Treasury's mortgage rescue plan
I have learned that the Treasury may give a taxpayer guarantee to billions of pounds of bonds known as mortgage-backed securities created by banks out of high quality mortgages, in a radical attempt to revive Britain's rapidly shrinking mortgage market.
Officials from the Treasury are examining such an ambitious and controversial scheme in response to a dire assessment of the outlook for mortgage finance to be published at 10am today by Sir James Crosby, the deputy chairman of the City watchdog, the Financial Services Authority.
Sir James is forecasting that a chronic shortage of mortgage finance for homebuyers and homeowners which has persisted for months will continue throughout this year, 2009 and 2010.
In April, Sir James was asked by the chancellor, Alistair Darling, to examine what "market-led initiatives" might be necessary to improve the functioning of markets in mortgage-backed securities.
He was commissioned to do this because of the importance of the market for mortgage-backed securities, which grew explosively after 2000 and became a vital source of funding for British mortgage lenders.
Sir James is understood to have concluded that by 2006 finance from the sale of these securities - which are packages of mortgages lent to homebuyers - was equal to two-thirds of all net new mortgage lending in the UK.
By the end of last year, the total stock of UK mortgage-backed securities was a staggering £257bn - equivalent to around a fifth of the value of the British economy - out of total residential mortgages of £1200bn.
But almost exactly a year ago, with the onset of the phenomenon now known as the credit crunch, demand for these bonds completely dried up.
It has since become almost impossible for any bank to issue mortgage-backed securities. So banks simply don't have the cash to meet even the current reduced demand for mortgages from homeowners who need to refinance their debts and from prospective homebuyers.
As I wrote in May leading banks are expecting the net increase in mortgage lending to fall to £60bn in 2008, from £110bn last year and a similar amount in 2006. That's a drop of 45% - a shrinkage that reflects a collapse in mortgage approvals for house purchase.
Nor is the plunge of the mortgage-backed securities market the only funding difficulty being experienced by banks. They are struggling both to raise other forms of wholesale funding and to extend the maturity of their existing debts
Also the squeeze on the money they have available for new mortgages is exacerbated - according to Sir James - by their obligation to repay around half of their existing mortgage-backed borrowings over the coming three years.
And adding to the banks' woes is that as they reduce the supply of mortgages and increase the cost of homeloans, there is likely to be a rise in the number of mortgage holders who can't pay their debts. A consequential increase in defaults would further deplete their capital resources and their ability to lend.
So, broadly, mortgage finance is now only available to those with utterly reliable earnings and deposits equivalent to at least 25% of the value of what they want to borrow.
Sir James warns that the availability of finance to all other consumers - including most first-time buyers - is much reduced and likely to remain so.
As for what little lending there is, that's now dominated by the UK's biggest five or six banks, with small banks and building societies making almost no new loans. Sir James expects many mortgage intermediaries to disappear.
He also expects the shortage of mortgage finance to exacerbate the fall in house prices (doh!) and the weakness of consumer spending (double doh!).
What's to be done?
He believes it may make sense for the government to attempt to re-open the market for mortgage-backed securities, to prevent the banks becoming so strapped for cash that the housing market would go from decline to meltdown.
Sir James says there are two leading contenders for government intervention in this market.
One would be something along the lines of an idea put forward by the Council of Mortgage Lenders, with the Bank of England becoming - in effect - the market-maker of last resort for mortgage-backed bonds.
On this model, which would be seen as an extension of the £100bn so-called Special Liquidity Scheme the Bank announced in the spring, the Bank would agree to lend to almost any financial or investment institution against the security of mortgage-backed bonds bought by the relevant institution.
The Bank would be guaranteeing that if the market for such bonds were shut, it would make sure that the bonds did not become totally illiquid.
However the much more radical suggestion mooted by Sir James - and under active review by the Treasury - would be for the government to guarantee, on commercial terms, billions of pounds of better quality tranches of new mortgage-backed securities.
Or to put it another way, the taxpayer would be providing a promise that it would pick up the tab in the event that the value of of those securities was impaired by a huge rise in repayment difficulties or defaults by mortgage borrowers.
Which would be pretty controversial, as it would be seen as taxpayers underwriting a huge slug of the mortgage market.
Some would argue that our entire mortgage industry would be nationalised, although that would probably be overstating it.
To be clear, Sir James may yet - when he issues his final report in September or October - recommend that the government should not intervene, on the basis that such intervention may create more difficulties than it would solve.
But the tenor of his report suggests that there would be significant risks to the health of the economy from doing nothing.
And although the chancellor, Alistair Darling, has no intention of trying to prevent house prices from falling - in that he acknowledges that it would be mad and futile to attempt to rig the housing market in a fundamental way - Darling is deeply troubled by the risk that the chronic shortage of mortgage finance could lead house prices to fall much further and faster than would be warranted on the basis of notional economic fundamentals.
What Darling would like to prevent, if he possibly can, would be house prices overshooting on the way down, just as they overshot on the way up, and thereby wreaking massive damage to the economy.
With the full force of the tide against him, he'll find that a challenge.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~59~RS~)
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oh dear, we are screwed, properly.
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"He also expects the shortage of mortgage finance to exacerbate the fall in house prices (doh!) and the weakness of consumer spending (double doh!)."
It is not a shortage, it is a simple market reaction to hugely overvalued property and slack lending standards. It is not the governments job to attempt to "fix" this, the crunch *is* the fix. Stay away, let prices fall, once they are at a sensible level, mortgage backed securities will again be adequately secured, and you will find that there is nothing wrong with the market. What the government should instead spend the intervening time on is trying to figure out how to prevent yet another bubble in property.
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Sounds like the government is trying to buck the market, something which will not work.
The market will not start to rise sustainably until all the funny money created by the banks has been wiped out, however much pain that causes.
I am very uncomfortable about committing any public money to the banks while those who created this mess are still working in the city, and still paying themselves huge bonuses.
The public have the right to demand that these guys personally make good the damage they have wreaked on the economy.
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Mortgage-backed securities were bound to die, so let them die! All these things have done is creating a gigantic debt and house price bubble which now needs to be corrected. I find it disturbing that American and British finance people seem to think they have a right to feed on ever growing debt. What is wrong with the fall in house prices and the end of the debt-fuelled shopping spree? It is not an illness it is a cure, as bitter as the medicine may taste to bankers. All we need is the house prices to come down to a natural level, where they would be and can be maintained without Mortgage-backed securities and with the help of real economy.
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The first poster wrote, "oh dear, we are screwed, properly."
I don't think people realise quite how properly. While the papers are wringing their hands over the cost of mortgages they haven't considered the effect of increasing borrowing costs on industry.
Keith.
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The government should not intervene in the mortgage market.
Until there has been severe pain the situation will not improve. Economies need cycles to work properly and despite what Gordon says they can't be controlled. There are always winners and losers in capitalism.
Intervention will only prolong the agony and could make things even worse.
I reckon the Gordon and Alistair show have reached a point were screwing things up for the next incoming (Conservative) government might be more to Labours advantage in the longer term. So watch for massive intervention.
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Not in my name. Nor with my money.
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Does Darling really not want to prevent house prices falling? Surely the basis of Labour's re-election strategy is to keep the majority of the populous happy through ever rising house prices and the supposed free money it brings?
The reason no-one wants MBSs any more is that hey have been proved not to work with house prices at the level they are. A small rise in interest rates has left the country nearly crippled. Whilst some like to blame the interest rises, the real problem is that banks have over-lent and people have over-borrowed. Rather than allowing the situation to correct itself naturally, we are now going through the (political) motions of trying to prop up a financial dodo. There is still a focus on trying to provide lending that meets current prices rather than allowing prices to fall to a level supported by sensible lending.
Incidentally, mortgages are still widely available on better terms than they were 10 years ago. People have become so accustomed to easy credit that they have forgotten that the last 5 years have been the exception rather than the norm. As an example, when borrowing a six figure sum, is it really unreasonable to be asked to put down a deposit?
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All the government's initiatives to help end the credit crunch have so far involved stimulating more debt creation. Unfortunately this will not work as the problem is the existence of too much debt to start with. It is perfectly sensible to allow mortgage lending multiples to fall back to a maximum of 75% of home value and three times income. And, as others have said, throwing more money at a deflating bubble will only end up lining the pockets of bankers who should have been sacked by now. Let the banks cut their dividends first, and abolish bonus schemes, before asking for state help.
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Several points worth considering:
Housebuilding before the 'Crunch' did not keep up with demand, shortage of mortgage finance will only make this worse.
Existing Householders ( a large number of people) suffer with constricted job mobility, difficulty of remortgaging.
Would be Householders will be unable to find a House to buy or if they can find one, they won't be able to raise a mortgage to buy it.
Private Landlords will grow their stocks of rented Property (they still have lots of cash to spend - especially on repossessions).
And lastly the Taxpayer benefits from higher House prices through Stamp Duty, and through higher revenues from inheritance tax.
It could be said that the Tax payer has benfited through higher VAT and corporation tax, generated by consumer spending financed through higher House Prices.
So the Tax Rates have been subsidised.
Perhaps the Tax Rates will now have to rise to more realistic levels ?
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Agree wholeheartedly with the views in post 4. The proposed action is merely a sticking plaster for a major wound.
The housing market is in this mess because the boom was allowed to go on for too long and too many people had a vested interest in the one way bet that became the UK housing market.
This pushed prices up uneconomically and we are now reaping that benefit as the house of cards comes tumbling down.
I worry greatly when I hear talk of "high quality" mortgages being the subject of this aid. Call me a cynic but surely these are exactly the sort of loans that banks should be able to get securitised? If they can't get these securutised then we really are in it very deep!
The real issue is what do we do about the people with 125% mortgages, the 100% mortgages and the people who have been using their mortgage equity as a cheap source of loans by running down their equity int he property?
It is these people that are going to tip the market into chaos not the ones ones where people owe less than 60% of the house value or where people have mortages of less than 3 times average salaries.
This strikes me of moving deckchairs on the titanic and not addressing the real issues.
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Great news! I hope we can also look forward to a taxpayer-funded insurance scheme underwriting all my trips to Ladbrokes.
It is not the job of government to ensure that speculators, landlords and the congenitally stupid get bailed out by workers and savers. We are fed up with supporting the greed and mistakes of idiots and parasites.
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There is a very real danger that the real ecomomy is just about to be well and truly stuffed. Why? Because of a lack of timely action. Sir James reports in October, which will be followed be months of jaw, jaw and more dithering...meanwhile things will be coming apart at the seams.
