In recent days, several executives have privately warned me that they think this financial crisis will not go away, having grown out of more than a decade of irresponsible lending. They fear dire consequences for the broader economy.
One senior director at a FTSE bank actually wagered that, at some point over the next three years, UK house prices will have fallen by 50% from the level they are at now.
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Monday, 24 September 2007
Monday, 17 September 2007
Northern Rock panic could harm Gordon Brown
Experts said the bank's troubles were likely to cause consumers to cut spending and could bring a sudden end to rises in house prices.
They also warned that the reputations of the Prime Minister and his Chancellor Alistair Darling were hanging in the balance in the weeks ahead, as it becomes clear that the banking crisis is having a far greater impact on the UK than expected.
A total of £2billion has now been withdrawn by worried customers from accounts at Northern Rock and insiders expect the high street bank to be sold within weeks.
Peter Spencer, economic adviser to the respected Ernst & Young Item Club, said he had slashed his forecast for the UK economy, adding that the crunch would cause a "general malaise" throughout the UK.
"The chickens are coming home to roost rather quicker than any of us had thought," he said. "What worries me is the effect on confidence. The consumer is very vulnerable and if things continue like this there could be a whole series of knock-on effects on the housing market, on high-street spending; the whole shebang."
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They also warned that the reputations of the Prime Minister and his Chancellor Alistair Darling were hanging in the balance in the weeks ahead, as it becomes clear that the banking crisis is having a far greater impact on the UK than expected.
A total of £2billion has now been withdrawn by worried customers from accounts at Northern Rock and insiders expect the high street bank to be sold within weeks.
Peter Spencer, economic adviser to the respected Ernst & Young Item Club, said he had slashed his forecast for the UK economy, adding that the crunch would cause a "general malaise" throughout the UK.
"The chickens are coming home to roost rather quicker than any of us had thought," he said. "What worries me is the effect on confidence. The consumer is very vulnerable and if things continue like this there could be a whole series of knock-on effects on the housing market, on high-street spending; the whole shebang."
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Tories blame Labour's 'decade of debt'
The Tories called on the Chancellor to reveal whether he had received any prior warnings about Northern Rock's position.
George Osborne, the shadow chancellor, also suggested soaring personal debt under a decade of Labour could be a key factor in the crisis.
Vince Cable, the Liberal Democrat Treasury spokesman and a former chief economist at Shell, joined the attacks by warning that Gordon Brown as Chancellor had presided over mounting personal debt in Britain, which now stood at £1.3trillion.
He said he had warned Mr Brown three years ago of the problems and said that now, one pound in every five of average household income was going to service debt.
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George Osborne, the shadow chancellor, also suggested soaring personal debt under a decade of Labour could be a key factor in the crisis.
Vince Cable, the Liberal Democrat Treasury spokesman and a former chief economist at Shell, joined the attacks by warning that Gordon Brown as Chancellor had presided over mounting personal debt in Britain, which now stood at £1.3trillion.
He said he had warned Mr Brown three years ago of the problems and said that now, one pound in every five of average household income was going to service debt.
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Greenspan alert on US house prices
US house prices are likely to fall significantly from their present levels, Alan Greenspan has told the Financial Times, admitting that there was a bubble in the US housing market.
In an interview ahead of the release on Monday of his widely-anticipated memoirs, the former chairman of the Federal Reserve said the decline in house prices “is going to be larger than most people expect”.
But Mr Greenspan said that his successors at the Fed – who meet on Tuesday to set interest rates – would have to be careful not to ease rates too aggressively, because the risk of an “inflationary resurgence” was greater now than when he was Fed chief.
Mr Greenspan said he would expect “as a minimum, large single-digit” percentage declines in US house prices from peak to trough and added that he would not be surprised if the fall was “in double digits”.
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In an interview ahead of the release on Monday of his widely-anticipated memoirs, the former chairman of the Federal Reserve said the decline in house prices “is going to be larger than most people expect”.
But Mr Greenspan said that his successors at the Fed – who meet on Tuesday to set interest rates – would have to be careful not to ease rates too aggressively, because the risk of an “inflationary resurgence” was greater now than when he was Fed chief.
Mr Greenspan said he would expect “as a minimum, large single-digit” percentage declines in US house prices from peak to trough and added that he would not be surprised if the fall was “in double digits”.
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Tuesday, 11 September 2007
1.7 million households request help with debt
Requests for help from households overwhelmed with debts have soared by 20 per cent in the past year, figures from Citizens Advice show.
The organisation received 1.7 million different inquiries about how to deal with mounting debts in the year to April, a record. The debt caseload now makes up one third of all its work and the organisation has almost run out of trained debt advisers.
