I guess the property ladder is missing a few rungs. It will be interesting to see how this thing plays out differently in different countries. Our bubble is tiny compared to some places. Also will other countries try bailouts like the USA
UK is interesting in that they have a lot more people that only rent rooms in homes compared to renting a whole apartment or house. And many people who actually own homes have rooms rented out within them.
I think this difference in lifestyle supports a higher mortgage to income affordability. You really could think of that renting of the extra room as income.
When I was living in Britain I lived in a 5 bedroom house with 4 other adults. I had the smallest bedroom, room for a single bed, a wardrobe, and a small dresser and I was paying about $650/month for it. The most expensive room was $900/month and the other three were $750 to $800/month. So, the guy was getting about $3800/month for rent. Unlike here, occupants pay the local municipal taxes, something they call a council tax which I guess was another $50-100/month, and then there is the TV tax, and then there was the utilities.
I guess the owner was trying to sell the place for about 300,000 pounds, maybe 350,000... I forget. The other renters thought he was asking 100,000 pounds more than it was worth.
Well, this particular credit card was the best one to use for a protocol to extract money from other credit cards with 0% balance-transfer rules (see Stoozing: Make free cash from credit cards. ... for instructions), so that may be part of the reason that the cards are being withdrawn.
The card withdrawal is pretty much unprecedented for Britain, and there are a lot of angry comments in places like BBC NEWS | Business | Egg customer anger at credit move from people who feel that they've had the card withdrawn simply because they're unprofitable customers; I wonder if there's some model that Citigroup uses which treats cards that exist but are scarcely used as liabilities?
I'm slightly surprised that buy-to-let was not routine in America; was the slope of the boom so steep that people buying second and subsequent houses in the hope of capital appreciation didn't feel they needed to balance the mortgage payments by renting the house out by rooms?
TomW, "I'm slightly surprised that buy-to-let was not routine in America"
We are way ahead of GB in ponzinomics. In America, our Vegas culture promotes buying RE sight unseen in a lottery with the expectation of a massive appreciation & quick sale before actually taking posession. Options on properties. To "let" requires you actually pay for RE and then lease. Too messy for us.
@Deborah: I lived in rented rooms from leaving university until age 28, when I splurged to rent a whole house (kitchen, living room, dining room, bathroom, two upstairs bedrooms - it'd have been rented to three people) at $1500/month, and then subrented the one bedroom out to a succession of friends and relatives for $700/month utilities-thrown-in.
I don't know things like square-footage; my bedroom, which is the largest room in this house, is maybe 170sqft.
My richer single friends own very small houses, bought for $350-$400k generally with 25% down-payments and a large mortgage on a good-techie salary of around $80k-$100k; people with partners tend to buy significantly larger houses, in the $600k range, with a lodger. Shared ownership is not unusual; in one case two couples-of-techies joint-purchased a large (say $500k two years back, maybe $700k now) house, then one moved out taking half the equity with them, and the other now rent out three of five bedrooms to cover what is an onerous mortgage for even two techies.
This is Cambridge, which is basically England's Silicon Valley (ARM, Cambridge Software Radio, dozens of little university-spinoff biotechs), and notorious in England for hideous house prices. All of these houses are in the city proper; everyone commutes by bike; I doubt the average among my friends is as much as half a car each.
I couldn't buy any house not actually sandwiched between council blocks of dire reputation for as small a monthly payment as my rent, even putting down half my savings as a deposit; and I'd not want to have more than half my wealth invested as effectively margin for a leveraged bet.
It would be interesting to see how many empty homes we would have if we did get buy to let here. Or my favorite saying the Walton effect. The Walton's didn't all live together because they liked each other. In either of these scenarios we would have years of inventory instead of months.
@barely: I get the impression that the house-buying process in the UK runs at a rather more sedate pace than in the US, meaning that flipping in that way doesn't really work here.
Does the US have an analogue of the UK's 'stamp duty', which is a sum to be paid to the government on any real-estate transaction, on a scale
Nothing for less than 120kpounds (~ $230k)
1% of the transaction for 120-250
3% of the transaction for 250-500
4% for more than 500k
[this is not like income-tax brackets; a 119k house pays nothing, a 121k house pays 1210; a 501k house pays 20040]
I imagine that that unavoidable cost would make some kinds of flipping rather less attractive.
RE trasaction costs here are still quite steep. Flipping doesn't work here either without 15-20% YoY appreciation. Worked fine for a few years until the pyramid scheme ran out of players.
Aside from credit issues, it's possible terrorism plays a role in Citibank's decisions. Banks are under a lot of pressure to prevent money laundering and report suspicious activities, especially in international transactions. Britain is a known breeding terrorist breeding ground, and credit cards are vehicles for money laundering.
I have a very nice paid for (!) house in Brevard county, Fla--the space coast. I work in Miami and need a place to sleep. I rent a room in a nice area of Miami. This is quite illegal for the landlord. I pay hardly anything. I have been doing this for years. This happens a lot in Miami, and especially Hialeah.
Together/Plus Mortgages represent loans of 100% or more of the property value - typically up to a maximum of 125%. Such loans are normally (but not universally) structured as a package of a 95% mortgage and an unsecured loan of up to 30% of the property value. This structure is mandated by lenders' capital requirements which require additional capital for loans of 100% or more of the property value.(Wikipedia)
Group houses are pretty common here for people in the 20s. I spent most of my 20s in group houses. Speaking of small rooms, in one place I had a "room" which was basically a sealed off hallway--in the basement. Those were the days!
Someone correct me if I am wrong, but I believe all mortgages in the UK are adjustable rate (after some short fixed-rate period)? If so, a spike in rates will hit their high prices, hard...
UK mortgages have always tended to be adjustable-rate after a fixed-rate period of either two or five years; if you want you can get a ten-year or 25-year fixed from the Nationwide Building Society, the rate on a 25-year fixed with a 10% deposit is currently 5.98%.
The rate curve is inverted - but aren't all rate curves, nowadays? Three-year fixed at 5.85%, 5-year fixed at 5.63%, ten-year fixed at 5.68%, 25-year fixed at 5.98%.
UK interest rates went down to 3.5% during the 2001-3 recession, and the average mortgage rate got to 5%, so if you'd taken out a five-year fixed then your payments would be going up about 50% this year.
Tom Womack: my how things change. Over 50 years ago when I went to Cambridge, I got room, board, tuition, etc., for an all in fee of 400 pounds a year. I recall having a four course dinner at the University Arms Hotel for 8s 6p. The food wasn't so hot but I got a bottle of burgundy from the 1920s for a trivial sum, less than the cost of dinner.
A discussion of the buy-to-let phenomenon is incomplete without mentioning the government's taxing role in this. They killed the TESSA( not just because she dumped Tony Blackburn), they downplayed the PEP tax incentives and played up the Individual Savings Account - i.e ISA ; unlike in the other two tAx advantaged savings schemes, you could stuff anything into a ISA - including property. Here is a link to books about Property ISAs Grow Rich with a Property ISA by Nick Braun PhD
It was put forward as:
"A property ISA is essentially a portfolio of high-end investment property. Instead of you acting as landlord, the property is managed by some of the largest, most respected UK property management companies in the investment business, including giants such as Standard Life and Scottish Widows.
"
You could go it alone of course or hand over the management of it as above.
Separately, I'm glad you picked up the "Egg on their faces" story. It is an important one. I got emails from the UK about it.
Meantime, prices for energy, public transport will rise by 10%+ this year; nEnergy the Gas company and yesterday Scottish Power raised prices.
Finally, the LBO implosion has started there. Dolcis, Stead and Stimpson - shoe shops ( did the Brit equivalent of Al Bundy.. hmmm lets see - nahh there's only one Al Bundy ), ahd the bookstore chain The Works filed for public administration ( BK ), all LBOs recently. The rot spread in last year with the patently foolish ones like record/CD retailers and has-been restaurants chains like Little Chef.
Life and pensions giant Axa has become the latest firm to bar redemptions from its Life Property and Pension Property funds for up to six months in a bid stop panic selling. The decision will affect 100,000 investors . . .
