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Post by j3aN62 on Jul 25, 2007 2:31:06 GMT -5
To make things more real, let's just talk figures. In Paris if one wants to rent a studio, very average one (note that average price you'll get a hundred applicants), it's about 800 euros. And you need to make at least 4 times that amount in a secure job to get accepted. Yes, so maybe earning 3500 per month just to rent a studio. And I think London is more expensive. One of my friends just bought a one bedroom flat the size of a postage stamp in a relatively bad area and it has landed him a 300000 euro mortgage. To me it sounds crazy. Cause it's twice the price of Paris, and still it's not in the center of London. Nonetheless, your friend must make quite a lot to be able to take such a loan. Cause they ask that the monthly payment is only 1/3 of net income. Also, supposing the interests (plus insurance, fees, etc) are at 5%, that means just to keep the debt from growing up, he has to pay 15K the first year. And probably the bank net profit from this loan will be in the range of 50K to 100K if not more.......
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Post by j3aN62 on Jul 25, 2007 4:54:26 GMT -5
Yes, so its calculus is that the interest are paid by the possible rise in real estate of more than 5% per year. Plus the fact that he spares the rent. But he has to pay like between fifteen hundred to 2000 a month, more than half what he gets. Just enough left for food.
Plus the fact that unemployment is not a problem in England, and in case he loses his job, he would rent the place for a 1k per month.
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Post by j3aN62 on Jul 25, 2007 7:15:55 GMT -5
Okay, that way, he doesn't spend on food that much, so he has enough to party. And he might had his parents backing for getting the loan. And his parents are okay with that since they seee their kid is not spending all his pay, but is building asset.
I made myself this comment that if it was a physical person who gets the 50K from the interests people would not do it. But the bank is something like anonymous, not really money given away to a physical person, so it's okay to give it to it. Plus really people don't understand the mechanism.
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Post by jewbird on Jul 26, 2007 2:22:37 GMT -5
You know there's a market bubble when the shoeshine boys are giving stock tips.
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Post by j3aN62 on Jul 26, 2007 3:11:17 GMT -5
From the buyer's perspective, it shouldn't matter what the reserve ratio of the banks is or how much profit they make. As long as the rate the buyer pays is low and prices are reasonable, they're willing to go in. That's exactly what happened and hence, prices are now high. Nothing artificial about that unless you argue that the banks pump money into the real estate sector first. They do, but only when conditions are favorable for borrowers. Also, I can't imagine what form of collateral they would prefer to loan against than real estate. I said it yesterday. I'm realizing that more or less. It's like going to the Mc Donald, people think they are just paying to the 'big company', maybe they think Mc Donald is owned by the government. But in fact each McD is owned by a private person, it's a franchise. So each time you eat a burger, it's money in somebody's pocket. Likewise for the bank, it is not state owned, but by private individuals. So people think it doesn't matter that each time they get a loan, that will be a large sum of money earned by private individuals. And yes it matters it is artificially created (not the interest but the loan). Therefore the gains are made from no real work. That's the problem I think.
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Post by jewbird on Jul 26, 2007 11:39:07 GMT -5
Spoken like a true member of the 3rd estate.
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Post by j3aN62 on Jul 26, 2007 13:49:15 GMT -5
Spoken like a true member of the 3rd estate. I made myself another comment concerning the McD. People don't think they give money to the government, but rather to a 'lifestyle'. In fact I think it's one basic rule of marketing, you don't buy the product, nor allow the private business to make a profit, you're giving money for a 'concept'. ;D Yeah, that's really advertizing. So same thing when you borrow money. You don't think you're helping somebody make a profit (in that case, er, a non neglectable one). But you're thinking investment, building asset spirit, private home, etc. ;D ahahaha. Okay, I'm done being subversive, no use. EDIT : I don't understand why I'm posting this kind of post, there must be liberal or libertarian vibes on EAN that influence my thinking.
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Post by j3aN62 on Jul 27, 2007 4:29:11 GMT -5
Okay I'll spill the bin once more (is that the english phrase ?). People should be aware the time it takes to the bank to earn the 50+ K profit of a 300K loan. Say two or three hours to check the application, plus some paper/computer work. And basically it's done for the duration of the payments, 10, 20 years whatever. Cause payments are like automated. See, max one day work to cash 50 K. Hard to beat this kind of profit.
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Post by hapalicious on Sept 18, 2007 7:06:54 GMT -5
so i was catching up on the politics forum and came across this : Any financial experts willing to make a comment? (rob?) Thanks for asking. I actually work in this field and have developed a number of proprietary models that explain the relationship between interest rates, bank reserve ratios and household debt. The chart below summarizes that relationship quite clearly (R-squared of 0.92) and has a strong predictive capability. Just let me know if you have any questions and happy to answer them ;D never laughed so hard in this forum ! edit: interesting documentary though...horrible graphics but not the point. left me even more confused than ever on the subject matter.
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