Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
Mark - you take cases of where some poor and even criminal practise existed and are trying to portray that as a norm and you could not be more wrong. Some poor advice was given, sadly it does happen and to a large extent by the banks (look at ombudsman reports - this is part of what I refer to). But there are also many cases where it was good advice and highly beneficial to the borrower.
There is nothing new, bad practise or in any way shady about the bundling and selling of debt.
Corporate Bond funds, Sovereign debt funds, Strategic Bond Funds, High Yield Bond Funds and Global Bond Funds (among others) all operate on the basis of buying and selling debt. The biggest sellers of debt is the UK Treasury and with QE the biggest buyer is the Bank of England! I am recommending the best of these funds daily, (in fact I have just broken off from a report recommending one such now) and they are essential tools for investment diversification and volatility reduction for investment portfolios.
There was a problem that arose in the USA when some criminals tried to disguise toxic debt and hide its true nature from the markets. That is criminal fraud and there have been prosecutions. Once again you take an example and try to explain an extreme as a norm when it is far from that.
So what will be next with your cherry picking, Hedge Funds perhaps? Will I have to explain the important role that they play in the markets too? You can go on like this forever and get nowhere. Red-top stories are no substitute for the bare facts.
I did laugh when you suggest financial institutions 'convinced themselves that 'bust' would not happen'. These very institutions laughed at Brown thinking he was joking when he claimed he has 'banned boom an bust' they did not believe him and did not think he seriously believed it himself. Sadly they were wrong, he did believe it and that is why the man ran the while UK economy on that basis. Some, repeat some, banks and institutions made mistakes, yes - their adventures in the USA being one huge example but no-one made more mistakes or was more fundamentally involved in creating the economic conditions that are so damaging to all of us now than Gordon Brown.
Guest 683- Registered: 11 Feb 2009
- Posts: 1,052
Barry
banks and financial institutions drove the credit boom which resulted in the bust. By providing mortgages to people who couldn't afford them and providing/foisting cheap credit to furnish the home (or whatever else you choose to spend it on) they fanned the flames - $8tn in the US alone!
My point is that the banks - released by governments, undoubtedly - are the responsible party and the fact that they had to invent ways of bundling debt (which is regarded as "nothing new, bad practise or in any way shady" shows how detached they have become from the rules that guide most people's lives.
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
Mark - Sorry but what drove the credit boom and bubble was the way interest rates were kept down too low for too long. It was a direct response to that. Brown made a complete cock-up of his inflation brief to the Bank of England and compounded that by de-incentivising savings and investment.
To a larger part the house buying price boom was driven by Buy to Lets, people using property as a means of investment. This was not the cleverest of strategies and many have lost out lately.
If people could not afford the mortgages they were taking out then that is a failure of advice and, yes, some of that and perhaps most of it was from the banks. I suspect though, from experience, that the extent of that poor advice is a lot less than you portray and for many people those mortgages were and are a lot cheaper than rent.
You talk about the bundling of debt again. As long as the debt being bundled and sold is transparent and is properly rated for risk then it is no problem and is an important part of global financial transactions. A lot of people utilise debt funds run by people like Paul Causer for an reasonably good flow of income to supplement their pensions. This is very tax efficient in a Stocks and Shares ISA by the way and in a portfolio comprising of such funds and equity offers a decent income flow with long term capital growth potential. I am obtaining net income yields of around 5% in portfolios without taking excessive risk. In suspect yields will be dropping a little though in response to QE so I must re-appraise strategies accordingly. Such portfolios have weathered these economic times relatively well as one client found out yesterday. You are far too dismissive of something based on some criminal activity and I suspect it is a problem of a little knowledge but not enough.
Back to mortgages. If wise these people would have been overpaying like mad on their mortgages to reduce the capital owed while the going is good and many have been doing just that, particularly since the 'crunch'. Figures do reflect that this is being done which perhaps shows that there is a lot of good advice going on it in the real world.
The banks are far from innocent but it is wrong to use them to cover up the full extent of Labour's 13 years of mad fiscal and monetary policy.
