Will stimulus plans lead to disaster?

In this video which was featured on Yahoo! Tech Ticker Peter Schiff of EuroPacific argues that any additional stimulation of the economy or bailout packages will actually exacerbate the situation rather than remedy it. The outcome of the current economy will perhaps decide once and for all who holds the keys to recovery, the Keynesians or the Austrians.

The Keynesian solutions were fine tuned post-fact and this is the first time since the 1930’s that the theory is getting a real life test, in watching the Davos Debates one interesting factor is that Austrian Economics seems to be getting an equal amount of airplay. Stephen S. Roach said at Davos that we need to get on with the ‘heavy lifting’ where the global rebalance occurs, current account deficit nations have to start saving while current account surplus nations need to spend, this is the inverse of what Keynesians would perscribe because under their guide countries like the USA (deficit nation) need to spend their way out of …

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Approval in Principle, the flaws.

Our firm [and I am sure many brokerage firms] are witnessing a conundrum in the market which is causing both clients and the broker a huge amount of heartache. It is that of the ‘AIP’ or ‘Approval In Principle’ not being honoured by banks over short periods of time. One lender in particular [we can’t name names] is doing that on so many cases that we no longer consider their approvals as holding any relevance.

What is an approval in principle (A.I.P. is the broker-speak we use to describe them)? It generally means that you have given a bank enough information to make a strong [and yet preliminary] decision on a case, sometimes it is subject to further documentation, or they want to get a valuation report before making a full offer, in any case an AIP is NOT a loan offer but it is as strong an indication as one can get without dealing with solicitors, in the past an AIP was honoured almost exclusively and they were seen as fundamental to …

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Bond market news from the USA

Bond yields in the USA are at historically low yields, the ‘flight to quality’ we are seeing is that there is a wholesale flight from the private credit markets into the public based bond market, this is driving up the dollar as a result it will make exports more difficult, so it seems we’ll see what role the M3 supply increases by and more importantly where will inflation go as a result of this!

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How falling interest rates hurt banks during a liquidity crisis

The falling interest rates are heralded by consumers of Irish mortgage companies as a godsend – well, for the clients of the Irish banks who actually pass on the full rate cuts that is! However, at the same time it creates a rate compression which damages the bank and this is what we will consider in this article.

Banks have two sides to the operation roughly speaking, on one side there is the lending function which we are all aware of, mortgages, car loans, personal loans etc. on the other side is the deposit taking function which provides part of the money they lend out. There is of course the interbank market which supplements (and often surpasses) deposit funds for lending, but to keep things simple we will focus on a world where deposits roughly equal lending.

When

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Will Specialist or Sub-Prime lenders be better off?

With the news coming out daily about prime lenders facing higher and higher impairment charges it begs the question of who will do better during a downturn, specialist/sub prime lenders or prime high street banks?

Banks stated that they feel impairments of up to 90 basis points were likely, some have revised this figure higher several times with NIB predicting impairment of upwards of 300 basis points. Sub-prime lenders on the other hand start off with predictions of high impairment and they price and gauge the risk accordingly from the outset. Given that starting point, could it be a case that Irish specialist lenders may come out the other side of the liquidity crisis with an overall book that fares proportionately on margins than other prime lenders?

To answer this question we must first consider margins, with many banks typical margin is from 1% to 1.5% on average, however, with many prime lenders this margin is  lower because of low margin trackers that were a point of heavy competition between …

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What affects your investment planning

Did you ever wonder why some people seem to be doing better in the investment arena than you? Or why certain people seem to always lose or consistently win? The truth is that there are very few ‘superstar’ fund managers, like in any industry there are those that are the best and they totally outshine the millions of others who do the same job but never to the same degree.

If we were to look at some of the factors that may have an effect on your investments you can quickly identify that there are those which you cannot control, and therefore can only hedge against, and those that are within your control for which you are responsible and must consider, these will now be considered:

1. Being too conservative: If you stayed only in the safest areas of the market you would actually lose money over time as the effect of inflation grinds down your investments. This would be because the deposit interest rates would likely not give positive returns when you …

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How To: Get a better rate from your bank

Banks are not lending as freely as they used to and for many borrowers obtaining credit is harder than ever, the people who already have mortgages are also feeling the pinch as lenders raise the margins on variable rates – which they have every right to do!

Tracker mortgages are now gone from the market and we are left instead with a confounding maze of LTV based Standard Variable Rates. This means you get a rate with no guarantee, set by the bank, and its based on the loan to value of your property. This may leave many feeling that they have no option and if you have a defeatist attitude one could argue that it has been imposed rather than earned!

However, last week a member of our team decided they would do something about the rate they were getting and they called the bank and tried to negotiate a better rate, they were rebuffed several times and eventually they got past the business prevention unit and were …

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The different types of interest rates available for mortgages

By regulation lenders must publish APR‘s as well as the interest rates on mortgages. APR’s take into account all of the costs associated with a mortgage including the set up charges, (the interest rate itself naturally in there too!) and ongoing fees etc.. As long as you are comparing loans over the same term the APR is an accurate gauge of considering one versus the other.

Within the industry we tend to focus on the ‘Cost per thousand’ which is the actual cost of a loan for every thousand borrowed. So we’ll take the following situation

Loan amount: €300,000 Interest rate: 4.8% APR: 5.0% Cost per 000′ 25yrs: €5.73

(normally cost per thousand or ‘cost per 000’ sheets are only held by people within the industry as its a sizeable matrix but if you want to ask a very knowledgeable sounding question inquire about the cost per thousand as it shows the actual end cost of one loan versus another)

Anyway, what would your monthly …

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Is a tracker better than a fixed rate?

This is a question that was put to me recently, it made me grin on several levels, firstly because the mainstream public still don’t fully realise that tracker mortgages are now gone from the market, the second was that I was asked so close to a rate cut.

First things first, Tracker mortgages are now a thing of the past, every lender has withdrawn them from the market. The tracker mortgage was a transparent and easily understood it was based on something that people understood and could read up on easily. I would challenge most people to quote the morning bells 3 month euribor at the drop of a hat, even those of us in the mortgage industry.

The other part about ‘better than a fixed rate’ is this, rates just dropped, if you fixed your rate between June of 07′ and October 08′ then you missed a 0.25% rate hike in July, but the rates from 07′ had priced in the cost of funds for the most part, the …

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Mortgage Rates

Mortgage rates are normally described as a percentage, be it 5% or 3.98% the important thing to remember is that it merely interprets the cost of that credit to you as a financial debtor to the provider. When you compare rates it is also important to have an understanding of where they came from.

For instance, which rate is better an ECB (European Central Bank) tracker of 5% or a standard variable of 5%? They are both the same numerically but the tracker has a guaranteed margin the SVR (standard variable rate) does not so if the ECB change rates, for instance the way they cut rates in mid-October the standard variable might not come down the full 0.5%.

To be fair most banks have decided to pass on the ‘full’ rate cut, but what they had done in the interim of rate movements was to increase the margin on their SVR’s when the ECB was actually standing still between June of 07′ and …

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