subprime crisis

[Alan Zoff]

I accept the logic Logan but it's still difficult to see so many - perhaps naive but nonetheless innocent -people being sucked into this situation. Look at all those - mainly black - Americans, many of whom were content to rent until salesmen with a free hand were let loose on them - it was their duty as good Americans to buy into their country -, selling them mortgages they could just about afford at Day 1 but had no chance of maintaining when rates changed, i.e. the sub-prime disaster.

In a totally unregulated market, the dice are rather too heavily loaded in favour of one side. That may be how capitalism works, but it ain't pretty. Nor is the knock-on effect, as we are now finding out. 

[Bones]

The vast majority of people I knew during the last recession and the fallout of the endowment fiasco were simply not money minded.

They see a man in a suit spouting fancy jargon and they crack, hence endowment mortgages, hence top up loans, and the risk of eventual negative equity: a miserable existence, a feeling of failing your kids. I'm talking from a working class perspective here,  quite how it affects the middle/upper middle classes I'm not sure. I remember my mum sitting down with a mortgage advisor and him still pushing the endowment option even after it had began to seep out (to all and sundry) that they weren't such a good idea.

Another negative impact of the free market system we've succumbed to is the rampant consumerism, kids are literally brought up on this and feel a strong need to buy stuff; any stuff. Throw credit at them and they'll take it, tell them it's based only upon what they can pay back and they'll trust you, show them a house and they'll want a bigger one, 120% mortgage: what's that all about??

No. This sink or swim system is breeding distance, suspicion and gangs of free for all scum on the streets.

People are perpetually unhappy and unfulfilled, and that's the way the system wants them, otherwise they stop buying junk.

Basically, I'm saying that prosperity is a relative concept.

[recovering brit]

The pound is down against the euro today (a new low?), do those people who recommended waiting for the pound to recover still think that it will?  I desperately  hope so.

[Logan]

[quote user="Alan Zoff"]

In a totally unregulated market, the dice are rather too heavily loaded in favour of one side. That may be how capitalism works, but it ain't pretty. Nor is the knock-on effect, as we are now finding out. 

[/quote]

I agree Alan the sub-prime fiasco should never have happened. Credit rating agencies such as Standard & Poor have much of the responsibility. They recommended these packages with a triple A rating. The banks did not look further. However most of the current pain is being experienced by those same lenders. Yes, it's never a great experience having the bailiff’s call but at the end of the day the defaulters can lock up and leave. Then begin again. Whole sections of US society were given a shot at becoming home owners. Rightly or wrongly that dream was offered. For most it turned sour because the figures simply didn’t add up. The lenders have been rightly burned but it was capitalism which offered a dream, hope where no hope previously existed. That’s my point really. Who would choose to live a life without it? 

[Gluestick]

[quote user="Logan"]

Becoming exposed to negative equity risks Alan is a part of economic life. You cannot have prosperity without risk. Restrictions and legislation in my view limits growth.

That’s a positive aspect of a capitalist market economy. Nothing remains the same for long. Change happens to the benefit and pain of us all. It creates opportunity and insolvency. It’s a roller coaster ride. Some of us, mainly the young and upwardly mobile prosper hugely by getting in and then knowing when to get out and have the natural courage to do it. The rest of us are in therory at least prudent and careful and able to maintain a financial equilibrium admit the chaos. What other economic system can provide such opportunity, hope and consistent prosperity? I know of no other. If you limit economic life with regulation you choke and strangle the economic future of generations. There are always winners and losers. If markets are not allowed to breath then the winners go elsewhere. The rest of us loose as a concequence.

[/quote]

 

Logan, your advert for the current iteration of so-called Free Market capitalism could have been written by Merrell Lynch!

Even the worst politicians make one comment, which remains long after their demise.

That otherwise idiotic PM, Edward Heath made his claim to such fame when he said, "This is the unacceptable face of capitalism!"

Allowing an amoral market to dictate on matters of basic human survival is not, IMHO, acceptable.

Passing off a very insalubrious phase of the US market in taking a Japanese concept (Sub Prime Loans) and exploiting the most gullible and vulnerable as the luck of the draw of a market system of capitalism is, I fear, just not acceptable, either: it's an admixture of sheer usury and pure loan sharking. 

And the net result is the forward inability of US banks to sell packaged securitised debt to the Asian market, the largest source of new fresh money into the global financial system, in the foreseeable future: smart thinking!

