FAO GY

Anything yellow and blue
GodalmingYellow
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Re:

Post by GodalmingYellow »

&quotAncient Colin&quot wrote:Caught by the word limit. Further: the Upton article is pretty superficial on the mechanisms and makes some strong assertions that are open to question. It's really not very clear on the capital adequacy / asset base / Basel II / balance sheet uses and makes a lot of a &quotmaturity mismatch&quot which is always present - a completely conventional tradition lender basing their lending on deposits still has a maturity mismatch because the depositors can withdraw at any time and at short notice, but loans are long term commitments. Lenders are, hence, always vulnerable to bank runs caused by external events and information asymmetry.
I'm not sure there is room for the detailed minutiae of economic debate on here, which is why I chose that article over others. It gave a good overview expressed in straightforward terms, which I felt would be accessible to everyone, whilst illustrating the points well.

I don't think maturity mis-matches are at all relevant to the argument if I understand what you mean by that phrase, because there is no known reason for depositers to withdraw, which is precisely why Nationwide and others haven't suffered.
Ancient Colin
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Post by Ancient Colin »

Well, first, I don't think any article on the credit crisis that fails to talk about banks' investment portfolios is missing a key link. All the write downs in the market need to be put in this context. Second, maturity mismatch (whether it is because of the use of depositor capital or short term capital market borrowing) is important precisely because of the risk of bank runs. Bank runs can occur even when it is individually rational for depositors to leave their money in the bank, because they have to take into account the actions of other depositors and because of information asymmetry - they are unable to monitor the asset quality and financial strength of the bank, they are aware of liquidation risk and can observe the action of other depositors in withdrawing savings. It thus becomes collectively rational to withdraw funds. Government deposit guarantees reduce the risk of runs but also remove constraints on risky business activity by banks by taking substantial loss on liquidation risks away from the bank and shareholders and placing them on the taxpayer.

Clearly the liquidity and credit crises, whatever their origins, contributed to falling real asset prices in the UK and drove up discount rates reducing the value of mortgage portfolios and investment portfolios for banks. Falling house prices in the UK mean that default risk and the risks of loss on default increase rapidly and give greater incentives for borrowers to default. UK residential default rates are increasing quite rapidly. A quick glance at the write downs and the falling share prices of listed banks show that they have suffered considerably. Nationwide, as a mutual, isn't listed, so we can't see how much it has struggled.

By the way, are you holding to &quotThis is why banks like Northern Rock were hit hardest because a very high proportion of their lending came from Freddie Mac and Fannie Mae&quot.

Not sure why a discussion of a fundamental component of the UK economy at a moment of crisis is &quotboring&quot and, while this may not be the right place for it, it is highly relevant to the overall financial situation at the club.
slappy
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Post by slappy »

GY - your idea last year that the club should buy a house for the players to rent was a sweet idea. It all sounded very nice, the players have somewhere to live, the club gets rent to pay the mortgage and the asset goes up in value in the long term.

Unfortunately, the numbers don't add up, and when several people pointed that out, you wouldn't back down, and even now are still trying to justify it. It was a daft idea last summer before all the current financial woes, and is looking even more daft now.

Have a read through this article if you would like an indication of how long a UK property slump could well last (66 months on average)
http&#58//www&#46investorschronicle&#46 ... -up&#46jsp
GodalmingYellow
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Re:

Post by GodalmingYellow »

&quotslappy&quot wrote:GY - your idea last year that the club should buy a house for the players to rent was a sweet idea. It all sounded very nice, the players have somewhere to live, the club gets rent to pay the mortgage and the asset goes up in value in the long term.

Unfortunately, the numbers don't add up, and when several people pointed that out, you wouldn't back down, and even now are still trying to justify it. It was a daft idea last summer before all the current financial woes, and is looking even more daft now.

Have a read through this article if you would like an indication of how long a UK property slump could well last (66 months on average)
http&#58//www&#46investorschronicle&#46 ... -up&#46jsp
Quite what else do you expect me to say? I can say yes you are of course right amd I was woefully inadequate in my analysis, and everything you say represents the economic bible from which we should all read. But it wouldn't represent what I think is accurate.

You are welcome to your view SBB, I've already stated mine, and I've nothing new to add, and have been presented with no information here or in the outside world which has changed my mind.

We just disagree on the issue of the football club holding property.
GodalmingYellow
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Re:

Post by GodalmingYellow »

&quotAncient Colin&quot wrote:Well, first, I don't think any article on the credit crisis that fails to talk about banks' investment portfolios is missing a key link. All the write downs in the market need to be put in this context. Second, maturity mismatch (whether it is because of the use of depositor capital or short term capital market borrowing) is important precisely because of the risk of bank runs. Bank runs can occur even when it is individually rational for depositors to leave their money in the bank, because they have to take into account the actions of other depositors and because of information asymmetry - they are unable to monitor the asset quality and financial strength of the bank, they are aware of liquidation risk and can observe the action of other depositors in withdrawing savings. It thus becomes collectively rational to withdraw funds. Government deposit guarantees reduce the risk of runs but also remove constraints on risky business activity by banks by taking substantial loss on liquidation risks away from the bank and shareholders and placing them on the taxpayer.

Clearly the liquidity and credit crises, whatever their origins, contributed to falling real asset prices in the UK and drove up discount rates reducing the value of mortgage portfolios and investment portfolios for banks. Falling house prices in the UK mean that default risk and the risks of loss on default increase rapidly and give greater incentives for borrowers to default. UK residential default rates are increasing quite rapidly. A quick glance at the write downs and the falling share prices of listed banks show that they have suffered considerably. Nationwide, as a mutual, isn't listed, so we can't see how much it has struggled.

By the way, are you holding to &quotThis is why banks like Northern Rock were hit hardest because a very high proportion of their lending came from Freddie Mac and Fannie Mae&quot.

Not sure why a discussion of a fundamental component of the UK economy at a moment of crisis is &quotboring&quot and, while this may not be the right place for it, it is highly relevant to the overall financial situation at the club.
I think this came from a disputed view on the origins of the credit crisis and whether that impacted on the benefit or otherwise to the club of holding property for players.

Again, I've nothing much new to add really, and again I don't think this is the place to discuss this in quite so much detail. No problem with it as an overview behind the OUFC related discussion though.

Given that Fannie Mae and Freddie Mac sold over half of US mortgages, and 70% of Northern Rock mortgage funding came from the US, it is difficult to imagine that there is no link. However, you are clearly a more knowledgeable economist than me, so if you say it is not a valid connection to make, then I'm happy to accept that.
Ancient Colin
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Post by Ancient Colin »

Not wishing to prolong this, but Freddie and Fannie buy mortgages from US originators and then sell MBS and bonds secured on those mortgages. They would not buy Northern Rock mortgages as that would be outside their business aims and regulatory framework - certainly excluded in Freddie's 1970 Congressional charter and Fannie's various charters from 1938.

The Fannie Mae / Freddie Mac model is actually rather similar to some of what has been proposed to bail the banks out - other than what's been suggested here is purely public sector while Fannie and Freddie are now private (but regulated, with tax benefits and with the implicit backing of the US government). If you think they need bailing out (which I personally don't) then it isn't such a bad model.
Last edited by Ancient Colin on Sat Aug 02, 2008 10:53 pm, edited 1 time in total.
Snake
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Re:

Post by Snake »

&quotslappy&quot wrote:GY - your idea last year that the club should buy a house for the players to rent was a sweet idea. It all sounded very nice, the players have somewhere to live, the club gets rent to pay the mortgage and the asset goes up in value in the long term.

Unfortunately, the numbers don't add up, and when several people pointed that out, you wouldn't back down, and even now are still trying to justify it. It was a daft idea last summer before all the current financial woes, and is looking even more daft now.

Have a read through this article if you would like an indication of how long a UK property slump could well last (66 months on average)
http&#58//www&#46investorschronicle&#46 ... -up&#46jsp
“GY - your idea last year that the club should buy a house for the players to rent was a sweet idea
slappy
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Post by slappy »

Thanks GY for a reasonable reply, as you say, we can have different opinions.
recordmeister
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Post by recordmeister »

Any one want to hazard a guess as to the negative equity that the club will have over the next 2 years, through buying the training ground?
GodalmingYellow
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Re:

Post by GodalmingYellow »

&quotrecordmeister&quot wrote:Any one want to hazard a guess as to the negative equity that the club will have over the next 2 years, through buying the training ground?
None, they haven't bought the training ground, they rent it.
slappy
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Post by slappy »

Snakey / GY, I presumed (rightly or wrongly) that GY was thinking of a house away from the stadium. I suspect I am overly pessimistic on the financial aspects of this.
I shall give some consideration to the other idea of the Leyton Orient-esque flats.
Back later.... :)
GodalmingYellow
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Re:

Post by GodalmingYellow »

&quotslappy&quot wrote:Snakey / GY, I presumed (rightly or wrongly) that GY was thinking of a house away from the stadium. I suspect I am overly pessimistic on the financial aspects of this.
I shall give some consideration to the other idea of the Leyton Orient-esque flats.
Back later.... :)
Rightly. I hadn't considered the effect of renting low cost flats in the corners to players as part of the low cost housing requirements.

That one will take some thoughts and research.
scooter
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Re:

Post by scooter »

&quotGodalmingYellow&quot wrote:
&quotslappy&quot wrote:Snakey / GY, I presumed (rightly or wrongly) that GY was thinking of a house away from the stadium. I suspect I am overly pessimistic on the financial aspects of this.
I shall give some consideration to the other idea of the Leyton Orient-esque flats.
Back later.... :)
Rightly. I hadn't considered the effect of renting low cost flats in the corners to players as part of the low cost housing requirements.

That one will take some thoughts and research.
It is unlikely that players would be allowed to rent flats which were part of the affordable housing quota, tenants have to qualify under the local authority points procedure.

If some of the affordable housing was designated key worker shared equity it is up to the local authority to define who are key workers. This is to enable them to adress skill shortages in an area, interestingly in some authorities planning officers have been designated as key workers which enables them to take advantage of shared equity affordable housing.

Whether OCC could be persuaded that OUFC are suffering a skill shortage and need players to be defined as key workers is an interesting debate.
ty cobb
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Post by ty cobb »

Couple of points

Banks are rushing to shore up their capital positions at the moment - why do you think this is, this article may give some clues.

http://www.ftadviser.com//InvestmentAdv ... -banks.jsp

Furthermore, whilst it's true the banks haven't taken a hit from the UK housing market yet, they will do. They are clearly pricing in a fall of at least 10% which is why it's so hard to get a mortgage without a whacking great deposit. If you were someone with a £200,000 mortgage for a 2 bed roomed flat and it was worth £150,000 and you could buy a 2 bed roomed house for £200,000 would you

a) stick it out and accept you're not going to be move up the housing ladder for a decade
b) hand your keys into your lender and let them take the hit

Think of the previous situation a bit like a pyramid scheme. There is a fixed amount of money in the system, but what banks do is parcel up £100 of debt and sell it on for £90 which means they have another £90 to lend. This they do and then sell that on for £80. This carries on until the money supply either runs out or the debt you're selling on suddenly becomes worth a lot less - which has happened with the fall of house prices in the US and people stop buying that debt.

It is a unsustainable business model - as NR have proved. GY - they really don't have a sound mortgage book, they were one of the most aggressive lenders out there and will feel the hit of falling prices more then anyone else - which we're now underwriting.
I've nothing against the club owning property, it makes sense but as with any asset you do not buy at the top of the market, this is what we'd have done 6 months ago and we'd have an asset base now worth far less then it was previously - some creative accounting would be needed to keep that off the books.

I also agree with Snake - there would be a premium on property overlooking the pitch and there is no reason why building property when the housing market has recovered will not work - as Snake says we'd get more for the flats should we get promoted as well.

I do fear though if it was possible then FK would have done it by now - he seems a bit more with it from a business sense then NM.
GodalmingYellow
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Re:

Post by GodalmingYellow »

&quotty cobb&quot wrote:Couple of points

Banks are rushing to shore up their capital positions at the moment - why do you think this is, this article may give some clues.

http://www.ftadviser.com//InvestmentAdv ... -banks.jsp

Furthermore, whilst it's true the banks haven't taken a hit from the UK housing market yet, they will do. They are clearly pricing in a fall of at least 10% which is why it's so hard to get a mortgage without a whacking great deposit. If you were someone with a £200,000 mortgage for a 2 bed roomed flat and it was worth £150,000 and you could buy a 2 bed roomed house for £200,000 would you

a) stick it out and accept you're not going to be move up the housing ladder for a decade
b) hand your keys into your lender and let them take the hit

Think of the previous situation a bit like a pyramid scheme. There is a fixed amount of money in the system, but what banks do is parcel up £100 of debt and sell it on for £90 which means they have another £90 to lend. This they do and then sell that on for £80. This carries on until the money supply either runs out or the debt you're selling on suddenly becomes worth a lot less - which has happened with the fall of house prices in the US and people stop buying that debt.

It is a unsustainable business model - as NR have proved. GY - they really don't have a sound mortgage book, they were one of the most aggressive lenders out there and will feel the hit of falling prices more then anyone else - which we're now underwriting.
I've nothing against the club owning property, it makes sense but as with any asset you do not buy at the top of the market, this is what we'd have done 6 months ago and we'd have an asset base now worth far less then it was previously - some creative accounting would be needed to keep that off the books.

I also agree with Snake - there would be a premium on property overlooking the pitch and there is no reason why building property when the housing market has recovered will not work - as Snake says we'd get more for the flats should we get promoted as well.

I do fear though if it was possible then FK would have done it by now - he seems a bit more with it from a business sense then NM.
Ty, as I've already said above, there is no accounting requirement, creative or otherwise, to recognise a short term asset value drop on a long term asset. Although property purchased by the club might be worth a reduce amount now compared to say one year ago, that would make zero difference to the club. Unless you are a quoted company whose share price is asset value dependant, the only time reduced asset values hurt, is when they are sold. Provided the club were in it for the long term, reduced property prices now would be completely meaningless. In two years time (or 4 years or whatever timescale you think the prices will be recovered) any temporary drop in values will have been over-ridden by increasing values again, and during the interim, the balance sheet would not have altered one jot as a result of the fluctuations.

I'm not going to get into the Northern Rock siutation again, as it is irrelevant to the club, and I remain of the view that their mortgage book is as good as any other UK bank. as I said before, their problem is one of liquidity, not book values. Like all banks their mortage stocks might reduce in value depending on the quality of their customers, but I've seen no evidecne which suggests their borrowers are any more or less solvent than any other bank.
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