People are interested in all sorts of different things and are free to ignore others. What I'm saying is that people who want to ignore knowing about mortgages and debt finance would be best advised to steer clear of borrowing.
Do they? My suspicion is that if the US banks didn't have the ability to lodge their dodgy mortgage-backs and CDOs at the Fed in exchange for real cash, they all already be bankrupt. The Fed's own numbers tend to indicate this.
Let's wait and see whether their earnings were greater than the amount they threw away.
They could always disinvest in the company.
Perhaps. If they invest more than the protected limit without doing so though, they expose themselves to the risk of capital loss.
It wasn't just the regulation that failed. The board borrowed short on the markets to lend long and didn't put in place a Plan B for when they couldn't renew their debts.
Perhaps then it would be better to let poorly performing banks fail so that we could have confidence in the ones left standing?
The BofE and the Fed witter about how what's needed is price discovery so that the various financial entities can mark their assets to market and write down what's lost. What they do in practice though seems aimed at preventing price discovery taking place. If Bear Stearns and Northern Rock hadn't been bailed out, we'd know the prices of quite a number of assets by now.
It behoves everyone who borrows money to have a Plan B for its repayment lest their original plan go awry.
Then that's a large part of the problem. It would bet best to encourage people to use cash if they can't understand the implications of borrowing money.
Not what I said. People should feel free to ignore the whole issue, but they'd also be advised to refrain from borrowing. What's been worn away through this quarter-century credit bubble is a knowledge held by our parents and grandparents: debt is a fickle ally and extremely dangerous when permitted to run amok. Think of it like nuclear power: folks can feel free to throw the switch and enjoy the electricity, but if they don't want to know about the details, best not have them make their own.
Our grandparents learned the hard way during the last credit bubble and most refused debt for the rest of their lives and raised our parents to regard it in the same way. It's only during the latest bubble that I even noticed the previous generation being seduced by debt, and many of them would eschew it other than for mortgages and they were pretty damn careful with them. Our generation though misssed the lesson and accepted
125% loand with teaser rates; endowment mortgages; negative amortisation mortgages (in the US at least) and even thought it normal to buy a chinese meal on credit and pay interest on it for decades.The end result is that our generation will have to learn the lesson our grandparents did, the same way that our grandparents did.
Of course I'm in favour of that too, but it's no substitute for having the customers either know what they're doing or do something else.
Do you? I don't put more than 30K into any one bank because I know that above that it isn't safe if the bank goes down. I also know it's crucial at this time because more banks go down after a credit bubble bust than at any other time.
So despite the fact that you do know that banks sometimes go down, you take no cognizance of it?
It's different in level of risk, not in principle.
That's why folks pay for ratings companies. Only they've screwed up too. Sometimes there just ain't no substitute for due diligence. It may be less efficient than something else you can imagine, but what's happening as a result of folks not troubling themselves with the research isn't looking so efficient right noww either.
I think this is the nub of where we differ. You have some sort of leftie bias destroying rational thinking.
Seems so. At least we both see *that* as unfair.
For business, but not for consumption.
I'm hoping to see that cured quite soon.
I think the little man should have lived within his means and that the lenders should have lived with the consequences of their folly. The first will soon again become the norm. The latter will probably have to wait for someone too big to bail to go down, but the way the central banks are behaving, that may happen sooner than we all imagine.
Oh, I think I've seen some leaks, but I agree, there's much more to come.
The thing is that there's been no attempt whatsoever to control either. History shows that in such a circumstance, control is re-enabled by the disappearance of the product.
I'm not sure what you mean here. I think the basic issue is that it greatly offends my sense of justice for someone to borrow money from someone else promising to pay it back, and then reneging. As far as I'm concerned "I didn't understand I'd have to pay it back!" just doesn't cut it.
FoFP