People vs The Banks

[clv101]

I don't mind people being allowed to stay in their homes, but they cannot be allowed to remain as owners and house prices must not be artificially propped up in order to help these people.

I don't think it matters what the numbers are. The principle remains the same whatever.

The problem is that by helping these people - who made mistakes of their own choosing - to stay in their homes, you are further penalising the younger generation - who had nothing to do with the mistakes. This is not acceptable.

I agree with you, the principle doesn't change and it would be unacceptable.

I don't think, however, that means it won't happen. If it ever comes to the point where hundreds of thousands, even a million people are defaulting on the mortgagee I'd expect something looking very much like a bail out to happen. Not dissimilar to the bank bailout - the defaulters would represent a bloc that was too big to fail. In the small detail, I expect the deeds to the property wouldn't actually be transfered in the normal way - but in practice the effect would be similar.

[vtsnowedin]

I don't mind people being allowed to stay in their homes, but they cannot be allowed to remain as owners and house prices must not be artificially propped up in order to help these people.

I don't think it matters what the numbers are. The principle remains the same whatever.

The problem is that by helping these people - who made mistakes of their own choosing - to stay in their homes, you are further penalising the younger generation - who had nothing to do with the mistakes. This is not acceptable.

I agree with you, the principle doesn't change and it would be unacceptable.

I don't think, however, that means it won't happen. If it ever comes to the point where hundreds of thousands, even a million people are defaulting on the mortgagee I'd expect something looking very much like a bail out to happen. Not dissimilar to the bank bailout - the defaulters would represent a bloc that was too big to fail. In the small detail, I expect the deeds to the property wouldn't actually be transfered in the normal way - but in practice the effect would be similar.

A bailout of that magnitude would cause a complete debasement of the pound and a financial panic. This would end the ability to import oil and the lights would go out in London. They will find a better way. Many home owners would be alright if they could just refinance the original amount at todays current low rates so look to the government to finally force the banks they bailed out to write those loans. It should of been required in the first place. And before Steve goes off about it being "Magic money" it may be made by magic but you can go down to the station and fill your car with imported petrol and pay for it with magic money. As long as that is true there is nothing magic about it.

[clv101]

A bailout of that magnitude would cause a complete debasement of the pound and a financial panic. This would end the ability to import oil and the lights would go out in London. They will find a better way. Many home owners would be alright if they could just refinance the original amount at todays current low rates so look to the government to finally force the banks they bailed out to write those loans. It should of been required in the first place. And before Steve goes off about it being "Magic money" it may be made by magic but you can go down to the station and fill your car with imported petrol and pay for it with magic money. As long as that is true there is nothing magic about it.

Interesting - I thought the US had been importing oil for years in exchange for magic money, all those foreign owned government bonds for which the US has zero chance of repaying the capital?

The magnitude of a total bailout of a million households to the tune of £100,000 each, is only £0.1 trillion pounds. The bank bail out we've already seen is somewhere around £1-1.5 tn to date. This magnitude is not unprecedented, in fact fairly modest.

Anyway, I'm not really thinking of a simple write down.

I quite agree that the mechanism might be to convert the mortgage into a longer term, lower interest rate government loan. Swap a private bank £50,000 repayment debt at 5.5% over 15 years (£415/month) for a government loan at 1% over 30 years (£161/month). Another idea would be to tie this outstanding debt to the house rather than the individual. They could sell the house, but the debt would stick with the house (adjusting the price accordingly).

The main point is that the rules that work okay for a small number of people, don't necessarily continue to work for a large number of people. If you own, and can't repay, the bank a small amount of money - you're in trouble. However, if you own the bank, and can't repay, a large amount of money - the bank's in trouble.

[Totally_Baffled]

And before Steve goes off about it being "Magic money" it may be made by magic but you can go down to the station and fill your car with imported petrol and pay for it with magic money. As long as that is true there is nothing magic about it.

