Auditor #9 wrote:

Squire wrote:

Expat

You may find this interesting, and generally an interesting site.
http://ukhousebubble.blogspot.com/2009/02/unknown-circle.html


Bank of England .25% to come off interest rates later or steady as we go?

I'm sure I read that article the other night... Does it describe a replica basically of the American sub-prime/CDS/derivatives thing that blew up last September and is still blowing up? 200 bn is the figure for debts that will have to be written down? What percentage of Uk GDP is that ?

I am going to take a wild guess and say that this credit growth is to off-balance sheet subsidiaries of commercial banks. Moreover, they are doing it to cover the collapse of funding sources that followed the breakdown of the mortgage backed securities market.

It all points to the terrible circle of problems besetting the banking system. During the boom years, UK banks used off-balance sheet vehicles that now make up the shadow banking sector to avoid regulatory capital requirements. These institutions were initially funded by non bank investors looking for higher yield and who willing bought up all those structured investment products like mortgage backed securities.

Now these investors have disappeared, and as these products mature, iinvestors want their cash back. These shadow banks are highly illiquid and have to make up interest and principle payments by taking out credits from their mother banks, who created them in the first place and who are mostly retail high street institutions.

As the shadow banking sector finance matures and is repaid, it sucks up potential credit sources for the rest of the economy. Moreover, the mother banks can not stop extending this new money because as soon as the credit flow to the shadow banks stops stops, they will go bust.

But it gets worse, the real economy is now starved of credit, economic growth is contracting, and asset values are collapsing, particularly for real estate. In turn, this undermines collateral values, increases default rates and threatens the very existence of the mother banks on the high street.

Is there a way out of this circle? If I was allowed to ask Mervyn two questions, that would be my second one.

This is interesting indeed. Government are inextricably mixed up with the banks and the bankers are giving them advice on what to do. It is obvious that the recapitalisation is disappearing down a black hole - we were discussing that over breakfast this morning. Essentially it is going straight into the front door of the banks and out of the backdoor, whether in bonuses, or paying off high risk investors, or it is being held to back the bad debts of other high risk investors.
Where is the money coming from, is the question. We don't have it, so we are borrowing it at high interest rates from the banks, supplemented by the future higher taxes and the present wage cuts - directed disproportionately at people on average and lower incomes. It is a neat circle.

The problem even with this circle, is that it isn't enough to fill the black hole. There will be defaults including national defaults: it looks likely that Ireland will be one of them. There will be people who refuse to starve and see hospitals closed to assist in the refund of the high risk investors. Stiglitz is the only one who has started to broach the necessity of a clean sweep and a new system, but from what I see even he only envisages a large scale "dirty banks" operation alongside which "good banks" will continue business as usual. Everything is too interconnected for that to work, and it begs the question as to where the money is to come from to finance the new state investment banks (which would operate in competition with the "good" banks). Stiglitz's answer I think is to print money. That will mean a weakening and reduction in value of currencies - i.e. price rises. The price would still be paid by the man and woman in the street and the system and people benefitting from it would be unchanged. In offering to secure the status quo as of 2006, Governments are trying to consolidate insane levels of profit and benefit in the vaults of a tiny few at the expense of the rest.

Squire wrote:

I think the important point is the information is from the Bank of England. It therefore follows that they and the government know what is going on and are seeking to mislead the generally public by emphasising the need to improve liquidity for business etc but are in reality giving Banks funds to shore up their off balance sheet vehicles which were set up to avoid what regulation there is. So the government is complicit?

IMHO, there's probably no need for a ?? at the end of that post. The UK establishment (those who really run/own things and not necessarily all of the politicians are included in this loose cabal) are rotten to the core. There is a major culture of entitlement amongst those who have been at the top for generations, and they use this power to keep their ilk in the manner to which they are accustomed and to hell with the rest of us... we're just there to feed their cash cows and pay taxes for when they need bailing out. Most of the large landowners have been such for generations; "reform" of the House of Lords has merely meant that most of them have been replaced by New Labour cronies who are equally pro business. And pro-business in the UK doesn't really mean small businesses. It means that Temple of Mammon, the City of London.

Draw your own conclusions. It is however the case that Alan Greenspan championed the abolition of the Glass Steagall act that kept investment and retail banks separate and was instigated after the 1929 crash. He did this for a valid reason, at the time..... London was taking much of New York's business. So we had an anti-regulatory race to the bottom.

Is the US to blame for this entirely.....or should we also be looking at post Thatcherite London??

The rot started with Harold Wilson being shoved out of Government.

Bank of England reduce interest rates by .5% I thought they might have gone .25%, but no.

cactus flower wrote:

The rot started with Harold Wilson being shoved out of Government.

There are rumours/a conspiracy theory that he was threatened with a coup d'etat (military) if he didn't resign. A critique of most modern conspiracy theories gave that one (and the "suicide" of David Kelly) a pretty high chance of having at least some truth in them.

Cactus

It is about the Banks operating through off balance sheet vehicles to circumvent what regulation there is and the government aiding this business model. From that we must assume they approve.


Expat

There is a distinction that needs to be made between land owning families and the mercantile class that infests London. They tend to be different creatures. Whilst they may have similar interests and investments they tend to have different attitudes and values. Both have distinctive and endearing qualities.

London could never be taken for granted even in medieval times.

Squire wrote:

Cactus

It is about the Banks operating through off balance sheet vehicles to circumvent what regulation there is and the government aiding this business model. From that we must assume they approve.

I don't think it is new. I remember posting a quote of VI Lenin on toxic financial products, written back in 1916.

Quote :

Expat

There is a distinction that needs to be made between land owning families and the mercantile class that infests London. They tend to be different creatures. Whilst they may have similar interests and investments they tend to have different attitudes and values. Both have distinctive and endearing qualities.

London could never be taken for granted even in medieval times.

Well, the latter class after all lopped off a crowned head.

Cactus

Power and money being hand in hand is as old as history, it merely reaffirms that in our age of 'democracy' that it is business as usual.

The role of London in the History of England is an interesting one. It always had a will of its own and could never be ignored. If ever there was a place that illustrates that money matters it is London.

You are right, but most of the time (at the moment), these interests would be one and the same. The landowners also own shares, investments, hedge funds, and traditionally live off the interest of their interest, remember. That means, the City of London has to work for them! The tradition always was that the eldest son inherits the property (for those that didn't have to sell up in the 30s and thereafter), but that leaves younger family members to go earn a living, that living has often been earned in the City, since Thatcher. Meanwhile, the larger members of the mercantile classes (todays corporations) have their stocks traded in the city, while the private equity sharks raise their money for buyouts there.

The rift today is between the larger corpos, the big banks and the stockbroker/financier types on the one hand and the British equivalent of Isme...to small for govt bailouts, and not getting bank loans either.

Bank shares very boring today, despite impending recap.

What about Kinspan with all the plans of retrofitting and insulating?


Home insulation scheme to boost jobs

A national home insulation scheme aims to create 4,000 jobs and slash household heating bills by up to €700 a year.

Up to 50,000 houses will be upgraded in the Government’s €100m programme which will also cut carbon emissions.

Energy Minister Eamon Ryan said the insulation scheme will help boost the economy while saving money and energy.

“This is what our people, our homes and our economy need at this time,” he explained.

“Central to Government spending in sustainable energy is to get the economy back on track.

“We need to replace the spending and lending that has contracted and re-focus our public and private investment.”

“Insulation makes homes warmer and more comfortable.”

read more >>>>>
http://www.thepost.ie/breakingnews/ireland/mhsnidkfgbkf/

Auditor #9 wrote:

What about Kinspan with all the plans of retrofitting and insulating?

It is still going to take big money to retrofit a house, which people may not have or be willing to borrow. Despite a grant being available.

You've read Squire's posts on retrofitting, unless it can be easily done by cavity fill, it is a nightmare. And that doesn't cover shite windows and shite central heating insulation.

How much would replacing windows on say a 4 bedroom house cost?

How much would doing that thing when they pump stuff into your walls cost?

How much would installing (or installing better) insulation in your attic cost?

How much would it cost to bang up a few solar panels and replace your hot water tank with one capable of heating your water in conjunction with the panels?

What would the total cost of the above be?

After that, you see the challenge of retrofitting alot of houses.

Agreed, big job. Perhaps we should content ourselves with the first 3...you'd be looking at approx 5-10K I'd say, for a 4 bed, providing you're not trying to replace sash windows with any sort of authenticity. That costs 2k per window.

I don't think windows are included in the new scheme, are they?

johnfás wrote:

How much would replacing windows on say a 4 bedroom house cost?

Depends on the size and type of the windows, about £ 250- £400 each. So just do when they need replacing.

johnfás wrote:

How much would doing that thing when they pump stuff into your walls cost?

Again depends on the size of the house say about £600 So it pays fast enough. Do it!

johnfás wrote:

How much would installing (or installing better) insulation in your attic cost?

