Coppola Comment

From Joe Sarling's blog comes this a lovely chart showing housing affordability by cohort since 1955: As can be seen, the current generation of young people - Generation Y - faces paying a far higher proportion of their incomes in mortgages or rent than any previous cohort. This does not, of course, take into account the considerable price difference between London and everywhere else: if London were excluded, I suspect their position would not look quite so dire. Nonetheless, this chart is distinctly worrying. Such a high proportion of income spent on housing costs is not remotely sustainable. But that is not what interested me about this chart. What is far more interesting is who really benefited from the increase in house prices since 1960. Contrary to popular opinion, it's not the baby boomers. It's the cohorts immediately before and immediately after them - Generation X, and (above all) the inter-war generation. Yes, those poor old people who grew up in the Dep

Continuing my Forbes series on the mysteries of banking in Eastern Europe: The Hungarian banking system has been a thorn in the Hungarian government’s side for quite some time. A large proportion of it is foreign-owned, which makes it more likely that there would be outflows of capital and restriction of essential lending activity in a crisis. And, of course, it’s more difficult to coerce foreign-owned banks into doing things that the government wants, such as cheap lending to favored borrowers and buying up government debt Not only are many of its banks foreign-owned, they lend foreign currencies too. A high proportion of Hungarian mortgages are in euros or Swiss francs. Banks extended foreign-currency mortgages to Hungarian households at a time when the exchange rate to forints was favorable. But since then the international value of the forint has fallen, mainly due to a sustained period of monetary easing by the Hungarian central bank. This has improved economic conditions but

Scott Sumner has been reading Piketty . And in the first of (apparently) several posts he picks Piketty apart, starting with this passage: "In my view, there is absolutely no doubt that the increase of inequality in United States contributed to the nation’s financial instability. The reason is simple: one consequence of increasing inequality was virtual stagnation of the purchasing power of the lower and middle classes in the United States, which inevitably made it more likely that modest households would take on debt, especially since unscrupulous banks and financial intermediaries, freed from regulation and eager to earn good yields on the enormous savings injected into the system by the well-to-do, offered credit on increasingly generous terms." "Where does one begin?" cries Sumner. And he then proceeds to give five reasons why this particular passage is wrong: "1.  In my view there is plenty of doubt as to whether inequality contributed to the crisis

Barclays is complaining. The Prudential Regulation Authority (PRA) is proposing to test the bank's ability to comply with a proposed new regulatory target - the leverage ratio . In corporate finance, the leverage ratio is the ratio of equity to total debt. But in the banking world, the leverage ratio is the ratio of equity to total assets. It is in theory a simple measure, although different accounting standards do make a difference to its calculation - for example, US GAAP and IFRS netting rules for derivative exposures are different , which leads Simon Johnson to make the mistake of claiming that Deutsche Bank's leverage ratio is too low relative to US banks, when actually under US GAAP it is rather good....However, I digress. The capital ratio , by contrast, is the ratio of equity to risk weighted assets. Risk weighting reduces the value of a particular asset or asset class in the capital ratio denominator: unsecured risky loans are weighted at 100% (i.e. the denominator