I pay for petrol and allsorts of things with magic money, its called a credit card (I doubt that money exists anywhere but only as digits a database or two)

[vtsnowedin]

And before Steve goes off about it being "Magic money" it may be made by magic but you can go down to the station and fill your car with imported petrol and pay for it with magic money. As long as that is true there is nothing magic about it.

I pay for petrol and allsorts of things with magic money, its called a credit card (I doubt that money exists anywhere but only as digits a database or two)

Yes the balance in your check book is money even though the bank doesn't have a stack of bills in the vault equal to all the deposits on the books. From Wiki
"
United Kingdom
M4 money supply of the United Kingdom 1984–2007. In thousand millions (billions) of pounds sterling.There are just two official UK measures. M0 is referred to as the "wide monetary base" or "narrow money" and M4 is referred to as "broad money" or simply "the money supply".

M0: Cash outside Bank of England + banks' operational deposits with Bank of England. (No longer published.)
M4: Cash outside banks (i.e. in circulation with the public and non-bank firms) + private-sector retail bank and building society deposits + private-sector wholesale bank and building society deposits and certificates of deposit.[28]
There are several different definitions of money supply to reflect the differing stores of money. Due to the nature of bank deposits, especially time-restricted savings account deposits, the M4 represents the most illiquid measure of money. M0, by contrast, is the most liquid measure of the money supply."

[kenneal - lagger]

............ But proper procedures are important and must be adhered to. ...........

You said it!

The banks sold (in the high pressure selling sense) loans to people who they knew couldn't pay them back. They then wrapped them up in CDOs (I think that was what was used), got them fraudulently AAA rated by a Credit Agency and sold them on, knowing that they weren't worth the paper they were printed on, two more frauds, to third party banks and institutions who foolishly took the word of the credit agencies at face value.

The third party banks are now trying to force out the non payers by using agencies to prove title and the agencies are fraudulently signing affidavits saying that they have seen the loan agreement when they haven't because banks who "own" the loan often don't know who the original bank was. "But proper procedures are important and must be adhered to."

There is an important difference to note between the US and UK systems of house loans. In the US if you default you can just give up the keys and walk away with nothing owing whereas in the UK, if you default, you are still liable for any unpaid mortgage. Huge difference!

UE, if you drive down the value of houses and property too quickly you will send the banks into default as they have to write down the value of their assets. It has been estimated that a write down in value of only 10% would be enough to cause the banks a huge problem and send them scurrying for public protection again.

I have been one of the people saying that in the event of a crash people will be allowed to stay in their homes but I was envisaging a major crash where hundreds of thousands of mortgages went into default. In that sort of situation the government would have no option but to legislate so that people could stay. In that situation there wouldn't be enough *ankers' bonuses to buy up all the houses and then rent them out, which was part of the solution in 1991.

[Little John]

And before Steve goes off about it being "Magic money" it may be made by magic but you can go down to the station and fill your car with imported petrol and pay for it with magic money. As long as that is true there is nothing magic about it.

I pay for petrol and allsorts of things with magic money, its called a credit card (I doubt that money exists anywhere but only as digits a database or two)

Yes the balance in your check book is money even though the bank doesn't have a stack of bills in the vault equal to all the deposits on the books....

That is factually wrong. Right now I don't have the time. But, I will be back in later today and will spell out why it is wrong. The "money" in your bank account is not money. It is at least 90% debt that has lent into existence by your bank and/or by other banks up the food chain. 10% or less of the money in that account has originated from the central bank. The rest has been conjured out of fresh air. I'm not kidding. If you don't believe me, what the bloody hell do you think all the bailouts were about? The only thing that stops the entire fraudulent ponzi-scheme from collapsing is economic growth. When that stops, the fraud is exposed. When that happens, the funny money has to be replaced with "real" money" or a real promise to replace it by a sovereign state at some point in the future. (ie, the taxpayer)

The whole process makes a complete mockery of the so-called "fractional reserve ratios".

[UndercoverElephant]

I think it is beyond doubt that the only reason the banks can get away with what they do (creating money out of thin air and lending it to people to be repaid with interest) because the majority of the public have no idea that this is what happens. Then you get people like JSD who refuse to believe it even when it is explained in great detail to them.