This is well worth doing.
Depends on type of insulation say £10 sq.m If you are rolling out a few layers of quilt yourself it would cost very little . Insulate between rafters and then cross insulate over. Aim for at least 300mm. Don't insulate below any cold water storage tank and you will need a polystyrene box around the tank. Insulate all pipes and if you are rewiring the wires should be on boards above the insulation. Maintain cross ventilation in a ventilated roof space. Condensation can cause problems.

johnfás wrote:

How much would it cost to bang up a few solar panels and replace your hot water tank with one capable of heating your water in conjunction with the panels?

The problem is the storage tank for the hot water they cost about £1000.

johnfás wrote:

What would the total cost of the above be?

After that, you see the challenge of retrofitting alot of houses.

It costs too much.

If you have an old house with draughty timber ground floors and they rot, put in a concrete floor with 75mm celotex or kingspan insulation and 25mm perimeter insulation. If you also install underfloor heating you just can't imagine the difference this will make. Underfloor heating is more efficient than radiators as the temperature of the water to heat the room does not need to be as high as with radiators.

Also efficient Boiler and controls are vital.

How effective is that stuff they pump into the walls, Squire? I was asking my parents whether we should consider having it done but they didn't know much about it. I don't know the kind of walls we have but I can take a photograph if that helps... you'd need to tell me what I am to take a photo of though.

Johnfas

If they have cavity walls do it! Generally cavity walls have no header courses in the outside briickwork, there are only stretcher courses. An uninsulated cavity wall has a U value (transmittance or overall thermal conductance) of, from memory, about 1.7 with insulation this drops to about .35 with a filled 100mm cavity. Low is good. Modern houses have U values of .3 for walls .22 for Ground floors and .2 for the roof or there abouts. (UK and from memory)

I would tend to use mineral blown fibre rather than polystyrene beads. It does not burn and in old buildings there is a very vague possibility of some strange wiring.

The problems you can have are incomplete filling and the wretched stuff blowing out through any holes. I have seen a bathroom filled with the stuff as it came in around a waste pipe and dope of a person putting it in just kept pumping. It can also blow into the roof space if the top of the cavity is not properly closed.

First check the roof. Get it up to standard. That really does pay back fairly quickly. 300mm quilt!

How would johnfás know if his house had an empty cavity wall (that's a double wall without filling ? why the hell did they not fill it???)

Would he be able to tap the wall with a hammer or would he have to take a drill to it or is there some sonic test ?

If there are any vents take one out and have a look. If the mortar is soft it is easy enough to take a brick out. I would send someone with a drill and a special camera.

Many of the older cavity wall buildings have no insulation. The reason for the cavity was to keep the rain away from the inside leaf. One common problem can be rusted wall ties.

If he looks at the vent for his drier he'll be might be able to see. If he has a condenser drier he can look at the vents (which should be in most rooms), expecially ones that were added after the house was built. Just remove the grills on the inside.

Basically find the last time someone drilled a hole from inside to outside in an external wall for any reason and examine what's between the inner and outer walls.

A lot of red today, down 2%-3% across Europe and decline continuing on the other side of the Atlantic.

Nothing too terrible happened in Asia last night.

It will be good when we get through these periods of government interventions, hard to predict their effect. The amounts involved are colossal and are bound to have an effect on the economy of the country in question in the decades ahead. Spending borrowed money is easy, repaying it is a different matter.

If governments do not get a sizeable return in their investments in banks etc this is bound to have a negative effect in the overall economy as someone has to pay and that is money that would have been spent or invested elsewhere. If instead they print then reason would suggest that they would devalue the currency, but devalue against what other currencies or assets? The major world currencies all have weaknesses.

So perhaps commodities but unless economies turn, and move forward, demand is going to be flat. Price drops in basic metals must also make investment in extraction unlikely so problems ahead when the economies do turn. All basic production needs investment but why invest if demand is falling?

Food I think will become more critical with time as the worlds population increases. Some countries that once exported now import. UK population over 60 million on a small island in a climatic zone that severely limits agricultural production.

If the current crash was to lead to a proper reassessment of our world financial model it would be a good thing, because it is not too difficult to imagine all sorts of problems ahead if demand outstrips production in key sectors. Unfortunately a reassessment just won't happen.

I am still of the opinion that the very concept of interest is part of model that ultimately cannot be sustainable. The idea that you can earn beyond the rate of inflation by doing nothing. I think we need a more robust system for investment where it is difficult for gamblers to gain, where investment is just that and is long term.

Banks taking a hit this morning, propably on foot of the news that ILP aided Anglo in massaging it's end of year statement by depositing 7 Billion.

IL&P placed €7 billion with Anglo