Stamp duty is why so many Brits are looking to downsize to a bolthole in the UK and buy a 2nd property in Spain/Italy/ anyplace else and contributes to the bubbles down there.
There was a sad tale of a British couple who sold their home in the UK and moved to the Spanish coast where they purchased a $700,000 house that they occupied for about 2 years. Then the Spanish authorities came along and said it had been built illegally on prohibited ground and bulldozed it to rubble without mercy. Evidently lots of other houses by the seashore in Spain face a similar fate. Out of the frying pan into the fire.
FWIW - we also have have a Congress critter in Florida who is an impeached federal judge. We left south Florida when we had had it up to here (pointing at chin). Roby
U.S. interest rate cuts fuel Hong Kong property boom
When first-time buyer Judy Kwan heard a flat was for sale in a street she admired in Hong Kong's Wanchai district, she snapped it up within 24 hours without even seeing it, inheriting a tenant she had never met.
Now she wants to buy another as the property market surges from a strong economy and mortgages become cheap as local interest rates drop in line with rates cuts in the United States.
My favorite British financial slang word is "gearing". It's kind of relevant now:
http://moneyterms.co.uk/gearing/
'Operational Gearing' is even more relevant - getting back on track here is what will dig a lot companies out of the whole. Many have too much fixed cost for a declining market - trading higher variable for lower fixed makes sense in this environment. The link for operational gearing is on the same page as 'gearing'.
Does the US have an analogue of the UK's 'stamp duty'
Uh, dude, there was this revolution over here a while back, and 'stamp tax' was part of it somehow...
The serious answer is that many localities and/or states have some kind of transfer tax on real estate transactions, and/or other fees - deed recording, for instance. Another big difference is that realtor fees have traditionally been about 6% per transaction, though that coming down some.
It appears that a lot of people who were told to cut up their Egg cards were those who paid off the outstanding balance at the end of every month.
Many have appeared on TV in the last 24 hours showing proof that they are not bad credit risks, have never exceeded limits, never paid late, but pay the balance each month.
It would appear that in many cases the Citi/Egg "bad credit risk" really means "unprofitable customers"
The next few days will see the writs fly from those "unprofitable" customers tarred with the "bad credit risk" brush.
It should be noted that in the UK, there is no implied right to credit. If you are refused credit, the banks/card companies do not have to state why.
They did not need to give a reason for withdrawing the cards so why did they feel it necessary to claim that all the individuals concerned all 'high credit risks'. It seems clear that many of those effected have good credit ratings and no history of default, they are simply unprofitable because they pay off the balance of their cards in full at the end of each month. Indeed, it seems that quite a few were individuals of some net worth who also had savings with Citi's subsidiary Egg. Needless, to say they are now all taking their cash elesewhere. One would have thought that this was the last thing Citi needed given their own problems with CDO's etc.
One thing Citi need to remember is that while the UK gives its citizens no right to credit it still has very fierce defamation laws. To imply that someone is a credit risk when all the evidence from the independent agencies suggest that they are not, might result in the company winding up on the wrong end of a libel action.
Some politicians in the UK are also taking an interest in this matter so its very unlikely that this furore is going to blow over quickly.
one of the strange things here in the UK has been the banks lending sub-LIBOR on mortgages. I've not looked at it for a few months now, but I frequently used to browse the mortgage rates available, and you could regularly get a 2 year "fixed-rate" mortgage for 20bps or so below where the 2 year swap rate was, all fees included. after 2 years, you are free to refinance at a different lender without paying your original lender any fees. since the banks were borrowing above Libor in the wholesale market, this was clearly unprofitable lending, in the traditional sense.
My guess is that they were able to securitise/tranche up mortgages for sub-Libor all-in levels, a game that is surely dead now.
ot relevant to the conversation but I just wanted to say this as an American.
We are the gardeners of this Earth.
Some of us may be landowners and some of us rent, but ultimately we are all gardeners. We have attained unbelievable heights in a very short period of time and it seems that we now rush from one crisis to another at ever increasing speed. If you want change, start with something small, take a deep breath and negotiate. Everyone has to understand that.
Hope and Freedom had meaning once but that was before marketing became a science.
