I have been talking for some time about a ‘rip off’ that the US will attempt to make against China, that it could take a belligerent form (default) or a traditional and less likely to cause a war option (devaluation of the dollar). It seems to be playing out and going for option two.
Competitive currency devaluations are alive and well in the world, why? Well, in early 09′ I wrote about it on the Paddy Power Trader blog:
It has been a while since I posted on the yield curve, the main reason was that I lost my daily treasury letter from Bank of Scotland when all of their reporting went back to the UK and the daily replacement by Lloyds didn’t offer sufficient time-line to give a full curve.
The interesting thing that has happened in the interim is that the rules regarding forward rate prices between mortgage rates and Euribor rates has disconnected, in the same way that the ECB and Euribor disconnected in 2007, by this I mean that it is fascinating to see the established relationship end but the implications are horrifying for borrowers because it has meant that their monthly payments have gone up at a time the ECB is keeping rates low for the purpose of loosening up the financial cogs.
Take a look at the difference between February of this year and today, we can see that the long term rates are coming down and that flattening of the curve means two things: the ‘new normal’ is predicted to be one …
Jim Chanos, the famous short-seller talks about government bailouts and whether or not they are very effective. A brilliant overview of the role of investors and how government bailouts are perhaps not the panacea they are flaunted as.
This is a very healthy sign for the mortgage market, and in our opinion it could mean that 2010 might mark the low point for credit that we have been watching out for.
In 2009 KBC under-lent, they had €1bn and didn’t lend out anywhere near that, they are also here to stay, and prior to the crisis they had about 1/8th of the market share. The fact that they are rolling out a higher loan to value is a very confident sign that
Banks have a few internal policy tools to control lending 1. Curtailing the amount of lending – we see that already, mortgage lending is about 85% down from the peak of 40bn p.a. , peak wasn’t exactly a gauge of normal, but half of that would be normal, and even on that basis it’s down 75% – that story still has to play out 2. Rate increases: this has the same effect as central bank rate increases, it reduces lending and everybody has increased their margins by at least 1% in the last year, you and …
Brian O’Donovan of TV3 covered this story, which relates to a press release by the Financial Regulator.
An article in the Independent yesterday pointed toward 100% mortgages being a significant attributer to the bubble, I would wager it was a symptom rather than a cause, the IBA meanwhile has called for all mortgages to be made on a non-recourse basis.
The good thing is that people and organisations are trying to find a way to avoid a repeat of the property bubble, and they are not one off events as the UK can testify. There are however, significant factors contributing to what happened.
1: lenders didn’t price risk, they didn’t even ‘price at all’: Banks have utterly failed to do the job they were designed to do, namely that of profitable intermediation, we had huge amounts of competition on lending, that drove down criteria requirements and also compressed margins, then along came trackers, these had low margin price promises – Bank of Scotland brought them into Ireland and have since left. I spoke with a Bank exec. yesterday and he …
Yesterday AIB increased interest rates for both existing and new borrowers. This comes as a huge blow to consumers, in particular given that the consumer is the same taxpayer who has done so much to bail out the bank. Do people have the right to be angry? Hell yeah they do!
The move has been coming for quite some time, we have been harping on about this for over a year, the most recent prediction was to put a time-frame and figure on the hikes, stating that it would start in Q1 of 2010 and in the course of the year we’d see c. 100 basis points or 1% of an increase across the board with a further 50 basis points or 0.5% in 2011. Today’s Independent has stated that we can actually expect all of it in 2010.
Why is this happening?
Simply put, the banks are not charging enough to cover the costs of loans that are not performing. In a way you …
Irish banks are caught in a perfect storm of funding costs versus lending costs which spells bad value for consumers. This is clearly seen on the deposit and lending fronts, our banks can’t offer headline rates on deposits, nor can they charge sufficiently on lending. This is creating a multi-billion Euro dilemma which will ultimately be paid for by an already unfairly burdened taxpayer.
On the deposit side foreign banks can afford to pay far more than Irish institutions meaning they can hoover up deposits rapidly and with relative ease, on the lending side, Irish banks are unable to obtain the margin they need in order to compete and remain profitable.
When it comes to leading rates for indigenous lenders you will see that Anglo, despite being nationalised and having the inherent backing of the state on all deposits, is paying the highest rates for an Irish institution on 6 month (it is the best of the Irish institutions) and 1yr deposits (it is the best across the board on 1yr deposits) – this is well above the odds they …
Caroline Madden wrote an article in today’s Irish Times ‘Just who is getting the mortgages?‘. It is a question that begs answers, at first it seemed to me like asking ‘Who is John Galt?’ (Rand readers will understand). The stories we hear constantly is that banks are hoarding credit, they will not extend credit to particular groups and when they do the underwriting is so strict that even credit-worthy applications are being turned down.
This article features our feelings on the matter, we believe that some of the banking statistics being thrown around make fore ‘good copy’ (good PR) and very little else, as we are not seeing applications turn from approvals in principle into closed loans, and in many cases, approvals are coming in far below what the applicant is actually looking for.
One element of this is natural, after a credit fuelled boom you …
There were many innocent parties to the credit fuelled property bubble, they are generally those who didn’t borrow, or who carried no debt, choosing instead to live frugally, and if they used debt they used it wisely. Many of these people are at the polar ends of the age spectrum, very young (who don’t even have access to credit) or much older (who have paid off their mortgages), something we will all need to get used to though is the fact that everybody is going to pay for the mess left behind, this goes farther than NAMA.
The process I am describing is already under way, the very payments system (our financial infrastructure), is going to be used to generate economic rent from the people of Ireland in order to bring in more profit to banks so that they can repair their balance sheets. This price will be paid by the taxpayer outside of the bailout money already being supplied on our behalf. This will be even paid by people who manage to …