I'm not sure how much longer they will get away with it though. We really are in uncharted territory right now.

[Blue Peter]

That is factually wrong. Right now I don't have the time. But, I will be back in later today and will spell out why it is wrong. The "money" in your bank account is not money. It is at least 90% debt that has lent into existence by your bank and/or by other banks up the food chain. 10% or less of the money in that account has originated from the central bank. The rest has been conjured out of fresh air. I'm not kidding. If you don't believe me, what the bloody hell do you think all the bailouts were about? The only thing that stops the entire fraudulent ponzi-scheme from collapsing is economic growth. When that stops, the fraud is exposed. When that happens, the funny money has to be replaced with "real" money" or a real promise to replace it by a sovereign state at some point in the future. (ie, the taxpayer)

The whole process makes a complete mockery of the so-called "fractional reserve ratios".

Aaaaaaaaaaaaaaaaaaaaaaaaargh!

It's all been conjured out of thin air, Steve. The Central banks do the same (though, of course, they do stamp bits of paper and metal for a bit of it, but it's still convention). Just like all human things (justice, language, social order), it's all conjured "out of nothing".

It's certainly true that the amount of money in existence is now far greater than the amount of goods, due to the over-valuing of property (against which most of it was lent), and that the central banks are desparately trying to prevent this unwinding in a disorderly fashion.

But, let's get where the magic occurs in the right place, it's in the existence of money itself, not in particular types (or untypes). If banks could just create money out of nothing willy-nilly, then there wouldn't be a problem (banks could just print their way out, but look, even governments who own the printing presses can't do that). But, there are various rules which limit how this works, which mean that banks can't just create, otherwise someone really would have to go to jail,


Peter.

[vtsnowedin]

I pay for petrol and allsorts of things with magic money, its called a credit card (I doubt that money exists anywhere but only as digits a database or two)

Yes the balance in your check book is money even though the bank doesn't have a stack of bills in the vault equal to all the deposits on the books....

That is factually wrong. Right now I don't have the time. But, I will be back in later today and will spell out why it is wrong. The "money" in your bank account is not money. It is at least 90% debt that has lent into existence by your bank and/or by other banks up the food chain. 10% or less of the money in that account has originated from the central bank. The rest has been conjured out of fresh air. I'm not kidding. If you don't believe me, what the bloody hell do you think all the bailouts were about? The only thing that stops the entire fraudulent ponzi-scheme from collapsing is economic growth. When that stops, the fraud is exposed. When that happens, the funny money has to be replaced with "real" money" or a real promise to replace it by a sovereign state at some point in the future. (ie, the taxpayer)

The whole process makes a complete mockery of the so-called "fractional reserve ratios".

Looking forward to it.

[vtsnowedin]

............ But proper procedures are important and must be adhered to. ...........

You said it!

The banks sold (in the high pressure selling sense) loans to people who they knew couldn't pay them back. They then wrapped them up in CDOs (I think that was what was used), got them fraudulently AAA rated by a Credit Agency and sold them on, knowing that they weren't worth the paper they were printed on, two more frauds, to third party banks and institutions who foolishly took the word of the credit agencies at face value.

The third party banks are now trying to force out the non payers by using agencies to prove title and the agencies are fraudulently signing affidavits saying that they have seen the loan agreement when they haven't because banks who "own" the loan often don't know who the original bank was. "But proper procedures are important and must be adhered to."

There is an important difference to note between the US and UK systems of house loans. In the US if you default you can just give up the keys and walk away with nothing owing whereas in the UK, if you default, you are still liable for any unpaid mortgage. Huge difference!

UE, if you drive down the value of houses and property too quickly you will send the banks into default as they have to write down the value of their assets. It has been estimated that a write down in value of only 10% would be enough to cause the banks a huge problem and send them scurrying for public protection again.

I have been one of the people saying that in the event of a crash people will be allowed to stay in their homes but I was envisaging a major crash where hundreds of thousands of mortgages went into default. In that sort of situation the government would have no option but to legislate so that people could stay. In that situation there wouldn't be enough *ankers' bonuses to buy up all the houses and then rent them out, which was part of the solution in 1991.