It is rather amusing, perhaps "ironic", that while the US got so hysterical about the "poisonous" toys that China exported, the US has exported all over the world a lot more poisonous debt. With lethal results, too, in an economic sense. I wonder if the world will ever want to buy much if any debt from the US again. Debt has been one of our major exports and so much of it was toxic and made many institutions that consumed it very very sick.
You certainly couldn't securitise mortgages at sub-Libor levels. Covered bonds might just have squeezed inside Libor before the crisis, but securitisation at its cheapest cost around 15bp-20bp over Libor. Basically the banks were using their deposit base to subsidis mortgages, presumably to fend off competition from non-banks and to cross sell other products. Cross selling was the great white hope of the UK banking industry five years ago.
The UK is home to the most evil financial term I know in the English language : "Buy To Let".
How can this even be legal?
I guess "Life, Liberty, and Easy Credit" only applies in the United States of America.
Thousands Credit ratings agency Experian have drawn up a map showing which areas of the country are most at risk from a fall in prices.
Is that a sentence?
I guess the property ladder is missing a few rungs. It will be interesting to see how this thing plays out differently in different countries. Our bubble is tiny compared to some places. Also will other countries try bailouts like the USA
UK is interesting in that they have a lot more people that only rent rooms in homes compared to renting a whole apartment or house. And many people who actually own homes have rooms rented out within them.
I think this difference in lifestyle supports a higher mortgage to income affordability. You really could think of that renting of the extra room as income.
When I was living in Britain I lived in a 5 bedroom house with 4 other adults. I had the smallest bedroom, room for a single bed, a wardrobe, and a small dresser and I was paying about $650/month for it. The most expensive room was $900/month and the other three were $750 to $800/month. So, the guy was getting about $3800/month for rent. Unlike here, occupants pay the local municipal taxes, something they call a council tax which I guess was another $50-100/month, and then there is the TV tax, and then there was the utilities.
I guess the owner was trying to sell the place for about 300,000 pounds, maybe 350,000... I forget. The other renters thought he was asking 100,000 pounds more than it was worth.
Well, this particular credit card was the best one to use for a protocol to extract money from other credit cards with 0% balance-transfer rules (see Stoozing: Make free cash from credit cards. ... for instructions), so that may be part of the reason that the cards are being withdrawn.
The card withdrawal is pretty much unprecedented for Britain, and there are a lot of angry comments in places like BBC NEWS | Business | Egg customer anger at credit move from people who feel that they've had the card withdrawn simply because they're unprofitable customers; I wonder if there's some model that Citigroup uses which treats cards that exist but are scarcely used as liabilities?
I'm slightly surprised that buy-to-let was not routine in America; was the slope of the boom so steep that people buying second and subsequent houses in the hope of capital appreciation didn't feel they needed to balance the mortgage payments by renting the house out by rooms?
TomW, "I'm slightly surprised that buy-to-let was not routine in America"
We are way ahead of GB in ponzinomics. In America, our Vegas culture promotes buying RE sight unseen in a lottery with the expectation of a massive appreciation & quick sale before actually taking posession. Options on properties. To "let" requires you actually pay for RE and then lease. Too messy for us.
Top that!
My favorite British financial slang word is "gearing". It's kind of relevant now:
Gearing
Roby
@Deborah: I lived in rented rooms from leaving university until age 28, when I splurged to rent a whole house (kitchen, living room, dining room, bathroom, two upstairs bedrooms - it'd have been rented to three people) at $1500/month, and then subrented the one bedroom out to a succession of friends and relatives for $700/month utilities-thrown-in.
I don't know things like square-footage; my bedroom, which is the largest room in this house, is maybe 170sqft.
My richer single friends own very small houses, bought for $350-$400k generally with 25% down-payments and a large mortgage on a good-techie salary of around $80k-$100k; people with partners tend to buy significantly larger houses, in the $600k range, with a lodger. Shared ownership is not unusual; in one case two couples-of-techies joint-purchased a large (say $500k two years back, maybe $700k now) house, then one moved out taking half the equity with them, and the other now rent out three of five bedrooms to cover what is an onerous mortgage for even two techies.
