Wednesday, 1 October 2008

Alice's bubble wrap

Gordon Brown believes there are no sub-prime loans in the UK

We will see about that.

UK manufacturing sees sharp fall

I've been banging on about this for months.

U.S. bailout essential for economy: Shiller

When Shiller talks, we all should listen.

Lehman's Fired Staff Get 800 Pounds, Bonus Doubtful

This has to be the top story of the day:

"The 750 Lehman Brothers Holdings Inc. U.K. staff that lost jobs today are guaranteed 800 pounds ($1,426) under law and must line up with other creditors if they hope to get any of their discretionary bonus."

Hedge Funds

Ed, over at creditwritedowns, examines the mysterious case of those highly leveraged hedge funds:

"For a few months now, I have been wondering where all the hedge fund fallout from global market turmoil was hiding. Now it seems that the turmoil in the hedge fund world is becoming more apparent -- hedge funds are imploding left and right."

Fortis and the need for urgent European reforms

"Europe’s universal banks were supposed to be immune to the fallout from the subprime crisis. But we are now discovering that any financial institution is vulnerable if its leverage is too high. The key issue for Europe is not only that its largest banks are vulnerable because they have high leverage, but that they have grown too big to be saved by any single government."

U.S. Economy: Manufacturing Contracts Most Since 2001 Recession

US manufacturers should count themselves lucky; their UK counterparts have been contracting for 20 years.

Bank turmoil sees many UK mortgage products vanish

"The number of British mortgage products on sale has slumped 12.4 percent so far this week after lender Bradford & Bingley exited the market and as the property sector buckles under global market turmoil."

This Game Of Financial Russian Roulette Could Ruin Our Life Savings

Could?

Spain Q2 house price fall first in over decade

It is now a race to the bottom; Ireland; the UK, the US, and Spain. My money is on Spain; it is the most bloated and overvalued housing market in the world.

Decision leads to significant cash inflows from UK corporations

The world is strange.

Irish banks are basically insolvent. The government provides a blanket guarantee and suddenly UK depositors are shifting their cash over the Irish sea. Doesn't worry anyone that those bankrupt banks could bankrupt the Irish government?

So, what would you do if the banks were ordered closed, and you had no access to your cash? Well, in 1933, that happened. And it can happen again.

This is the scary thing about the housingpanic blog. It poses a seemingly outlandish and implausible question. Later, you wished you thought more about the answer.

France Considering Bailout Of Its Own

If subprime was word of the year in 2007, it is bailout this year. Everyone is at it now.

Flowers In A Dovecot

The latest post from Rentergirl, one of my favourite blogs.

September: The cruellest month

I thought "April is the cruellest month, breeding lilacs out of the dead land, mixing memory and desire, stirring dull roots with spring rain. " But then again, TS Elliot didn't know about subprime.

11 comments:

Dublin Lizzy said...

Spain? My money is on Ireland and all those empty holiday homes.

Mark Wadsworth said...

Does not compute: compare and contrast:

"When Shiller talks, we all should listen."

But he's in favour of a bail out, which will just prop up land prices, so why have you gone over to The Dark Side? Let's not forget the underlying underlying cause of the whole thing is a self perpetuating land price bubble/credit bubble. These so called greedy bankers just saw an opportunity and exploited it. I am basically against using taxpayers' hard earned to prop up house prices or banks. I am in favour of reducing taxes on income and production and increasing taxes on land values.

with ...

"Irish banks are basically insolvent. The government provides a blanket guarantee and suddenly UK depositors are shifting their cash over the Irish sea. Doesn't worry anyone that those bankrupt banks could bankrupt the Irish government?"

As a UK citizen, I'm personally not too stuffed about the Irish government going bankrupt. But, as mentioned above, I don't approve of taxpayer funded bailouts in principle.

