This comes from the Real World Economics Review Blog. It is a map showing one zip code on Chicago’s South West Side, 60629.
This neighbourhood has been gutted. The red dots represent all of the properties in that zip code that are either in pre-foreclosure or are already bank owned:
If you want to know what market failure looks like, that is it.
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@Greg
Would you go to a butcher for a tooth filling?
Whether or not it is a legal requirement that only properly qualified financial advisors are allowed to promote complex UK and EU domiciled funds to elderly people is a question best directed to the UK/EU regulatory authorities. But the PSG doubts that this allowed.
The PSG can confirm that there is certainly a “ban” on describing unlicensed and unqualified “introducers” as “professional” investment advisors.
Something to do with Trades Description Act and other inconvenient laws generally ignored by the Isle of Man government when it comes to the business of attracting investment to the island.
Any more questions?
@Greg
Whilst I agree with you overall, I also think that NR’s underwriting standards also played a role in its demise.
NR was borrowing huge amounts (relative to its deposits and capital base) of short term money market funds to fund its mortgages. It then securitized (i.e. sold off) its mortgage book, bits by bits, and used the proceeds to refinance the short-term borrowings.
NR was among the early casualties of the credit crunch because the buyers of its securitized mortgage-backed securities and, importantly, the rating agencies were becoming increasingly alarmed by its abysmal underwriting standards, including the 100%+ and the self-certified mortgages. Once NR lost access to the securitization market, it was unable to refinance its short-term borrowings and was in serious trouble.
@ Million Dollar Babe, most of the refinancing of the short term debt was done with new short term debt, and it was this that triggered the initial problems. I agree that their book was of a poor standard, but it was the initial problem of their business model being incompatible with the grinding to a halt of interbank lending.
@Greg
Sorry – you’re wrong
If there loan book was good they would not have had the problem
And as for saying Ireland did not have a loan book problem – you reveal the shortcomings in your analysis in one
I’m sorry Richard, but you are wrong here. The quality of the loan book was not the reason NR almost collapsed. The fact is that NR (and others) relied on the cash markets to supply their funds. When the inter bank lending market virtually stopped they were in big trouble. I shared an office with inter bank dealers at the time so had a pretty good view of it all. No one was lending to each other at all. The quality of the loan book was irrelevant.
I didn’t say Ireland didn’t have a problem with their loan book. I just said I didn’t imagine the Irish housing market is big enough to cause the problems suffered by Allied Irish. I imagine they got themselves into trouble in a great many ways, but (as I also stated) I know very little about them.
@Greg
In support of Murphy’s position, one must recognize that no bank that had a healthy balance sheet to start with required a bail-out. All institutions that either failed (WaMu, Wachovia, Lehman, etc.) or required taxpayer support (UBS, Citi, RBS, etc.) were either over-leveraged or over-risked, or (almost inevitably) both.
@ Million Dollar Babe, I’m not saying that NR had a healthy balance sheet, but this was not it’s problem. It just had a huge reliance on rolling over short term debt, and when they were unable to do this they failed. Nothing to do with their loan back. At all.
Look at the figures. NR was not having a bad debt problem at the time it collapsed.
From the All Party Commons Treasury Select Committee which undertook a report into the failure of Northern Rock
“The directors of Northern Rock were the principal authors of the difficulties that the company has faced since August 2007. It is right that members of the Board of Northern Rock have been replaced, though haphazardly, since the company became dependent on liquidity support from the Bank of England. The high-risk, reckless business strategy of Northern Rock, with its reliance on short- and medium-term wholesale funding and an absence of sufficient insurance and a failure to arrange standby facility or cover that risk, meant that it was unable to cope with the liquidity pressures placed upon it by the freezing of international capital markets in August 2007. Given that the formulation of that strategy was a fundamental role of the Board of Northern Rock, overseen by some directors who had been there since its demutualisation, the failure of that strategy must also be attributed to the Board. The non-executive members of the Board, and in particular the Chairman of the Board, the Chairman of the Risk Committee and the senior non-executive director, failed in the case of Northern Rock to ensure that it remained liquid as well as solvent, to provide against the risks that it was taking and to act as an effective restraining force on the strategy of the executive members”
As you well know the PSG membership is composed exclusively by pensioners (which is one of many reasons why you are disqualified from membership) and like it or not elderly people are vulnerable members of society.
Unlike children who are afforded protection by law, there are no laws specifically enacted to protect pensioners from unscrupulous activities.
Fortunately under a new EC directive the elderly will be recognised as a group at risk — and they will be afforded greater safety by law.
As you also know Guernsey, the Isle of Man and Jersey, are not part of the EU or the UK and their so-called “governments” cherry-pick rules and regulations to gratify their insatiable greed and selfishness.
Previous history suggests that this policy shows scant regard for the elderly outside their jurisdictions.