Comments on: Unlocking the metaphor of frozen interbank lending http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/ Life, Culture and Politics from BrisVegas Tue, 14 Feb 2012 10:53:13 +0000 hourly 1 http://wordpress.org/?v=3.3 By: murph the surf http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211180 murph the surf Fri, 17 Oct 2008 01:08:46 +0000 http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211180 Interesting article from Micheal West in the SMH who for my money has provided the best analysis of the credit crunch in the MSM. . "The practical initiatives that Rudd is undertaking now and what Bush has been doing through tax cuts for the past eight years are similar to what Roosevelt in the US, Jack Lang in Australia, and other leaders did in the 1930s, and while in the popular view this is a Keynesian policy, it was not core Keynesianism. It is Keynesian to give money to people who need it most, where their propensity to consume is high and their propensity (or ability) to hoard that money is low." . http://business.smh.com.au/business/keynes-is-dead-lets-bury-him-20081016-5205.html?page=fullpage#contentSwap1 Interesting article from Micheal West in the SMH who for my money has provided the best analysis of the credit crunch in the MSM.
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“The practical initiatives that Rudd is undertaking now and what Bush has been doing through tax cuts for the past eight years are similar to what Roosevelt in the US, Jack Lang in Australia, and other leaders did in the 1930s, and while in the popular view this is a Keynesian policy, it was not core Keynesianism.

It is Keynesian to give money to people who need it most, where their propensity to consume is high and their propensity (or ability) to hoard that money is low.”
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http://business.smh.com.au/business/keynes-is-dead-lets-bury-him-20081016-5205.html?page=fullpage#contentSwap1

]]> By: Angharad http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211179 Angharad Thu, 16 Oct 2008 10:27:40 +0000 http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211179 BBB you said "Angharad, so are you saying that temporarily subsidising new entry to the market to the tune of $21,000 a house will not bring forward any construction contracts into the 08/09 year?" Well yes actually. Contracts have to be entered into before June 2009 on a new house. Now, you may be a developer with a strong pipeline of developments ready to go, just press the button. But that isn't the case for most the industry. It takes a while to gear up., get council approvals and get finance (impossible right now). Alot may depend on how much lenders are prepared to allow borrowers to commit to forward contracts and how far forward. BBB you said “Angharad, so are you saying that temporarily subsidising new entry to the market to the tune of $21,000 a house will not bring forward any construction contracts into the 08/09 year?”

Well yes actually. Contracts have to be entered into before June 2009 on a new house. Now, you may be a developer with a strong pipeline of developments ready to go, just press the button. But that isn’t the case for most the industry. It takes a while to gear up., get council approvals and get finance (impossible right now).

Alot may depend on how much lenders are prepared to allow borrowers to commit to forward contracts and how far forward.

]]> By: murph the surf http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211178 murph the surf Thu, 16 Oct 2008 06:08:08 +0000 http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211178 The Hutton article warns about the risks of deflation. The japanese banking system after the 1989 crash had similar problems related to asset bubble prices and they are worth studying to see how to really stuff up your banking system by pretending there isn't a problem. . So it is also interesting to see the esteemed holiness of Ben Bernanke signalling that the Greenspan hands-off approach to bubbles may be over. If this signals a change to central bank behaviour at a global level then a substantial change is in store for us. And it is all aimed at unfreezing the credit markets. The Hutton article warns about the risks of deflation. The japanese banking system after the 1989 crash had similar problems related to asset bubble prices and they are worth studying to see how to really stuff up your banking system by pretending there isn’t a problem.
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So it is also interesting to see the esteemed holiness of Ben Bernanke signalling that the Greenspan hands-off approach to bubbles may be over. If this signals a change to central bank behaviour at a global level then a substantial change is in store for us. And it is all aimed at unfreezing the credit markets.

]]> By: GoTroppo http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211177 GoTroppo Wed, 15 Oct 2008 23:32:54 +0000 http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211177 Could it be that they're worried about an Australian "sub-prime" problem? I'm not suggesting we have the same dodgy borrowing practices - but we do have LOTS of leverage. I've been to a number of "investment seminars" in recent years and the basic premise they're pitching goes like this: Leverage equity in your house to buy stock When your stocks go up in value, you can leverage that equity and buy more stock Rinse, Spin & Repeat ... The ramerfercation here should be obvious. Put any downwards pressure on housing prices and we have another house of cards. The equity used to buy the original stock becomes undermined and it all becomes unstable. Throw someone out of a job and it's a smoking heap left lying on the ground. Up here in regional Queensland, these "investment seminars" have been churning through 20-30 people a week for the last 3-4 years. Spread that across the country and, even with a small uptake, we're talking about a significant problem. Could it be that they’re worried about an Australian “sub-prime” problem? I’m not suggesting we have the same dodgy borrowing practices – but we do have LOTS of leverage.

I’ve been to a number of “investment seminars” in recent years and the basic premise they’re pitching goes like this:

Leverage equity in your house to buy stock
When your stocks go up in value, you can leverage that equity and buy more stock
Rinse, Spin & Repeat …

The ramerfercation here should be obvious. Put any downwards pressure on housing prices and we have another house of cards. The equity used to buy the original stock becomes undermined and it all becomes unstable. Throw someone out of a job and it’s a smoking heap left lying on the ground.

Up here in regional Queensland, these “investment seminars” have been churning through 20-30 people a week for the last 3-4 years. Spread that across the country and, even with a small uptake, we’re talking about a significant problem.

]]> By: dk.au http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211176 dk.au Wed, 15 Oct 2008 23:32:22 +0000 http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211176 "Frozen lending?" <blockquote>So as the London interbank offered rate begins to ease, suggesting that the markets are beginning to thaw, and credit default swap rates fall, indicating that the markets believe governments will really stand behind their banks, the emerging rival locus of uncertainty is the real economy. German forecasters said yesterday that their country is on the brink of recession; Wall Street was frightened by the biggest fall in retail sales for three years. The markets are once again beset by nameless fears.</blockquote> <a href="http://www.guardian.co.uk/commentisfree/2008/oct/16/creditcrunch-economics" rel="nofollow">link</a> “Frozen lending?”

So as the London interbank offered rate begins to ease, suggesting that the markets are beginning to thaw, and credit default swap rates fall, indicating that the markets believe governments will really stand behind their banks, the emerging rival locus of uncertainty is the real economy. German forecasters said yesterday that their country is on the brink of recession; Wall Street was frightened by the biggest fall in retail sales for three years. The markets are once again beset by nameless fears.

link

]]> By: murph the surf http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211175 murph the surf Wed, 15 Oct 2008 22:20:42 +0000 http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211175 Frozen lending? A local agent was discussing this problem with regard to the local real estate market and banks here ( rural NSW) want 50% deposit. It is creating the lowest turnover in 15 years . If the banks can start to source funds on the international interbank market this may decrease but until that time expect little turnover activity in rural parts unless you are very close to your banker or have very substantial funds . And the absence of buyers with such funds will possibly lead to those buyers sitting it out and waiting for prices to decline .Why rush ? There won't be many competing to buy for a while . Frozen lending?
A local agent was discussing this problem with regard to the local real estate market and banks here ( rural NSW) want 50% deposit. It is creating the lowest turnover in 15 years .
If the banks can start to source funds on the international interbank market this may decrease but until that time expect little turnover activity in rural parts unless you are very close to your banker or have very substantial funds .
And the absence of buyers with such funds will possibly lead to those buyers sitting it out and waiting for prices to decline .Why rush ? There won’t be many competing to buy for a while .

]]> By: Nick http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211174 Nick Wed, 15 Oct 2008 19:04:53 +0000 http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211174 BBB, an average deposit before the recession. An average deposit now and for the next few years would have to be at least 15-20% yes? BBB, an average deposit before the recession. An average deposit now and for the next few years would have to be at least 15-20% yes?

]]> By: Bingo Bango Boingo http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211173 Bingo Bango Boingo Wed, 15 Oct 2008 11:16:27 +0000 http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211173 Angharad, so are you saying that temporarily subsidising new entry to the market to the tune of $21,000 a house will not bring forward any construction contracts into the 08/09 year? I'd respectfully disagree. I mean, it's just under 50% of an average deposit. I wouldn't want to put a figure on it, but a decent number of people at the margins will be pulled across the line, both in temporal terms and absolute terms. But of course it's no silver bullet for the chronic undersupply of housing. And it's true though that the $7,000 grant is a failed policy which should be done away with. Unfortunately, due to the politics of housing policy, it isn't going anywhere. BBB Angharad, so are you saying that temporarily subsidising new entry to the market to the tune of $21,000 a house will not bring forward any construction contracts into the 08/09 year? I’d respectfully disagree. I mean, it’s just under 50% of an average deposit. I wouldn’t want to put a figure on it, but a decent number of people at the margins will be pulled across the line, both in temporal terms and absolute terms. But of course it’s no silver bullet for the chronic undersupply of housing. And it’s true though that the $7,000 grant is a failed policy which should be done away with. Unfortunately, due to the politics of housing policy, it isn’t going anywhere.

BBB

]]> By: Angharad http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211172 Angharad Wed, 15 Oct 2008 10:40:02 +0000 http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211172 "It would have been better to keep the grant for existing homes at $7000 and put all the new cash (so far as it concerns housing) into a higher new home grant." Actually, no. It would have been MUCH better to put it into a supply subsidy to fix the private rental market and bring in affordable rental. FHOG will push up the price of housing which won't help affordability for renters or, sadly for them, first time buyers. But it will pump a whole lot of cash into the market. Actually it won't fix supply of new housing either because it is so short term there isn't enough time to stimulate forward demand. So - we'll get a whole lot of buyers into an existing market. “It would have been better to keep the grant for existing homes at $7000 and put all the new cash (so far as it concerns housing) into a higher new home grant.” Actually, no. It would have been MUCH better to put it into a supply subsidy to fix the private rental market and bring in affordable rental. FHOG will push up the price of housing which won’t help affordability for renters or, sadly for them, first time buyers.
But it will pump a whole lot of cash into the market.

Actually it won’t fix supply of new housing either because it is so short term there isn’t enough time to stimulate forward demand. So – we’ll get a whole lot of buyers into an existing market.

]]> By: Bingo Bango Boingo http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211171 Bingo Bango Boingo Wed, 15 Oct 2008 09:14:49 +0000 http://larvatusprodeo.net/2008/10/15/unlocking-the-metaphor-of-frozen-interbank-lending/#comment-211171 If I am reading the package correctly, Andrew Barlett has got his figures a little wrong. Not all of the $1.5 billion will be devoted to the failed demand-side grant for existing dwellings. Some (most?) will go to the supply-side subsidy for new housing (the grant will be $21,000 for newly-constructed homes). There is a time limit (mid-next-year I think), so the net effects are to pull a whole lot of housing construction forward and to boost absolute supply. Still, the broader critique is spot on. It would have been better to keep the grant for existing homes at $7000 and put all the new cash (so far as it concerns housing) into a higher new home grant. BBB If I am reading the package correctly, Andrew Barlett has got his figures a little wrong. Not all of the $1.5 billion will be devoted to the failed demand-side grant for existing dwellings. Some (most?) will go to the supply-side subsidy for new housing (the grant will be $21,000 for newly-constructed homes). There is a time limit (mid-next-year I think), so the net effects are to pull a whole lot of housing construction forward and to boost absolute supply. Still, the broader critique is spot on. It would have been better to keep the grant for existing homes at $7000 and put all the new cash (so far as it concerns housing) into a higher new home grant.

BBB

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