What is needed is someone to get a grip of the situation and do something! It's very worrying that a time when serious decisions have to be made politicians heads are in a place where the sun doesn't shine. They are more concerned about their own future than anything as mundane as the real economy. Anyway they're all on holiday now, so everything will just have to wait. Is anyone minding the shop? If it's anything like last August - unlikely.
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Let the banks take the pain, they can afford it. They pursued imprudent lending policies out of sheer greed so let them sort out their own mess. I would rather my money be spent on health and education rather than bailing out banks. I really question the ability of the CEOs of the big banks - if they are not lending now it will hit future profits they are effectively stopping trading meaning this crisis is going to last for several years to come. We have to learn hard lessons from this.
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I love it. My generation (who have to borrow to fund education and cannot afford houses) will be having our tax money used to prop up the property portfolios of the generation before us.
Are we seriously being asked to use our tax funds to make something we wish to one day own (as a home, not an investment) more expensive? This is pretty desperate stuff by the Government. I've always sided with Labour over the Tories, but they can go jump if they really decide to press on with this loony, unjust idea.
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If banks had stuck to lending 3x main earners' salary with a 20% deposit, houses would have remained affordable for the last decade, no alleged 'shortages' and the world would be a happier place.
The only answer the corporatist-lobbyists have to help sustain their own business empires, avarice and greed is to re-start the Great British Housing Ponzi Scheme.
Fortunately for them, in today's climate of 'economic-fascism', they will get their way.
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I read the piece rather rapidly and the conclusion section ....
"Which would be pretty controversial, as it would be seen as taxpayers underwriting a huge slug of the mortgage market."
as ..
"Which would be pretty controversial, as it would be seen as taxpayers underwriting a huge slug _ON_ the mortgage market. "
Time will indeed tell if I read it correctly the first time but prehaps the Prime Minster should now start some gardening in the Treasury.
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This is a truly terrifying prospect. The only solution is to allow the 'meltdown' (if it actually happens) and pick up the pieces afterwards. How else do banks learn if you just bail them out with taxpayers' money? They'll know they can take huge risks and there's no threat to their jobs or their profits.
Insane. Utterly, utterly insane. I weep for the demise of good governance.
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It is much like waking up with a hangover after too much indulgence the night before and looking to hit the bottle again to ease the pain - all you are doing is setting yourself up for more pain when you finally do dry out.
The UK seems addicted to debt.
The Government should be trying to make the correction as short and sharp as possible while at the same time promoting a return to moderate and sensible banking practices.
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Numbers 2. 3. and 4. are absolutely correct. The government should not be fiddling with the market. Why should they want to re-inflate the housing bubble, and why oh why should they want to encourage further irresponsible banking practices?
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I really hope the gov't will be forced to let this correction run its course. If they prop up the market, we will all have to live with the consequences, namely massive inflation. UK housing stock is mostly of very poor quality (just look at the energy ratings on the HIPs) and still at least 30% overvalued. It is bizarre how all the highly paid bankers try and run to the gov't for help now that their own debts are mounting. It is equally bizarre that they blame the problem on an "unavailibility of mortgages" rather than asking WHY there is a shortage of mortgages. The reason is of course that there aren't enough bank deposits to fund lending and the money markets have realised that the UK is about to collapse economically. Shame there is little manufacturing left. What do we have to sell other than dodgy houses and dodgy banks?
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Taxes:
A starting tax rate of 35 percent and a higher rate of 55 percent on all types of income.
That would enable a Social Housing Programme to produce sufficient Flats to house the folks who cannot buy privately.
It would also enable upgrades to the NHS, a Fuel subsidy, and probably higher State Pensions.
Unfortunately the last Party to suggest raising Taxes didn't get many Votes.
People get who they Vote for !
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Wonderful.
As a recent graduate, with no hope of getting on the property ladder for at least several years, I look forward to my taxes being used to shore up the housing bubble that keeps me out of the market.
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Some good points made. But let's be clear about one thing: whichever party was in power, the same bubble would have arisen in the same way.
It started under the Conservatives and Labour have done nothing to stop it.
What to do about it is the issue. And I'm inclined to agree with the general view: do nothing and let things take their natural course.
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No.
No more.
Taxpayers already bailed out Northern Rock.
Taxpayers already gave £50 million to the Banks to 'secure mortgages' and help fund first time buyers.
Now the Banks want taxpayers to pay for their mismanagement?
The Banks give us very little (almost nothing in real terms) in return for our savings and yet, even in the hard times post massive profits!
sorry guys, its time for you to bite the bullet too..
we cant afford to borrow on your terms, nor save on your returns, let the market sort itself out and leave what cash we have left alone!
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As several others have said, this is a terrible idea. The reason people can't borrow enough to pay for over-inflated house prices, is because house prices are over-inflated. It is that simple.
The answer is for prices to come down, then people can afford to borrow the sensible amounts required, and those who still can't afford it will (Shock! Horror!) have to SAVE for a deposit like everyone else had to until about 6-8 years ago when this madness and greed got out of control.
Are we really expected to take seriously a request for government money for banks from a report.... by an ex bank chief executive !? This MUST NOT happen.
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A chancellor called Gordon Brown promised not to let house prices get out of control and promised to be prudent. Many people were impressed by this new Labour approach and bought into his frugal and careful ways.
11 years later the power obsessed and twitching Brown became prime minister and was praised for his stewardship of the economy by all and sundry.
A few months later everyone realised that the last 5 years of growth have been based on an unsustainable house price bubble that Gordon allowed to be created.
Now in a last gasp attempt to keep his miracle going he considers pulling the trigger on a hair brained scheme to bail out imprudent, whimsical lenders and borrowers at the expense of the prudent.
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So the bubble was caused by loose lending and greed. The answer is to make more money available? Thank God the Government doesn't set policy for the rehabiliation of drug addicts......
No more boom and bust my behind.
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For every action there is an equal and opposite reaction.
The housing market over-shot on the way up... it must and will over-shoot on the way down.
The Great leader came to office in 1997 promising to end the cycle of boom and bust (in the housing market inparticularly) and then proceeded to ride the biggest housing boom in this country's history. The Great Leader is therefore the least suitable person to be in charge of solving the problem of the resultant bust.
House prices will have to fall to 3 x average salary. At this point, and only at this point do you true affordability. The middle classes have to learn that houses are homes first, investments last and ATM's ....never.
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I entered employment 4 years ago, having spent five years at university. I borrowed significantly to pay my way through university, as I considered it a worthwhile investment in my future. When I entered employemnt, I could have got a mortgage to buy myself a 2 bedroom flat in a number of commuter locations, but I appreciated that the housing market was significantly over heated. I suspected that in the five years from me entering work in 2002 I would probably be promoted to a salary level of roughly double my starting salary, and that there would probably be a housing slowdown of some sort. Therefore, I reasoned that it would be prudent to not purchase yet, and bide my time until finances were more in my favour.
And now HM Treasury want to use MY tax money to further inflate the housing market by guaranteeing that we can go on paying mortgages that we have no ability to pay? Forgive me whilst I, and all of my talented colleages who are similarly being screwed, disappear off to countries where the money of the prudent is not used to subsidise fools.
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I am amazed that no one seems to have picked up on the fact that the author of this report who suggests a huge government bail out of the mortgage market was Chief Executive of HBOS (Halifax Bank of Scotland) till 2006!
One of the UK's largest mortgage suppliers and an organisation most likely to benefit from this.
I wonder how much all his shares and option in HBOS have dropped in the last 12 months?
So when a banker asks the tax payer to bail out the banks we should just roll over and play ball?
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Re: #17 (1984_still_lives)
Well done to spot the 'typo'
"Which would be pretty controversial, as it would be seen as taxpayers underwriting a huge slug of the mortgage market."
It seems there are three types of slug: The fat greedy slugs in the city; the fat sleepy slugs at the FSA and the fat stupid slugs at Westminster.
We should get rid of them all immediately.
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At a time of falling tax recpeits, slower growth and massive public liabilities (think PFI and Northen Rock) it is proposed that more money is spent trying to buck the market. Ludicrious.
The Northen Rock Bailout was approx 100 billion added to the national debt. Compare this with the annual NHS budget of 91 billion.
Which would you rather have spent the money on?
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Supercalmdown
The answer to an inflated housing market and insufficient government housing stocks is not to tax the living daylights out of anything that moves. Perhaps some of the answer lies in reducing taxes so that people can afford to live. Do you not find it ironic that a household can have a higher rate tax payer living in it, and still qualify for tax credits? That some benefits are taxed as income? There is a massive industry in taking money out of the hands of the public to go into government coffers, only for that same money to come back out, and go back, in some cases, to the very same people. And even government cannot get this right. We have sleepwalked right back into the 70s, with inflated government industry, except this time its civil service not British Leyland. And no-one has noticed. This is why we have such a msassive problem - our national growth has been debt funded at a government level, and government and debt funded at a personal level.
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This suggestion is beyond belief. Only a complete imbecile would attempt to buy votes in this way. It will be a disaster, why should the taxpayer bail out people who have over-extended themselves.
In 1928 the first cracks in the stock market in the USA began to appear and action was taken to correct the situation. it only delayed the inevitable collapse.
Similar actions are being taken to protect the financial institutions and the result will be the same. Financial ruin for everybody rather than the relative few.
If we are to live by the market then the market must decide. The only way people will really learn is by being taught a lesson. The medicine will be even more unpalatable next year, the inevitable correction will happen and the pain will be worse the longer it is delayed.
Abandon ship while we can, this is worse than the Titanic.
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This proposal is an utter disgrace.
1. The government has no right or role to use taxpayers funds to prop up any more banking losses. It leads to the undesirable result of "privatising the profits, but nationalising the losses".
2. As the 2nd poster Crispblog rightly pointed out, the only reason that mortgage backed securities are now undesirable is that banks rationally see them as posing excessive risk when the underlying assets (ie. house prices) are overvalued. When prices get back to sustainable levels (x3 to x4 income) with at least a 10% to 15% deposit required, then those securities will become attractive again.
3. The best way to "fix" the mess, is to allow the pain to happen as quickly as possible, let the banks sustain their losses and then force responsible lending thereafter. The only problem is that the 'pain' will not look good politically - the country has to sustain an illusion that things will be 'alright' and no-one must suffer from economic recklessness. Thus it will all get drawn out and our economy will be troubled for the long-term.
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Official intervention is most effective when the market has overshot already but needs a kick.
Otherwise, it could be like catching a falling knife.
We dont know what kind of securities market is actually normal because our only experience has been of the runaway variety.
It could well be that a much reduced securities market is the equilibrium.
If so, then the sooner we get there the better and standing in the way just means you drown in the tide.
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The present generation of 'bankers has screwed up yet still maintain they are masters of the universe and should keep their jobs citing they are the only ones who can sort out the mess. Not so, they must suffer the same upsets any industry goes through.
Thatcher showed with good house keeping the world was our oyster. and that is something this government appears incapable of doing unless it shoves ever more debt 'off' balance sheet.
We also have a quality of regulation that is so poor it is insulting to any right minded person and then we have this madness of generating ever more debt to clear the present levels
Banks are more than capable of offering good value mortgages but cant becaus ethey are kidding the country in what their assets are.
Banking is all about leveraging and at the right price every wheel turns.
Our problem is that the UK banks have got so used to abusing the public from charges to general rates payable, they have lost the plot. Let them go through what any ordinary company woudl for a few years and earn sufficient to pay their loans and dividend, and start writing off what must be done.
Having made £100's of billions over the last ten years they have more than sufficient in reserve to handle this they just don't want to give a penny back.
Their attiutude is contemptible in extreme and they refuse to accept the party is over.
With this government in its dying days and desperate for any revenue and more importantly seats of bank boards to help their already overinflated protected pensions they are refusing to lead from the front.
This is a clearing bank generated problem and it means they must address the problem from within.
Banks must have the clear outs, cut backs and sell offs and we can all move on.
But don't allow the spin to hide the facts. The facts are simple the banks have the assets but don't want to let them go save for the trash ones no one wants
Well the Taxpayer should not touch any bank trash. There is always a price for it and if it means shifting it at a huge discount to present par values then so be it.
Banks have gone ex growth, hung by their own incompetant and greedy managements and now they need to get a life and face reality.
The wild drunken party is over and now its got to be tap water with bread and margarine.
Humility never hurt anyone and this is the time when the banks have no choice but to be honest.
Its a great shame our Regulators have shown such phenominal ineptness and incompetance at addressing what needs to be done when it is so ruddy simple.
We can only hope that the incumbent Tory government will incorporate he necessary strength of character and experience to stop this madness continuing one day more than is necessary.
This is a game of bluff by our banks and it needs to be stopped right now, this country may have been led to be in the position where we are onour knees but teh Taxpayer is still far bigger and stronger than any bank and we must fight our corner with leaders and representatives who are winners not losers.
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There are still a large number of people who bought houses to live in, and not to make money on, and who are now almost all clear of mortgage payments (even after the mess that was endowment mortgages!)
Their problem now is that many of their children are unable to get into housing of any kind, as the basic values are so inflated.
Keeping prices unnaturally high now, is not in anyone's interest, as it just stifles the marketplace, and doing it with what is in effect taxpayer's money is quite bizarre!
Peter
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Alistair Darling appears to demonstrating that he is the intellectual heir of King Canute. The King, however, put only himself at risk. Mr. Darling is considering making a gamble with the nation's tax income in the form of a derivative written against the sub prime mortgage market. Perhaps we would all be safer if he went to the seaside!
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So the Treasury is going to manipulate the market as the lender of last resort and guarantor of securities that will drop in value by 30%? Another good deal for the banks?
The possible outcomes;
1. A depression and the collapse of the whole financial system, massive tax increases to keep the coffer from tanking out
2. A recession and massive tax increases to reduce the natioanl debt
3. An immediate boost to the mortgage securities market, causing a turnaround to the housing market, everyones allowed to borrow 5 times earnings because their jobs are now safe and Alistair Darling gets a knighthood.
Inflation is increasing rapidly, interest rates are not being used to combat it - when are these people going to realise that we have to increase interest rates now?
Number three aint gonna happen, period. Its probably too late for number 2, so my bet is on a Depression.
However, it wont be the Bankers jumping as in the great depression because the puppets in government a determined to provide them with soft guarenteed landing at our expense!
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They must be all nuts. What are they on about, make the taxpayer bail-out these bloody fools in the city. Like it or not, this is a private matter, these companies are private companies, they did what they did and they have to learn from their mistakes. As other's have implied and stated on here, the banks are responsible, the house builders are negligent, and the government is weak. We have been living through a monstrous bubble. Some time ago I lost a considerable sum on a poorly performing investment, but, I accepted the fact that there were risks associated with that class of financial product. I didn't like it but hard cheese on me. Not once did I think that the taxpayer should step in and compensate me and others like me that'd lost money. Why should they? Why should anyone who hasn't mismanaged their money be forced to prop up me, or as is now possible, the banks? There are many problems with GB PLC right now, but we don't want to add to them with some ill thought out measure to support banks that are screaming for state support. You either believe in the 'free market' or you don't.
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You've got to love New Labour!
They prattle on about affordable housing.
And then when prices start to fall, they rush to pour money they've grabbed from me in taxes to prop up the market and keep house prices high.
And then we have the banks. They've made billions during the past few years. But now they are making fewer billions (but still billions) they want my tax pounds to be used to guarantee their loans so they can continue to make billions.
No wonder Brown and the rest of the Politburo aren't doing so well in the polls.
Let house prices fall back to where they should be. Let the market decide. If house prices half, then people only need to borrow half as much to buy one, and all of a sudden the shortage of mortgage funding is cured.
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This comment was removed because the moderators found it broke the House Rules.
I hear that in banking circles the term 'the free market' has warped into the more satisfying term 'the free lunch market.'
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This comment was removed because the moderators found it broke the House Rules.
This sounds rather like that song about the old lady who swallowed a fly.... she swallowed a spider to catch the fly, she swallowed a bird to catch the spider, etc, etc, etc. Didn't she burst in the end?
What we have to remember is that AD is only giving it his consideration.... thank God.
I could prattle on but I agree wholeheartedly with the points that Vince Cable made on the Today programme this morning - it's wrong, house prices need to come down.
It's absurd and only an ex-banker could have dreamt-up this little plan.
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I believe that the report says the following:
"It appears
unlikely that an implicit government guarantee on mortgage-backed securities would be an appropriate model for the UK to adopt."
This seems to be saying that he's recommending against this action even now.
Why did Mr Peston not make it more clear in the article that the report itself argues against this strategy?
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And in other news today, Santander made 4.7 BILION euros profit in the first HALF of this year. (imagine if you can, just how much they've made over the last ten)
And they have the gall to insist the mortgage market needs help from the government because they're too poor to fund their own massively inflated loans.
It seems to me that the banks won't lend any money to homeowners because they'd lose money on the deal, not because they don't have enough cash swilling around their troughs.
Perhaps the government should guarantee only the first 3x salary minus a 10% deposit. Surely that'd be good enough, surely....
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BANKS - NEED MORE CASH???
Scrap the exit penalties for those wanting to pay up early.
SAVE ££££££
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From my very limited knowledge of what I understand the whole house prices being too high has to happen. Something is only worth x amount if people are willing / able to pay for it. At present income rates people can't afford to pay for them, thus something has to happen. Unfortunitly this mean housing prices must come down. - afterall wages are not going to go up as much as they need to go up.
With the current financial climate being what it is we need to have interest rates going up therefore getting people to save money, this is what banks / building societys, as I understand it use some of in order to lend people money. If the goverment start to give money as bonds to banks all it will do is make the situation worse.
The country is going into recession, whether you like it or not, yes this will be painful for people, but if you keep trying to put recession off then what will ultimatly happen is an even worse recession.
I can understand helping out if a bank is going to go bust, but helping them out to get into even more debt? and a debt that is garenteed to be paid by the tax payer, surely this will only end up amounting to have people whom have bad credit records being given loans, as at the end of the day the banks will not lose out, only the tax payer will if this happens.
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On here,
You post the truth it gets censored!
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I agree with 15, 23 and 30. I don't think that the generations above us have any concept of how much pressure they are putting on our generation. We've funded ourselves through education, we are going to have to fund ourselves through retirement. While at the same time they diverted the extra money into making housing unaffordable for us, and now they're looking for us to bail them out. Finally with the rents we have to pay them, we are making our employers uncompetitive, so that the work goes to other countries. Any suprise that half a million of my generation are working abroad?
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Excellent news. So not only do I get to pay a mortgage to live in a house while paying taxes so the layabout couple further up my road can live in a house much the same as mine for free, now I get to pay even more taxes so the reckless people who bought big houses they couldn't afford don't have to lose them.
All the while, of course, I'm not living in a big house I couldn't afford because, well, I couldn't afford it. I wonder who will form an orderly line to pay my mortgage if I lose my job.
If we put this useless government in charge of the Sahara desert we'd soon be facing shortages of sand.
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I have just emailed a link to this blog to HM Treasury with the following plea attached.
"Please, oh, please read the comments on This blog article by Robert Peston. Nothing is likely now to save you electorally, but please think of your public duty and don't use taxpayers money to prop up the mortgage market. Face up to the fact that Gordon Brown did not bring an end to boom and bust, at least as far as the housing market was concerned. We have had the boom; now we must have the bust. To use taxpayers money to reinflate the housing bubble and to support irresponsible and greedy bankers would be IMMORAL. It is not what the public expects of a labour government. Neither is it what Prudence would do, unless, in a spirit of blatant short-termism, she was hoping against hope to be re-elected.)"
Perhaps others would like to follow suit, with their own comments.
The address you need is [Personal details removed by Moderator]
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In the 70s the unions held the nation to ransom and the then Labour government gave in to their demands bringing the country to its knees.
Now the banks are threatening to detonate a bomb under the nation's economy and this so-called Labour government is all too ready to once again give in - the result will be the same... only this time much worse.
Politicians of whatever stripe have repeatedly demonstrated they are in thrall to the financiers, get drunk on power once in office and fail in their duty to protect the people.
And as usual the public has to pick up the tab.
Who's for Magna Carta Pt. 2? Abolish this useless parliamentary system, prosecute these corrupt bankers and build a new government of the people for the people.
Or go back to sleep and watch as the banking thieves and their politician lackies steal your lives and those of your children.
Had enough? I have.
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What this looks like to me is the Banks and NuLabour collaborating to create a false economic recovery. The Banks get fat bonuses for a couple more years, and Gordon goes into the next election claiming to be boy-wonder.
