here come the drums of a global slowdown..

keithj said:
And if you're right then my absolute worst case scenario....

... banks repossess everything I have (even though I've never missed a repayment), they bankrupt me (for 5 yrs) and I lose absolutely everything.....

....except the knowledge I have to rebuild it all:).
Click to expand...

This is really the crux of it for me. If I sell everything, I run the risk of the world NOT coming to an end and I miss out on the opportunities. If I hold on (though I am preparing more cash on hand and so on) I run the risk of the above scenario. BUT for me, I'm willing to risk going bankrupt and having to rebuild it all in my late 30s than missing out. I don't believe the probability of a Depression is that high. A recession is almost a certainty to me, though. So, while I'm increasing my cash reserves by refinancing and putting the money into an offset account, watching my spending to save more from my salary, etc. I'm not preparing for, for example, the possibility that the banks will call in all of my loans even if I'm making payments.
Alex
 
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Well said Keith.

I'm thinking of the quote... No man can steal your fortune if you store it in your head... or words to that effect.

I have seen some people I consider very smart think that we are very deep in the credit crunch to possibly more than half way through, certainly the odds are always on something closer to muddle through than end of the world.. Though the end of the world will surely happen one day.

Gold and Oil I believe were the last to soar and top out during the last commodities party and we really haven't seen anything spectacular from them yet, so I suspect that game has some innings to go. Also short the USD remains a secular theme as we might be seeing another great carry trade develop, I'm considering a very small currency carry play in the AUD as a hedge instead of fixing my borrowing rates at the moment, though I need to work out the details for that and it would be subject to losing on both ends as well.

I sold a property in late 2007 and wish I didn't have to, I wouldn't have done that if it was just a market timing decision as I'm just not brave enough to predict that it will be profitable after taxes and transaction fees. Though in terms of selling I was pretty sure that was an excellent time to be doing such a thing and so far that call is looking pretty good.

It's an interesting position for Brisbane at the moment... Property is expensive by many historical measures.. granted.. but the supply situation is really tight and building/developing costs are very large... so... beats me what is going to happen.

Interesting times!
 
Refinancing to have a reserve.

alexlee said:
This is really the crux of it for me. If I sell everything, I run the risk of the world NOT coming to an end and I miss out on the opportunities. If I hold on (though I am preparing more cash on hand and so on) I run the risk of the above scenario. BUT for me, I'm willing to risk going bankrupt and having to rebuild it all in my late 30s than missing out. I don't believe the probability of a Depression is that high. A recession is almost a certainty to me, though. So, while I'm increasing my cash reserves by refinancing and putting the money into an offset account, watching my spending to save more from my salary, etc. I'm not preparing for, for example, the possibility that the banks will call in all of my loans even if I'm making payments.
Alex
Click to expand...

Hi Alex; Unlike you I am a lot older (55). Could I start again? Yes of course but unlike you at best I would have only 20 years to recover provided my health continues to hold up.

You say that you don't believe the probability of a depression is high but you are smart enough to realise your best option is to refinance and hold some cash in reserve. I would not hold the money in the same bank I held the mortgage. :mad:I just don't trust any bank to do the right thing if it goes pear shaped and ok maybe I'm paying more for that insurance.

I am not advocating you sell everything even if a soft (financial) depression hits. Why? Because in the last great depression 10,000 banks failed and if you had your money in the bank you kissed it goodbye.

I still think your better off holding real estate because people still have to live somewhere and if they are lucky work somewhere and that requires property. Ok maybe your property drops 50% and your income declines but it is some income. If that fails you can feed yourself by growing veggies on your quarter acre block:D

If you think this doom and gloom is silly what would you have bet a year ago that Bear Stearns which was valued at $150 a share was sold for $2 a share to J.P. Morgan today? A 40 Billion dollar company last year that sold for 236 million today. See;
http://www.marketwatch.com/news/sto...5-4123-BB53-CB3E07A3CFCE&dist=SecEditorsPicks

Still think I'm being melodramatic read this;
http://kiwitrader.blogspot.com/2007/08/future-hedge-or-just-gamble.html
The real brown material is yet to hit the proverbial fan

And finally Warren Buffetts take on;
http://www.generationaldynamics.com/cgi-bin/D.PL?xct=gd.e080304
 
Kennethkohsg said:
1. Are you sure that the banks are legally allowed to do this in Australia, in the first place with the present Banking Consumers Protection Laws in place?
Click to expand...

Why not?

