Subprime Euro

[Toni]

Maybe my sister was right, she tried to talk me into selling my properties 6 months ago, but I was determined to keep them. She's now selling her last property. Problem is, the value of homes have already decreased, do you hang on and pray, or sell everything while you still can?

Wish I had a crystal ball!

 

[Intrinsic_Value]

i beg your f__king pardon?

CDOs are an equity made up of nothing - debt.

.

and what is a loan? and what is a bond?
its just a repackaging.

The problem is not the package the problem is how it is priced vs the quality of the underlying debts.

The GFC blow up was caused by CDO's being rated AAA on residential loans that taken out by those with minimal equity and with no means to repay those loans.

Thats not the fault of CDO's, the the fault of both those who packaged them and those who bought them (because they didnt do enough due diligence).

Do you really think in the current market environment, the 'market' will let these mistakes be made again. If there is any 'structural weakness' it will be because its created as some form of debt restructure. ie the discount to par value will form some part of the debt haircut.

 

[Intrinsic_Value]

Both, you frothing lunatic! How can Europe go down (with the US in tow), and our own nearly inconsequential little economy - with us in it - not suffer horridly? Hang on - Is there a silver lining I'm not seeing in this impending train wreck???

Silver Lining:
(a) RBA rate at 4.75%, lots of room to cut if they really have to.
(b) Federal debt at 6% of GDP (from meomory, what ever it is its low), lots of room for emergency accomodative policy if they have to.
(c) buyers are on the hook, they dont pay the mortgage, the banks sells the property and comes after them for the difference.
(d) if things get tough enough AU$ is going to drop like a stone. This will actually be good for some sectors of the economy. Try telling tourism/manufacturing etc that Australia is in a 'boom' with the high AUD.
(e) Residential property might have appreciated significantly over the last decade, but it hasnt been a speculator fuelled boom, its still majority owner occupiers. I think from memory the ratio has declined from a long term 70/30 split (owner occupiers to 'investors') to around 67/33. Australians have a good historical record of making sacrifices to pay their mortgages, especially when its owner occupied. Why doesnt anyone look at the default rates back in the recession of the early 1990's. Interest rates got up to 17%, people on the whole still paid their mortgage (yes loans were less, but rates where higher). In the early 1990's the banks nearly went under, but it wasnt due to residential property, it was from commercial/business lending.
(f) as some of the intelligent property bears have highlighted, prices are set at the MARGIN, ie the marginal buyer vs marginal seller. However the ability to repay a loan is not determiend by the marginal price but rather the loan amount is dependent on the purchase price, the purchase price is the time of acquisition. Therefore those that bought several years ago might not have purchased at the peek (at least in Melbourne)

Property prices will come back, but it wont be anything alla the USA situation.
Get a grip guys.

 

[Seabreeze]

and what is a loan? and what is a bond?
its just a repackaging.

The problem is not the package the problem is how it is priced vs the quality of the underlying debts.

The GFC blow up was caused by CDO's being rated AAA on residential loans that taken out by those with minimal equity and with no means to repay those loans.

Thats not the fault of CDO's, the the fault of both those who packaged them and those who bought them (because they didnt do enough due diligence).

Do you really think in the current market environment, the 'market' will let these mistakes be made again. If there is any 'structural weakness' it will be because its created as some form of debt restructure. ie the discount to par value will form some part of the debt haircut.

I disagree. The inherent problem with CDOs is there is no way for either the buyer or seller to properly price the risk. For example, how do you price the risk of any 3 companies out of a list of 20 going broke? Completely separate companies but sharing the same economy - it's just impossible. Similarly with mortgage funds. The core problem is that no-one really understands the product - when that's the case all sort of unintended problems result and it's just not worth the effort. Better to concentrate on things we can all understand - such as a mortgage or a bond - that's the difference.

 

[Intrinsic_Value]

I disagree. The inherent problem with CDOs is there is no way for either the buyer or seller to properly price the risk. For example, how do you price the risk of any 3 companies out of a list of 20 going broke? Completely separate companies but sharing the same economy - it's just impossible. Similarly with mortgage funds. The core problem is that no-one really understands the product - when that's the case all sort of unintended problems result and it's just not worth the effort. Better to concentrate on things we can all understand - such as a mortgage or a bond - that's the difference.

Yes definately for the likes of you and me.
But these products are not supposed to be owned by the likes of you and me.
They are only suited to institutional investors who should have the relevant departments to analysise the individual packages.

 

[Belbo]

Yes definately for the likes of you and me.
But these products are not supposed to be owned by the likes of you and me.
They are only suited to institutional investors who should have the relevant departments to analysise the individual packages.

Should? WTFF???

 

[Seabreeze]

Yes definately for the likes of you and me.
But these products are not supposed to be owned by the likes of you and me.
They are only suited to institutional investors who should have the relevant departments to analysise the individual packages.

Like Lehmann Brothers I guess...

 

[Intrinsic_Value]

guys you need to do your homework on this.
We are moving into fiction land here.
Enjoy your posting, i'm moving on.

 

[Aaron Sice]

Do you really think in the current market environment, the 'market' will let these mistakes be made again. If there is any 'structural weakness' it will be because its created as some form of debt restructure. ie the discount to par value will form some part of the debt haircut.

if QE1 didnt work, why did they get QE2? and now "Qe3"....?

i have faith in the evils of man and nothing more. so far, ive never been wrong.

 

[investor2009]

The way I see things at present is: The stockmarket has plummeted and is almost fantastic buying for the long term investor.

House prices should have pretty well hit rock bottom, but very hard to tell for sure. We'll see in a few months time when we revisit this thread. I still think Australian property prices will trend upward with falling interest rates. I thought the same before last recession and was correct, if for only 6 months before the RBA lifted rates once again.

 

[investor2009]

I will also add to that, I think that the days of higher interest rates are gone (maybe not forever) but for at least a long time to come. My reason for this is wage growth has not been in-line with the outpace in house growth and there are so many FHBers that are up to their eyeballs in debt with both partners working full time to manage the repayments. I don't believe these people (who are many) can sustain a 2% increase in rates and the effects could be disasterous. I remember in the old days you only required one wage to support a Family and house repayments. That is saying something.

I just think the cost of living has increased further than wage increases have and I don't see how the majority of Australia's residents can cope with higher interest rates. As soon as the RBA lift them up again, our economy goes down the shoot. Especially the housing sector.

 

[silverx]

it has to do with the dollar amount of the loan as well and number of population. if bank wants to make certain amount of profit 20 years ago, with loan amount around 60% less than we have now, they actually need to have high interest rate to see that kind of profit, but with number of population increase and nominal value of the loan increase, they can afford lower interest rate

i think