However, absolutely enormous levels of debt will be piled on the taxpayer, and the governments only option will be to print more money and inflate out of it.
The bottom line is that the banks do not want to buy these mortgage bonds. Something is only worth what someone is prepared to pay for it. Therefore, these mortgage bonds are worth nothing, yet the taxpayer will be made to pay billions for them.
The market is normalising - let it normalise!
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Agree with comment 31. This is the same James Crosbie whos as CE of HBOS refused to be interviewed by Channel 4 a couple of yeras ago when it uncovered the scale of the mis-lending that was going on by banks and building societies. It was revealed that major lenders were overseeing a policy of encouraging people to lie about their incomes so that the lender could inflate the amounts that they were prepared to lend them, hence deliberately inflate house prices.
The result was that vast amounts of money was given at vast multiples of income to vast numbers of people who are unable to pay it back. That had to stop - it has and it should not be allowed to start again.
What crisis in the housing market - aren't house prices 105% more than they were 10 years ago?
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"He also expects the shortage of mortgage finance to exacerbate the fall in house prices (doh!) and the weakness of consumer spending (double doh!)."
This is the third "boom and bust" in house prices that I have lived through. 2 things stand out; governments never learn and bank executives are too keen to get their bonuses to care.
We are now in a situation where both the population of the UK is in debt beyond their means and the Government is doing the same on a greater scale.
Welcome to Brown's word of "crazy economics", what's amazing is that Labour MP's still trot out the same old rubbish about him being a brilliant chancellor and the BBC commentators like Martha Kearney on yesterday's World at One don't challenge it.
History will judge him in the same light as the Barber Boom and Bust but with a bigger boom and untimately a bigger bust. He should resign from politics on the basis of this report.
Why oh why do politicians believe that they have discovered magic dust?
The reality of the last 10 years is that falling consumer prices for goods manufactured in China at low wages has allowed us to feel richer than we should be.
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It's been obvious that mortages have been funding much of our economic 'growth' over recent years. I'm not sure why we need a report to tell us this.
What is amazing is that the government appear to be doing nothing. They seem a bit like the proverbial rabbit caught in a juggernaut's headlights.
they really have to act very quickly or we'll be right royally stuffed.
I agree with other points that this reliance on borrowing to fund growth is ridiculous - but we are where we are - and we have to get back on some upward course before trying to change the real underlying basis of our economy. And that is not going to be easy.
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What happened to the philosophy of Monetarism THE philosophy of Treasury Mandarins? They have already lost most of their credibility and seem now ready to abandon every last vestige of reason.
In any case, action, or no action, the effect will be the same - a squeeze on the money supply. Even if they try to pump money into the system the system will react by continuing to squeeze the money supply for mortgages. Banks are there to make money. If they get subsidised money, much like farmers, they will farm the subsidy for the benefit of executive bonuses.
Politically, both in the US, and here, the authorities want to be seen to be doing something, anything - but the effect will be a continued squeeze as they also intend to increase regulation.
All they will do is transfer money from taxpayers to executive bonuses.
We have to take the hit.
We have to return to a situation where a single earner on the average salary can afford to pay for an average family home at a reasonable rate of interest and that rate of interest is sufficient to pay savers a reasonable return.
All of these synthetic financial instruments that have so inflated the money supply are the rubbish that have destroyed the World's economy and the value of money and created the absurd banking industry bonus culture. This all had to and indeed has to stop.
Savers need a reasonable rate of return and borrowers need to be able to afford, on the average single salary, to buy an average family home - anything else will fail.
Savings rates at 6-8 percent, mortgage rates at 7-9 percent and thus house prices about half of what they are today, or salaries double - it is the inevitable consequences of arithmetic!
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So the bankers want a subsidy from the taxpayer to underpin the mortage market? Some market; eh!
Once again the Masters of the Universe, the over-bonussed risk-taking low tax-paying leaders of business shamelessly send their begging bowl around to The Treasury for a useful top-up to keep their bloated show on the road.
Why do banks expect to be looked upon more favourably than a loss-making engineering company? There is a double-standard at work, it is unacceptable and Darling had better be careful.
I totally agree that there is a need to ensure that people are allowed to stay in their homes as long as their borrowing has been sensible. As a taxpayer with no mortgage I would be relieved to see a tax-funded scheme to ensure that the innocent do not suffer needlessly in the coming recession.
However such a scheme must not be run by the banking industry as, by the nature and content of this very report, they have shown once again that they cannot be trusted.
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This is a crazy scheme.
The market needs to be allowed to self-correct, which of course means much lower house prices - to the benefit of would-be home owners who have been priced out by the artificial house-price bubble.
Instead of pouring money into a leaking bucket, the government needs to do two things:
1. Start building affordable social housing, thereby also providing some succour for building and related trades
2. Put in place a sustainable model for the future - mortgages limited to 75% of valuation on a maximum multiple of 3x earnings.
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A lot of Posters conveniently forget that each House that is repossessed is another human tragedy.
Except for new Homes, each House for sale has Owners, who for the most part are ordinary people.
Raising interest rates to increase Homelessness and force sales on overstretched families is a rather heartless approach.
Homeless families would cost the Taxpayer more money than extending a guarantee to the Banks.
House Prices are High because everyone wants one (or sometimes two) and people live in smaller family units (more single people).
Without more Houses or Flats being built this problem will get worse.
Either the Houses are built as Social Housing paid for by the Taxpayer, or built as Private dwellings paid for by Mortgages.
Tough choice.
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So, if I understand it correctly, the banks, through their negligence and greed got themselves (and us) into this mess, and it is they who should get us out of it.
Their mismanagement and poor judgement has already destroyed the value of my (fortunately limited and fairly insignificant) share portfolio - now they expect to be bailed out by my taxes. I think not!!
I listened with some disbelief to the ex banker (from Bradford and Bingley if I recall correctly) on the "Today" programme this morning. The industry seems to think that they can take risks, on the basis that they will be rescued, with little effect either on their bonusses or salaries, by the tax payer.
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Bankers and finance people should be the last people consulted about the way forward.
They are paid to cause indebtedness.
The best thing for the largest number of people would be if house prices crashed to where they should be.
If the Government spends public money trying to stop this adjustment it will be the biggest economic shambles in decades.
To think Gordon Brown claims to be prudent !
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The easy solution is, of course, to have direct mortgages from the state at an interest rate matching/linked to the governments preferred inflation measure, the CPI.
Banks get their bail-out capital from people repaying their loans and re-mortgaging under better terms directly with the state, better terms are available as no profit is having to leave the system. Enforced, sensible lending criteria (no 100% lending, 3-4 times salary, etc) minimise losses.
The only reason this doesn't happen, is that then the government would then be in the politically unfavourable position of having to re-posses defaulters houses. Which would go down like a lead balloon with the red-tops.
If only the government had recently nationalised a high street bank the had a pre-built infrastructure that was in a position to be able to manage this for them. Oh wait a minute .......
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Put me down as another disgruntled 20-something.
I've been working the last 8 years and now earn significantly above the national average.
I haven't bought into the housing market because I wasn't prepared to sign my soul away for a one room flat.
To now look at taking more of my money (in the form of tax) to prop up the failing market bubble created by those who borrowed irresponsibly and pushed things ever further out of the range of the sensible - well that's just an insult.
Like many others, I'm in the process of emigration because Britain is now expensive, overtaxed, overcomplicated and badly run. The proposed measures would simply make all of these things worse.
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What a lot of sensible comments. #2, #3, #4, #15, and #23 sum it up excellently. I just hope Alistair and Gordon are reading this blog.
It's true that a lot of people are going to get hurt by the current situation, and although some of those probably don't deserve it, the banks absolutely deserve everything they get, as it's their irresponsible lending that got them into this mess. Trying to buck the market will not help in the long run. What will help is that banks learn the lesson that if they do daft things, they'll lose money. And frankly, if someone took out a mortgage that they knew they couldn't afford, I'm not going to lose a lot of sleep if they reap the consequences.
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Increasing interest rates has nothing to do with kicking the poor home owner in the teeth!
If interest rates do not increase then we will all, whether home owner or not, be in deeper dodoo.
Inflation is a bigger threat to us all than damn house prices.
When the pound in your pocket is becoming worthless you wont give two fivers (as against two farthings cos of devaluation), about your house, because by that stage you wont have one as you will also have lost your job.
This is more seriouse than just your mortgage repayment doubling you know
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The reactions to this post reminds me of a famous incident and one that Gordon Brown as a labour historian should be aware of.
It relates to the British car industry in the late 1970's.
Bill Jordan, now Lord Jordan of Bourneville, was addressing a mass meeting of car workers at Longbridge to appeal for the workers support to get Derek "Red Robbo" Robinson reinstated after Sir Michael Edwardes had got him sacked.
Jordan, later stated that he gave his usual speech about standing together and united we stand divided we fall and the need for the workers to support the sacked convenor. Despite this the workers voted by 14,000 against 600 not to strike to support him.
The point Jordan was seeking to make was that you had to listen to the people on the front line who actually know waht is going on. Perhaps the government should listen to people outside of the FSA, the banks and their mates they appointed to roles in Quangos for once.
Gordon Brown sitting in Downing Street seems unaware of just how much this constant drip drip of bungling ineptitude is making labour under his leadership unelectable.
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Let me get this straight:
People on this Blog are perfectly happy to see other Families repossessed and forced into Homelessness in order that they might buy a cheap house ?
How despicable !
That sentiment to me is somehow worse than anything the Banks might have done.
People need to focus on a solution that will work, for all parties concerned.
At the end of the day, it's either Mortgages for new private houses, or its extra Taxes to pay for social housing (or a combination of both).
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#64 Supercalmdown, your criticism for heartlessness is misdirected. This tragedy was foreseeable by all those who stopped to think and who gived a fig.
Some who foresaw it ans spoke up were labelled "doom mongerers". Others foresaw it but were quite happy to carry on earning bonuses or winning elections.
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#60 - we need another report because its reports and enquiries that keep the country going - its a fantastic source of employment...
Supercalmdown - Yes, it is another human tragedy. But the tragedy was made not today when the loan is foreclosed, but years ago, when the person lied to get the loan, or failed to properly consider what they were doing. Should we not jail murderers because of the human tragedy of another person in jail?
The bottom line is that every action has a consequence. The consequences may be very hard to swallow, but to try and avoid the consequences of the intial action is only to further deepen the crisis by storing up the consequences for a later date, and to increase them.
To illustrate, my father lost his job as a result of the 1990s housing crash. Lots of changes in my household, but instead of biting the bullet and making the real fundamental changes that they needed to, my parents kept on spending like they had the same income as before, cutting out only the most expensive items (like private education for example). We still ran three cars, my dad still had his motorbike, at no point did we ever consider moving house or downsizing, and now they are paying the price with a mortgage they will never clear, except by moving to a significantly smaller property. Should I pay for their greed? Shoul you? Hell no. They made their bed, they should lie in it. As should you lie in your bed.
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I don't have a mortgage on my bed.
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Supercalmdown, you have got it far from right. Whilst everyone sees it as essential that people have somewhere to live, I do not see why my taxes should go towards paying the purchase price for an asset of which they alone have the benefit, regardless of my own personal choices.
Exactly why do you think that I should be paying to buy someone else a house? I presume that you think that paying for an MPs second home is acceptable too?
And not once have I suggested that there is enough council housing - the amount of council housing is far from acceptable. The sell off was about substandard council housing requiring a lot to refurbish, and hog-tied councils without the money to pay for it.
I think everyone should be entitled to a council house, and if they choose to go private, that is their choice and they have to fund it. I think that the principle private residence relief that stops people from paying tax on the sale of their main home should be abolished in favour of a rollover (replacement of assets) relief. We do need wholesale reform of the housing provision in this country, but encouraging government to subsidise private home ownership is not one of the things required.
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Despite the current hysteria it is still possible to get a mortgage. You need 10% deposit and a decent income. People with bad credit records need not apply.
This is a return to how things were when I first was looking to buy a house before the insanity. Responsible lending it has been called.
The banks are still making huge profits and do not need my tax money.
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Post 53 has summed up the sad situation facing many people in their twenties quite excellently.
I am very much agree with jamesinpiter's views on this situation - just to add to them that I am paying so much overinflated rent that I cannot even afford to save for a deposit for a mortgage, and like jamesinpiter I have been hoping that house prices will return to a more sensible level.
The thought of the Government using my taxes to further prop up unobtainable house prices has made me consider something I have never done before.
Voting.
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This would be an insane proposition, it would re-inflate the housing market and create a taxpayer-backed extension to the boom.
We'd go straight back into the same mess with sub-prime lending and over 100% mortgages.
The only upside I could see would be a be a new generation of investment in house shares (you by 10% of a house, then sell it at a profit later), which would only further damage the housing market (try buying a house when investors are soaking them all up, further driving prices up).
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Supercalmdown (post no. 72). You've not considered the private rental sector. In my town, the rent for a family-sized house is about 40% cheaper than a mortgage. And I think talk of families sitting homeless on the street is a bit dramatic. (My words, but it is what you are inferring).
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@72, supercalmdown
Dear god, people like you need some sense of perspective.
Kids dying of perfectly curable diseases in the third world is a tragedy, people losing their houses because they mismanaged their finances is an act of human error.
If someone has been made homeless due to a bad choice on their part, then I have absolutely no issue in capitalizing on their foolishness.
I've had people take advantage of my own stupidity in the past, and well, it sucked to be me, but it taught me a lesson.
People like you really need to grow up and realize we don't live on a planet of elves and unicorns, we live in a pretty harsh reality we've made comfortable over the last few decades.
It stuns me how ungrateful some people are, perhaps a read-up on Dickensian times will give you a meaning of real fiscal hell? I'd start looking at debtors prisons and getting a sense of just what a fortunate time we live in.
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supercalmdown (64):
"A lot of Posters conveniently forget that each House that is repossessed is another human tragedy."
What people also forget is that for house prices to be pushed so ridiculously high, someone out there has to be paying the high prices. If that someone is not being honest about their income and their lender is not being diligent about their checking, then my sympathy is somewhat diminished!
Most repossessions will be the reckless borrowers and lenders that have forced the prudent first time buyer out of the market.
Nevertheless, if there is a government bail out then I would rather see a scheme that gives the money directly to the homeowner in a similar way to housing benefit with low-income renters, or provided people with extra protection against repossession. They must be made to feel the squeeze though - we just can't go on funding irresponsibility with public money!
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72:
The choice is between bailing out the reckless and feckless with taxes paid by the rest of us, or let the market do its work and see people repossessed.
They have no-one else to blame but themselves and their gullibility in listening to greedy bankers saying "yes of course you can afford 6x your salary" or worse, listening to and colluding with their mortgage advisors saying "no problem we'll just make up your salary details".
Yes it's sad, but it is by far the lesser of 2 evils. I can't believe you really advocate bailing people out, otherwise where does it end? If the government just carried on bailing out anyone in debt i'd go out and get a Ferrari and a 6 bed house and let Joe Public pay for it. The debt party has to end sometime, and it will be painful for many, but it must end.
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So net lending has fallen by 45%. We just need house prices to fall by 45% as well (ie back to where house prices should be) and there will be plenty of money available to meet demand again. So what's the problem?
The best thing the Government could do is admit that the housing bubble was truly bad for the country and state publicly that it's policy is now to bring prices down to sane levels again and keep them there. And that it will actively seek to make that correction occur as quickly as possible, so that the market can start moving again, builders start building again and so on.
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This really makes me wonder if there is any hope. What do we actually do in our economy these days? Apart from flogging each other houses, 'financial advice' and cheap Chinese consumer goods what is there?
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Well Gordon Brown will be reasonably happy with the presentation of this report by his employees at the BBC. Even many of the comments on here will cheer him up - they're mostly directed at the evil bankers who encouraged financially illiterate voters to borrow way beyond their means. The bounders.
We even have folk winding us up that what we need is even higher taxes to 'solve' the problem. Again, I don't doubt that Gordon Brown would see that as a desirable outcome too.
But many of you have your eye off the ball. Yes, of course we shouldn't be bailing out the banks, we certainly shouldn't be encouraging them to lend more money to try and re-inflate the housing bubble. But the fault for all this lies with the individuals who borrowed too much money. Each and every one of them was so ill-educated that they went and borrowed too much money. Money they should have known they couldn't pay back. Most of them buying houses on the assumption that its value would inflate away from their income exponentially and they could dip in any time for a foreign holiday or a new motor vehicle.
Now seriously, you'd expect the odd fool to imagine that such an economic state could endure but how did so many people imagine that such a state could endure? Where did they get that idea from?
Step forward 'Miracle' Brown. No more boom and bust. Greatest period of prosperity ever. National debt increased by at least 300bn. More off-balance sheet PFI commitments than we can be trusted to know the detail of.
We could blame the US for their similar borrow and squander economic policies but Gordon Brown is a grown man. He didn't need to copy them.
And the banks are not totally run by fools. Sure the clown who approves your mortgage in the branch should ideally be employed sweeping railway platforms but their discretion has been totally removed anyway. Just stick a few made-up numbers in a spreadsheet and voila there's your loan. But the guys right at the top knew what was going on. And they'll have been banking on rampant inflation to bail them out. Because there is no alternative. This is a Labour government, inflation is what they do. There is absolutely no way people can pay back the kind of loans they have so the government will simply print money.
This entire housing crash is entirely the fault of this government. 300bn in borrowed money sloshing through the economy. A million extra people on the state pay-roll who should be on unemployment benefit which is all they were fit for in 1997 and ergo, all they're fit for today. Instead of which they've been given massively over-paid jobs while still retaining the IQ they had in 1997. Ie unfit for work. And, by extension, unfit to be trusted with money. Either their own but particularly ours.
And it is this 300bn quid and this million public service makeweights who have been splashing the cash, increasing demand and driving up the price of housing for everybody. At the moment they don't have any worries beyond the MPC actually doing their job - ie increasing interest rates to curb inflation. The rest of us meanwhile are filling our trews worrying about inflation, possible interest rate hikes and losing our jobs in a recession.
What is incredible is that it is only in the last year that people have started to cotton on to the true nature of the Miracle Chancellor and how his smoke-and-mirrors fantasy economy was created. Where were the Tories, the Lib Dems, the informed commentators at the BBC while this deception was in it's infancy?
Worse, now that folk have twigged what's happening I think many are cross not because they've been taken for a ride but because the banks have STOPPED the ride and Gordon won't do something about it. Borrow more money Gordon. Keep the ride going. YEAH!!!
And for sure, come Sunday, Andrew Marr will be conducting an 'interview' with Gordon Brown or Caroline Flint where they'll tell him it's all a global problem about twenty times in five minutes. Nothing to do with their policies. No Sir. And Gordon's good personal friend will just let all that hogwash slide by to be repeated as fact on news bulletins throughout the day.
I could weep.
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At the time of posting there are 86 comments ... this is clearly seen as an important issue by your readers.
My personal take is .. Leave the market to sort itself out.
Meddling in a natural market, attempting to create additional money where there was none, has only extended the market beyond capacity.
It must be allowed to contract to a more natural level.
The basic rule of housing, that the average man should be able to afford the average has been broken and a realignment to this rule has to take place.
I suspect that if the government/treasury do nothing, good old inflation will do the market fixing for them as the stresses on the economy at the moment means the battle against inflation can not be fought.
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I too think it despicable what's been done to people of my childrens' generation ie those in their 20s as has been commented on several times in this blog. The goalposts were moved in relation to funding for a degree and not only are people in this age group almost completely excluded from the housing market at the moment but they are also saddled with massive student loans (the initially low interest rates are now rising) which in effect means they have massive taxes to pay; the student loan being equivalent to an extra tax. I don't blame anyone for thinking of emigrating.
The last thing the current workforce needs is extra taxation to pay for other peoples' recklessness. In fact the best way to stimulate the economy would be to lower taxation and cut the swathes of government quangos and the like. Let the market sort itself out and reduce the "froth". We need to simplify everything rather than keep complicating everything. As someone previously pointed out, the taxation system is crazily taking money with one hand and handing quite a bit of it back to the same people it took it from. Why not take a bit less in the first place? Of course a lot of pointless government jobs are just that and only serve to keep the unemployment figures down.
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Someone points out above that net lending has fallen 45%.
Think about that for a minute.
Net lending has fallen. It's not negative, it's just halved.
We are still borrowing more than we are paying back, even with the so-called credit crunch.
No way should the Government make it easier to borrow until we have spent a little while paying back what we have already borrowed!
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LeadGen10
OverInflated Rents? What do you think will happen if interest rates go up, who do you think your landlord will pass the expense onto ;-)
Inflation will be allowed to run in order to inflate the debt away, it?s the ONLY way I?m afraid ? Just you watch me proved right too, did you read the article on BBC regarding the American timebomb? The only way they can stop that is by lifting peoples wages and that means?????..You guessed it???.PRINTING MONEY!
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This is just insane. What next, asking criminals for their view on sentence lengths?
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Landlords can only pass on the increases if customers can afford and will agree. There are now so many landlords that you can get some very good deals if you are prepared to negotiate, and negotiate early.
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#38 ??Our problem is that the UK banks have got so used to abusing the public from charges to general rates payable, they have lost the plot??
It is not just the ?banks?! It is so easy and accommodating to blame somebody else for our own misery. (It doesn?t mean that the ?banks? are right in this case.)
But I believe that the problem lie down much deeper, and more precisely, with the long lost values and ethics of the people and the society as a whole.
The evil trend to penalize people on a daily basis with disproportionate parking fines (and fees), congestion charges, ?green zone? charges, overdraft (bank) charges, on the spot fines etc., has lead to disablement of what was known as a civil society. It?s been replaced with something similar to a chicken (human) farm. That?s right. Nowadays it is mole likely to be treated like a unit rather than a human being.
Have you asked yourself why people are passing by crime scenes (almost everyday) and not intervening??? Are we all blind?
Yes, the answer is that simple.
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Did anyone read this blog beyond the headline? It appears not. This report contains two alternative proposals.
The first proposal is that the Bank of England act as a market-maker of last resort for mortgage-backed securities, along the lines of the already-existing special-liquidity scheme. This scheme involves a temporary asset-swap between the Old Lady and commercial banks, on favourable terms to the former. The terms are favourable because the risk associated with the mortgage-backed bonds must be priced into the swap. This is not a bail-out. Remember that a market-maker buys and sells an asset with a view to making a profit. The Bank of England will (probably) not lose in this transaction.
The second proposal is that the Bank of England act as guarantor for asset-backed securities. Note that this would be on **Commercial terms**. No bail-out here either. More like monoline insurance.
Neither proposal involves is earth-shattering, although certainly guarantees would be controversial. The first proposal has been tried already in the UK, the Eurozone, and the US (Spanish banks are making use of ECB funds in lieu of funds from the frozen securitization market). Neither involves market manipulation. Rather it is a proposal for a market of last resort:
"Alistair Darling, has no intention of trying to prevent house prices from falling - in that he acknowledges that it would be mad and futile to attempt to rig the housing market in a fundamental way"
On the other hand, the dangers of inaction are apparent:
"adding to the banks' woes is that as they reduce the supply of mortgages and increase the cost of homeloans, there is likely to be a rise in the number of mortgage holders who can't pay their debts."
Great, so the free-marketeers who have not read the whole post advocate more repossessions because the market must find a new equilibrium.
Furthermore,
"A consequential increase in defaults would further deplete their capital resources and their ability to lend."
So people not yet in possession of a home would be even less likely to do so.
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What I find fascinating and, at the same time worrying, is just how much popular opinion is decided by no deeper thought than what's actually happening at the time.
Go back to the turn of the year, and look at the comments made to Robert Peston's articles. It had not at that stage became definite that there was going to be a serious fall in house prices, and just about all the opinion was that
* prices were not going to fall
* nor should they
* how bad it would be if they were allowed to
* how unnecessary a correction was to the housing market
* how collateralised debt obligations were the miracle that took away the shackles that had constrained the past
and everything else that glorified the status quo and the immediate past leading up to it.
Now, 6-8 months on, and it's as though the entire population has suddenly seen the light, and has done a complete volte-face from the positions it was so adamant were true only a few months ago.
How can a major fall in house prices have suddenly gone from being catastrophic negligence to regrettable necessity in such a short space of time? What, in reality, has actually changed?
The only thing that's really changed is that the price fall is actually happening, as opposed to just being talked about. So why is it that so many people consider their opinion to be of any value, when this opinion is based on nothing more than a desire to appear wise by latching on to what's currently in the mainstream?
Why not just leave national decision-making to people who know something about what they're doing, rather than those who just purport to?
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AnddrewH,
And when Landlords cannot afford their mortgages, reposession follows resulting in fewer rental properties - Driving rents up ;-)
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'In April, Sir James was asked by the chancellor, Alistair Darling, to examine what "market-led initiatives" might be necessary to improve the functioning of markets in mortgage-backed securities.'
I wonder if Mr Darling is aware of the proverb:
Never ask a barber if you need a haircut.
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For those who keep posting that bankers should be "forced to pay back their bonuses" - perhaps it would help to understand that the vast majority of bankers receive the vast majority of their bonus in shares of their bank, and that many have indeed seen the majority of their historical bonus earnings "lost" by the collapse of bank share prices. I know of many banker colleagues who have recently seen their retirement pots disappear on them in the shape of worthless options and collapsed share prices.
All very fair, and no complaints, but not well understood by those who assume that bankers have pocketed the cash and now can't be hurt by the losses. They clearly can be, and are!
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#95
'Why not just leave national decision-making to people who know something about what they're doing, rather than those who just purport to? '
Okey Dokey,
Please provide details of at least 3 people that know what they are doing (not including your wise self)
I will follow their careers very closely over the next 18months.
As for your comment, I wish people like you would stay away from places like this and leave the decision making to people that can do absolutely nothing about the mess we are in, but can debate it anyway
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Wildly over-heated property markets are deadly dangerous economically, as the banks and government are now finding out, too late.
To start it all off again by public underwriting of the banks reckless lending will cause an even bigger crash a few years later.
Ludicrous house prices enslave the young, while allowing middle aged folks to rest on their laurels and purr with contentment.
Correct housing valuations are needed at all times, or beware the consequences.
Perpetual motion is a myth, even in the housing market.
This bail-out proposal is EXACTLY THE OPPOSITE of what is needed. Let the market collapse gently, then get rid of all the Del Boys in our banks.
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It is silly to encourage young people under thirty to own their own homes. It stifles job and social mobility, so is bad for the economy.
Thatcher originally enabled home ownership to break down the class-divide. The working classes could experience pride of ownership first hand and have a sense of the future extending beyond Saturday night.
These aspirations have been dismantled by Labour and we return to pre-Maggie poverty Britain.
Today there is no housing shortage. The destruction of the family unit caused the average number of dwellers per housing unit to fall sharply. Restore the family and we will need fewer houses. In the meantime, single home owners can take in lodgers like generations before them. They will need the money and there will be plenty of takers.
There is no need for banks as we know them. Their business model has failed. Financial services are simple but are made to look complex to disguise fees. Banks should be utilities, but they do not have the properly trained staff or the customer goodwill to reinvent their business model. There is no need for their branch network and fancy buildings; like the travel industry they are internet victims.
With their fatally impaired balance sheets, the banks can only watch helplessly from the sidelines as Tesco and others help themselves to market share and reinvent the industry.
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It is not the job of government to use tax payers money to intervene in the mortgage market, or pump prime the market.
For the long term benefit of the economy, the government should use this opportunity to abolish stamp duty for the majority of home owners in this country. Stamp duty should remain for buy to let, second homes, and other investment type schemes. Stamp duty is an economic barrier to families who need to move for economic reasons such as changing jobs, or job relocation. Gordon Brown cynically raised stamp duty in one of his early budgets, and removed billions of pounds from the home owners pockets. Now many of these owners will be evicted from their properties. Perhaps the few thousand pounds paid to the government in this hated tax would have reduced the overall mortgage size, and save some families from loosing their homes.
Gordon Brown is now on his holidays. He should be in Downing Street tying to sort out this mess.
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I heard on Bloomberg today that 500 MILLION people in India have to live off less than $2 a day. THAT is a collossal human tragedy.
What we are facing in this country is a significant decline in our privileged (globally speaking) lifestyles.
I have looked on various websites, but I can't find out if the government or BoE has a legal obligation to provide liquidity to financial markets.
Can anybody advise?
I would interpret any "non-legally-obligated" market intervention as a de facto "bail-out" of essentially zero-value MBS assets (which BTW are looking increasingly like liabilities).
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Several bloggers have mentioned the complicated system by which many benefits are taxable income.
I've just had an out-of-the-box, blue-sky, free-thinking random idea.
I'll throw it out there:
Make it legally compulsory for ALL receipiants of state money (pensions, JSA etc. etc.) to be SELF-EMPLOYED ("pensioners", "job seekers" etc. etc.)
Then they'd have to net everything off themselves in their tax returns (on-line of course, thus freeing up loooooads of state resources).
Hey, at least it's an idea! I bet it's better than what the QUANGO's are coming up with... :)
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The house price bubble was the wound, the credit crunch is the scab, allowing the wound to heal. The Government have got it the wrong way round and try to pick the scab and put crappy plasters on - LEAVE IT ALONE AND STOP BODGING! It will fix itself.
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Over the past few months, I, and other bloggers on Robert's blog, have said that the regulators should have done something to prevent the housing bubble being over inflated. Some have been very critical of Gordon Brown for allowing people to over borrow and over lend. We have blamed the regulators for allowing the Northern Rock to run a business model that proved to be unsustainable. We have said that they should have seen it coming and put rules in place to stop it happening.
We have critised the government for allowing the bankers to make huge bonuses while making the rest of us pay more for our accommodation.
So we have been critical of the government for letting the market rule with little regulation. We have been critical of the government for not taming the excesses of the market, for allowing Wall Street and the City to get 'drunk'. We have said that the authorities should 'lean against the wind' at times.
Now Alastair Darling is looking ahead (something which we would criticise him if he didn't do). We know that markets overswing in both directions. So he appears to have asked someone who has a lot of experience in how the mortgage market works to advise him on how to reopen the mortgage backed securities market before the downward swing OVER corrects the housing market.
It doesn't mean that the Chancellor will heed the advice. He knows that in asking a banker he may get advice that favours the banks. But my understanding, from Robert's report, is that the Chancellor asked for this advice and it wasn't just lobbying from the banks.
However if its right for the government to intervene to stop the worst of the excesses on the way up, then I for one am pleased that the Chancellor is looking at ways of stopping the worst of the excesses on the way down.
I also certainly don't want to pay for other people's recklessness. But if in taking some of the risk out of mortgage backed securities he can kick start the market before it overswings then he should be exploring the possibility.
The problem for me is not the principle of leaning against the wind. Its more a question of how and when. But by reducing the risk elememt of the risk/reward calculation by potential investors in the securities he will make the market kick in sooner than it otherwise would, but, as he would not increase the reward, probably not much sooner. So its effect could stop the worst excesses of the market as desired.
