Video Footage- As London Burns

Massive protests across London have sparked much discussion but the visuals, via videos, truly capture the unrest racing across the UK.



Videos below:



LIVE update: Riots spread to Birmingham, London chaos no end







London on Fire: Video of Tottenham anti-police riots, bus blaze









London riots turn mad: Video of massive fire in Croydon









Fresh video of London riots: Crowd street rampage









London riots: Cars, buildings ablaze in Peckham, Croydon, Hackney









Tottenham Riots: Torched houses, cars in London violence aftermath









Much more at YouTube.





News reports, via Memeorndum:



As Rioting Widens, Cameron Deploys 10,000 More Police



London riots: BBC criticised for branding thugs as ‘protesters’



Panic on the streets of London.



British riots spread on third night of violence



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London property market is burning up

(click on the graphic for a larger version)

This graphic presents a different way at looking at London property prices.  Dark red represents rapidly growing prices, dark blue represents rapidly falling prices.  The shades in between represents different degrees of price change (remember red means up, blue means down).

A couple of things to note.  First, the dark strip that starts towards the end of 2009 represents the crash.  As we know the change was abrupt.  This can be seen by the sudden shift from dark red to blue. 

Second, the market recovered in 20010.  However, the graphic tentatively points to a more recent slowdown - the right hand side edge is shifting from dark red to orange and yellow.

Finally, the data points around 2005 are very revealing.  At that time, the London property market was losing steam.  Unfortunately, the Bank of England started worry, and cut interest rates.  London prices surged afterwards.  Many of the worst excesses of the housing bubble occurred between 2005 and 2007.

Just think for a moment, what would have happened if the Bank of England had held their nerve and kept interest rates at more elevated levels.  Property prices would have cooled, the impact of the financial crisis would have been muted and the UK economy would have been in better shape to handle the crisis.

That rate cute also killed the Bank of England's inflation credibility.  For 40 of the last 48 months inflation has been above the 2 percent target. 

Ultimately, the rate cut in 2005 was the worst monetary decision in two decades.  We are paying for it now.

A tale of two cities

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair...."

Here in London it has certainly been the epoch of incredulity and the age of foolishness, but what about Paris?

House prices in the French capital are up about 100 percent since 1992. It is an impressive gain, but pales into insignificance when compared to the fuel injected housing bubble in London.

Like London, Paris went through a post-financial crisis housing correction, but the price falls were mild compared to those in London. Over the last year or so, prices in Paris have recovered and have surpassed the pre-crisis peak. In the 12 months up to September 2010, Parisien house prices have increased by 11.5 percent. What is French for housing bubble? La bulle immobilière, je crois.

London prices have also recovered, but more recently the capital's property market has started to falter.

Just in case I have any french readers, here is my pathetic attempt at a francophone post....

A Londres, il a été l'époque de l'incrédulité et l'âge de la folie, mais ce qui s'est passé à Paris?

Depuis 1992, le prix de l'immobilier dans la capitale française sont en hausse d'environ 100 pour cent depuis 1992. L'augmentation a été impressionnante, mais semblent misérable en comparaison à Londres.

Comme à Londres, Paris a connu une correction après la crise financière, mais les chutes de prix étaient faibles par rapport à ceux de Londres. L'année dernière, les prix à Paris ont récupéré et ont dépassé le sommet d'avant la crise. En Septembre 2010, le prix de l'immobilier de Paris ont augmenté de 11,5 pour cent par an. Quel est le mot anglais pour bulle immobilière? Housing bubble.

Les prix de Londres ont aussi récupéré, mais, plus récemment, le marché immobilier a commencé à tomber.

UK Economy - The ten hottest property markets in London

I have no explanation for this chart; I am not even going to try to understand what is going on.

I will merely report that at in the twelve months up to October at least 10 London boroughs property prices increased by at least 10 percent. 

Am I disappointed?  You could say that.....

UK house prices - Why would anyone want to live in Hackney?

Call me a snob if you like, but I have never understood why people would want to live in Hackney. I can understand why one might have to live there, but choosing Hackney over any other borough in London? That, I am afraid, I have difficulty comprehending.

My personal prejudices are not reflected in Hackney's house price to earnings ratio, which doubled in 9 years.  The ratio has retrenched slightly with the collapse of the bubble.  Nevertheless, the ratio is hovering around 8, which seems extraordinarily high for what was once the poorest neighbourhood in London.

Perhaps I am wrong about Hackney. If so, what am I missing?

Kensington and Chelsea - house prices are twenty times earnings

How high can the house price to incomes ratio go? The Kensington and Chelsea property market suggests that a double digit ratio is perfectly possible.

The Department of Communities and Local government produce a large dataset of average house prices to median incomes for towns and boroughs. (The median, you will recall, is refers to the middle of the data series.  It means that half of all incomes are below the median and half are above.)  The data is only collected on an annual basis. Nevertheless, it does produce some interesting pictures.

Lets start with the central London district of Kensington and Chelsea.  The ratio of house prices to income hit 24 in 2008.  One thing is for sure, local people weren't buying up those dinky little terraced houses in Fulham.

