Can anyone please explain what government mechanisms have been put in place to avoid banks getting into a bubble scenario again where they require bailing out?
Tougher more intusive regulation
Paying down the debt doesn't change their overall financial position. They had €20k in savings before hand, so whether this is a positive balance in their savings account or a lower negative balance in their mortgage account doesn't change their equity position. It is just moving money around.Of course paying down the debt will reduce negative equity.
Negative Equity = Value of House - Balance of Mortgage
Nope - the risk is greater on the new house because of the higher value of the new house. A 10% fall on a €400k house will hurt more than a 10% fall on a €250k house.By your logic, the negative equity on the existing property will increase if the market drops in any event. Therefore any increase in negative equity on the new house should only be marginally greater, if at all, than it would have been on the existing house.
Nope - the risk is greater on the new house because of the higher value of the new house. A 10% fall on a €400k house will hurt more than a 10% fall on a €250k house.
Permanent public sector employees, like guards, nurses, civil servants were some of the few professions that initially were given 100% mortgages, but this quickly trickled down to other private sector professions. High income professionals (medical, legal) usually don't have the same difficulty in coming up with at least some sort of deposit.I agree with the point you're making, but public sector employees - really? The way I remember it, they were first aimed at a select group of professions (medical, legal). I don't recall 100% mortgages being ever targeted at public sector staff.
I take it you are not familiar with Galbraith's book?
The reason he wrote it was so those who did not remember the crash would still learn the lessons. Unfortunately, 78 years later which is uncannily close to the length of a human life, we have fallen into the same trap.
Please provide an example of any property bubble in history which crashed by more than 50% which was followed by another property bubble within the next 10 years?
Nope, you're rewriting history, Chris. The first 100% mortgage was from Ulster Bank in 2003 and was specifically targeted at a select group of professions, including the medical/legal guys that you reckon wouldn't have needed it. See http://www.askaboutmoney.com/showthread.php?t=5014Permanent public sector employees, like guards, nurses, civil servants were some of the few professions that initially were given 100% mortgages, but this quickly trickled down to other private sector professions. High income professionals (medical, legal) usually don't have the same difficulty in coming up with at least some sort of deposit.
I'm talking about the same person here, so they are in the same economic situation. The person is currently in a €250k apartment, and will be using this new dubious loan to move to a €400k house. The impact of a 10% fall in the market will be greater after the move, than before the move.Not necessarily. You are assuming they are both in the same economic situation. It could be equally painful for both as it is more likely the person living in the €400k house has higher earnings. Therefore a 10% fall is a 10% fall. As a matter of fact, I probably have more problems with a 10% fall on my €250k property than the guy in a €1.5m house.
As Galbraith was a Keynesian people should always be very suspect of any of his writings. Claiming that all we need to do in order to protect against bubbles is remember them is typical Keynesianism in that it believes the boom/bust cycle is random and not a result of government policy.
There was a massive equity bubble in the late 90s (dotcom) which was fuelled by cheap credit. When this burst in 2000 massive money printing went on and credit was made even cheaper, which ultimately fuelled another bubble. This next bubble was real estate which burst in 2007. That's a mere 7 years from one bubble to the next.
Yes I have read it and I also endured reading some chapters of "The Good Society", which is even worse in its conclusions. Keynesian economics has failed to adequately explain any bubble in history, always dismissing government intervention through fiscal and monetary policies as irrelevant. If you want to know what really caused the 1929 crash and subsequent great depression read Rothbard's "The Great Depression".Have you read J.K. Galbraith's "The Great Crash, 1929"?? I am guessing you haven't considering the warnings he gave to politicians when called to give testimony in later years.
BTW - I strongly recommend J.K. Galbraith's "The Great Crash, 1929" to everybody. It is a short page-turner that the lay reader can finish in few days. You will laugh out loud at the stupidity of those involved and you'll be amazed at the parallels with our own crash.
No I have not, the point Galbraith makes is that we only need to keep or memories fresh on past bubbles and this will somehow lead to less "speculation", which he blames for the bubble, dismissing monetary inflation and credit expansion. What part of the economy turns into a bubble is irrelevant.You have missed the point.
The questions was: "Please provide an example of any property bubble in history which crashed by more than 50% which was followed by another property bubble within the next 10 years?"
The crash we just has was not a dot com crash. The crash we had was a property crash. People on this thread are warning against creating another property bubble.
Yes I have read it and I also endured reading some chapters of "The Good Society", which is even worse in its conclusions. Keynesian economics has failed to adequately explain any bubble in history, always dismissing government intervention through fiscal and monetary policies as irrelevant. If you want to know what really caused the 1929 crash and subsequent great depression read Rothbard's "The Great Depression".
No I have not, the point Galbraith makes is that we only need to keep or memories fresh on past bubbles and this will somehow lead to less "speculation", which he blames for the bubble, dismissing monetary inflation and credit expansion. What part of the economy turns into a bubble is irrelevant.
On it's own negative equity mortgages will not re-inflate a bubble, but it is an attempt at interfering with market conditions.
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