Comments on: From Wall Street to Main Street, from the City to the High Street http://www.johnredwoodsdiary.com/2008/10/03/from-wall-street-to-main-street-from-the-city-to-the-high-street/ Conservative Party Candidate for Wokingham Sat, 20 Mar 2010 04:08:09 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Robert http://www.johnredwoodsdiary.com/2008/10/03/from-wall-street-to-main-street-from-the-city-to-the-high-street/#comment-25663 Robert Sat, 04 Oct 2008 20:59:30 +0000 http://www.johnredwoodsdiary.com/?p=1686#comment-25663 John, As an academic exercise last year I workd out that asset prices have to fall circa 50% so that first time buyers (using regional average incomes) on 3x multiples and a 15% deposit could then buy a typical dwelling (small terraced house in most urban locations/villages or a 1-2 bedroom flat in the 'flashier' locations). I know this was a very rough 'exercise', and assumes that the money will be available, but at least here sensible risk/reward fundementals would potentially kick in. As I posted before, you either have affordability go up implying huge wage inflation or massively increase the supply side! The third way is but a dream that most pundits were clinging to in '06 and '07 to defend taht house prices would not need to correct. For those of us that have de-leveraged, as you have suggested earlier, it is not easier either, where is your money safe? This situation is that the 'establishment', be it the government and many, not all, city institutions hadcompletely lost the plot for years. Markets in illiquid assets never move in a reasonable, particularly now we have a full blown banking crisis. I do pray that it is not as bad as I think it will be. I cling to the hope that the actions carried out to date will start to stabilise the situation but I remember markets recovered post the big crash but then fell away. I just hope we keep global trade going if there is the finance to support. John,
As an academic exercise last year I workd out that asset prices have to fall circa 50% so that first time buyers (using regional average incomes) on 3x multiples and a 15% deposit could then buy a typical dwelling (small terraced house in most urban locations/villages or a 1-2 bedroom flat in the ‘flashier’ locations). I know this was a very rough ‘exercise’, and assumes that the money will be available, but at least here sensible risk/reward fundementals would potentially kick in. As I posted before, you either have affordability go up implying huge wage inflation or massively increase the supply side! The third way is but a dream that most pundits were clinging to in ‘06 and ‘07 to defend taht house prices would not need to correct. For those of us that have de-leveraged, as you have suggested earlier, it is not easier either, where is your money safe? This situation is that the ‘establishment’, be it the government and many, not all, city institutions hadcompletely lost the plot for years. Markets in illiquid assets never move in a reasonable, particularly now we have a full blown banking crisis. I do pray that it is not as bad as I think it will be. I cling to the hope that the actions carried out to date will start to stabilise the situation but I remember markets recovered post the big crash but then fell away. I just hope we keep global trade going if there is the finance to support.

]]> By: StevenL http://www.johnredwoodsdiary.com/2008/10/03/from-wall-street-to-main-street-from-the-city-to-the-high-street/#comment-25615 StevenL Fri, 03 Oct 2008 15:14:43 +0000 http://www.johnredwoodsdiary.com/?p=1686#comment-25615 There's probably far too many vested interests involved for this to become reality. We could eradicate overnight half the crime in this country if we legalised and regulated narcotics. The yanks would never let us though. There’s probably far too many vested interests involved for this to become reality. We could eradicate overnight half the crime in this country if we legalised and regulated narcotics. The yanks would never let us though.

]]> By: Robert http://www.johnredwoodsdiary.com/2008/10/03/from-wall-street-to-main-street-from-the-city-to-the-high-street/#comment-25613 Robert Fri, 03 Oct 2008 14:31:34 +0000 http://www.johnredwoodsdiary.com/?p=1686#comment-25613 John, all of what you say makes very good sense as I would expect and I agree with most of what you say, but the politician in you seems to deny the empirical fact that corrections in asset prices have to happen to reconnect to sensible fundementals. We can't escape the sad reality that we will all suffer, with some particularly hard hit by being overgeared and having lived the debt/asset fuelled lifestyle over the last few years, and there will be many most sadly that will lose their jobs. Much earlier action at least 3 to 5 years ago might have minimised our potential downside. But we are where we are, and as you say we will have another round of fund raising by the Banks and a much reduced access to capital as Banks rebuild their balance sheets over the next 2-3 years. The fact that the wholesale market grew from 0 in 2000 to 750bn in 2007 (BBC News last night), not withstanding the leverage with which this was used says an aweful lot. Also the banks may have to w/d and make serious provisions on their corporate/consumer loan side - loan loss provisions rose to 3.5-4% during the early nineties and most likely will have to again (it could be even worse), yet another hit that they will have to take. Yes, the MPC should start to cut this Autumn. But as I have said on occassions it won't be the palliative that it is has been before, as until the lending market starts to return to more 'normalised' conditions the real 'benefit' of cheaper money won't be passed on fully to either corporates or consumers. But it has to be the right thing to do, though yet again 'sound' money/capital is not being priced correctly. Reply: Yes there do have to be asset adjustments, but a complete collapse will lead to far worse in the real economy and hit many people who were prudent. John, all of what you say makes very good sense as I would expect and I agree with most of what you say, but the politician in you seems to deny the empirical fact that corrections in asset prices have to happen to reconnect to sensible fundementals. We can’t escape the sad reality that we will all suffer, with some particularly hard hit by being overgeared and having lived the debt/asset fuelled lifestyle over the last few years, and there will be many most sadly that will lose their jobs. Much earlier action at least 3 to 5 years ago might have minimised our potential downside. But we are where we are, and as you say we will have another round of fund raising by the Banks and a much reduced access to capital as Banks rebuild their balance sheets over the next 2-3 years. The fact that the wholesale market grew from 0 in 2000 to 750bn in 2007 (BBC News last night), not withstanding the leverage with which this was used says an aweful lot. Also the banks may have to w/d and make serious provisions on their corporate/consumer loan side – loan loss provisions rose to 3.5-4% during the early nineties and most likely will have to again (it could be even worse), yet another hit that they will have to take. Yes, the MPC should start to cut this Autumn. But as I have said on occassions it won’t be the palliative that it is has been before, as until the lending market starts to return to more ‘normalised’ conditions the real ‘benefit’ of cheaper money won’t be passed on fully to either corporates or consumers. But it has to be the right thing to do, though yet again ’sound’

