The humble interest only mortgage has become a byword for financial recklessness. In the eyes of many, such mortgages are the UK equivalent of sub-prime loans in the US.
But I disagree:
- Sub-prime mortgages saw US banks scanning the worst localities for the worst customers. Just to make sure things ended badly, the resultant loans were sliced and diced into mortgage-backed securities and sold with an often fanciful credit rating. Cue the credit crisis.
- An interest only mortgage is simply a financial product with the potential to be misused.
Comparing a sub-prime mortgage to an interest only mortgage is like comparing crack cocaine with aspirin. Both can kill you, but with an aspirin – or an interest only mortgage – you’ll be fine provided you read the label and follow the instructions.
I don’t have a mortgage, but if and when I buy a home I’ll probably go interest only. In this article I’ll explain why.
A long time ago Jeremy Clarkson had a TV show alongside his 53 cars and a death wish. And in one episode he discussed pensions.
Watch the video below for proof, and note that Clarkson’s pension plan involves:
- Spending 10% more than you earn
- Eating and smoking enough to die before you’re old
- Blowing anything left over on an E-Type Jag!
It’s pretty funny stuff, but obviously Clarkson was speaking as a bigshot media personality who now earns well over £1 million a year. (Not to mention someone who probably will die of one of those things!)
Overpaid bankers who are given crazy bonuses for making average returns and who ought to be using their first-class brains to design volcano-proof 747s rather than financial timebombs are a favorite topic on Monevator.
And don’t get me started on the housing bubble.
You might therefore expect the Goldman Sachs fraud charges to have me bashing away at my keyboard like Bill Clinton on an intern’s Facebook page.
But to be honest, I find myself strangely unmoved.
It’s hardly news, is it? Two years ago I wrote that Wall Street ‘innovation’ created the credit crisis, and that the elite banks should pay for it. The subsequent carnage took out Merrill Lynch and Lehman Brothers. Not a perfect result but better than I expected.
Okay, so bankers were soon collecting huge bonuses on the back of the special measures designed to protect them from going bust – but who was shocked by that? On a professional level bankers care only about money these days, and for all I know that’s all they ever cared about.
No, this SEC move seems politically timed. The sub-prime issue has been knocking about for ages. Michael Lewis even wrote a book
My Saturday comments, followed by the usual list of links to other good blog posts and articles.
Last month I found myself in the novel position of feeling a bit uncertain about the stock market rally.
For much of the past 18 months I’ve felt like the only bull in the blogosphere:
- Back in March 2009, I was selling anything that wasn’t nailed down to raise more money to buy shares.
- All last summer I wrote about how the stock market rally was rational, after such a big crash – especially in the light of the ten-year bear market.
- I wish I’d kept a list of the blogs I commented on who were urging readers not to invest. Not because we don’t all make mistakes (I certainly do!) but because some didn’t acknowledge their mistakes later. A few pessimists then now write like they thought the rally was the most natural thing in the world.
I’m not saying I had any special insights. I just saw shares as cheap, and that there was no reason why they wouldn’t rise eventually. I was prepared to wait for years if I had to, but the gains came much quicker than anyone expected.
This article on living frugally is the second part in a three-part series on radical early retirement written by Jacob from Early Retirement Extreme.
In this post, Jacob reveals key ways of living frugally that enabled him to retire early on his investments.
It’s actually really hard for me to list the ways I am frugal. I often come across such lists in the blogosphere and I’m thinking to myself: “Isn’t this stuff obvious?!”
Once one grasps the main principles of living frugally – which is mainly to look at optimizing efficiency and utility – one will become frugal, rather than just do frugal things.
