Recent economic conditions created so much liquidity that it became easier to borrow considerable sums of money to finance cars, houses or status symbols without fully owning the assets. Credit availability made it possible for some to have lifestyles beyond their means and in some cases it was not much more than an illusion of financial leverage.
Just because somebody drives a new car does not mean they fully own it. Vehicles can be owned by a lease company or can be collateral of a bank until such time as the finance agreement is fully paid off. The situation with property is similar. Things are generally ok as long as interest rates are low, employment levels are high and there is confidence in the strength of the economy.
Errr....what happens if interest rates rise, employment levels fall and economic growth slows? Oh, well, was hoping that question would not come up. If that happens then people with far too much debt to service and insufficient income may find their social status being reclassified from "so successful" to "so homeless". If the payments cannot be made then the property, vehicles etc might be re-possessed and there might still be a bill left over for negative equity or financing costs.
Do not believe this is a possibility? Take a look at the US/UK property market, mortgage/loan/credit-card debt and default rates, the subprime/structured product mess, asset write-downs by banks, Fed-ECB-BoE money market intervention and interest rate moves, and the list goes on. There seems to be too much debt around which is heading up a certain creek without a paddle.
Moral of the story: There is a major difference between being able to pay for something and being able to afford it.
Global Forums > General > What you see may not be what you get
Only members can see names and photos
What you see may not be what you get
Sep 20, 2007 @ 19:33
The text you are quoting:
Recent economic conditions created so much liquidity that it became easier to borrow considerable sums of money to finance cars, houses or status symbols without fully owning the assets. Credit availability made it possible for some to have lifestyles beyond their means and in some cases it was not much more than an illusion of financial leverage.
Just because somebody drives a new car does not mean they fully own it. Vehicles can be owned by a lease company or can be collateral of a bank until such time as the finance agreement is fully paid off. The situation with property is similar. Things are generally ok as long as interest rates are low, employment levels are high and there is confidence in the strength of the economy.
Errr....what happens if interest rates rise, employment levels fall and economic growth slows? Oh, well, was hoping that question would not come up. If that happens then people with far too much debt to service and insufficient income may find their social status being reclassified from "so successful" to "so homeless". If the payments cannot be made then the property, vehicles etc might be re-possessed and there might still be a bill left over for negative equity or financing costs.
Do not believe this is a possibility? Take a look at the US/UK property market, mortgage/loan/credit-card debt and default rates, the subprime/structured product mess, asset write-downs by banks, Fed-ECB-BoE money market intervention and interest rate moves, and the list goes on. There seems to be too much debt around which is heading up a certain creek without a paddle.
Moral of the story: There is a major difference between being able to pay for something and being able to afford it.
philSep 20, 2007 @ 19:33
Just because somebody drives a new car does not mean they fully own it. Vehicles can be owned by a lease company or can be collateral of a bank until such time as the finance agreement is fully paid off. The situation with property is similar. Things are generally ok as long as interest rates are low, employment levels are high and there is confidence in the strength of the economy.
Errr....what happens if interest rates rise, employment levels fall and economic growth slows? Oh, well, was hoping that question would not come up. If that happens then people with far too much debt to service and insufficient income may find their social status being reclassified from "so successful" to "so homeless". If the payments cannot be made then the property, vehicles etc might be re-possessed and there might still be a bill left over for negative equity or financing costs.
Do not believe this is a possibility? Take a look at the US/UK property market, mortgage/loan/credit-card debt and default rates, the subprime/structured product mess, asset write-downs by banks, Fed-ECB-BoE money market intervention and interest rate moves, and the list goes on. There seems to be too much debt around which is heading up a certain creek without a paddle.
Moral of the story: There is a major difference between being able to pay for something and being able to afford it.
philSep 20, 2007 @ 19:33
Your Reply:
Only members can see names and photos
Re: What you see may not be what you get
Post 1
Sep 20, 2007 @ 19:39
...most of 'em are carrying fake Vuitton bags...
The text you are quoting:
...most of 'em are carrying fake Vuitton bags...
Casuistik, Sep 20, 2007 @ 19:39
Casuistik, Sep 20, 2007 @ 19:39
Your Reply:
