Naked Science Forum
General Discussion & Feedback => Just Chat! => Topic started by: Geezer on 14/10/2010 19:53:11
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WASHINGTON (Reuters) – The number of homes taken over by banks topped 100,000 for the first time in September....
Blimey! I'm wondering where all these people are finding places to live. You'd think there would be a huge demand for rental properties, but I don't think that's the case. Perhaps there was so much oversupply by the builders that there are simply too many homes and not enough people.
BTW, I'm not trying to start a political firestorm here. I think it's a case that the economists should be studying very carefully. There was clearly a gigantic bubble forming, but nobody seemed to be able to do anything about it.
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WASHINGTON (Reuters) – The number of homes taken over by banks topped 100,000 for the first time in September....
Blimey! I'm wondering where all these people are finding places to live.......
(https://www.thenakedscientists.com/forum/proxy.php?request=http%3A%2F%2Fpreview.canstockphoto.com%2Fcanstock0054299.png&hash=ddb9ccac95f5533c2adab54b465c15ec)
But I don't think the banks give a **** for those they have put out on the streets.
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I'd imagine a fair number are moving back in with their parents. And even where the people who've lost their homes are moving into rented accommodation, that effect might well be masked by the younger people who, now that the deposit required has gone right up, are living at home with the parents whilst they save for a deposit (or because they can't find a job).
But I don't think the banks give a **** for those they have put out on the streets
But here we have the problem. Who are "the banks"? The guys who run the banks? Well, maybe. And maybe they are unscrupulous, it wouldn't surprise me. But I think it's arguable that "the banks" are actually the shareholders. Which, if you've got a pension, is probably you*. The guys running the show have an absolute legal duty to maximize shareholder profit, and if one of the banks had taken a position that the then-current arrangements were insane and not in the long term interests of the business, and that meant a decrease in profit in the short term, I suspect a lot of the funds would have sold up and moved into a different bank with bigger short term profits, always intending to sell up there and get out before it all goes belly up.
Capitalism's a great system in principle, people who have already made some money can invest it for a return, and that enables people who haven't yet made money but have good ideas to raise the funds to get their good ideas on the road. There's an element of gambling, and some win and some lose, but by and large it's a pretty neat solution to the problem. However... principle ain't practice. Great big investment funds trading shares automatically, trying to sell high and buy low on a millisecond timescale is just chaos theory applied to people's livelihoods. And it sucks. And no I don't have a better suggestion. /rant
*I say "you" and not "us" because I don't have a pension... that's only because I'm still a student, not some kind of deliberate moral judgment on pension funds.
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Sensible comment about "the banks", Rosy. Criticisng the banks for making money for themselves and their shareholders is like blaming a lion for eating and killing a deer; it's what they do. The difference is that it within the power of all of us, via our governments, to effect controls to change and/or limit behaviour that is to the detriment of the state where it can be difficult to reason with a lion. It should be a good example to the libertarians of why you just can't let free enterprise run riot. However they would argue that the market knows best. I don't agree, but I do think that any hand on the tiller should be light, mainly because I don't altogether trust the cox - I may have spelt that wrong :-)
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I'm not sure if the situation in the UK was different, but in the US there seemed to be a belief on the part of many that home values were going to keep zooming up indefinitely, so the only "smart" thing to do was borrow as much as possible and jump into the market.
The banks were certainly assisting with this folly by trying to outdo each other in providing the loans, but, to a great extent, the folly was in the minds of the general public. There seemed to be some sort of "herd" hypnosis.
We actually bought a house in California in 2002 more out of necessity than as a speculation. The value had almost doubled after two years, so we sold it (Mrs G wasn't terribly pleased about that).
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It was the same in te UK, Geezer. You were fortunate to be able to capitalise on your investment but, of course, many people are sitting on negative equity now having bought near the peak of the boom. The complaint against the banks is not just about the fact that they "sold" mortgages easily without warning of the potential consequence (it could be argued that this is not their job) but is more to do with how they mixed the investment part of their businesses with the simpler, high street banking functions. Some of the investments involved financial instruments which many of the bankers themselves don't understand - a quantum physicist on the TV said QM is a doddle to understand compared with some of these. We expect our money in a bank to be safe and it was a shock to find that it was not. The trigger for the whole banking crisis was the heavily disguised traded debt related to dodgy loans made to poor families in the US.
Having said all that I would go back to Rosy's point, that the banks do what they feel they have to to compete with other banks. Getting interest from savings was expected and to compete to give out the best rates whilst making good profits meant they used the investment side of their businesses to boost their ability to do that. When this was combined with the competition to simply base their business on interest for mortgage loans for which the lending criteria became very slack (in order to grab market sector) it was a very high risk strayegy and has cost the taxpayers dearly. The thing that people get annoyed about in the UK is the size of the annual bonusses paid to senior staff. This is really a bit of a red herring but there is no doubt that senior people in banks have had it so good for so long, getting vast amounts of money has become expected and is widespread. It is quite hard to undo this without losing staff to other banks but I think it will change over time.
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The problem, as I see it, is that for too long there has been a culture of making money make money, rather than producing goods to make money.
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Yes, that too. The emphasis on service industries rather than manufacturing will ultimately be disasterous but still this idea is only paid lip service to by politicians. It is still the case that if you want to make lots of money, engineering and the sciences is not the place to go. It's hard work but, unless you are very fortunate, returns are quite limited. Despite this the UK is, amazingly, still high on the list of manufacuring nations (4th or 5th I think).
You can't knock the whole concept of money making money though, otherwise there would be no encouragement at all for saving and investing.