Originally published at: http://boingboing.net/2016/09/13/uk-inequality-top-1-owns-mor.html
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Can someone explain this to me?
I see an asset of £1,000,000 and a liability of half of that. In what technical sense is this “having a net worth of zero?”
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For more statistical analysis of why Oxfam’s measure is hopelessly misleading, listen to Tim Harford on BBC More Or Less: http://www.bbc.co.uk/programmes/p03gj7h9
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If I own a house worth £200k but have a mortgage for £150k, then I own £50k but owe £150k so I am £100k in debt. I am then £100k worse off than a man in India who owns nothing but owes nothing.
The problem is that wealth is not the same as income.
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That makes absolutely no sense.
The amount owing should either be counted against the ownership of the asset, or as a liability separate from the asset (in which case the full value of the asset should offset it), but not both. Why, when calculating wealth, is the amount owing counted twice?
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What does this mean, surely wealth inequality goes back a fair bit further than June?
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I think that quote has it backwards.
I think Oxfam’s trying to say that they attribute the result of the Brexit vote to the UK’s wealth inequality.
Like the title of the link says:
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What he’s referring to is the concept of equity. It’s total assets minus total liabilities.
I believe he’s counting the £50k stake in the house you own as an asset (because you don’t actually own a £200k house, you only own £50k of a £200k house) and applying that against the £150k mortgage you also have as a liability. That means your liability exceeds your assets by £100k.
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Slackers. Once again 'merica is leading the way!
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Yes, I get the equity bit. From that Wikipedia article:
For example, if someone owns a car worth $15,000 but owes $5,000 on a loan against that car, the car represents $10,000 equity.
The $5,000 is being counted once.
The article doesn’t say, “If someone owns a car worth $15,000 but owes $5,000 on a loan against that car, the owner’s stake in the car is $10,000, and, less the $5,000 owed, the car represents $5,000 equity.”
Again, that makes no sense.
Either you own the full value of the house, and the mortgage is your liability, or you own the “paid off” stake in the house, and the bank owns the rest, and the mortgage isn’t a liability against you.
If I paid off my mortgage today, I’d be hit with all sorts of penalties, it’s true, but I wouldn’t have to pay the bank the amount of the debt, and then pay the same amount again to buy out their stake in the house. They own their stake in my house, or they own the debt that I owe them; they don’t own both.
Or, for the £200k house/£150k mortgage example, if I default on the mortgage, the bank takes my house and sells it for £200k to pay off my debt. I don’t then owe the bank another £150k.
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Yep. If in this scenario I had to sell the house at market value, I’d give the bank 150K and walk away with 50K, not have to write a cheque for 150K on top.
Eh. I’d count that 50K as lost, what with “lost interest,” and back payments, and discharge fees, etc. I doubt you’d get much of that back at all.
The way it’s being counted here, you don’t really own a £200k house, you own £50k of a £200k house. Thus you have a £50k asset.
Your mortgage also has to do with this house, but for the sake of calculating your liabilities, you have to ignore that for now. If you still owe a £150k mortgage, that’s a £150k liability regardless of how it counts towards your assets.
That means you have an equity of -£100k.
That doesn’t mean if you sold the house you couldn’t walk away debt free. It just means you owe more than what you’re currently worth.
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Then why isn’t the car, from the Wikipedia article you linked, a $5,000 equity instead of a $10,000 equity?
The car may have been used as collateral for a loan. If you have clear title of the car, you own the full value of it as an asset.
But isn’t a mortgage just a loan with the house as collateral?
Because he hasn’t sold it.
But, if he sold the car, he’d have $15,000 cash, $5,000 of which would have to go to the bank (since the loan was secured with the car as collateral), leaving him $10,000 of cash as the equity.
I don’t see why the debt is counted once against the equity of the car, and twice against the equity of the house.
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That is absolutely wrong. You have a 200k asset and a 150k liability for a 50k net worth, period. You are double-counting the mortgage for some strange reason.
If you sell the house for 200k, the bank takes 150k and you walk away with 50k. You don’t sell the house for 50k and then pay the bank 150k.
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Yes, but the percentage of ownership of the collateral is the key.
Just because you own one share of AT&T stock doesn’t mean you have a $125 billion asset. You just have a tiny fraction of what the company is worth.
