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John Drake

Sub-prime mortgages re-emerge. What could possibly go wrong...?

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Gosh!

...and here was me thinking it was the greed of the UK's aspirant property owners..... You can't go wrong with property.....borrow as much as you can, buy the biggest house you can, sit back and wait for it to triple in price in ten years.!!!

UK property owners caused the crash in the American property market?

 

Would you like to explain the mechanics of that?

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Didn't it?

 

I suggest you read the article that Martyn posted the last time this was discussed.

 

Do you have the link?

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I think the writer is mixing up a couple of different issues.  It's pretty clear that if you are assessing risk on general rather than specific factors that in a ghetto-ised country like America you'll end up excluding swathes of black people.  It's pretty clear that left alone the banks aren't going to change that model.

 

It's also true though that the banks pursued a model that met their own wishes of lighter regulation and the creation of financial instruments that required debts to sell on and trade against.  The need to target poor folks who weren't getting credit before was part of that.

 

(Regarding Trevor Phillips I think he's largely unreadable so I won't bother with him on this one.  Google seems to have a few sources that imply that his idea may have been right: the banks either through coercion or their own greed did indeed lend to poor blacks but they did so on terms that were significantly less favourable meaning (obviously) that they were themselves increasing their own risk).

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I think the writer is mixing up a couple of different issues.  It's pretty clear that if you are assessing risk on general rather than specific factors that in a ghetto-ised country like America you'll end up excluding swathes of black people.  It's pretty clear that left alone the banks aren't going to change that model.

 

It's also true though that the banks pursued a model that met their own wishes of lighter regulation and the creation of financial instruments that required debts to sell on and trade against.  The need to target poor folks who weren't getting credit before was part of that.

 

(Regarding Trevor Phillips I think he's largely unreadable so I won't bother with him on this one.  Google seems to have a few sources that imply that his idea may have been right: the banks either through coercion or their own greed did indeed lend to poor blacks but they did so on terms that were significantly less favourable meaning (obviously) that they were themselves increasing their own risk).

If you include specific factors then you will also exclude swathes of black folk, the reason being that they are too poor to make their mortgage repayments. You can't change that by pressuring the banks into lowering their standards. It turns out that the bank models were right and black people were more likely to be refused because they were the kind of people that should be refused - not because they were black but because they were poor and unable to pay the loans back.

 

Now the way that the banks turned these sub-prime mortgages into derivatives is something else entirely. They are guilty as charged on that one.

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Meanwhile...

 

Buy-to-let fuels house price boom
Lending to landlords and mortgage subsidies pull market to record level as investors cash in on cheap deals
Britain's buy-to-let mortgage market has surged to levels not seen since the 2008 financial crash, prompting fears that a prolonged period of cheap money is setting off an unsustainable housing boom.

http://www.theguardian.com/money/2013/aug/09/buy-to-let-house-price-boom-mortgages

 

Wouldn't the billions the government is spending to fuel this madness have been better spent building more social housing, to drive rents and prices down instead of up?

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In my view, not 'building' more; but enabling and financing housing associations ( NOT gerrymandering local authorities) to buy existing properties and letting them out.

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In my view, not 'building' more; but enabling and financing housing associations ( NOT gerrymandering local authorities) to buy existing properties and letting them out.

 

You should probably be doing both.

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You should probably be doing both.

 

And we're doing neither, which must be stoking up trouble again in a few years time when the latest bubble bursts as it surely will.

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Meanwhile...

 

Buy-to-let fuels house price boom

Lending to landlords and mortgage subsidies pull market to record level as investors cash in on cheap deals

Britain's buy-to-let mortgage market has surged to levels not seen since the 2008 financial crash, prompting fears that a prolonged period of cheap money is setting off an unsustainable housing boom.

http://www.theguardian.com/money/2013/aug/09/buy-to-let-house-price-boom-mortgages

 

Wouldn't the billions the government is spending to fuel this madness have been better spent building more social housing, to drive rents and prices down instead of up?

The last thing any government wants to do is build houses. You've then got the problem of tenants/repairs/allocation etc.

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And we're doing neither, which must be stoking up trouble again in a few years time when the latest bubble bursts as it surely will.

 

Yup, I agree.

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The last thing any government wants to do is build houses. You've then got the problem of tenants/repairs/allocation etc.

 

That's a lesser problem than stoking up a private housing boom which, when it crashes, as they always do, has the potential to bring your whole economy crashing down round your ears.

 

The lack of affordable housing only serves to drive up rent prices, which then drives up the cost of the housing benefit bill as people on ordinary wage levels can't afford to get a mortgage or pay private rents either but still have to be able to live somewhere. Then the government starts banging on about the unsustainable cost of the welfare bill, of which a huge part is housing benefit.

 

It's utter madness, but the cycle keeps on repeating itself.

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