Time permitting, I am happy to post other local house price to earnings ratios, so long as the data is available.  Contact me on ukhousebubble@aol.com

Yak, yak, yakedy, yak....

House prices are up, down and all around.

The main point, however, is that UK property is unaffordable.....

This time it is different

Between 1964 and 2007, the UK fiscal deficit averaged 2.7 percent of GDP. Some years it was higher, others it was lower.

However, no government ever attempted to push the deficit into double digits.

Until now......

So, there is nothing to worry abou then....

Central bankers continue to be complacent about the risks of inflation...

From the FT...

The world’s central bankers were in no hurry to start raising interest rates as they headed home on Sunday from the US Federal Reserve’s annual retreat in Jackson Hole, Wyoming.

In private and in public, most officials indicated they believed that rates could be maintained at ultra-low levels for a considerable time without generating excess inflation, in spite of better economic data and a return of “animal spirits” in financial markets.

Some used the platform of the conference to push back against calls for early implementation of “exit strategies” that would reverse the current extraordinary degree of monetary stimulus.

“There is no reason to re-assess our monetary policy stance,” Erkki Liikanen, Finland’s central bank governor, told Bloomberg news agency. Ewald Nowotny, Austria’s central bank chief, said he did not favour adding a surcharge to the European Central Bank’s next offer of one-year loans to banks – a view shared by some other European officials in Jackson Hole.

FSA screw it up again

The FSA is irredeemably compromised. It has been captured by the financial services industry. As such, taxpayers can not rely on it to properly supervise banks. It must be abolished, with all its powers returned to the Bank of England.

This story from the FT, which highlights the government's disapointment with the FSA's so called crackdown on bonuses, further emphasises the need to abolish this pathetic institution as soon as possible.

Senior cabinet ministers are so disappointed with the Financial Services Authority’s new pay rules, released this week, they are considering whether legislation may be needed to crack down on bankers’ bonuses.

A number of ministers, including Lord Mandelson, the business secretary, are understood to be unhappy with the City regulator’s remuneration code, which toned down some earlier suggested measures.

Lord Mandelson thinks the guidelines, intended to reduce reckless risk-taking, have failed to reflect public concerns that the City is returning to “business as usual” after receiving billions in state support.

“Excessive risk taking had the results that we saw. Ordinary businesses are paying the price,” he said in an interview. “We have not heard the last word on this subject.”

His views are shared by other senior ministers, who suggest legislation may be needed to control short-term incentives for bankers unless the FSA shows it can pursue a tougher line.

UK house price to earnings ratio converging to long run average

According to the Halifax, the long run price to earnings ratio is almost exactly four. Currently, the ratio is 4.33, falling from an all time high of almost six.

The Halifax ratio was calculated using ₤36,576, which is apparently the national average wage for a man in full time employment. (I will let the obvious sexist implications of using that measure pass). The average house price is estimated to be ₤159,623.

What do you think? Is the crash over, and the boom about to begin? Should we believe the Halifax numbers?

Lets roll those loaded dice

There is something deeply disturbing about this chart. It shows that mortgage approvals have picked up over the last four months. While lending activity hasn't yet reached the levels seen during the bubble, there is no doubt that banks are returning to the housing market.

This chart is disturbing because mortgage lending is the only credit market that has seen a pick up in activity. Credit to the corporate sector is contracting. Firms are, on a net basis, actually paying loans back. Things aren't much better for consumers. Interest rate spreads on credit cards have actually increased, and consumer credit growth is close to zero.

So why are banks ready to return to the housing market and at the same time abandon other credit activities? Well, I have my answer. This is a classic case of moral hazard.

Regardless of what the government said in public, the recent bailout had only one objective in mind - put a floor under house prices. The liquidity support and the guarantees were all aimed at stabilizing the housing market. In effect, the government offered to insure banks and their property speculating clientele. The message from Brown and Darling is clear - "we will support house prices no matter how much it will cost".

Banks have picked up on this commitment. Bankers understand all too clearly that the government didn't offer any real support to corporate or consumer lending. Only property matters. Therefore, it is rational for banks to return to mortgage lending while at the same time, cut back on other credit activities.

With this huge de facto insurance contract in their back pocket, banks are cranking up another housing bubble, and it is happening with the financial support of the taxpayer. Moreover, as recent RICS data suggests, there is army of potential house buyers out there ready to dive in and speculate again on property prices.

It is the rational response. After all, we have a government that is ready to guarantee that no one will lose if they speculate on housing. If there are any losses, the government will ensure that the hapless taxpayer will pick up the bill.

Ruthless defaulters

The debt serfs in America are starting to revolt.

From the New York Times....

Melissa Birks is being stalked. Her cellphone keeps ringing, always from a caller marked “unknown.” She says she knows it is her credit card company wondering why she stopped making payments. Ms. Birks, who owes $28,830, has nothing to say.

