Wednesday, 27 August 2008

Alice's bubble wrap

Northern Rock defaults leave taxpayers facing bill

No surprise here. There was only ever was one serious question; how much?

Trade-weighted sterling hits 12-yr low

The consequences of keeping interest rates low. A depreciated sterling today means more inflation tomorrow.

Bank of England May Cut Rates as U.K. Economy Slumps

Something which should turn recent sterling weakness into an uncontrollable rout.

The housing turnaround

Prices are still crashing, and estate agents are talking up a recovery.

What Global Rebalancing (aka The End of Foreign Funding Spree) Looks Like

The dollar will soon resume its journey downwards. It will take sterling along for the ride.

Not Only Homeowners Are Having Refinancing Problems.......

"U.S. and European banks, already burdened by losses and concerns about their financial health, face a new challenge: paying off hundreds of billions of dollars of debt coming due.

At issue are so-called floating-rate notes -- securities used heavily by banks in 2006 to borrow money. A big chunk of those notes, which typically mature in two years, will come due over the next year or so, at a time when banks are struggling to raise fresh funds. That's forcing banks to sell assets, compete heavily for deposits and issue expensive new debt."

I am not sure that this is such a big problem. When the time comes, everyone will have an incentive to roll these debts over.

Housing crash in Spain

It is ugly, fugly, and just plain nasty. When I look at Spain and Ireland, I sometimes wonder how much worse our housing bubble would have been if the UK had adopted the euro.

"U.S. and European banks, already burdened by losses and concerns about their financial health, face a new challenge: paying off hundreds of billions of dollars of debt coming due."

Lending Over Backward

Freddie and Fannie are not the only quasi-state financial institutions in America. There is also the FHA. ...

"Heralded as a savior in reversing the mortgage market’s woes, risks to the (FHA) agency could cost taxpayers dearly, says one mortgage expert, as Washington morphs the FHA from a helping hand for low-income home buyers into a back door bailout for the imploding mortgage industry. Trouble is, there's little choice at this point."

How to shore up America’s crumbling housing market?

This question could be better phrases. How to keep US house prices high when supply and demand are forcing them lower? Martin Feldstein thinks he has the answer; mortgage replacement loans. The scam is simple enough. Transfer around 20 percent of mortgage debt into loans from the government.

Can anyone answer this question; why does every scheme concocted to save the housing market have the government taking on a debt, offering a subsidy or reducing a tax? Why are there no private sector solutions to this problem?

Feldstein, who was previously a Republican, has a few other communist ideas to offer, such as reneging on contracts, and a "default on your debt, but keep your house" scam.

There is only one solution to this problem. Prices need to adjust to equate housing supply with housing demand.


simon said...

Alice, why do you have such a problem with inflation?

I suspect dodgy economics text books..

Alice Cook said...


That is a surprisingly personal question. Lets just say that the fear of inflation goes back generations.


Anonymous said...

Debtors fear deflation.

Savers fear inflation.

At least initially. Then inflation wipes everyone's debt and everyone starts to lose. But yet it still continues.

Anonymous said...


There's the first explicit comment I've seen you make on the evils of communism and their reflexive idea of riding roughshod of all laws and personal rights. Oh, and their absolute disregard for the people who create the wealth that they plunder.

I don't suppose you're building up to a post titled "Why socialism created this bubble and why capitalism has to end it"

I'd like to see you address the question. Here's my thoughts on socialism in the housing market:
- centrally planned interest rates;
- tax breaks for ownership;
- plundering of pensions and other alternatives to real estate;
- hardwired inflation to transfer wealth from private to public coffers;
- REITs;
- planning restrictions;
- lender of last resort;
- foreign central bank purchases of securitised debt;

Not a capitalist idea among them.


simon said...

I apologize Alice,

But inflation is one of capitalism's greatist (and cruelest) weapons.

It will be used to maximum effect in the not too distant future.

Anonymous said...


How is it capitalism's weapon? Its central banks that print currency and governments that tell them to, in order to be first at the trough.

You can only have a fiat currency if you have a monopoly on violence (i.e. government) to force people to use only your counterfeit currency and not anyone else's. You need governments to force taxes to be paid in their own currency.

It's not capitalism, it's socialism.


Anonymous said...

I think Darling is going to find his answer in the Pakistan stock market. All you need is a rule saying no house can be sold for less than yesterday's asking price.