was trousered.
This was with the full knowledge of the governments & the associated regulatory bodies.

However every ponzi scheme falls apart sooner or later,
& eventually the bankers realised what they were creating - a house of cards.

The (merchant) bankers might try to blame the general public for this, just as the governments try to blame the banks.
IMO any informed person would conclude the blame lies with governments, their regulatory bodies & the banks.

If you haven't seen it this might shed some light on the subject.

Cheers - John

Thanks for that - I wasn't aware of the commission angle - I was trying to understand why the banks were so incentivised to lend unwisely

quote:

Originally posted by 555:
If you haven't seen it this might shed some light on the subject.

Yes, I saw that post - it seemed to be a bit thick in irony though. I was contemplating buying the Niall Ferguson book, maybe for summer reading (if we have a summer) but I also found Peston's "Who runs Britain" quite good.

Mick - who did you complain to Naim about?

I think Mick is confused once more, surely he received a complaint from Naim!

The article I stole liberated from citywire is ironic.
That interested me because I would expect CW is politically very capitalist.

Nero

I have not complained about anyone. The day I start writing to Moderators about someone else is the day that I top myself.

I received an email from Naim indicating that I was stirring things up and causing unrest. I have agreed to depart for the sake of peace and quiet. It is as simple as that and no big deal.

Regards

Mick

quote:

I'm afraid I'm rather boring - I rarely borrow money, and if I do, I make damn sure I will be able to pay it back. I only use credit cards as a means of payment, and in the old days, for saving 50 odd days of interest (not much point now).

Ironically, as a result of that, I've probably 'underperformed' compared to bigger borrowing peers, who live in bigger houses as a result. But hey.

Well, I'm like you, Nero. I once borrowed money for a new car, it was a nightmare and I payed of the loan as quickly as I could. That's it.

But I can't say that I'm worse of than the guys with the heavy mortgagaes. I live in a nice semi, I have two car's, a HiFi system that is so good that most people doesn't have a clue, I have a model railroad with far more equipment than I can use. There is also some money left to save for my pension (in a bank account, it means I actually get a bonus from the bank each year, like the bank manager. The people who borrows money pays it).

All on a medium salary, and I can sleep comfortably in the night!

Don't mind about Mick, btw. He is sometimes quite rude, but he says his honest opinion without beating around the bush.

JohanR

quote:

Originally posted by 555:
Perhaps you need to have your memory tested Mick?

quote:

financial aspects

Hi John

This is an area in to which I have much insight, although I find it tedious!
I can confirm your instinct is correct.
Mick does not understand what he is talking about.

The recession was triggered by the 'financial meltdown' of 2007.
I summary inter-bank lending locked up (banks lending to each other) because banks no longer trusted each other.
Banks knew they all had $trillions of so called toxic assets (assorted high risk loans inc' sub prime mortgages & their derivatives - complex exotic financial instruments) on their books.

For many years prior to 2007 in the UK, US & many other economies banks recklessly lent money to anyone.
This appears to have been driven by the vast commissions banks earn each time they made a loan.
They then bundled up these high risk loans with better quality loans into derivatives,
the idea being to present an 'investment opportunity' which appeared much safer then it in fact was.
Amazingly all the major banks did this, & traded derivatives between each other as well.
Again each time a trade happened another fat cat (no offence to that fine member!) commision was trousered.
This was with the full knowledge of the governments & the associated regulatory bodies.

However every ponzi scheme falls apart sooner or later,
& eventually the bankers realised what they were creating - a house of cards.

The (merchant) bankers might try to blame the general public for this, just as the governments try to blame the banks.
IMO any informed person would conclude the blame lies with governments, their regulatory bodies & the banks.

If you haven't seen it this might shed some light on the subject.

Cheers - John

I agree with 555 ...

It was the 'commodotization' of debt, the incorrect ratings of this new 'security' that spiraled into toxicity.

This all started when certain securities regulations were lifted in the first Reagan administration.

As for sub-prime mortgages - with the deregulation of the mortgage industry an explosion in the number of mortgage consultants resulted. Each was motivated to sell as many mortgages as possible, their commissions depended on it. However, there was no come-back on them if they sold a mortgage to someone who couldn't pay. Heck, even the mortgage companies didn't care, they'd bundled it up and sell it as a security.