This is Cambridge, which is basically England's Silicon Valley (ARM, Cambridge Software Radio, dozens of little university-spinoff biotechs), and notorious in England for hideous house prices. All of these houses are in the city proper; everyone commutes by bike; I doubt the average among my friends is as much as half a car each.
I couldn't buy any house not actually sandwiched between council blocks of dire reputation for as small a monthly payment as my rent, even putting down half my savings as a deposit; and I'd not want to have more than half my wealth invested as effectively margin for a leveraged bet.
It would be interesting to see how many empty homes we would have if we did get buy to let here. Or my favorite saying the Walton effect. The Walton's didn't all live together because they liked each other. In either of these scenarios we would have years of inventory instead of months.
@barely: I get the impression that the house-buying process in the UK runs at a rather more sedate pace than in the US, meaning that flipping in that way doesn't really work here.
Does the US have an analogue of the UK's 'stamp duty', which is a sum to be paid to the government on any real-estate transaction, on a scale
Nothing for less than 120kpounds (~ $230k)
1% of the transaction for 120-250
3% of the transaction for 250-500
4% for more than 500k
[this is not like income-tax brackets; a 119k house pays nothing, a 121k house pays 1210; a 501k house pays 20040]
I imagine that that unavoidable cost would make some kinds of flipping rather less attractive.
RE trasaction costs here are still quite steep. Flipping doesn't work here either without 15-20% YoY appreciation. Worked fine for a few years until the pyramid scheme ran out of players.
Aside from credit issues, it's possible terrorism plays a role in Citibank's decisions. Banks are under a lot of pressure to prevent money laundering and report suspicious activities, especially in international transactions. Britain is a known breeding terrorist breeding ground, and credit cards are vehicles for money laundering.
I have a very nice paid for (!) house in Brevard county, Fla--the space coast. I work in Miami and need a place to sleep. I rent a room in a nice area of Miami. This is quite illegal for the landlord. I pay hardly anything. I have been doing this for years. This happens a lot in Miami, and especially Hialeah.
This is quite illegal for the landlord.
Ooooh, I assume there must be client/attorney privileges so you don't have to report this infraction?
The UK has their own absurd mortgages:
Together/Plus Mortgages
Together/Plus Mortgages represent loans of 100% or more of the property value - typically up to a maximum of 125%. Such loans are normally (but not universally) structured as a package of a 95% mortgage and an unsecured loan of up to 30% of the property value. This structure is mandated by lenders' capital requirements which require additional capital for loans of 100% or more of the property value.(Wikipedia)
Group houses are pretty common here for people in the 20s. I spent most of my 20s in group houses. Speaking of small rooms, in one place I had a "room" which was basically a sealed off hallway--in the basement. Those were the days!
Someone correct me if I am wrong, but I believe all mortgages in the UK are adjustable rate (after some short fixed-rate period)? If so, a spike in rates will hit their high prices, hard...
UK mortgages have always tended to be adjustable-rate after a fixed-rate period of either two or five years; if you want you can get a ten-year or 25-year fixed from the Nationwide Building Society, the rate on a 25-year fixed with a 10% deposit is currently 5.98%.
The rate curve is inverted - but aren't all rate curves, nowadays? Three-year fixed at 5.85%, 5-year fixed at 5.63%, ten-year fixed at 5.68%, 25-year fixed at 5.98%.
[these are the products from stuffy reputable banks; Compare the Best Low Rate Mortgages @ Moneysupermarket.com should have some interesting future toxic waste in the 'buy to let' tab]
UK interest rates went down to 3.5% during the 2001-3 recession, and the average mortgage rate got to 5%, so if you'd taken out a five-year fixed then your payments would be going up about 50% this year.
Tom Womack: my how things change. Over 50 years ago when I went to Cambridge, I got room, board, tuition, etc., for an all in fee of 400 pounds a year. I recall having a four course dinner at the University Arms Hotel for 8s 6p. The food wasn't so hot but I got a bottle of burgundy from the 1920s for a trivial sum, less than the cost of dinner.