Problems with debts run up on credit card and store cards dominate, accounting for almost half of all debt inquiries. However, Citizens Advice said that there was also a sharp rise in problems over day-to-day living expenses. Inquiries on how to handle gas and electricity arrears were up by a third, while queries about council tax debt rose by a quarter.
Citizens Advice said that the surge in calls for help was evidence that the lengthy consumer boom was taking its toll. It fears that the banking credit crunch will mean even more households falling into severe debt.
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The organisation received 1.7 million different inquiries about how to deal with mounting debts in the year to April, a record. The debt caseload now makes up one third of all its work and the organisation has almost run out of trained debt advisers.
Problems with debts run up on credit card and store cards dominate, accounting for almost half of all debt inquiries. However, Citizens Advice said that there was also a sharp rise in problems over day-to-day living expenses. Inquiries on how to handle gas and electricity arrears were up by a third, while queries about council tax debt rose by a quarter.
Citizens Advice said that the surge in calls for help was evidence that the lengthy consumer boom was taking its toll. It fears that the banking credit crunch will mean even more households falling into severe debt.
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Check out the rest of this blog here.
Economists warn of US house price slide
Americans should brace themselves for at least another year of plunging house prices, two leading Wall Street economists said yesterday.
The slump, they argue, is, at best, only halfway through its cycle, with the inventory of unsold homes continuing to rise.
Carl Weinberg, at High Frequency Economics, said yesterday: “We are nowhere near the bottom at all.”
Mr Weinberg identified two factors that could keep property prices falling: first, the rising number of unsold homes; and secondly, the fact that the number of sub-prime mortgages, which will reset at a higher interest rate, will not peak until the end of the year. It is expected that many of those borrowers will not be able to absorb the rise in repayments.
Kevin Logan, senior market economist at Dresdner Kleinwort in New York, said that the American housing slump - the worst for 16 years – is halfway through its cycle, or not even that, and that demand for property would continue to recede.
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The slump, they argue, is, at best, only halfway through its cycle, with the inventory of unsold homes continuing to rise.
Carl Weinberg, at High Frequency Economics, said yesterday: “We are nowhere near the bottom at all.”
Mr Weinberg identified two factors that could keep property prices falling: first, the rising number of unsold homes; and secondly, the fact that the number of sub-prime mortgages, which will reset at a higher interest rate, will not peak until the end of the year. It is expected that many of those borrowers will not be able to absorb the rise in repayments.
Kevin Logan, senior market economist at Dresdner Kleinwort in New York, said that the American housing slump - the worst for 16 years – is halfway through its cycle, or not even that, and that demand for property would continue to recede.
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Check out the rest of this blog here.
Tuesday, 28 August 2007
Overheating sees house price downturn in Europe
House prices on the overheated fringes of Europe have begun to turn down sharply, replicating the early phase of the sub-prime property slide in the United States.
Housing booms in Romania, Bulgaria, Croatia, and even Russia are all looking stretched to extremes.
Irish property has fallen for the past four months in a row as higher eurozone interest rates start to bite harder, while the speculative bubble in the Baltic states has burst.
House prices in the greater Riga region of Latvia fell 3.5pc in June, following a 1pc fall in May. Flats in the old city became more expensive than Berlin by early this year in a speculative frenzy, much of it with euro, Swiss franc, and yen mortgages that could prove disastrous if Latvia's currency is suddenly devalued - as may well happen, given the country's current account deficit has exploded to 26pc of GDP.
Similar booms in Romania, Bulgaria, Croatia, and even Russia are all looking stretched to extremes. Danske Bank has warned that much of Eastern Europe has been inflated by a "monster bubble" that recalls conditions in east Asia shortly before the crisis broke in 1997.
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Housing booms in Romania, Bulgaria, Croatia, and even Russia are all looking stretched to extremes.
Irish property has fallen for the past four months in a row as higher eurozone interest rates start to bite harder, while the speculative bubble in the Baltic states has burst.
House prices in the greater Riga region of Latvia fell 3.5pc in June, following a 1pc fall in May. Flats in the old city became more expensive than Berlin by early this year in a speculative frenzy, much of it with euro, Swiss franc, and yen mortgages that could prove disastrous if Latvia's currency is suddenly devalued - as may well happen, given the country's current account deficit has exploded to 26pc of GDP.
Similar booms in Romania, Bulgaria, Croatia, and even Russia are all looking stretched to extremes. Danske Bank has warned that much of Eastern Europe has been inflated by a "monster bubble" that recalls conditions in east Asia shortly before the crisis broke in 1997.
more ...
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Check out the rest of this blog here.
