Late 2000s financial crisis - no lessons learnt re: overlending?

Discussion in 'Current Affairs, News and Analysis' started by IndependentBoffin, Mar 12, 2012.

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  1. Good morning and good day, folks! :)

    BBC News - Mortgage scheme offers buyers help up the property ladder
    Causes of the late-2000s financial crisis - Wikipedia, the free encyclopedia

    Some observations, please feel free to debate:
    1) We are on the brink of another recession/depression, if we are not already in it. Buying houses now is a bad idea when people should be saving money and cutting expenses to weather inflation.
    2) The government should be focusing on reducing inflation and the absurd price of fuel. Not getting people to add mortgages to their monthly outgoings!
    3) When the recession gets worse, inflation will rise, the £ will drop in value (affects the price of imported goods, e.g. oil, gas, food) and jobs will be lost. Ergo, foreclosures and property auctions.
    4) Foreclosures + property auctions = glut in supply = negative equity for those who buy now
    5) Avoid borrowing money whenever possible. Applies from the individual to the government. Proverbs 22:7 "...And the borrower is servant to the lender."
  2. That's one theory, but with the population increasing at the current rate, the demand for housing will probably mean buying is a safe bet. Personally, I sold up last year and am renting, but will buy as soon as I'm settled in my new job.
  3. There were many other hidden factors in the financial crisis such as toxic debt thrown in with collateralised debt obligations, mis-rated investments and many other small factors which contributed to a total meltdown. With house prices having suffered so much, it is unlikely that they could really be devalued much more and so 95% lending could be more viable than during the housing bubble. I'm not saying that it isn't without risk, but there are other hidden benefits from the increase in attainability of mortgages - The main one, as previous identified by Roosevelt, is that for many people the idea of owning their own home symbolises success and higher self-esteem. You are also more likely to have a sense of pride in both your property and your neighbourhood and be more respectful and protective of both.

    2011 studies stated that the average couple still needed a mortgage of 4.5x their joint income just to buy an 'average' house. Where is the motivating factor if on top of this, you need a gigantic deposit which will be slow to save due to paying rent for your current accommodation? There will also be arguments for and against high lending, but try not to overlook the benefits of homeownership for the masses.

    PS - In regards to point number 2, homeownership is considered to be noticably cheaper than renting and as such it would actually reduce outgoings not increase.
  4. At all costs they are keeping interest rates low.
  5. If you are not paying a mortgage you will be paying rent instead.

    Rent is more flexible in the face of hard times in that you can move/downsize quickly or in good times you could rent a property that you could not afford to buy.

    But you are still just chucking the money away, at least with a mortgage you are paying a good deal of it to yourself.

    The sooner we all come to regard a house as something to live in rather than an asset to be bought and sold at a profit the better.

    And when, at last, the mortgage is paid off then your living cost will plummet. I don't see how any but the very rich could contemplate retiring at 65 if they still have rent to pay.
    • Like Like x 1
  6. Alright fair point.

    That may be true now, but if we assume that a recession/depression is coming and we are not in the worst of it yet, history tells us that it is better to rent than to have a mortgage in the depths of a recession:
  7. Taking a mortgage on a property valued before a recession/depression, and then seeing it go into negative equity is a painful proposition!
  8. Hang on you are like a drunk vowing abstinence on the morning after knowing full well the bottle will lure him once again.

    As a nation of profligate debtors devaluing the currency addresses externally held public debt denominated in that currency, effectively imposing an unavoidable haircut on bondholders. Exports become cheaper for their customers, the downside is imports are more costly.

    Likewise domestic inflation shrinks the value of private debt, market driven wages have to rise with goods prices. Inflation also encourages people to spend rather than horde as the real value of money diminishes kick starting the consumer economy. Finally over leveraged folk can pay off existing debt.

    The insane housing asset bubble diminishes as prices fail to keep pace. Of course house owners won't be happy that their over valued asset has diminished in value, many of these underserving beneficiaries of the hosing boom will be pensioners who take a hit on their pension but their grandkids at least can afford a house. Politically, given the cowardice of successive governments in controlling house prices, inflation is perhaps the only way to sort out this severe generational imbalance.

    Rich folk sitting defensively on capital take a haircut but they were part of the problem. The frugal savers (like me, I can't help it) will also suffer but they were suckers.

    That's how Argentina recovered after foolishly pegging to the dollar, tolerating high inflation was one of the factors that cure what is now one of the strongest economies in the world.

    There are strong arguments for not getting deep into debt without good cause and being extremely wary of large reckless lenders but debt, asset bubbles and economic failure are a normal unavoidable part of modern free market capitalist economies. Finally it's all based on highly speculative usury that would damn any scripture reading Christian to Hell, the old Protestant virtue of frugality actually only has a walk on part, the flesh is weak and that low path leads to prosperity, it is deeply foolish to hamstring solutions to these things.