Guest 683- Registered: 11 Feb 2009
- Posts: 1,052
Barry
I wasn't seeking to cover up the problems left by Labour but to stress that many banks around the world saw the opportunity for a feeding frenzy and went for it. Once things started to get difficult and the fragility of their business was discovered we saw a domino effect around the world which compounded the cyclical nature of the economic cycle.
As for people overpaying ion their mortgages this may have been done by some but most were keen to spend their money on the glittering array of merchandise that could be theirs - on credit often. Rampant consumerism was encouraged at every step of the way to the very precipice.
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
That is their choice Mark but thankfully figures show that a lot of people have concentrated on paying down debt and that is in one sense a problem in the short term for the economy.
The banks did take too many risks, they did go too heavily into investing in American banks and most certainly did get carried away acting as normal commercial enterprises rather than the staid institutions I would prefer them to be. If they had not been let loose by Brown from the proper oversight of the Bank of England they would never have had that freedom in the first place.
Guest 717- Registered: 16 Jun 2011
- Posts: 468
Well Barry and Mark you are both involved in quite an intense discussion which I do not wish to interupt. I would just like to ask you Barry why is it (and I suspect there will be a long answer) that you think that 'banks are businesses and businesses should be allowed to fall'? We as a nation put our life savings/monthly earnings into to these 'businesses'. Do we really ask much in return except for trust that it will be kept safe in their hands?
Keeps politics to myself
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
Hi Helen. Well if they are not allowed to fail or if they think that they will get bailed out then that would encourage too much risk taking and we have seen what results from that.
What is important is not that banks might fail but your savings are protected by a decent compensation scheme and currently the UK (and EU) depositor protection scheme guarantees £85,000 per person. Therefore a failing bank would not result in a loss for anyone with less than that in the bank.
You need to be careful therefore not to have more than £85,000 with any one institution or 'grouped' institutions, not per bank account. Money needs to be spread around, diversification is vital as part of risk mitigation in any savings/investment portfolio.
If you have money that is being invested for long term needs then you need to be very careful about where it is invested. Currently bank deposit rates are worse than inflation and that is not set to get better. Any money you have with a bank is losing value by way of purchasing power even if interest earned is being rolled up. People taking interest as an income flow are being hit by a double whammy because their capital is losing value quite fast and their income is appallingly low. QE will reduce returns further on bank interest while boosting inflation so the picture is set to get worse.
Bank accounts (cash deposits) are important and are the right place to invest save for emergencies and shorter term (under 5 years) capital needs.
I cannot go beyond that as once I start going into other investment assets and alternative homes for investment money I will hit regulatory problems and must not go into that.
I hope I have answered your question though I suspect it was not what you might have been expecting.
Guest 717- Registered: 16 Jun 2011
- Posts: 468
You have surprised me Barry thank you!
Keeps politics to myself
Guest 696- Registered: 31 Mar 2010
- Posts: 8,115
Barry, I agree with your general vision of less government and more private/local enterprise.
My second thread on Dover Forum was dedicated to economy, and the need to change the present way in which the economy is governed.
We need less centralisation of government and less centralisation of economic powers, as too much wealth and economic decision-making is in the hands of too few people.
My view then was, and remains, a Constitution that defines basic economic aspects, that must be adhered to. People administering to the goog and sane funtioning of local and national production would ensure that this constitution of economy is abided to.
It would prevent in the future that a government comes along and introduces catastrophic regulations, or continues along the lines of the present disastrous regulations, which have led to massive sovereign debt, annual deficits, unemployment getting worse not better, and more of the same.
This has been my message from the start: we must revise how our economy is governed (administered), and we need LESS big government, less centralisation, less interference from bright sparks (such as T. Blair and others), and of-course, no more of the EUSSR with their myriads of laws and regulations and super-centralisation schemes.
The detail may vary between your views and mine, but the general message is somewhat related.
Also, you might consider that you could publish some online articles with your ideas, there are plenty of writers' sites, and get page-views from all round the world.
I do!