The FIRST TWO videos assume that the student is revising what has already
been taught in LESSONS 2 to 6.
The first Video
introduces the Ingram Risk Management Chart and derives the Standing Loan Line.
VIDEO 7.1
VIDEO 7.2
The Second Video (below) derives Ingram's Safe Entry Cost Equation:
P% = C% + D % + I%
And goes on to
look at the Relative Risk Management Chart, which explains why the ILS Mortgage
Model can move from nation to nation or through various levels of inflation
without becoming distorted, or not by a lot. There are some provisos of course.
Then it examines
the margins of safety which are revealed by the Safe Entry Cost Equation.
VIDEO 7.2
VIDEO 7.3
MARGINS OF SAFETYThe third video (below) extends the discussion of how the ILS margins of safety compare to the LP Margins of Safety. It concludes that interest rates would need to jump up by over 5% typically before the ILS Model had to consider raising current monthly payments as a priority.
But that assumes that the interest rate rise was not accompanied by rising AEG% inflation which would extend the safety margin above a 5% interest rate rise by 1% for every 1% rise in AEG%.
If the rise was too extreme to be anything but temporary then the lender could wait it out. The problem is just the marketing and the wrap - the way the ILS model is packaged and the regulatory environment.
With this kind of ability to raise interest rates then in an elastic money market lenders can always fund their cash inflows. What would not be a good idea would be a reliance on short term deposits or the Northern Rock model. We will look at that various funding options in a future lesson coming soon.
VIDEO V 7.3
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