The Chancellor should certainly be taking opinion on the options. To do otherwise would be to accept that the market should always be left to its own devices.
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As far as one can tell the credit crunch suggests the finacial markets (at least in the UK and USA) are in finacial meltdown and hopefully we are about to reach a watershed on the way these markets will be allowed to operate in the future. Because since the city was deregulated an army of unscrupulous and irresponsible people have been allowed to operate without any proper checks and balances being in place to stop them from misbehaving and to prevent such a meltdown from happening. What makes matters worse is the fact that different governments (both Tory and Labour) stood back and watched this happen.
So as a taxpayer of long standing (past retirement age and still working and paying taxes) I am against the idea of the Treasury giving multi billion pound mortgage guarentess to prop up a system that is now in such terrible mess and will end up costing the taxpayers dearly. If the government does go ahead (because the alternative doesn't bear thinking about) then I suspect this will encourage even more people to default in the belief that the government will be forced to come to their aid. We keep on hearing that there is too much government intervention into our everyday lives and this will be seen as another case of the nanny state syndrome. Finally and more importantly it will allow the banks to abrogte their responsibilities for getting us into this mess and will encourage the banks to continue paying silly amounts of money to the charlatans who run them. That would be grossly unfair to ordinary hard working people.
Perhaps we need to get it into our heads that housing stock is not an exportable commodity that can be traded in the same way that some other goods and services are traded. In that respect house prices, whether they go up or down by as much as 25% each way, will not have a corresponding effect on the nations on the nations wealth. The sooner we all come to realise this the better it will be for all concerned.
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hey robert,
ethicalblog understands that building societies were originally set up to provide "long term" finance for people to buy their own homes.
is it now time for the FSA/Government to set up a new "competitor" into the mortgage market. the new mortgage providers could be called ethical societies.
instead of the bank of england taking on existing mortgage securities from the banks, the funds could be made available to the new institutions.
they must adhere to certain ethical rules for example they should not provide a mortgage at below base rate level but also should not look to make to higher margin. 15-25% depending on individual circumstances? arrangement fees should reflect arrangement costs.
ethicalblog excepts that such ethical rules would not generate huge returns which are necessary to provide large executive salaries and bonuses, but has the nail been firmly hit on the head.
could it be that banks are deliberately manipulating the mortgage market in order to force government and the bank of england to act by bailing them out of a mess the banking industry created themselves.
why has sir james not come up with the idea of creating new institutions. is his job at the fsa to create competition, (the bank of england governor believes that competition is the answer) yet banks with funds are charging huge arrrangement fees for mortgages, making them unaffordable to most.
should he also have looked at the issue of providing longer term mortgages which the treasury is keen to encourage.
could it be that certain individuals are simply to close to the status quo to come up with long term solutions which could be painful to some but enable others to buy somewhere to live!
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I dont understand why anyone wants to bring back mortgage securitisation.
What has caused this meltdown is the separation between lender and borrower. The old style mortgage lending was between the bank and the customer. The bank would be careful to check the customers credit credentials before making a loan to them. That loan would remain on the books of the bank until maturity.
Securitisation allowed banks to pass the loan on, for a price, to someone else. There were plenty of investors around looking for something to invest in that was safe and paid a slightly higher rate of return that government securities. The buyers of these mortgage backed securities didnt make the credit checks on the original borrower, instead trusting that the originating bank would do it. Over time, because the originating banks wouldnt be holding their loans to maturity, their credit checks and lending standards drifted from what they would have been if they had been keeping the loans on their own books.
This model led to two problems. Firstly the extra money that was available for mortgages as a result of securitisation led to a huge house price boom. The extra capital in the market chased prospective house buyers with some incredible low interest rate mortgage deals. As a result too many houses have been sold at too high a price. Secondly a lot of borrowers have been loaned money when they dont have much of a chance to pay it back, especially if interest rates rose, due to the lapse lending standards that securitisation has introduced. The system ended up relying on rising house prices, as without them the mortgagees couldnt all pay back the money that they were owed. It became a Ponzi scheme.
Last summer, two Bear Stearns hedge funds blew up, and the mortgage securitisation game was dead. It doesnt work. The only sustainable model of mortgage lending is one where the mortgage banks lend from their own deposits, and keep the loans on their own books.
So why are the government wanting to reintroduce Mortgage Backed Securities? Why do they want this market back when it has failed?
Obviously in some vain hope to get reelected.
The money markets and the banks are going to through huge pain as the securitisation fiasco unwinds, and house prices fall. But this pain needs to happen so that we never have such a silly housing bubble again. And the very last thing the UK needs is a taxpayer funded scheme or two implemented to attempt to stop the mortgage markets returning to the way that they were once before. Such schemes wont work, and they will make everyone in the UK worse off.
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The politicians are damned if they do and damned if they don't.
If they want to get a feel good factor going in time for the election then they will have to inflate the housing market.
That will likely raise the hackles of most thinking folk, but perhaps not voters!
If they want to do the young house hunters a favour then they will not inflate. But with no feel good factor they will be crucified in the polls.
Also spare a thought for those recently bereaved who will have to stump up inheritance tax based on the previous value of their recent legacy which will now be rapidly depreciating.
No doubt the politicians will do whatever they need to do to stay in office..
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I think anyone who believes our government are considering this as a vote winner are wrong. They have done their sums and KNOW they won't get re-elected in 2 years time.
Ironically, from a government with a reputation for consistently benefiting from 'mis-policy', this is one idea which is being considered for the good of all.
I believe the inevitable large lay-offs in the financial sector are the next stage of the credit crunch which will certainly pull the rug out from underneath the housing market and cause the overshoot downwards in prices many in this blog touch on unless something is done.
Putting it politely, staff retention, or "treading water", waiting for an upturn in the economy seems to have been the short term strategy adopted by senior bankers.
One could argue all this possibly at the behest of government, in return for jaw droppingly loose fiscal policy?
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I really dont think this goverment is in a position to do anything on this, as the rapid decline in tax recepts is only going to get much worse. I own a business, and everyone I talk to has said they had been busy, until 2 weeks ago and everything has just gone quiet. (scarey when people ring and email there own office as they think they equipent isnt working!).
Looking at the income and expense of this goverment last year, im glad I dont own a business with figures like that, but hey they are all civil servants who dont really care as long as they get a cushey pension and great perks!
If the goverment had linked the price of a house in with inflation index, then interest rates would have been increased years ago, which would have slowed down the house price bubble.
It would be funny gordon brown banging on about prudence, but with a deficit now nearly as much as we owed after WWII and it took it all this time to pay back, with the situation not over by a long shot, totally agree with No 1 post! sums it up.
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When Adam Applegarth appeared before the treasury select committee he told us that this would happen. Unfortunately no one wanted to listen as they were to busy looking for a scapegoat.
Having followed the Northern Rock story I have known for some time this would be the case.
In my opinion the Bank of England has to act as they are the only body with access to liquidity in times such as these. In my opinion they will need to lend 750 billion just to stop the situation getting worse.
I can understand that a lot of people would like to see the banks fail, I have no great love of them myself however the knock on affect would be businesses going bust, tax revenues being significantly lower and a rise in both direct and indirect in unemployment.
The securitisation market is a trillion dollar industry and to do nothing as that money goes out of the system would mean we have learned nothing from the great depression.
Liquidity is like blood and at the moment we are haemoraging.
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The vast majority of the reasoned economic responses in this blog are against baling out the banks and against any form of mortgage rescue plan. Most see the huge expansion in mortgage finance as a bubble that has to burst, and to burst properly.
I think that this is also the opinion of most of the regulators on both sides of the pond as well, judging from their actions, and inactions.
However, the other problem is the risk of a disorderly market with actual banking defaults where the damage will hurt unconnected parts of the economy and this is the reason why limited intervention will be at least talked about.
If Fannie Mae and Freddie Mac, or indeed Northern Rock, had been allowed to go bust as should have happened in strictly economic terms then the disruption and collateral damage would be huge.
Many commentators misunderstand this minimal intervention as a return to 'business as usual'. This it is not. They do not tell the truth as to do so would cost them more and a little dishonesty will maintain confidence which will protect us all.
It is apparently hugely disruptive for articles to appear that talk of 25 percent increases in house prices, as happened last week, but I suppose that it is a sanctioned way of keeping confidence up whilst letting the market decline in an orderly fashion as so long as that is all that it is, then so be it.
I still stick to my view of what people are expecting (in this blog and in the Treasury, Bank of England and the FSA) - if not willing to talk about - a 30-50 percent decline in house prices from their peak, reasonable interest rates to savers and houses that are affordable on a single salary.
The only other option is to let wage inflation rip to double everyone's salary which would be insanity and also destroy the value of savers savings even further and in itself create another huge credit bubble! This scenario is almost uncontrollable and could lead to Weimar republic inflation. There is madness!
So either way we are in for a decade of tough times - due to the credit boom and its collapse.
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I agree with the considerable majority here that taxpayers money should not be spent on bailing out banks or on propping up a considerably overinflated housing bubble.
It is in the longer-term interests of most people for property to return to reasonable prices
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"Darling is deeply troubled by the risk that the chronic shortage of mortgage finance could lead house prices to fall much further and faster than would be warranted on the basis of notional economic fundamentals."
Sigh. There are no "notional economic fundamentals" for house prices other than the cost of actually building a house, which is less than half current house prices. The dominant factor (land prices) is determined purely by Govenment policy.
House prices should at least fall to similar real values as were prevalent before the present bubble. If the restrictive limitations on planning were relaxed (or redrawn in a more sensible way) they would fall much further, to a similar level to say France before the current bubble infected even them. There is no shortage of land in this country (despite the relatively high population density), just a shortage of land with planning permission.
Houses should be consided in the same way as cars (the second most expensive thing we buy) - the cheaper the better. All this nonsense about people feeling good when prices were rising - all I felt was anger that my kids would not be able to afford a house to buy.
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The quantities of cash required would be astronomical, so it just won't happen, especially now Broon has run our economy into the buffers, and there is no cash to do it with anyway.
This is just another Labour gimmick, with no backbone, like all the rest of the Labour gimmicks that come to nought.
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I have been sitting here reading blogs like these and thinking,
"Shall I start putting my savings under my mattress? Do I need to stock up on tins of corned beef and bottled water?".
"Is the world about to end?"
Simply put - no.
