Unintended consequences.

The one thing that has become abundantly clear over the last couple of weeks is that not only does this government have no idea what it is doing, it has no idea what effects it is having by what it is doing.
For example, the implication of a three times salary cap on mortgages implies a further huge drop in house prices. This, in turn, will lead to further huge losses at the banks - which means they won't be able to lend to start the economy.
Perhaps this further collapse in house prices is A Good Thing - in some ways it is - but it's also condemning millions to abject poverty.
It really has all got completely out of hand.
I had lunch yesterday with, amongst others, a CA long retired and the Treasurer of the Gurkha Welfare Trust.
He had banked from the days he first had an account with Bank of Scotland - as had his father and his father before him. His practice had banked with BofS. His wife and children banked there too.
Then one morning late last year he woke up and suddenly felt " My money's not safe in that Bank".
He says it was the most shattering day of his life. He had never never contemplated that cash in a bank was at risk.
His view is that the bankers - and the present government - will never ever be forgiven.

Keep hoping..

I was cheered to hear of someone who received a call from their house agent, saying that a previous viewer wanted to do a second viewing.

You might think this is commonplace - but nowadays less than 1 in 40 viewings appear to be getting a second look. Everyone is still waiting for that moment when collectively they all think - NOW is the time to buy.

That said, 1 in 3 second viewings are turning into a sale, which means that on average you need 120 viewings to make a sale. I can't help but feel that quite a few people will be in their graves with anguish and stress before that point comes.

And what, whilst we are at it, are the billions of toxic assets at RBS and LLoyds?
As major shareholders, I think we should be told...

Another mistake

A thoughtful post about 100% mortgages from Andrew Lilico.
It's a resonant soundbite for Brown to say he is going to ban them, but the problem is, what happens to all the people who will fall into negative equity over the next year or so? If they can't have 100% + mortages they can't move. As Lilico says it's a recipe for disaster. Still, Brown's complete ignorance of markets, economics and everything else pretty much backs up his inability to deal with any matter, without the law of unintended consequences kicking in.
However, the critical bit is not the loan to value but the income being used to service the debt and interest. The sensible thing to ban would actually be interest only mortgages - yes another downward lurch in prices, but it would return us to sound money ( whatever that is) very quickly.

Breaking the Bank

Between all the hoo-ha with Scottish Power, I had two most interesting conversations today. One was with a man who was looking to invest some money in Romania. He started by asking me how much a certain sum might earn over say 5 years. I told him my views. Then he said, well, just give me half now and you can keep the rest.
I explained that I thought he had misunderstood, and the idea was he was to invest money there, not take it out just yet.
" Ah," he said," But I'm only suggesting what the banks have been investing in over the last few years".
His point was that a theoretical payout ( supported by all sorts of graphs, cash flows and other rubbish) was being bought into by the banks in their support for various investors/companies/hedge funds etc, but in reality they were not investing in any real asset. In effect, it was about the same as putting the mortgage payment on red or black at roulette - not breaking the bank but effectively doubling the bets all the time..
For a long time it came up - and then it didn't. If you know your betting, if you start with one chip, lose it, then 2 etc, even if you win at some point, you only win one chip. This, in a simplistic way, is what the Banks did. If at some point you DON'T win, you are out a lot of money. Suppose it loses for say 6 rounds. Then you have lost 1+2+4+8+16+32 =63 chips, but if it then wins on the 7th, you are betting 64. You will win 64 = 1 more than you have lost up to that point. If it loses, you have lost 96. This is what Nick Leeson did for example - and what all the other banks have done too, and why it would appear such gigantic sums of money have been lost.

The other was with someone who has been trying to sell their house since May last year. They had one viewing in June, since then nothing. In December he took £25,000 off the price, reducing it to just below the £500,000 level.
Obviously, over Christmas and New Year there was nothing, but since January 12th he's had 5 viewings.
Interesting.

A Place of your own...

The youngest Ms. Lear was up for the weekend which was most congenial.
At lunch on Sunday, as I reached across to take another grape from the bunch on the table she said:
" I think you should know that now I have my own house I have become particularly picky about not taking individual grapes. You should strip a small branch & bunch from from the main one so that the main bunch always appears tidy."
Shows what having your own space can do for you.