A bit on the proper proceedures here in the US. Land records, deeds mortgages, notices of foreclosure etc. are recorded in town or county offices depending on what state you are in. These recorded deeds determine ownership and who owes the property taxes. Vermont does it by town. My wife is the town clerk and records deeds daily. The recording fee is $5 per page and modern mortgage deeds often run eight to ten pages. When a bank sells a mortgage on, the new owner of the loan needs to record that deed as well and so on and so on for each transaction. To foreclose, someone from the last holder of the loan needs to come in and trace back all the mortgage deeds back to the original to create the notice of foreclosure and have all their ducks in a row. Examining the records cost $3.00 per hour and copies are a $1 per page and they of course have to pay the researcher to travel to the town office and take the time to do it. In the bundling of loans and creating "Structured investment vehicles" many banks neglected to record each individual mortgage deed saving themselves time and $5 a page. There is no time limit on having it recorded but now the last owner may find themselves recording two or three transactions some of which went through banks that no longer exist so the paper trail has been shredded. You now have researchers coming in and instead of working back from their deed have to go to the address of the property and it's tax records and search forward from there. And before you ask no these records are not digitised ,they are in bound books in a vault. This all takes time and money which can't be charged to the property occupant as he recorded his deed which was his only obligation in the recording process.

[Totally_Baffled]

The world economy is many times bigger than it was say 50 years ago.

Where did all the extra money come from if it DIDN'T come from the fractional reserve banking?

Just wondering?

[the_lyniezian]

The world economy is many times bigger than it was say 50 years ago.

Where did all the extra money come from if it DIDN'T come from the fractional reserve banking?

Just wondering?

The rise in production of oil, such as now appears to be peaking?

[raspberry-blower]

The banks sold (in the high pressure selling sense) loans to people who they knew couldn't pay them back. They then wrapped them up in CDOs (I think that was what was used), got them fraudulently AAA rated by a Credit Agency and sold them on, knowing that they weren't worth the paper they were printed on, two more frauds, to third party banks and institutions who foolishly took the word of the credit agencies at face value.

The third party banks are now trying to force out the non payers by using agencies to prove title and the agencies are fraudulently signing affidavits saying that they have seen the loan agreement when they haven't because banks who "own" the loan often don't know who the original bank was. "But proper procedures are important and must be adhered to."

There is an important difference to note between the US and UK systems of house loans. In the US if you default you can just give up the keys and walk away with nothing owing whereas in the UK, if you default, you are still liable for any unpaid mortgage. Huge difference!

Ken

What the banks actually used are Mortgage Backed Securities (MBS) that were traded between banks in what were called "investment vehicles".
What you have described above is an accurate summary of Northern Rock's business model - although there were others that were just as bad.
These MBSs were literally "sliced and diced" so that no-one knew exactly who owned what, or what it composed of. The banks, both sides of the pond, needed to keep the mortgages going to keep the whole Ponzi scheme going. Which is why we ended up with the situation that we had no deposit, 125% mortgages given to the Wayne & Waynette Slobs of this world so that they could buy a converted broom cupboard for around £250k.
When, inevitably, these mortgages could not be repaid the MBS would turn "toxic" - when the toxic MBSs reached a critical mass the music stopped and all the banks were above and beyond their eyeballs in worthless derivatives.
However, true to Shock Doctrine, a crisis is an opportunity for the unscrupulous "venture capitalists" who have been buying out the distressed debts.
There is an alternative, though. Strike Debt have been using similar tactics by buying up "distressed debts" and instead of seeking debt payments, they are cancelling the debt

[vtsnowedin]

The world economy is many times bigger than it was say 50 years ago.

Where did all the extra money come from if it DIDN'T come from the fractional reserve banking?

Just wondering?

The rise in production of oil, such as now appears to be peaking?

Plus all the coal and metals mined, all the crops grown and the production of all the factories, the roads and bridges built and all the ships on the seas.