Every time I pick up a paper, watch the news or pop online to read blogs like this, I get the feeling armageddon is coming and we should all run for the hills.
Whilst I am sure a sizable proportion of blame for the current situation can be dished out to Banks, Governments and other such unpopular institutions at the moment, I do get the feeling that we are talking our way into a worse situation.
We have a panic culture in this country.
Look at Northern Rock - started wobbling and the queues were round the block, the sudden surge of people withdrawing money esculated the problem and they had to be bailed out.
(Sadly it is not just banks we panic about - look at petrol shortages for another recent example)
From what I see house prices have risen so much over the last 10 years, too fast and with too much lending, and the market is due for an adjustment.
It will happen, and no doubt there will be winners and losers as there has been already when it was on the way up.
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When I read Peston's article, I was struggling to contain the apoplexy with which I was rapidly filling, but this was completely tempered when I read all the comments posted (with the notable, and not at all unexpected, exception of supercalmdown). It really does fill me with an enormous sense of hope that there are almost no posters advocating that the Government should be trying to support the property market bubble. Needeless to say, I agree with the vast majority of comments posted, and I note that a number are especially good - I'm sure you know who you are.
Anyway, just to comment on a couple of things in Peston's article:
He believes it may make sense for the government to attempt to re-open the market for mortgage-backed securities, to prevent the banks becoming so strapped for cash that the housing market would go from decline to meltdown.
And why, exactly, shouldn't the housing market go into meltdown? After all, this will only affect those who default on their mortgage payments, ie people who were going to lose their homes anyway, whereas the benefits would be enormous, not least of all kick-starting the mortgage lending market which, as I understand it, is the entire purpose of the exercise. So New Labour won't do that then...
Sir James is understood to have concluded that by 2006 finance from the sale of these securities - which are packages of mortgages lent to homebuyers - was equal to two-thirds of all net new mortgage lending in the UK.
Hmmm... now then, weren't there HUGE outcries from all quarters about the imprudent and unsustainable business model that Northern Rock had adopted in order to grow its mortgage business so aggressively? And now it would appear that this business model was being adopted by the whole industry. Not only that, but the Chancellor is trying to find a way to get the industry to go back to this so-called FAILED business model! Yep, sounds like a good, New Labour idea to me...
Officials from the Treasury are examining such an ambitious and controversial scheme in response to a dire assessment of the outlook for mortgage finance to be published at 10am today by Sir James Crosby, the deputy chairman of the City watchdog, the Financial Services Authority.
Yes, naturally the report had to focus on clever, complex solutions for the mortgage drought. Simple, obvious solutions like HIGHER INTEREST RATES are just so, well, not New Labour...
Anyway, that's my lot. I can't be bothered to point out yet again the inanity of supercalmdown's comments, so I'm very grateful to the others who have already done so. On a slightly off-topic closing note, I would like to observe that the Prime Minister's continued and repeated denial that the country does not want him as our leader could very well lead to the complete destruction of Labour as a political party, rather than just its unelectability - he could add that to his CV together with the destruction of this country's economy.
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I'm no economist - is this how Argentina came adrift? The country starts to eat itself?
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So if I understand this correctly, about 66% of our mortgage market was being funded by overseas investors - they pulled the plug when the US started going into recession (because a lot of them were from the states) - which created a downward spiral of money being pulled as the value of mortgage backed securities plummeted.
The extra cash floating about beforehand was the cause of the over-inflated housing market - because people could borrow for next to nothing, which is now about to go into decline as the cost of borrowing is going to rise.
So which bunch of bungling fools didn't spot that our mortgage market was being funded by foreigners who have no legal comitment to continue funding and could withdraw at any time?
The public don't have access to this sort of information readily, but if they did then perhaps it would have been spotted sooner. The more that comes out about this crisis, the more it looks like a (or several) departments simply failed in their duty.
...and the saviour of this mess - ah yes, 'super tax payer' flies in and saves them all again, meanwhile all the guilty parties slip back into the darkness, throwing out a few scraps (resignations) to appease the public.
The people responsible for this are still at large - when will they be brought to justice?
Let's just rename the British financial system to 'Dodge city' and we'll call the governer of the BoE 'sherrif' and the FSA 'deputies' and while the cowboys run riot - we miners will continue to slog away at the mine while they help themselves to our hard work and prospected gold.
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The government really doesn't understand the electoral tsunami that is heading towards them.
First of all, as horrific as the housing bubble correction is going to be for many people, re-inflating the market is the equivalent to supergluing the passengers of the Titanic to the deck, just as the iceberg hits. Socialising the bankers' and speculators' greedy mess with taxpayers money in the hope of winning some "quick-fix" votes at the next election, will jeopordise the UK economy even further, weakening the economy, weakening sterling and normalising even more unsustainable mortgage debt levels: a very dangerous proposition.
Second of all, this government seems to have absolutely no idea of how socially explosive it would be to use taxpayers money to try to sustain this unsustainable bubble further.
In particular, using tax paid by the younger generation who have been priced out of their local neighbourhoods and are repaying vast student debts, who want to be part of a sustainable, productive economy that isn't reliant on "magic money", in which they can buy a home at the traditional income multiple of three times their income, not six and not ten!
If adopted, this will be this be the government's 'poll tax moment'.
This proposal is the culmination of the glib, hard-faced manner in which a process of intergenerational theft has occured in this country over the last decade, where a generation of baby boomers who have enjoyed wage inflation, free education and the chance to get on the property ladder on feasible income multiples, will have their 'magic money' house bubble profits protected by, oh, let me see, by who? Yes, the younger generation, the "invisible generation' which Labour doesn't see and doesn't want to hear.
Who are the "invisible generation"? They are the couple in their thirties conned into getting a mortgage on an overpriced flat which they are trapped in for the foreseeable future; the single working person renting and trying to save for a deposit who watches the financial goalposts being regularly moved; the young professional couple who are renting and making plans to emigrate to another country for a saner life; the graduate who delays marriage and children and home ownership to pay off student loans; the single young person on a low income putting their grocery bill on the credit card; the thirtysomething who would never dream of asking their parents to dip into their pension funds, to help them with escalating deposit costs. The "invisible generation" are everywhere.
This government's ongoing celebration of the property bubble has not gone unnoticed by the "invisible generation" of twentysomethings and thirtysomethings who were priced out of the magic money bubble, who were unprepared to borrow horrific income multiples or who perhaps were peer-pressured into it.
We see how irrelevent we are, the "invisible generation"; paying taxes, paying for our education, unable or unwilling to go to use the Bank of Mum and Dad for life's adult purchases, working hard and thinking even harder.
Expect a significant exodus of Briatin's brightest and best, if this bailout goes through. The suggestion of this bailout just illustrates how complacent the bankers and the government are. When you sever your 'social contract' with the young, you lose them, in every sense. Shame on everyone involved.
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#16 - spot on with your analysis - it's all a joke because I remember in the early 90's banks and b/s saying
"we will never go back to the 5 or 6x salary lending which caused the housing slump"
....so another lesson not learned then.
Why don't we just cut out the middle man - we should pay the big city bonuses straight from tax payer money - it's more efficient and everyone is aware of what's going on.
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I think the public (and certainly this blog) are learning here how unfair democracy is.
My answer to many of the posts (which stress the folly of trying to keep the housing market afloat with taxpayer money) - is who exactly is going to stop the Government doing it?
Basically, if your government wants (or simply through incompetence) to screw your economy up, there is NOTHING you can do about it - until the next general election. By which time it may all be too late.
...and don't be fooled into thinking 'the other lot' will solve the problem - they are the party of free market and less regulation (remember the PEP fiasco) and would possibly make the situation worse!
Thsi won't change until the democratic system is reformed. If the public could call a general election today - then we might have a hope of saving this economy. However as many have pointed out above, it's not in Labour's interest to leave a 'fully working ship' for the opposition to take over - just like John Major didn't before handing over to Stony B-liar.
Strangely my MP isn't interested in changing the democratic process, mainly because they have benefited nicely from it since they were 'elected' (because who gets elected with less than 25% of the vote).
What's needed is a good old fashioned revolution, a few 'off with their heads' and perhaps the burning of parliment to be replaced by less central government power and much more local power. Let's see if the number of people who suffer through this credit crunch prompts such a rebellion.
....maybe that's why the government really needs the 42 days rule...?
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#122, I second everything you said. I've spent the past eight years since graduating pissing almost half my salary up the wall in rent so landlords can price me out of the market by buying up every available house on my street. And now the government want to piss another quarter of my salary up the wall to ensure that they keep on doing the same thing.
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Well, I am glad I do not have a mortgage or young family to support.
I am also very happy that I am not a penny chaser on Interest Rates.
After all in a time of high Inflation, why deposit money on Interest ?
I think Monetarist policy of which the Banks have been the key executive arm, has shown itself to be inadequate to deal with the economic needs of Britain.
This all began with Mrs Thatcher of course.
New Labour continued her policies, so the Tory's really can't complain now they've gone wrong !
However, to advocate suffering when it clearly will not help, is just nasty.
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Infact, with Northern Rock, you could probably say Monetarism is finally Bankrupt!
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Let me see:
Chase the Pennies (Interest) whilst the Pounds fizzle away !
This is probably why the 'smart' money has been ramping up gold, oil, and other commodities.
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Would it not be ironic for a new Tory government to have to raise Income Tax?
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Re: #129 supercalmdown
Would it not be ironic for a new Tory government to have to raise Income Tax?
Would it not simply be history repeating itself, with a new Conservative Government once again having to try and clean up the economic calamity brought about by the preceding "Labour" Government?
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I am surprised that anyone is advocating that the government should copy the US model and guarantee any mortgages. Wasn't that what Freddy and Fannie were made for? Did it work well?
No it didn't!
(anyone remember the words Moral Hazard that were popular a few months ago?)
Governments shouldn't intervene in the markets because you don't really fix things this way - there is a small difference between promising to be an unlimited guarantee and simply printing as much money as you want.
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Why has not a single financial journalist followed through on a Conservative proposal for this government to raise the stamp duty threshold to say..£250,000..even for a year , to stop the slide in the housing market. Et Tu Brute.
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Yes I am confused.
I appreciate that the poor darlings have lost some money on poor motgages ...but there is surely a huge pool of underlying assets which have a core value..and which can be realise at some future date.
Presumably the government will look at these assets as a guarantee for whatever rescue they comeup with ....or will the banks keep any future profits on these sales......as usual
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