From: M Holmes 
Newsgroups: uk.finance
Subject: Re: Lie to buy
Date: Tue, 25 Sep 2007 15:59:44 +0000 (UTC)
Bytes: 4185

whitely525@yahoo.co.uk wrote:


>> 1.  If you owe the bank a million Pounds, you have a problem.  2.  If
>> you owe the bank a billion Pounds, the bank has a problem.  3.  If
>> you owe the bank a trillion Pounds, we all have a problem. 

>> We're currently somewhere between 2 and 3... 

>> >> We're now at the start of classic debt-deflation dynamics.  I have
>> >> to say, that so far it's been even more interesting than I thought
>> >> it would be.  I think we'll see some quite exciting times over the
>> >> 16-18 year period. 

>> > Maybe.  But I see no hard stats to show that there has been a large
>> > amount of dodgey lending in the UK

>> I suspect that there has been what someone called here "stealth
>> subprime". 

>> However, debt-deflation dynamics don't require any fraud at all, they
>> simply require that asset prices stop rising. 

> Exactly.  The fringe dodgey practice is irrelevant unless it can be
> show to be systematic. 

> The question is is there something fundamentally wrong with the
> mainstream practice, which could be something subtle and beguiling,
> sowing the seeds of doom. 

Yes there is: human nature. 

If you offer credit en masse and it happens to be a couple of
generations since the bursting of a credit bubble, then it will be
loaned to people who have no experience and no memory of the trouble
that credit can bring.  They will jointly become cavalier in their
attitude to it and careless of it so long as they think incomes can
service their debt.  Eventually one particular asset will become the
Magic Money Token of that favoured third generation.  It will rise in
price and as it does so, lenders will offer ever greater credit against
it.  People will even be ablee to borrow against rises in the asset to
start mini-bubbles in other assets before the bubble bursts. As one
analyst put it: there may remain some sensible people, but few men can
stand idly by and watch their neighbours get rich. Once a bubble gets
going, it's extremely hard to stop it until it bursts of its own accord.

> I don't see it myself.

Feel around: can you feel a dog?

> Repayments are still affordable in historic terms.

During the current bubble is not "history".  Have a look at the history
just after the last bubble burst (in 1911 for the uK) and then we'll
talk about "historic terms". 

> Demand is high due to the shortage of property. 

No: demand is high due to the mass availability of credit. What would
demand be like if nobody got any?

> People are
> feeling the pinch and price rises have cooled.  no evidence of
> anything cataclysmic. 

Yet. Japan is 20 years ahead on this road. The US about one year. Think
of it as having precognition.

FoFP





--
"On Thursday, Darling gave the City a stern lecture on how it wasn't the
 government's job to bail out banks which had indulged in irresponsible
 lending and borrowing. It was time to get back, he said, to "good
 old-fashioned banking". The very next day, Darling bailed out Northern Rock"