The other issue is with corporations, in Canada consumer confidence was doing okay, despite the media amplifying the doom and gloom. Then the CEOs of the big companies started to get nervous, then started to restructure their companies ... that's when the sh!t hit the fan. The workers of these companies then started to get nervous and they stopped spending !

Another major factor in Ontario is the automotive sector. God only knows how General Motors was running their business, but when reality hit and plants were shutdown, this had a huge trickle down effect.

In Canada we believe that when auto picks up it will pull up its supporting industry and this will lead to our turnaround.

However, the US economy is a major worry, the US is Canada's major trading partner. So if the US is slow to pullout of the downturn, this will inevitably limit Canada's return to growth.

quote:

Originally posted by Mick Parry:
I received an email from Naim indicating that I was stirring things up and causing unrest. I have agreed to depart for the sake of peace and quiet.

If this is true it is pretty poor stuff. Mick's rants are one of this forum's biggest attractions, I find it hard to believe that anyone genuinely gets upset by Mick's contributions to the gaiety of nations. There have been some pretty fragile ego's developed around here lately.

Due to the gentrification of this forum I might have to, again, think long and hard about posting about thinking about posting about leaving.

quote:

Originally posted by Mick Parry:

I received an email from Naim indicating that I was stirring things up and causing unrest.

Mick

Mick, that's not quite true, is it?

I have told you that while your views may be controversial, I shall defend your right to air them to the hilt.

Within the rules of this forum and laws of the land, that goes for anybody else too.

555,

quote:

IMO any informed person would conclude the blame lies with governments, their regulatory bodies & the banks.

-

I do add those who borrowed recklessly.

Cheers,
OW

I agree OW. I was reminded of this when I saw the story of the poor woman who was taken in by the loan sharks. She borrowed £500 from a con-artist to buy a wedding dress.
I suppose a wedding dress is one of those must have items


But 5 years is too good for that slimeball

Richard

Absolutely true regarding Mick.

His views may be blinkered, extreme and just plain wrong but he has not personally insulted anyone throughout this thread.

If folks don't have a thick skin they needn't come in here. It would be a dull place indeed if we were all the same!

On that cliched note, I'll end.

Cheers

Jim

PS. I hope Mick is going to the BBQ as it would be interesting to meet the individual behind the forum persona.

The problem is education and the ability to process and asses what you're getting into.

- I'm a chemical engineer who builds control systems for plants (at least I did until I got laid-off). You don't need to know the details of what I do or how I do it. I have a license to practice and the ethics of that are held with very high regard. My incentive is to build and instal high quality engineering solutions to meet my customers needs and exceed his expectations. I'm salaried and am not encouraged to sell high margin items to the customer.

Financially, I'm a ludite, my eyes glaze over the moment a financial advisor starts to speak. Could be from boredom or even the fact that my options are limited. I have to take my advisor's advice because I don't know any better.

I used to think it was at least 50/50 my interests versus the banks interests. Now I know that it's 50/50 the banks interest and the advisors interest.

They are told to push certain products and are measured on that. By law and regulation they can't screw me over, but there's nothing stopping them from acting in their own interest even if it isn't necessarily in mine.

There are millions out there who were hoodwinked in the US housing market. They were told everything would be fine because the value of the house would always go up, so if they had to sell in a year they would come out of it on top. The risk of default was very low they told.

Those financial advisors who sold these mortgages knowing full well that the people who bought them didn't know any better are the ones who need to be strung up ...

The rapid growth of cities like Phoenix was based on NINJA style mortgages in the 50s. The people arriving from the north and the east of the US seeking a better life needed somewhere to live and the builders built and the banks lent based on the hope /fact that an economic community would grow that would employ the incomers.

Chaps

I thought I best come back to set the record straight. I think on reflection that I may have mis represented Richard Dane and that was unfair of me.

Just to be clear, Richard did not make any threats or similar. I mis read his email and took it the wrong way, which in all fairness is my fault not his.

Therefore I would like to apologise to Richard and wish everyone else on the forum well for the future.

Regards

Mick