Yes of course, The limit on how much the borrower has to give up if he is unable/unwilling to pay. When sophisticated institutions deal with each other they are very careful to specify limits. When companies are formed they do so on a basis of limited liability.
It seems to me that an unsophisticated borrower is particularly in need of protection and clarity from a sophisticate lender.
The problems of usury have existed for thousands of years it is not as if I am presenting a new concept to you.
Perhaps it is the lenders who should be more careful. That would certainly be my view given the current financial situation.
As I've said, if the banks want to loan money on the basis that defaulting on payments means you must sell your house to repay them that's not a problem. They are secured loans and should be sold as such. The problem lies in the fact that they se4ll loans as being unsecured, on higher interest rates, and then still want them repaid from the sale of people's houses.
Yes of course I would, so I would set my secured loans at whatever interest rate was the best I could get but instead they deceive people by claiming their loans are unsecured and that this risk it what causes the interest rate to be higher whereas in fact it isn't and they would want the unsecured loan secured anyway.
I'm opposed to limited liability. Essentially it means that people aren't repsonsible for the effects of their actions.
The lender can be quite clear about requiring that the money be paid back.
I think that both lenders and borrowers have been stupid and reckless over the period of the credit bubble. Nevertheless, I think that those who undertake a debt have an obligation to repay it in full and that it's perfectly reasonable for lenders to take steps to ensure payment when borrowers look like they will renege.
It's not like it's poor widdle borrowers versus huge megacorporations run by Ernst Stavros Blofeld. In fact the money that's been borrowed is often the savings of a little old lady or the pension fund of someone's granny. Why should they go without just because someone doesn't like the borrowing deal they signed up for?
You're right that some borrowers were remarkably stupid and didn't take the trouble to understand what they were getting into, but that means they should have either done some research or lived within their means, not that they shouldn't have to pay back what they owe.
I'd note that I could get the money back from their house anyway, and see how high they were willing to go on rates...
It's not like this method of recovery was some secret known only to a shadowy group of bank managers. Any of the borrowers could have looked it up for themselves.
And yet the banks themselves, it appears, are not responsible for the effects of their own actions. Their profits are privatised, their losses nationalised or negated by massive inputs of public money. What a super position to be in for a private company and yet we are still happy to blame the debtor and insist that they lose their home if they fall into difficulties? Isn't there a distinct lack of fair mindedness there?
That is exactly what it is, with the possible exception of the name of the owner.
Name a poor little old granny who has lost their savings because of people defaulting on their unsecured bank loans.
That's not the case. Charging orders don't mean you must sell your house to repay them. They mean that a charge gets recorded against your house so that *when* you eventually sell it, they will get their money then.
The higher interest rate in the case of unsecured loans is in effect a kind of insurance in the banks' favour against the risk that the borrower might default on the loan. But the "premium" isn't high enough to cover the loss of the whole debt. It is only high enough to cover the cost of taking action to recover the debt.
Count me as against that too. I don't think one red cent of taxpayer cash should be used to bail out banks. The World Bank recently had economists look at 113 systemic banking crises in various countries. They discovered that when the central bank sits on its hands, then the cost of clearup is about 1% of GDP. However when the politicians and folks in charge of the sundry sovietised banking committees decide to purloin our cash and try to stave off the inevitable and then bail out their friends, the cost of clearup is anything between 13% and 60% of GDP.
In short: the liquidationists are right. Let debt-deflation run and the markets will self-correct at new asset values.
I'm a fair-minded guy: I blame idiot borrowers who get involved with financial instruments they don't understand (mortgages). I also blame idiot bankers who get involved with financial instruments they don't understand (derivatives). For good measure I blame politicians like Brown and their lackeys like Greenspan for trying to run economies they don't understand and fomenting the damn credit bubbles thet get us into these messes in the first place.
Certainly if Greenspan hadn't bailed out damn near everyone from the crash of '87 (six weeks on the job a already Sir Printsalot) through every little hiccup since, the bankers wouldn't have become so enamoured of the "Greeenspan Put" that they took such incredible risks. If Brown hadn't been so enamoured of soviet-style banking committees, then perhaps interest rates mightn't have been so low as to foment the mortgage bubble here.
There's more than enough blame to go around, but folks being greedy enough to borrow a significant fraction of what they'll earn in their lifetimes to play the housing markets have been a huge part of the problem.
In fact, when you think about it, what's happening is the cure rather than the problem. If people can no longer borrow huge amounts of money, then they'll have to either rent if they can't afford a house or save for one if they can. This will also reduce prices enough so that people will be able to own a house without living in debt bondage their entire lives to do so.
Surely we should be applauding this, not lamenting it?
Not to put too fine a point on it, but bollocks.
As we know, the effects are diluted, but in fact each time someone does this, the pension funds of many people are that little bit worse off. We don't havve to look very far to find that such problems have indeed caused a great deal of trouble for the pension funds of a great many people.
I don't think you quite understand the difference between a secured and an unsecured loan. You seem to think that if a loan is unsecured it should mean the lender cannot be sure ("secure") he will ever get his money back, which in effect would mean that repayment is voluntary. I dare say many borrowers do in fact think this.