I have been trying to explain for ages that the best way to sort out banks is a debt-for-equity-swap, that solves a lot of problems at a stroke. But as 99% of people don't understand double entry booking, fractional reserve banking or order of priority in a liquidation, I might as well bang my head against a wall. (if you take a subset of people who understand all three topics properly, that's probably 1 in ten thousand people. The other 9,999 just spout off without having a clue what they are talking about)

And I am not fussed about hedge funds. They are a mechanism whereby flashy young men fleece money off rich, gullible people. Some of them may be speculating on share prices rising, others on them falling. Half will be right, half will be wrong. It all cancels out. In the end, most of the gullible investors' money will be swallowed up in charges and performance fees. Anybody who takes very big gambles will always come unstuck in the end.

Here endeth.

mike said...

September wasn't an ugly month for me. I own no shares (not a gambler!), no bonds or own any properties.

All my money is cash. House prices went down and so I am happy and have nothing to worry about apart from a run on the banks :) and that last happened a very long time ago. Hopefully GB will guarantee my savings and then I really do have nothing to worry about.

Anonymous said...

"Europe’s universal banks were supposed to be immune to the fallout from the subprime crisis. But we are now discovering that any financial institution is vulnerable if its leverage is too high."

Take a look at http://eureferendum.blogspot.com/ which has done an analysis on various parts of this fiasco. It has come up with various things that other people have missed, noably:

We don't have a tripartite system of regulation. We have a quadpartite system of regulation. The elephant in the room that no one mentions is the EU, which the other 3 parts *must* defer to.

The "mark to market" which is causing so much grief (because it's currently mark to panic)is part of Basel II. Which is EU - so you can't change it.

You can't merge supervisory functions back into the BoE. It wasn't Gordon's idea - it's a EU directive.

Take a look - but it's a generalised blog, not just economics, so there is a lot of skipping to do.

Anonymous said...

"Irish banks are basically insolvent. The government provides a blanket guarantee and suddenly UK depositors are shifting their cash over the Irish sea. Doesn't worry anyone that those bankrupt banks could bankrupt the Irish government?"

It's a balance of risk thing. If corporates have money in a bank here, and it goes bust, they lose their money - only private deposits are insured.

In order to lose their money in an Irish bank, the bank, the banking system, and the Irish government would have to go bust. This is unlikely especially as the way banks traditionally go bust is with a bank run, which is all but ludicrous under this system.

electro-kevin said...

No sub-prime lending in the UK according to Brown.

Well - I suppose that self-certified mortgages confuse the issue for the puir wee mannie.

Amateur BTL investors are bricking it by the way. A workmate who started his 11 years ago and who is on good, secure wages is now struggling with a rental void on a nice property. BTL seems to be as yet unaffected but the cracks are there.

electro-kevin said...
This comment has been removed by the author.
RenterGirl said...

There's that Chinese curse: "May you live in interesting times." I am barely numerate. I know nothing about economics. I wouldn't dream of investing in shares, because I don't know anything about the market. So how come I spotted this mess seeping down the hills like the overflow from a hill-top sewer farm?
Thanks for the mention Alice.

Anonymous said...

Economics is very easy. The problem is all the post-Keynesian morons who peddle their economics of wish-fulfillment and illusion, usually dressed up in dreadful maths obfuscation.

Economics is about human behaviour and most people can get the important issues with a little thought, because they have a pretty good working knowledge of human behaviour.

To me at least it's not such a conundrum that interested amateurs spot these things well ahead of most professional market participants or Economics Department ideologues.

Nick

dearieme said...

The character of the economics profession may be gauged from the fact that they invented for themselves a pseudo-Nobel prize, but always refer to it as if it were the real thing.

Anonymous said...

"I am barely numerate. I know nothing about economics. I wouldn't dream of investing in shares, because I don't know anything about the market. So how come I spotted this mess seeping down the hills like the overflow from a hill-top sewer farm?"

Numeracy is a learned thing. Knowing all the facts in the world doesn't help you use them. If it did, an Encylopedia Britannica would be Prime Minister.

What *you* have is intelligence, which allows you to look at the facts and come to a valid conclusion. I don't need a degree in aeronautics, thermodynamics, or physical chemistry to look up into the sky, see a burning plane, and think "That's gonna end in tears."

"Experts" got us into this mess. To think they're suddenly going to see the light and lead us out is pure wishful thinking.

It's going to end in tears before that.