Everybody pays, even the innocent

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 …

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Mortgage options down 50% as of 2010

The Examiner carried a story about the number of options available to borrowers in the present market and the fact that they have dropped over 50% since 2008.

In 2008 there were 380 different mortgages available on the market across all banks and all rate suites, today, that number rests at 179 meaning that at least 50% of the choice is gone. That is also reflective of the fact that so many lenders have exited the market. Below is a list of several who are no longer lending here.

Halifax Fresh Mortgages Springboard Stepstone Nua Homeloans First Active GE Money Leeds

Many of these providers were in the non-prime/specialist/sub-prime category, however, a drop of 50% in choice doesn’t mean that there are no options left. Certainly tracker mortgages are a thing of the past as are Standard Variables (referring to new business for these products, existing clients will keep their existing product).

The other factor that makes this less spectacular is that many lenders replicate offerings, so when each lender pulled out, their two year fixed …

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Taxing Banks & Taxing Risk

In the first clip, James Galbraith (son of the famous JK), economics professor at University of Texas, discusses whether a new tax on big banks is justified. Ken Bentsen, of the Securities Industry & Financial Markets Association, and Mark Calabria, of the Cato Institute, share their insight as well.

In the second clip Mark Walsh, of ‘Left Jab,’ and Dan Mitchell, of the Cato Institute, discuss taxing banks based on their risk to the system.

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USA: Failed mortgage modification programme

Kudlow talks to Christian Weller, Center for American Progress and Dan Mitchell, Cato Institute on the topic of debt relief and mortgages in the USA, the argument for straight out write-downs on mortgages is compelling, and yet so too is the argument for allowing the market to work. Sometimes believing in the free market is seen as a ‘dirty thing’, but the side effect of trying to manage an economy from every aspect is also a bad thing (look no further than the former Eastern Bloc). Somewhere in the middle is a fair and sustainable path, but ideology bias is usually in the way before the conversation passes go, for that reason you will favour one speaker over the other quite often from the outset. However, ideology doesn’t actually get results, it is merely the platform from which a concept is launched and the better path would be to have an operational model to prove the point – although that isn’t always practical.

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Where are interest rates headed?

While we often see opinions about interest rates given by various commentators, I think the most telling indication is often that of the market, the point at which rates are settling at in prices is available at any time by looking at the Euribor Yield Curve, below is the chart for today.

The idea that rates will probably stay c. 1% until well into 2010 is only partially priced in, you can see the yield curve crossing the 1% mark at 6 months (which would be May 2010) – this however, is the Euribor and does have margin factored in, currently the margin over ECB is c. 25 basis points so the 1% base would cross when the graph above is at c. 1.25%. and that is the part that brings us to the latter half of 2010. The yield curve is live and dynamic so it could change at any time, either flattening or inverting. The reasoning behind where interest rates are going is a science in itself, and one that …

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How much of a deposit do I need?

When making a mortgage application this is a question that many first time buyers want to know, how much money do I must I have for a deposit? Well, that kind of depends on which bank provides the mortgage finance!

Lending criteria is different for every bank/building society/lender, this goes for rates, the general underwriting criteria as well as the ‘loan to value‘, the deposit you need is 100% minus the Maximum LTV and that will give you the deposit amount you require. For instance, ICS have a maximum LTV of 92% so the deposit you need – if you are obtaining finance through them – is 100% – 92% = 8%.

What is interesting in that example is that when you go ‘sale agreed’ on a property the estate agent will ask for a security deposit and the balance of 10% at the signing of contracts, this is an example …

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Banks are not competitive?

Roger Bootle notes that markets do quite well at the end of a recession and at the start of a recovery by drawing the benefits of the future down into the present. Roger has a lot to say on the topic of banks, in particular that of banker bonuses – he states (and we agree) that when banks become ‘too big to fail’ they essentially are oligopolies and hence they are able to pay so well. From an Irish perspective the domination of AIB and BOI put some stock in this theory.

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Can Theory and Jargon destroy your net worth?

This is an interesting vlog on some simple monetary economics ideas, the classical definition of inflation is discussed in terms of ‘money supply’ but then it turns towards some of the other issues such ‘what is money supply?’ there is no set agreement on which count should generally be used (in USD it used to be M3 which is no longer published). That has an interesting implication in the fact that banks are ‘hoarding’ money, the fact is that they are holding huge amounts of capital which isn’t monetized, but it can be and that means a return to ‘credit flowing’ could actually cause some serious inflation as the money flows into the real economy minus any increase in real purchasing power.

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