A fixed percentage loan is, by definition, a fixed term loan. When it expires you must write a new one. It is only convention, one which assumes continuing value of collateral, that says they re-write it. Same convention says that you "roll over" 90 day bills at the going rate at the time on expiry, but many businesses have been stranded on the reef of changing lending policy.

Banks are private, for profit enterprises. Law merely limits how outrageous they can be when making those profits.
 
nonrecourse said:
You say that you don't believe the probability of a depression is high but you are smart enough to realise your best option is to refinance and hold some cash in reserve. I would not hold the money in the same bank I held the mortgage. :mad:I just don't trust any bank to do the right thing if it goes pear shaped and ok maybe I'm paying more for that insurance.

I am not advocating you sell everything even if a soft (financial) depression hits. Why? Because in the last great depression 10,000 banks failed and if you had your money in the bank you kissed it goodbye.
Click to expand...

The increase in cash reserves is to allow for a REcession. Less lending, possibly vacancies, etc. If we get to the point where major banks fail and depositors lose out, there really isn't much that I can do unless I'm willing to sell everything and keep gold in my garage. How does one distinguish between just a bad recession and depression-lite? I'm pitching my preparations more to a 90s recession than '29. Hence, I'm preparing myself for high interest rates and vacancies, but not the possibility that the bank will yank my loans.

nonrecourse said:
If you think this doom and gloom is silly what would you have bet a year ago that Bear Stearns which was valued at $150 a share was sold for $2 a share to J.P. Morgan today? A 40 Billion dollar company last year that sold for 236 million today.
Click to expand...

I've been following the Bear story closely. Especially of interest to me since I work in the same industry. I don't think the doom and gloom is silly. I disagree on the DEGREE of doom and gloom we should be prepared for. IMHO, there probably will be a recession, high unemployment, possibly higher rates in the short term, and drops in property prices. But that's just a 90s-style recession, not a 29-style depression.

Why can't I be bearish without believing that we're going to have a rehash of '29?
Alex
 
Sunfish said:
Why not?

A fixed percentage loan is, by definition, a fixed term loan. When it expires you must write a new one. It is only convention, one which assumes continuing value of collateral, that says they re-write it. Same convention says that you "roll over" 90 day bills at the going rate at the time on expiry, but many businesses have been stranded on the reef of changing lending policy.

Banks are private, for profit enterprises. Law merely limits how outrageous they can be when making those profits.
Click to expand...
&&&&&&&&&&&&&&&&&&
Dear Sunfish,

1. Based on what you said in your post, the loan is "recalleable" only after the loan term has officially expired.

2. What happens when the loan term has not officially expired and the borrower is able to service his monthly loan interest repayment regularly?

3. Can the lending bank still recall back the loan or/and suddenly requires/demand the borrower to top up on his loan, say by A$100,000 ( similar to some margin loans etc) with a negative house equity scenario, in this context?

4. Since the usual standard loan term is 30 years, then, I would think and further "presume" that the lending bank is unable to recall the loan or/and ask us to top up the loan at short notice as long as we are able to service our monthly loan interests repayments, under the existing Consumers Banking Laws.

5. Isn't this the actual current lending practice in our real life context within Australia itself?

6. For your further confirmation and discussion, please.

7. Thank you.

Cheers,
Kenneth KOH
 
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Sunfish said:
Why not?

A fixed percentage loan is, by definition, a fixed term loan. When it expires you must write a new one.
Click to expand...
IIRC, that's not what my loan docs state. They say the loan is for a 30yr term, with a fixed interest period of N years, automatically defaulting to a variable IR at the end of that period. There's nothing about repayment/rollover/reapplying at the end of the fixed interest period. There is a clause about reverting to P&I after the end of the interest only period.
 
Sunfish said:
A fixed percentage loan is, by definition, a fixed term loan. When it expires you must write a new one. It is only convention, one which assumes continuing value of collateral, that says they re-write it. Same convention says that you "roll over" 90 day bills at the going rate at the time on expiry, but many businesses have been stranded on the reef of changing lending policy.
Click to expand...

That's not my understanding of my loan. My understanding is that I have a 25year loan with 5 years fixed interest only payments. After the 5 year period, it automatically reverts to 20 years of variable rate payments, probably P&I. You don't have to refinance at all.
Alex
 
With most lenders you can re-fix after 5 years or let it roll over to a variable rate loan with very little or no paperwork at all.

Some lenders even allow to get another 5 years interest only without much paperwork - with some lenders (such as Heritage BS) you will have to re-apply if you want another interest only period.
 
stranger40 said:
"My dad is poor he owes the bank $50k"
"Yeah, well my dad is rich he owes the bank $50 Mil!"
Go Figure - buy and hold - utilise your equity!
Click to expand...

how's about...