money/capital is not being priced correctly.

Reply: Yes there do have to be asset adjustments, but a complete collapse will lead to far worse in the real economy and hit many people who were prudent.

]]> By: Adrian Peirson http://www.johnredwoodsdiary.com/2008/10/03/from-wall-street-to-main-street-from-the-city-to-the-high-street/#comment-25601 Adrian Peirson Fri, 03 Oct 2008 11:27:57 +0000 http://www.johnredwoodsdiary.com/?p=1686#comment-25601 I think we should let them fail, pass a law giving people full ownership of their cars, buisnesses and homes, IE wipe out all loans to the banks in question and let them fail. People will have more money, they will spend, this will feed the need for the remaining and new banks to fill the void. In physics infinities can be dealth with by a cheat' called renormalisation. And since our money is no longer backed by anything of value like gold or silver, since credit is thin air, and the central idea behind fractional reserve banking is that they are lending out assets that they do not actually have. It seems the Perfect opportunity to renormalise the system and at the same time begin operating a system based on sound money, not outright fraud as it is now. I think we should let them fail, pass a law giving people full ownership of their cars, buisnesses and homes, IE wipe out all loans to the banks in question and let them fail.
People will have more money, they will spend, this will feed the need for the remaining and new banks to fill the void.
In physics infinities can be dealth with by a cheat’ called renormalisation.
And since our money is no longer backed by anything of value like gold or silver, since credit is thin air, and the central idea behind fractional reserve banking is that they are lending out assets that they do not actually have.
It seems the Perfect opportunity to renormalise the system and at the same time begin operating a system based on sound money, not outright fraud as it is now.

]]> By: Tony Makara http://www.johnredwoodsdiary.com/2008/10/03/from-wall-street-to-main-street-from-the-city-to-the-high-street/#comment-25587 Tony Makara Fri, 03 Oct 2008 07:06:36 +0000 http://www.johnredwoodsdiary.com/?p=1686#comment-25587 On inflation, it is very important that we understand that there are different versions of inflation from cost-push inflationary pressures, to when the amount of new money entering circulation outpaces, that is over-represents, the amount of new goods and services created, this is especially important when nations are no longer creating goods and services but are living off imports, the cost of interest being written into the final price of goods and services and in contrast lower interest rates weakening the currency and creating import-inflation. The inflation problem cannot be addressed by one single policy and needs to be understood by looking at all economic factors. On banking, it has always struck me as curious as to why national governments resort to borrowing through gilt-edged securities, when the state itself could establish a national bank and actually support the economy by way of of interest-free loans to business by creating an issue of money, then later recalling and destroying the loan once it has circulated and has created goods and services? Government could create new money at will and recall and destroy that particular issue of money at will. National governments have become too reliant on the money markets and now need to be looking at alternatives rather than propping up a broken lending system with bail-outs and the nationalization of failed lenders. A national bank would provide the level of security needed and would be a fillip to business by providing transient interest-free issues of money, in the shape of loans. On inflation, it is very important that we understand that there are different versions of inflation from cost-push inflationary pressures, to when the amount of new money entering circulation outpaces, that is over-represents, the amount of new goods and services created, this is especially important when nations are no longer creating goods and services but are living off imports, the cost of interest being written into the final price of goods and services and in contrast lower interest rates weakening the currency and creating import-inflation. The inflation problem cannot be addressed by one single policy and needs to be understood by looking at all economic factors.

On banking, it has always struck me as curious as to why national governments resort to borrowing through gilt-edged securities, when the state itself could establish a national bank and actually support the economy by way of of interest-free loans to business by creating an issue of money, then later recalling and destroying the loan once it has circulated and has created goods and services? Government could create new money at will and recall and destroy that particular issue of money at will. National governments have become too reliant on the money markets and now need to be looking at alternatives rather than propping up a broken lending system with bail-outs and the nationalization of failed lenders. A national bank would provide the level of security needed and would be a fillip to business by providing transient interest-free issues of money, in the shape of loans.

]]> By: Johnny Norfolk http://www.johnredwoodsdiary.com/2008/10/03/from-wall-street-to-main-street-from-the-city-to-the-high-street/#comment-25583 Johnny Norfolk Fri, 03 Oct 2008 06:31:47 +0000 http://www.johnredwoodsdiary.com/?p=1686#comment-25583 Sad but so very true. The true price of a Labour government. Sad but so very true. The true price of a Labour government.

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