A new model: what next?

Mar 11 2014 07:24
*Edward Ingram
LAST week my essay on The wrong way forward was admittedly not a very easy read for anyone who has not read most of my previous essays, but two readers did endorse what I wrote: The problem for many is unlearning what they have been taught.

Since then I have spoken to one National Treasury person and been told that these ideas are not without merit (they have merit). But they would prefer to read them in an academic journal.

I could respond that one person at the heart of the UK financial services industry has embarked upon just such a script, but says that it may be a year before the paper gets published.

And when it is published, it will not move things forward.

As Michael Harrison indicated in his letter Fin24 published last week, it needs a task force – a multi-disciplined commission of inquiry for example to move things forward.

If we write for economists, they will want the endorsements of bankers. If they get that endorsement, then there will need the endorsement of the financial advisers and the financial product developers, which will bring in the actuaries.

If we get that, we will need the agreement of the tax authorities and also the regulators and finally the Treasury.

As one person wrote recently, it may take 20 years to get through all this. Well, it may do if we are going to rely on academic papers on each and every financial discipline and then ask that in some unspecified way it will all be drawn together, involving everyone.

Another development: in a paper published by Lord Adair Turner, former head of the UK’s Financial Services Authority, he wrote that there is a need for a new mortgage model which takes better account of changing economic conditions.

He was particularly concerned about the way that mortgages go ‘under water’, meaning that property prices can fall and the mortgage ends up being larger than the value of the security (the property).

My contact at the centre of the UK financial services industry has seized upon this and a letter to Lord Turner has been agreed and sent to him by my inner group of followers. They include Mr Harrison, Graham Hollick (a former president of the International Union for Housing Finance), and a few others of that status. Two are from South Africa.

The letter informs Lord Turner that such a mortgage model already exists and is ready ‘to go’.  Also, the maths of safe lending shows that if lenders offer more when nominal interest rates are low, then when they recover everything will fall apart.

So if the guidelines arrived at are followed, new mortgages will not inflate and deflate as interest rates vary, and property prices will NOT fall as interest rates rise, at least not by much if at all.

So now we are writing to the Bank of England/International Monetary Fund. They are involved in a discussion on government debt structures, as readers of my earlier essays will know.

What the builders say

Two of my expert group are working in the property sector. One is a South African. Like his UK counterpart, he is saying that the sector is waiting for the financial engineering to be done before many property developments in South Africa can move forward.

A copy of his letter has been sent to the South African Treasury. Reportedly, many potential home buyers feel the same. The property industry is not currently financially safe.

Finally, I have sent a copy of my interactive spreadsheets to a key person in the UK Financial Services Sector, the one WHO is writing a paper on all this. It will reveal just how robust the new ILS Mortgage model can be.

 - Fin24

* Edward Ingram has a strong and growing support base. One American has started a petition asking President Barack Obama and/or his senate committees to look into these ideas. Ingram says: “Why not here in South Africa? The ideas are universal.”

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edward ingram  |  money  |  investment



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