A discussion of the buy-to-let phenomenon is incomplete without mentioning the government's taxing role in this. They killed the TESSA( not just because she dumped Tony Blackburn), they downplayed the PEP tax incentives and played up the Individual Savings Account - i.e ISA ; unlike in the other two tAx advantaged savings schemes, you could stuff anything into a ISA - including property. Here is a link to books about Property ISAs
Grow Rich with a Property ISA by Nick Braun PhD
It was put forward as:
"A property ISA is essentially a portfolio of high-end investment property. Instead of you acting as landlord, the property is managed by some of the largest, most respected UK property management companies in the investment business, including giants such as Standard Life and Scottish Widows.
"
You could go it alone of course or hand over the management of it as above.
Separately, I'm glad you picked up the "Egg on their faces" story. It is an important one. I got emails from the UK about it.
Meantime, prices for energy, public transport will rise by 10%+ this year; nEnergy the Gas company and yesterday Scottish Power raised prices.
Finally, the LBO implosion has started there. Dolcis, Stead and Stimpson - shoe shops ( did the Brit equivalent of Al Bundy.. hmmm lets see - nahh there's only one Al Bundy ), ahd the bookstore chain The Works filed for public administration ( BK ), all LBOs recently. The rot spread in last year with the patently foolish ones like record/CD retailers and has-been restaurants chains like Little Chef.
Interesting times in the UK.
-K
Banking giant blocks 160,000 customers' credit cards in crackdown on out-of-control debts | Mail Online
Are these Citi cards?
Another piece of UK news:
Life and pensions giant Axa has become the latest firm to bar redemptions from its Life Property and Pension Property funds for up to six months in a bid stop panic selling. The decision will affect 100,000 investors . . .
Stamp duty is why so many Brits are looking to downsize to a bolthole in the UK and buy a 2nd property in Spain/Italy/ anyplace else and contributes to the bubbles down there.
There was a sad tale of a British couple who sold their home in the UK and moved to the Spanish coast where they purchased a $700,000 house that they occupied for about 2 years. Then the Spanish authorities came along and said it had been built illegally on prohibited ground and bulldozed it to rubble without mercy. Evidently lots of other houses by the seashore in Spain face a similar fate. Out of the frying pan into the fire.
Anything goes in Hialeah. Here is a profile of the long-time mayor - who is now making a run for Congress.
Raul L. Martinez - Wikipedia, the free encyclopedia
FWIW - we also have have a Congress critter in Florida who is an impeached federal judge. We left south Florida when we had had it up to here (pointing at chin). Roby
U.S. interest rate cuts fuel Hong Kong property boom
When first-time buyer Judy Kwan heard a flat was for sale in a street she admired in Hong Kong's Wanchai district, she snapped it up within 24 hours without even seeing it, inheriting a tenant she had never met.
Now she wants to buy another as the property market surges from a strong economy and mortgages become cheap as local interest rates drop in line with rates cuts in the United States.
FEATURE-U.S. interest rate cuts fuel Hong Kong property boom
| Reuters
Sound familar?
My favorite British financial slang word is "gearing". It's kind of relevant now:
http://moneyterms.co.uk/gearing/
'Operational Gearing' is even more relevant - getting back on track here is what will dig a lot companies out of the whole. Many have too much fixed cost for a declining market - trading higher variable for lower fixed makes sense in this environment. The link for operational gearing is on the same page as 'gearing'.
'Operational Gearing' is even more relevant - getting back on track here is what will dig a lot companies out of the whole
Funny Freudian - meant 'out of the hole'.
Does the US have an analogue of the UK's 'stamp duty'
Uh, dude, there was this revolution over here a while back, and 'stamp tax' was part of it somehow...
The serious answer is that many localities and/or states have some kind of transfer tax on real estate transactions, and/or other fees - deed recording, for instance. Another big difference is that realtor fees have traditionally been about 6% per transaction, though that coming down some.
Credit cut off;in reaction victims flap their wings and run around in circles like crazy: how can they do this to me, credit is a God given right!
BBC NEWS | Business | Egg customer anger at credit move
CITIGROUP NEEDS TO GIVE THE UK BACK ITS CARDS WATCH HOW BUSH MAKE OUR SITUATION WORSE Lively Money: BUSH IS GIVING AWAY $600 SO HERE ARE TWO THINGS YOU CAN DO WITH THE MONEY!.
