Tuesday, September 30, 2008

You Read It Here First

"Governments on both sides of the Atlantic are going to have to decide how far they want to bail out banks." The Bookworm, 12 July 2008
Why bother with the BBC or Sky News when you can come to the Bookworm for incisive economic analysis, spiced with the doings of charming toddlers and snapshots of bookshelves?

Seriously, I looked back on my random economic thoughts post to see if my opinions on the current economic mess had changed in the light of recent events. They haven't. I still think it is largely a crisis of capitalism, where the financial markets have been forced to recognise that hypothetical values bear no relation to reality. I certainly wouldn't want to be a banker right now, because I'm sure the convulsions among banks will go on for a while. However, I'm going to throw in a little optimism ...

On the macro level, the financial markets tend to overcompensate. Mass selling hysteria takes over but it doesn't last, and once the hysteria wears off everything bounces back to a stable level. The more solid banks will come out the other end stronger. While things were never as golden as they were painted over the past few years, they are also probably going to be painted as blacker than they really are. Painting things black tends to suit the media. I notice there is a lot of "it has never been this bad" around, but I don't agree. I don't think the current crisis is worse than others I remember, just different.

On the micro level, I'm noticing a lot more Sold signs on properties. If that is anything to go by, it suggests the housing market - at least in our local area - is no longer in free fall. Also, there are lies, damned lies and statistics. This morning Tevye read out a statistic from the newspaper, that the amount lent in mortgages in August 2008 was 95% down from August 2007. That sounds dire, but only tells part of the story. A significant part of the mortgage market was people switching lenders for a better deal, not people buying properties. That isn't happening any more. Take re-mortgages out of the equation and I bet you would get a very different statistic, but nobody seems to be mentioning it. Remember what I said about painting things black?

ETA: I did a bit of research into mortgage statistics, and found this article which suggests I am at least mostly on the right track. There are still more remortgages than I allowed for (I forgot about remortgages by people coming to the end of fixed rate deals), but the number of loans for house purchases have been fairly stable in 2008 after falling by around 50% during the second half of 2007. The article concludes:
The mortgage market has contracted over the past year and business levels will undoubtedly remain low for the immediate future. However, the statistics show a market which appears to have been rumbling along at a reasonably constant rate during 2008 and which is not, as some headlines would have us believe, continuing to nosedive.


Suzanne Temple said...

This is good. I do so hope you are right.

Shari said...

You're right! I did read it here first. This is definately my main site for sound and realistic finacial advice and pictures of cute toddlers!! So far, not much has changed here. Rumors of students losing finacial aid when their banks failed, a local business had to sell when they couldn't borrow any more to meet expenses ( this had to have been coming for awhile). Like you, I see more sold signs on properties. And gas prices are down. One of our favorite books is How to Lie With Statistics by Darrel Huff.

Dorothy said...

Properties aren't selling here, but apart from that, I'm with you.