Thread: 7:30 report tonite...

Apparently a number of euro countries have agreed on a co-ordinated rate cut. Might help a tiny bit

Anyone interested can read Steve Keen's Deathwatch.

Is this the associate professor who was in the paper a couple of weeks ago - he was selling his house to get out of debt.

Originally Posted by DiscoStew

What I don't understand is: if I keep my job and can afford to service my debt now, and if interest rates do not go up, then why is this debt suddenly a problem?

How much debt do you have? If you have more debt than equity you might be on the receiving end of a Margin Call. That is a US example.

Margin calls are normally associated with shares but they can also happen to property. Say you borrowed 100% to buy a 500k property late last year. Say the property market crashes and goes down 40% (probably worst case but plausable). You're making payments so all is good you think.

However a number of people loose their jobs and stop making payments. The banks take their houses but they don't get what they are owed. All of a sudden the bank needs money.

So, you're making payments and are a good customer. You owe 500k but your house is now only worth 300k. The bank thinks you're good for it. One day your bank manager rings and asks for you to provide some more capital as they are feeling a little exposed. They could ask for between 0 and 200k from you. You have to find the cash instantly or they will fore close and get what they can get. Remember that even if they only get 300k for they house they can still sue you for the other 200.

Thats not much fun at all, but it has happened in Australia before. It's already happening with shares and if things go bad it could happen again with houses. This is the closest it's been for some time. If a 40% drop in price could have your house being worth less than your loan than you could be at risk if things go bad bad.

Originally Posted by p38arover

Is this the associate professor who was in the paper a couple of weeks ago - he was selling his house to get out of debt.

Yes.

Originally Posted by DiscoStew

...
BTW he is not a professor, he is an associate professor. He needs one more promotion to be called Prof.
...

He may hold an associate professorship, however protocol determines that you address him as "Professor" or perhaps informally as "Doctor" but not anything less.

Just for your information.

Diana

Originally Posted by Captain_Rightfoot

Apparently a number of euro countries have agreed on a co-ordinated rate cut. Might help a tiny bit

It doesn't look like it's helped.

FTSE momentarily went up but it's diving now - down 3.5%. Dax (Germany) down 4.77% Russia market suspended.

Anyone for a punt for the ASX tomorrow?

Originally Posted by Lotz-A-Landies

He may hold an associate professorship, however protocol determines that you address him as "Professor" or perhaps informally as "Doctor" but not anything less.

Just for your information.

Diana

Maybe there are different protocols around OZ but that's not what we call them. We call them AssPro's (no kidding). I was politely corrected just after I started working at the University when I made that mistake. Anyway, not a big deal and I may be wrong, I just wanted to highlight that this guy is not yet a full professor. AssPros are still well qualified/regarded and I don't mean to suggest otherwise.

In the US it is quite different. I believe any teaching academic gets called Professor.

Originally Posted by Captain_Rightfoot

How much debt do you have? If you have more debt than equity you might be on the receiving end of a Margin Call. That is a US example.

Margin calls are normally associated with shares but they can also happen to property.

Thanks, that makes sense. From memory the market would need to crash by about 80% for my margin loan to be called. I have a line of credit against my house which could pay that anyway. Some quick sums say that the housing market would need to drop by 60% from prices as at a year ago before the house value dropped below the loan amount even after paying out the margin loan. So I am not feeling invincible but not nervous yet.

Originally Posted by Hymie

My understanding of Basic Economics is thus.
It's all about confidence.
If people believe that a recession is going to happen, they will stop spending money, manufacturers will not have to manufacture, Primary producers will not have to produce materials for manufacturers and people all along the chain lose their jobs.
Look at it this way.
If you have money and spend it, you are keeping people in jobs and the wheels get greased.
The worst thing that can happen is for people to stop spending money and trying to save what they have, thereby driving up the cost of money.

How am I going so far?

Man my brain hurts!!!

That would make sense if the money is real and has real value. What seems to happen as a regular cycle, the real value of money/gdp/inflation and stock market diverge substantially over time and there is a correction at some stage - either the market takes a nose dive or there is rampant inflation. If you keep the money flowing, or simply print money, the dollar devalues.
Both have the effect of making most people poorer, but you could argue that rampant inflation is a lot harder to control than a depression.