It appears that a lot of people who were told to cut up their Egg cards were those who paid off the outstanding balance at the end of every month.
Many have appeared on TV in the last 24 hours showing proof that they are not bad credit risks, have never exceeded limits, never paid late, but pay the balance each month.
It would appear that in many cases the Citi/Egg "bad credit risk" really means "unprofitable customers"
The next few days will see the writs fly from those "unprofitable" customers tarred with the "bad credit risk" brush.
It should be noted that in the UK, there is no implied right to credit. If you are refused credit, the banks/card companies do not have to state why.
Citigroup have handled this very poorly.
They did not need to give a reason for withdrawing the cards so why did they feel it necessary to claim that all the individuals concerned all 'high credit risks'. It seems clear that many of those effected have good credit ratings and no history of default, they are simply unprofitable because they pay off the balance of their cards in full at the end of each month. Indeed, it seems that quite a few were individuals of some net worth who also had savings with Citi's subsidiary Egg. Needless, to say they are now all taking their cash elesewhere. One would have thought that this was the last thing Citi needed given their own problems with CDO's etc.
One thing Citi need to remember is that while the UK gives its citizens no right to credit it still has very fierce defamation laws. To imply that someone is a credit risk when all the evidence from the independent agencies suggest that they are not, might result in the company winding up on the wrong end of a libel action.
Some politicians in the UK are also taking an interest in this matter so its very unlikely that this furore is going to blow over quickly.
one of the strange things here in the UK has been the banks lending sub-LIBOR on mortgages. I've not looked at it for a few months now, but I frequently used to browse the mortgage rates available, and you could regularly get a 2 year "fixed-rate" mortgage for 20bps or so below where the 2 year swap rate was, all fees included. after 2 years, you are free to refinance at a different lender without paying your original lender any fees. since the banks were borrowing above Libor in the wholesale market, this was clearly unprofitable lending, in the traditional sense.
My guess is that they were able to securitise/tranche up mortgages for sub-Libor all-in levels, a game that is surely dead now.
ot relevant to the conversation but I just wanted to say this as an American.
We are the gardeners of this Earth.
Some of us may be landowners and some of us rent, but ultimately we are all gardeners. We have attained unbelievable heights in a very short period of time and it seems that we now rush from one crisis to another at ever increasing speed. If you want change, start with something small, take a deep breath and negotiate. Everyone has to understand that.
Hope and Freedom had meaning once but that was before marketing became a science.
It is rather amusing, perhaps "ironic", that while the US got so hysterical about the "poisonous" toys that China exported, the US has exported all over the world a lot more poisonous debt. With lethal results, too, in an economic sense. I wonder if the world will ever want to buy much if any debt from the US again. Debt has been one of our major exports and so much of it was toxic and made many institutions that consumed it very very sick.
"Police: Insecticide Detected on 6 Bags of Chinese-Made Dumplings Sold in Japan; Recall Begins."
Toxic Waste Detected in thousands of American made investment securities sold around the world. No recall possible.
LOL
CONGRATULATIONS!!!
CR is NUMBER ONE!!!
OT and, since I haven't read the comments during the weekend, maybe posted by someone already (apologies)
Something Went Wrong...Now You're Here | Gongol.com
CR was the MOST read economics blog ranked by average daily pageviews in January 2008.
CR and Tanta rock!
"Negative equity limits mobility"
Yes indeed, IMO a contributor to "eurosclerosis" prior to the housing/mortgage booms and in the absence of GSEs (prepayment penalties!).
When this "new paradigm" has been discredited, risk aversion and "sclerosis" will be restored.
CR,
Perhaps the label "containment" is appropriate here?
You certainly couldn't securitise mortgages at sub-Libor levels. Covered bonds might just have squeezed inside Libor before the crisis, but securitisation at its cheapest cost around 15bp-20bp over Libor. Basically the banks were using their deposit base to subsidis mortgages, presumably to fend off competition from non-banks and to cross sell other products. Cross selling was the great white hope of the UK banking industry five years ago.