The resultant shortage of capital will injure many smaller businesses and employers. Which make up in both France and the UK the majority, numerically.

For many years, the little guy could enjoy reasonable expectations that their savings, pensions and endowments demonstrated slow yet sure growth: they were looking for a stability of future, not rocket propelled capital growth.

Now, that safety net has been destroyed. 

And since circa 87% of all institutional fresh funds have traditionally come from the small saver, either directly or vicariously, via their pension funds, life assurance or investments, it’s going to be far harder to dupe them in the future!

Which in itself, threatens the very status quo of the core rationale of the financial system, which is predicated on being a subservient mechanism to the main engine of wealth creational activity.

Unfortunately, Financial Services have lost focus on their neccessary subservience and have endeavoured to become predominant.

I am unable, therefore, to share your optimism and sang froide!

 

[Alan Zoff]

I'm still a capitalist Logan, if only because I trust the alternatives even less - well, unless I was the one giving the orders! As my signature mught suggest, I like the dream, too, and I agree you have to take risks to achieve it. But I still don't favour a total survival of the fittest free-for-all.

It isn't just the defaulters who lose out - it's everyone else taken down with them. An American city (sorry, name has gone out of my head for the moment) was featured on TV recently. Highest incidence of repossessions in the US, mainly due to sub-prime failures. Whole areas that may not have been wealthy exactly but were decent neighbourhoods have become desolate ghettos. You might have a mortgage-free home and a decent job but if the houses either side of and opposite you have been abandoned, and overrun by looters and druggies, you are affected too. And you can't move somewhere else because no one will give you anything worth taking for your decent house. Same for the small businesses depending on the community for trade.

[AnOther]

It was Cleveland and it was a sobering documentary [:(]

[Lassie]

We are now selling up and going back to the UK.  When we bought in 2001, the euro was 65.5 p.  Happily for us we have contracted to buy sterling ahead at 74.9p yesterday ,so with falling house prices in England, we are timing it right for once.  Knowing what I know now about living in France, I would not buy at this time except in certain areas and with a certain type of house..  Our house sold in 4 weeks because it appeals to a French market and was done by a private sale simply by hanging an 'A Vendre' board outside. Friends in different regions have been waiting 2 years for a sale depsite the details being with several agents. All sorts of things can happen as you get older and there's no doubt that the pull of family and friends is very strong - its our only reason for going back. Might be prudent to wait a couple of years and enjoy long holidays in France in a rented place first.

[Logan]

[quote user="Lassie"] wait a couple of years and enjoy long holidays in France in a rented place first.[/quote]

It might also be prudent Lassie to do the same in UK. The market is tumbling and has some way yet to fall. My guess is in 12 months time domestic property will be at least 10% to 15% cheaper if not more. Some analysts have estimated a low of 30%. With tighter money and personal debt burdens forcing fire sales it will be a buyers dream.

[Ian]

Gold to break $1,000?

[Gluestick]

It is always the ultimate hedge, Ian and a rapidly increasing gold bullion price normally indicates huge uncertainty and distrust of currencies and equities.

The final phase for chartists, of course, being when both silver and platinum curves shadow gold.

 

[dragonrouge]

Back to the question of wine and where we all have undoubtedly good and bad experiences. Some time ago I read a book on the Rhone wines which said undervalued fabulous qualities and the rest.  Then Parker came aboard and then a long visit to the Rhone Vallee took place.

Result bought all the opening offers from people such as Chave Beaucastel and the like never opened the cases and they were stored both professionally and in my air conditioned de-humidified double vaulted stone cellars in Chepstow where I lived in a Georgian House.

Total stock over four thousand bottles amassed over the years all then went to auction when we moved here full time in 2005.  I was amazed at the proceeds and it was double digit growth plus plus all the way plus enjoyment but it by then had taken over my life and was an obsession.

Now in the Vendee drinking Cote de Rhone at say 3euros plus quite happy but too planning now to return to the UK for I have never totally settled here continuing to work in the law in the UK so we still have the house in the UK now rented so perhaps when I go back I will start again? 

Its strange I love France but the hassle free lifestyle has got to me and I just cannot get my head in order and just enjoy it for I do miss the UK and obviously the family but of course this problem has been rehearsed many times on this web site.

All I know however that there are plenty of people out there in this world for are far worse off than I am so why should I complain