"my dad is rich, he owes the bank $50k and has houses worth $800k"
"hmm, my dad is rich, he owes the bank $50m (but oh oh, has offices worth only $48m)"
"my dad is in between, he works 9-5 and goes home without a worry, owes $100k but has a house worth $700k"
"my mum is rich, she gets a free house from the govt and gets to spend all of her time exactly as she pleases"
"my dad will be the richest guy inthe cemetery, he has slugged his guts out and has $50m cash but has cancer and only 3 months to live"

everything needs a context. buy and hold needs to be in context of the numbers behind it
 
Ausprop said:
how's about...

"my dad is rich, he owes the bank $50k and has houses worth $800k"
"hmm, my dad is rich, he owes the bank $50m (but oh oh, has offices worth only $48m)"
"my dad is in between, he works 9-5 and goes home without a worry, owes $100k but has a house worth $700k"
"my mum is rich, she gets a free house from the govt and gets to spend all of her time exactly as she pleases"
"my dad will be the richest guy inthe cemetery, he has slugged his guts out and has $50m cash but has cancer and only 3 months to live"

everything needs a context. buy and hold needs to be in context of the numbers behind it
Click to expand...

hehehe ...funny ... shows the common attitude towards debt these days.

in terms if economy at least people are willing to acknowledge there is a slowdow .. marked change in sentiment from late last year.

in my opinion this debacle had the potential to be a soft depression if nothing was doen (e.g. rates in US at 4.25%, CDS would have been double digits for the safest corporate stuff, many more corporate failures, and some big bank failures etc) ... but now thats all hypothetical .. what now ..
 
Just wondering someting. If a bank fails, are you more exposed if you owe them 500k and have 100k in an offset account vs. owing them 400k outright.

For example can the bank go down and take your 100k and then the bank's creditors chase you for the 500k seperately?
 
Dis said:
Just wondering someting. If a bank fails, are you more exposed if you owe them 500k and have 100k in an offset account vs. owing them 400k outright.

For example can the bank go down and take your 100k and then the bank's creditors chase you for the 500k seperately?
Click to expand...

Short answer is yes. You are liable for the 500k loan. You may only get cents in the dollar (or nothing) for the deposit.

Don't know that should necessarily be the driver of you making a decision as to how to structure your loans/products though.
 
When panic strikes property versus shares?

It is interesting to note that when Bear Stearns was sold off to JP Morgan Chase for $236.2 million @ $2 a share, the headquarters was valued at 1.2 Billion dollars. So in effect Bear Stearns share holders paid JP Morgan $963.8 million to take the business off their hands!!!!

That is the problem with being a shareholder where you do not control 51% of the company. Last year Bear Stearns was valued at 40 Billion and now its recent sale says it was under water.

With property unless it is on an unstable cliff or on the mouth of an estuary its still REAL estate.
 
nonrecourse said:
It is interesting to note that when Bear Stearns was sold off to JP Morgan Chase for $236.2 million @ $2 a share, the headquarters was valued at 1.2 Billion dollars. So in effect Bear Stearns share holders paid JP Morgan $963.8 million to take the business off their hands!!!!

That is the problem with being a shareholder where you do not control 51% of the company. Last year Bear Stearns was valued at 40 Billion and now its recent sale says it was under water.

With property unless it is on an unstable cliff or on the mouth of an estuary its still REAL estate.
Click to expand...
Not that simple apparently, BSC has trillions of derivatives dealings which represent a significant potential risk to whoever is taking them on. The shareholders appear to be royally screwed however if the deal goes through and it appears they would prefer bankruptcy for the firm.
 
The tax payer is stitched up again

Andrew_A said:
Not that simple apparently, BSC has trillions of derivatives dealings which represent a significant potential risk to whoever is taking them on. The shareholders appear to be royally screwed however if the deal goes through and it appears they would prefer bankruptcy for the firm.
Click to expand...

According to the Wall Street Journal the taxpayer is picking those Liabilities in a deal brokered by the Federal Reserve they agreed to take on board a significant portion of that derivative debt you mentioned not just the collateralized debt obligations. Another little cute little "synthetic derrivative called a CPDO (Constant proportion debt obligation) I liken it it to a sexually transmitted debt STD. You spread the risk to the entire financial community and you then ask the taxpayer to bend over when you drive it home:eek:

I'm pleased to see you have cottoned onto to the trillions potential liability.
 

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