In uk.finance Jane T wrote:
> "M Holmes" wrote in message
>> Last year a colleague was getting married and wanted to buy a house. He
>> had a long chat to me about the advantages of buying then, or waiting
>> out the end of the credit bubble. The thing is that he had no deposit
>> and so even if the credit bubble was about to burst right then and he
>> wouldn't have to wait ages (as it turned out it was, but even I didn't
>> know that in March) he'd have been in no position to take advantage of
>> house price falls because with them would come a requirement for
>> sizeable deposits as credit grew scarce. For him, it was a case of now
>> or never. Only those with cash can wait to take advantage.
>>
>> Which I suppose reconfirms that what's best depends more on personal
>> circumstances than the pertaining financial environment.
>>
> Glad I'm not in his shoes, he might not have timed the market very well yet
> if he can fund his mortgage he should be ok
His eventual calculation was that the banks cannot come for those who
keep paying their mortgage and so if he just concentrated on that, he'd
be OK. I reassured him that even in the depths of the US's Great
Depression (actually their second of that nomenclature) those folks who
kept their jobs and kept up their payments actually did OK. It's the
folks who are, or who will fall, outside of that envelope who will do
most of the suffering.
> however he may have problems climbing the ladder in future.
The trick with debt-deflations is to get through them with as much
intact wealth as possible. Folks who manage that OK should do pretty
well. One thing to note is that the Magic Money Token is usually
different in the next bubble,so "The housing ladder" is more than likely
a feature of this bubble and it may well not exists once we're through
this. Certainly it'd be a far more sane country if we simply expected
houses to depreciate in the same way cars do and used investment money
for something more productive.
> Although the house has risen a bit in value, the fact that we are facing a
> possible housing crash doesn't matter to me. What matters to me is having a
> decent amount of liquid assets to continue to fund the mortgage in any hard
> times. I have got to live somewhere and as I see it my paper loss at any
> time will be the difference between what my new and old house are valued.
> If all houses crash by 50% then my paper loss at the time will be £10k and
> this is not factoring in any increase in house and mortgage set up costs.
We run our lives according to personalrequirements, not the whims of the
markets. You seem to have your head on straight. I'm sure you'll get
through it all OK.
> On the issue of deflation, I think your Austrian need for a proper solution
> is hindering your judgement.
Certainly I'm always on the lookout for that. It'san easy thing to fall into.
> Although I think we have reached the top as
> regards to the banks irresponsible lending, I have a very bad feeling about
> the irresponsible lending of the BoE.
I do believe they're the source of future inflation and possibly
hyperinflation if they lete their interfering run away from them. I
realise the odds of modern central banks submitting to, and alleviating
the effects of, debt-deflation are somehwat minimal. My worry is that if
they merely delay it, it could be all the worse for that.
> Whats your opinion on the possibility of this credit bubble being managed by
> the central banks for a considerable time, gradually deflating the problem
> as opposed to the big pop that you so desire.
History says that many try and pretty much all fail.
Think about it: even normal markets are unable to be managed by
soviet-style committees (The USSR ended up so at odds with reality that
they'd have got poorer more slowly if they'd all stayd in bed all day).
What ae the chances that such a committee would be able to garner
information,make correct predictions and pull the right levers a precise
amount during the chaos that's going to come out of a credit crash?
Northern Rock was their first turn at bat. Feel confident?
FoFP
--
"Our entire banking system is a complete disaster. In my opinion, nearly
ever major bank would be insolvent if they marked their assets to market."
-- Head of hedge fund Lahde Capital, which made 1000% return betting
against subprime. Financial Times 26/11/07 |