Business comment: Look to China for root causes of the crisis
This crisis has not fundamentally been about equity market valuations. The proximate cause of this crisis has been difficulties in the US sub-prime mortgage market. But although the story started there it didn't have to.
A week's break in the Med did not bring escape. No sooner had I arrived than, as news of market shenanigans reached us, some chap, recognising me from my photograph on this page (and that was a first!) pinned me to the edge of the swimming pool and asked me the fundamental question: "What on earth is going on?"
The first thing to say is that the gyrations of the equity market, although striking, are not extraordinary. This is the third significant global sell-off in equities since the beginning of 2006. After its recovery in the last couple of days, the FTSE 100 is now some 8pc below its July peak. But that means that it is pretty much back to where it was at the beginning of the year.
Yet this crisis has not fundamentally been about equity market valuations. True, some equity markets have looked toppy, especially the US. But the UK market has not appeared to be seriously over-valued. This puts this episode in stark contrast to the dotcom boom and bust and the equity market crash of 1987.
The proximate cause of this crisis has been difficulties in the US sub-prime mortgage market. But although the story started there it didn't have to.
It could easily have begun somewhere else. The saga which this episode set running is about the financial markets' wholesale embrace of risk at the prospect of little extra reward, and about the distribution of this risk around the system.
more ...
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Check out the rest of this blog here.
A week's break in the Med did not bring escape. No sooner had I arrived than, as news of market shenanigans reached us, some chap, recognising me from my photograph on this page (and that was a first!) pinned me to the edge of the swimming pool and asked me the fundamental question: "What on earth is going on?"
The first thing to say is that the gyrations of the equity market, although striking, are not extraordinary. This is the third significant global sell-off in equities since the beginning of 2006. After its recovery in the last couple of days, the FTSE 100 is now some 8pc below its July peak. But that means that it is pretty much back to where it was at the beginning of the year.
Yet this crisis has not fundamentally been about equity market valuations. True, some equity markets have looked toppy, especially the US. But the UK market has not appeared to be seriously over-valued. This puts this episode in stark contrast to the dotcom boom and bust and the equity market crash of 1987.
The proximate cause of this crisis has been difficulties in the US sub-prime mortgage market. But although the story started there it didn't have to.
It could easily have begun somewhere else. The saga which this episode set running is about the financial markets' wholesale embrace of risk at the prospect of little extra reward, and about the distribution of this risk around the system.
more ...
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Check out the rest of this blog here.
Brace yourself for the insolvency crunch
Yes, investors are jumping back into the stock markets, hoping this is just another routine shake-out - much like February 2007, or May 2006 - before the rally resumes. The `buy-on-dips’ orthodoxy dies hard.
And yes, speculators have renewed their leveraged bets on the yen and Swiss franc carry trades, borrowing cheap in Tokyo and Zurich to play global assets. The core belief is that nothing has really changed, that the world economy is still in rude good health.
Be very careful. Interest rates in Europe and Asia are that much higher now, with delayed effects starting to bite hard. Japan’s economy has stalled to 0.1pc growth in Q2; the euro-zone has slowed to 0.3pc; and China’s refusal to import (by currency manipulation) makes it a drain on world demand. Above all, the credit bubble that perpetuated the rally of the last eighteen months beyond its natural life has definitively burst.
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And yes, speculators have renewed their leveraged bets on the yen and Swiss franc carry trades, borrowing cheap in Tokyo and Zurich to play global assets. The core belief is that nothing has really changed, that the world economy is still in rude good health.
Be very careful. Interest rates in Europe and Asia are that much higher now, with delayed effects starting to bite hard. Japan’s economy has stalled to 0.1pc growth in Q2; the euro-zone has slowed to 0.3pc; and China’s refusal to import (by currency manipulation) makes it a drain on world demand. Above all, the credit bubble that perpetuated the rally of the last eighteen months beyond its natural life has definitively burst.
more ...
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Check out the rest of this blog here.
House prices hit a standstill
House prices slowed to a standstill during August, according to the latest survey from Hometrack, the property website.
The group recorded the lowest rate of monthly growth since November 2005, with average house prices "unchanged".
London, the real engine for house price growth over the last 18 months, was the only region to record a price increase over August. However, it was a rise of just 0.1pc. Three regions recorded price falls of 0.1pc, namely Yorkshire and Humberside, the North and South West.
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The group recorded the lowest rate of monthly growth since November 2005, with average house prices "unchanged".
London, the real engine for house price growth over the last 18 months, was the only region to record a price increase over August. However, it was a rise of just 0.1pc. Three regions recorded price falls of 0.1pc, namely Yorkshire and Humberside, the North and South West.
more ...
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Check out the rest of this blog here.
Wednesday, 8 August 2007
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