Those on the front lines of the debt industry say there is a small but increasingly noticeable group of strapped consumers who, like Ms. Birks, are deciding they will simply stop paying. After loading up on debt eagerly provided by the card companies during the boom times, these people now find themselves trapped in an endless cycle where they are charged interest on interest and fees upon fees while the lenders get government bailouts.

They are upset — at the unyielding banks and often at their free-spending selves — and are pre-emptively defaulting. They could continue to pay for a while longer but instead are walking away. “You reach a point where you embrace the darkness of default,” said Adam Levin, chairman of the financial products Web site Credit.com.

The lending industry term for these people is “ruthless defaulters.” In a miserable economy where paychecks, savings and expectations are all diminished, their numbers will surely grow.

State tightens its grip on the UK banking sector

Here is a further example how the clammy hand of socialism is gradually taking over the UK financial system.

Mr. Darling has taken it upon himself to tell banks how to run their businesses. "I've made it clear to the banks that we need to get lending going". Remind me again, does Mr. Darling have any experience actually running a bank? Would he know a good loan proposal from a bad one. Does he know anything of credit risk?

How long will it be before New Labour decide to introduce government determined credit growth targets for each bank? Not long, I'd say....

Do you see any recovery here?

It seems that US industrial production isn't falling quite so fast these days. Some think this is a sign that the recession is bottoming out.

Personally, I don't see out, but I don't wear rose tinted glasses.

It wasn't our fault

Adam Posen's candidature for the MPC is currently being reviewed in parliament. However, his evidence to the Treasury sub-committee should be sufficient to disqualify him having any influence over UK monetary policy.

Clearly, he doesn't understand the current financial crisis. Apparently, the Bank of England got it right all along...

It is important to recognize, though, that those failures on the financial stability side were not the result of inflation targeting or of central bank independence. The rise of the bubbles in the UK and elsewhere were driven by a combination of regulatory and supervisory failures with structural factors not entirely under UK policymakers’ control.

In fact, the continued anchoring of inflation expectations above zero under the current circumstances, without tipping either into deflation or being pressured upwards by temporary large public deficits, represents a triumph of the inflation targeting regime of the Bank of England.

Both the direct economic outcomes of the current crisis would have been worse, and the ability to respond with macroeconomic stimulus would have been far more limited, had this system of control over UK monetary policy not been in place.

This is classic public sector blame-shifting and evasion. First, he points the figure at regulatory failure, which means the FSA. Then, he uses the old unprovable counter factual - "things would have been much worse if we hadn't acted".

The plain fact is that the Bank of England controlled interest rates. For far too long, rates were too low, and this encouraged a speculative bubble that almost destroyed the financial system. True, the FSA are deeply implicated, but inflation targeting was a disastrous policy regime that pushed us into our current calamitous predicament.

Win on the way up, and win on the way down

Goldman continues to make money. Shouldn't regulators start to worry when regular punters don't understand how you made your cash?

Isn't that the lesson of Madoff?

From the NY times.

Up and down Wall Street, analysts and traders are buzzing that Goldman, which only recently paid back its government bailout money, will report blowout profits from trading on Tuesday.

Analysts predict the bank earned a profit of more than $2 billion in the March-June period, because of its trading prowess across world markets. If they are right, the bank’s rivals will once again be left to wonder exactly how Goldman, long the envy of Wall Street, could have rebounded so drastically only months after the nation’s financial industry was shaken to its foundations.

The obsessive speculation has already begun, along with banter about how Goldman’s rapid return to minting money will be perceived by lawmakers and taxpayers who aided Goldman with a multibillion-dollar cushion last fall.

“They exist, and others don’t, and taxpayers made it possible,” said one industry consultant, who, like many people interviewed for this article, declined to be named for fear of jeopardizing business relationships.

Startling, too, is how much of its revenue Goldman is expected to share with its employees. Analysts estimate that the bank will set aside enough money to pay a total of $18 billion in compensation and benefits this year to its 28,000 employees, or more than $600,000 an employee. Top producers stand to earn millions.

The banking behemoth

Do we really need a banking system that has assets is over four times GDP?

I have no idea what the average interest charge is on the total assets of the UK banking system. However, lets take a guess and say that it is 5 percent. If it is, and I doubt that it is any lower than that, then each year, debtors pay banks over 20 percent of GDP as interest. That is a shockingly large number, especially when you consider that the government takes around 37 percent of GDP as taxes.

I know I am mixing up my national accounts. Obviously, you can't add the two numbers together. Nevertheless, the comparison does capture a deeper truth about the UK economy. It comprises of little more than money lenders and tax inspectors.

Most banking lending finances consumption not investment. Likewise, taxation mostly goes on benefits. Neither are terribly productive.

As such, the UK has a strong smell of unsustainability about it. The contradictions built up over ten years of financial mismanagement are coming undone. It seems so unreal and incredible, and nothing symbolizes this dreadful state of affairs like our bloated banking system.

Four hundred percent of GDP? It can not be; it should not be.

UK economy to contract in the second quarter

Here is a bitter dose of reality about the short run prospects of the UK economy.

The housing recovery takes a break

UK mortgage approvals were flat in May.