Lehman Brothers Collapse

[Gladys]

Great post Albert, agree wholeheartedly.

 

What has happened to economic, commercial and political prudence over the past 10 to 15 years?

[bluemonday]

Yes very good post Albert.

Sums it all up perfectly.

What has happened to economic, commercial and political prudence over the past 10 to 15 years?

Wiped out by the great god profit.

 

Time to pay the Ferryman.

 

Uk mortgage rate will be off upwards shortly and a 5 year old with an abacus will be able to predict a full on recession.

Not helped by the US rescue package failure.

[Pragmatopian]

The amount of money that's been pissed away in the 'War Of Terror' makes $700 billion to avoid financial meltdown look pretty reasonable by comparison, which speaks volumes for the appalling mess that Bush has generated.

 

I can only hope that the bail-out (which will undoubtedly still happen, despite Congress' latest move) is followed up with a complete overhaul of the way that the global economic system is structured and regulated. Sticking plaster measures are no longer sufficient - the whole thing is riddled with a cancer which needs somehow to be erradicated.

[Chinahand]

The one thing I don't think has been talked about is who is making profits out of all these losses - they are a zero sum game.

 

One point is that the "bail out" is not going to cost $700 billion - that is the upfront payment (though infact it will be paid out over years) - the question is will the return on this payment be bigger or smaller than that - think of it like this - a mortgage company gives some one a 105% mortage and hands over £105K to someone to buy a £100K house at an interest rate of 7%, if all goes well they payback the money overtime (plus interest) allowing the company to make a profit of 5% after costs of 2%. Did this transaction cost £105K? Of course not.

 

Things could go wrong - and the person forecloses on the house - which is sold at a loss for £80K - here the bank does make a loss - 20K on the house, plus the £5K sweetener - the person ends up bankrupted, but the debt is thus wiped out.

 

A lot of people are trying to work out whether the pain of a bankrupcy is worth defaulting on a loan backed by a house which is worth less than the loan - as negative equity increases the idea of reneging on the debt looks more and more worthwhile - it is this logic which is seriously terrifying financial markets at the moment.

 

Interesting Times!

[The Old Git]

Things could go wrong - and the person forecloses on the house - which is sold at a loss for £80K - here the bank does make a loss - 20K on the house, plus the £5K sweetener - the person ends up bankrupted, but the debt is thus wiped out.

 

The weird thing is that in the USA, where the sub prime problem seems to have started, is that the mortgage is against the property and not the person.

[Sebrof]

Things could go wrong - and the person forecloses on the house - which is sold at a loss for £80K - here the bank does make a loss - 20K on the house, plus the £5K sweetener - the person ends up bankrupted, but the debt is thus wiped out.

 

The weird thing is that in the USA, where the sub prime problem seems to have started, is that the mortgage is against the property and not the person.

 

Which makes sense, in my view. As the lender can't go after the borrower, he is left with just the property. This SHOULD encourage him to lend sensibly. Pity it didn't work.

 

S

[Albert Tatlock]

During the housing recession in the UK in the early 90s, I remember seeing on the news that the Abbey National as it then was, were taking people to court to get possession of the house, forcing it to be sold and taking that money, and then 4 or 5 years later going back after people for the remainder of the debt plus interest.

[Chinahand]

I'm a bit confused - didn't the people bancrupt themselves when they gave up the house - with loosing the house your credit record is gone - not going the whole hog and ensuring bancrupcy proceeding stop what Albert saw is madness!

[bluemonday]

Irish government guarantees banks

Clicky

[Albert Tatlock]

Isn't there a limit of something like 5 years revolving around bankruptcy? It is an easier option these days, most people didn't go for it in the 90s.The Abbey were going after people then because 'after 5 years they were back on their feet'.

[Mutley]

Irish government guarantees banks

Clicky

 

Covers branches over here too.

[P.K.]

As for going to the right or left, and socialism or fascism over this, I think we are well on the way here already to socialist-fascism - using health and security as the drivers. The sooner Broon and his cronies, and Bush and his neo-cons, go the better - as they couldn't have made the world a worse place than if they'd tried, and between them have wasted trillions cocking it up, along with the swindlers, speculators, liars, cheats and ignoramouses that have been allowed to 'run' the finance sector into the ground. But the problem is the alternatives on offer have little more to offer us either, though starting with a 'clean slate' they will have the opportunity to sort out the mess to ensure it won't happen again - well at least not for another 10 years until they get kicked out that is.

Rather amusing that Albert. The papers are full of guff today about how Cameron and Osborne aren't going to make political capital out of it, how statesmanlike, bi-partisan etc etc etc they are - pass the sickbag Alice!

 

You don't suppose the reason for that is because de-regulation was brought in by -

 

the last Conservative administration!

 

So Tory de-regulation didn't work and making a virtue out of greed was probably not the best idea Maggie ever had. I'm not surprised the US measure was voted out. Lots have made $zillions by shafting Joe Public so why should Joe Public now bail them out?

[jimbms]

Isn't there a limit of something like 5 years revolving around bankruptcy? It is an easier option these days, most people didn't go for it in the 90s.The Abbey were going after people then because 'after 5 years they were back on their feet'.

You may find that any debt incured due to, at the time of, during the period of or before the time of bankruptcy cannot be persued after the bancruptcy period has elapsed. Therefore any shortfall incurred by the sale of the house surrendered by bancruptcy can only be claimed by the bank as part of the shortfall insurance and not directly against the bankruptee at any period after.

[Chinahand]

Thought this piece by Thomas Sowell was interesting: Clicky

 

1. Nothing could more painfully demonstrate what is wrong with Congress than the current financial crisis. Among the Congressional "leaders" invited to the White House to devise a bailout "solution" are the very people who have for years created the risks that have now come home to roost.

 

2. The idea that politicians can assess risks better than people who have spent their whole careers assessing risks should have been so obviously absurd that no one would take it seriously. But the magic words "affordable housing" and the ugly word "redlining" led to politicians directing where loans and investments should go, with such things as the Community Reinvestment Act and various other coercions and threats.

 

3. If Fannie Mae and Freddie Mac were free market institutions they could not have gotten away with their risky financial practices because no one would have bought their securities without the implicit assumption that the politicians would bail them out. It would be better if no such government-supported enterprises had been created in the first place and mortgages were in fact left to the free market. This bailout creates the expectation of future bailouts.

[Bombay Bad Boy]

Capitalism

 

You have two cows.

You sell one and buy a bull.

Your herd multiplies, and the economy grows.

You sell them and retire on the income

 

Enron* Venture Capitalism

 

You have two cows.

You sell three of them to your publicly listed company, using Letters of credit opened by your brother-in-law at the bank, then Execute a debt/ equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The Annual report says the company owns eight cows, with an option on one more. - No Balance Sheet provided with the release.

 

*Other banks are available

 

**Can't say for how much longer, though.