Sunday, Jun 22, 2008
Will Hutton running scared
Guardian: If we rely on free markets, we are looking disaster in the face
Mr Hutton argues the case for adopting an American style mortgage system complete with slashed interest rates: "So what public intervention is needed? The US provides the answer. In these conditions, central banks slash interest rates despite what is happening to oil prices; the risk of a credit implosion is vastly higher than an upward wage and price spiral. Also, the US has only been able to avert disaster in its mortgage market via the guarantees offered by two huge public mortgage banks - Fannie Mae and Freddie Mac - which directly or indirectly have provided 80 per cent of all new US mortgages over the last six months. Together, they guarantee more than half of the US's £5 trillion of mortgage debt." WTF ???
Posted by quiet guy @ 10:53 AM (946 views) Add Comment
13 Comments
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1. Mike said...
It is worth noting that both Fannie Mae and Freddie Mac only take mortgages up to a certain size, and both of these institutions are under risk of insolvency. While talking about how to get out of the mess we're in, don't we also need to talk about how to prevent it happening in the future - and Freddie and Fannie certainly didn't do that this time around.
2. paul said...
All very well parping on about this now, but Ditzy Hutton was happy to rely on the free market when the price of his house was going up.
'foisted on his own petard' is the phrase I think.
3. paul said...
In addition, US mortgage holders can walk away from their debts by handing the keys back to the bank. That would fast track a plunge in prices quicker than you can see "freedom from negative equity".
4. icarus said...
He must be joking. Fanny and Freddie, by guaranteeing mortgages, are resposible for more credit creation (equivalent to printing fiat money) than the Fed itself. The instruments for the US housing credit bubble are the Fed, Fanny and Freddie. Anyway, only the US can create cheap money to this extent - that's because of the special position of the dollar, which has enabled US policy makers to ignore the perils of devaluation, current account deficits and inflation that are caused by cheap money. If any other country behaved this way it would go downhill fast.
5. gardeniadotnet said...
paul
>foisted on his own petard.
Ha Ha. I'm adding that one to my repertoire.
6. waitingfor hpc said...
sour grapes from the BTL brigade!
At last life is returning to normal, I will be 32 next month and have watched in horror as this property porn show carried on for 10 years. My savings used with low returns as my friends bought 5 or even 10 houses on 100% interest only loans, they told me i was stupid. As I said I just want an AFFORDABLE HOUSE to LIVE IN. Well at last I will have the last laugh and just maybe my saving mentality will prove right. Just a shame it has taken so long. Judgung bu the comments at the bottom it is quite clear that public opinion is not behind state bailouts and people are not as stupid as i thought, they have taken years to wake up but are finally seeing the ponzi scheme for what it was.
RANT OVER - going for a cup of tea now.
7. letthemfall said...
It's a curious article. Hutton is of the view that the constriction of credit will become more severe and cause great economic disruption with unemployment rising steeply and all sorts of woes for us all. Hence, he says go the US route to avoid this. This is all very well, but along with this approach we would need strong regulation of the banks - which he seems to be arguing for - and rationing of credit. In the old days mortgages were effectively rationed. And the culprits for our current problems - bankers - should answer for their mistakes. Fat chance.
8. montesquieu said...
Real rabbit in the headlights stuff from Oor Wullie here. Wonder how many BTLs he and his wife actually have by now?
I used to admire this guy but his pronouncements lately have shown him to be just another unprincipled vested interest mouthpiece. Shame.
9. Tonys9168 said...
Suddenly banks and VIs recognise that the free market can be buggered up by idiots trying to make sales by damaging their company, the industry and consumers, cutting corners on quality and diligence. Oh where have I seen that before...ooohhhh everywhere else thats where. Its not a banking phenomenon!
The answer is the same as everywhere,.... better regulation, not support for bad practice.
The just won't accept the reality that their 'assets' are drastically overvalued, because it means banks going bust.
.. Arrgggghh!
10. drewster said...
"The US provides the answer. In these conditions, central banks slash interest rates."
That's fine by me. Over the last twelve months the Fed cut interest rates from 5.25% to 2% - and house prices in the US are still plummeting. Cutting interest rates would be like pushing on a string, the housing market just won't respond. If the BoE cuts rates then we are guaranteed to see the pound plunge, so my gold and other non-sterling assets will go up in value. With the devalued pound, a lot of European immigrants will head home to earn more in their stronger currencies. That'll knock down housing demand.
11. Ijjhall said...
Think you are picking on the wrong guy here : Hutton does not have an interst in high house prices - in fact he has been warning about their collapse for years. He is an old fashoined keynesian who believes that unless the state intervenes unregulated markets will create havoc in pretty much most areas. He obviously feels the British housing market - liar loans etc - is a case in point and how many could disagree ?
You can argue his position is flawed from a neo liberal/free market perspective if you wish but he is not a mouthpiece or VI..
12. Mirage said...
Paul: 'foisted on his own petard' is the phrase I think.
That would be "hoist"
13. scandinavian pessimist said...
Ironically, all the rate cuts in US have had little positive impact at all becasue inflation is now squeezing peoples finances just as much as high interest rates would have done.