If a loan is secured it simply means that the assets pledged against it can, should the borrower default, be seized by the lender with very little additional formality. Sometimes (such as where the asset is an occupied house) a court order would be required, but this is usually a mere formality and would generally be granted automatically.
If a loan is not secured it simply means no assets are pledged against it and, should the borrower default, the lender must go through a more difficult and costly procedure to seize the lender's general assets. It does not mean the lender cannot ever do anything to force the borrower to cough up.
But generally in their eagerness to gain business they gloss over penalties.
[snip]
Yes they have an obligation to repay, but that obligation is limited and the lender's steps to ensure repayment are also limited. This is what we are discussing. The only sensible discussion is where these limits should lie.
Yes that is exactly what it is like.
Investors too should also be protected from corporations such as Northern Rock.
Borrowers may get in to difficulties for all sorts of reasons not just remarkable stupidity. Life is a gamble and sometimes a quite reasonable risk turns bad. The obligation to repay is limited and the limits should be clearly defined, not hidden in the small print are extended via some technical manoeuvre.
It is not reasonable to expect a consumer to research fully every product they buy. The should expect a certain quality and fairness.
If they enter a secured loan they know their property is at stake if they do not their property should not be used as security. The banks are perfectly free to insist upon security if they wish.
You appear to live in a black and white world which favours loan sharks and the Victorian debtors prison approach even when we have the example of history to show us why this approach is flawed.
I've not checked it out lately I thought it was all part of the drive to be a responsible lender. But I can quite believe the government and banks have totally messed this up.
I see no reason why it should be (part of being responsible). Responsible lending is about not lending too much in the first place, but there are alwasy going to be people whos circumstances change.
Clearly attaching the debt to the borrower's house is already inside the limit. That seems reasonable to me. Surely if a debtor has assets then the lender should be able to claim a defaulted debt against those assets?
Nope. The banks are run by twits only marginally less hapless than the borrowers themselves. How else to explain the fact that between them they've probably scattered trillions of Dollars to the four winds?
They have all the protection they need: they can disinvest in the company.
Which is why having a plan B is necessary when the original plan doesn't work out. If only the board of Northern Rock had understood that.
Is this possibility hidden, or is it there for anyone who cares to read of it? After all, we know about it and we (well I anyway) don't have any borrowings riding on the issue.
It's reasonable however to expect them to research a product to a degree commensurate with the cost of what they're buying. Reading the blurb on the back of a paperback is sufficient research. However taking a mechanic friend to a car auction is advised because a car costs more than a book and a faulty one can cost lives. When someone is buying a house, it is for most the most expensive purchase they'll ever make in their lives. Some serious research is needed. Moreover, doing so on borrowed money vastly increases the financial risk involved, and so anyone doing this should understand the product they contract into and the general risks surrounding such products.
It seems the very definition of fairness that if someone borrows money from someone else, they should pay it back.
If they borrow money at all (and to be honest I think by and large people shouldn't) then they should know that if they have any assets at all, they'll be at risk if they don't pay their debts.
Whereas we have the current mess of a bursting credit bubble to indicate why people should have a very much greater fear of debt and the risk it entails. We've gone a great deal too far the other way from the debtor's prison. Your kind of thinking is a big part of why.
Not so clear. Some forms of debt are not inside this limit. I do not know which forms are and which forms are not.
You may take an interest in this subject but most people do not.
And yet they still make huge amounts of money and are certainly the financial power house of London which subsidises the rest of the country.
They have the protection now. But a standard bank investor is looking for a safe low risk environment, it would be uneconomic for them to investigate a bank's finances. The failure of Northern Rock was because the regulation failed and needs to be looked at. Confidence in the banking system is required for commerce.
I was actually referring to small borrowers.
Financial contracts are very difficult to understand. My experience tends to suggest that a tiny percentage of financial customers would be aware of the terms or implications of the financial deals they enter into. You may want everyone to spend their time researching this particular issue, but we could say the same about many issues. It really is a waste of time. Much better to have fair contracts with important terms clearly expressed.
This again isn't true if I put 100k in a bank account I expect it to be safe, I don't expect to have to research it. I expect to get the rate quoted and for the bank not to default.
If I put 100k on a horse or a DotCom company I know I need to do my research, but it is a different thing.
Not having to research banks it vital for an efficient economy.
Not to me, or it seems large multi nationals.
You don't believe in finance? A little difficult as it has become the UK's principal industry.
Do you not think it is the lenders who should be expected to have taken a more sophisticated view not the little man.
Particularly as the UK consumer's credit bubble doesn't seem to have burst yet.
I actually share your view that credit has been too easily available however I take the view that it is easier to control the pushers rather than the addicts.
It figures that you would hate my way of thinking but I'm not sure if you realise quite how much.
As in America, the banks will come a cropper when their customers file bankruptcy or else disappear into the shadow cash economy. They have shot themselves in the foot. With negative equity what does it matter that there is a further charge on your home? As with a second, or
125%, mortgage, it's uncollectible and bankruptcy or death wipes it all out.
So what? He took the high interest in return for high interest. HE lost toughh sh*t. No the banks and the bankrupt legal system is conspiring to defraud him.
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