IT: Isabel, the game is up, fear rules

She has a fair point about the conflict of interest. Particularly since the banks are now running some of the development companies…

There is no conflict of interest on the banks side.

For the bank, their main aim is to sell the property for as much as possible and to sell you as big a mortgage as you can possibly pay back. No conflict of interest from their point of view. It may no longer be possible to reach the astronomical values that were reached in the past, but that doesn’t constitute a conflict of interest.

Isabel how are ya 8)

Yet another Manic depressive mood swing from Isabel.
a few weeks ago I thought she was gettng a clue. Then the following article was happy clappy again.

Expect an “Everything is grand” piece next.


Precisely. People are dumb sometimes.

Shuffling excessive debt, backed by overpriced assets from developer to homeowners on high income multiples and high LTVs (i.e. sub-prime) will get the banks nowhere.

Better if Isabel had made the more perceptive observations that:

  • Banks are handing out loans approvals left right and centre (all the banks admit this), but at lower LTV and at lower multiples of income (i.e. sensible sums).
  • People are **not drawing down **these loans because the assets they wish to purchase are still overly inflated in value.

The thing is Isabel (I hope you come here to learn stuff), that there are big losses out there - developers have bought massively overpriced land, over-capitalised as a group by building far to many houses which will not be needed for many years (“it’s the empties, stupid”). Those losses have been made already, there is nothing that can be done to reverse that - they simply haven’t been crystalised yet.

What we now witness is the “dance of debt” to see who can shift these losses onto others.

  • The developers want to shift the losses to home buyers or bank - by selling at the ludicrous prices they are still asking (despite cuts to date) to people taking mortgages from banks. So developers lie and con and try and get Government enducements and subsidies for buyers.
  • Banks want to shift the losses on to developers or homeowners by getting high credit worthy people to buy at lower LTVs (i.e. swapping their crappy developer loans on their balance sheets for higher grade mortgages) and/or getting sufficient urgency into their developer debtors to drop prices far enough to get property selling (and leave the developers nursing the loss), but not so far that it places in peril their security on those developer loans. This also leaves the buyers nursing a loss, but not one which won’t worry the banks, because of their high LTVs and their ability to service the debt due to low income/mortgage multiples.
  • Us, the poor buyers, just need to avoid the con and not buy (not take on the developer debt that banks would be happy to recycle on to us), until the price of the asset is sensible (which is still 30-50% away perhaps, depending on where you are).

It might seem like we hold all the cards, but of course there is a fourth player. You guessed it. The friend of all developers and bankers worth their salt, the government, can impose the solution by **imposing the loss on us **by borrowing (present and future tax) to fund the buyout of the asset from developers at prices that allow them to escape their losses and allow banks to get full repayment from developers as a result and hence scale back their balance sheets in the area they need and to expand it elsewhere with mortgages from government backed schemes for buyers in their place.

Just read the article.

I don’t think Isabel understands the meaning of the term conflict of interest.

The interests they have to be careful not to confict with are those of their shareholders. She seems to think that failing to play ball and take on the losses (as described in my post above) by handing out mortgages to high risk buyers (high LTVs and high income multiples) is a conflict.

au contraire Isabel. To do so under the urging of government or big developer clients would be the conflict.

Where a conflict of interest might arise is where a bank, which is owed by developer x is either:

  1. Willing to lend a higher LTV to a mortgage applicant for developer x than for developer y
  2. Values developer x’s properties higher than developer y’s

Not saying that is what she is saying, just that I think there are situations that are going to arise that could be a conflict of interest.

edit: But maybe I don’t fully understand conflict of interest either!

I can’t see what she is suggesting is anything different to a shop selling something to one person at a different price than they sell to others. No conflict, if that is what is best for them (i.e. the owners/shareholders of the shop).

Same with this inside info of price reductions. The bank has no duty to make sure the person they are about to lend to is making the best financial decision, or that they have full information. Sounds harsh, but it is true.

If someone wants to buy a 2nd-hand house the mortgage company has a valuation done. And if the valuation determines that the house is worth less than the buyer agreed to pay, the mortgage company won’t loan the requested amount. So if someone agrees to buy a house from a developer at X, but the mortgage company knows the property will soon be selling for X -€50k, they will hardly want to loan the buyer the requested amount.

That’s what I assume she is getting at.

She knows more about Finance than she does about Interior Design it seems :nin