Sunday, Jul 27, 2008
Taxpayers to the rescue!
Telegraph: Treasury plan to rescue mortgage lenders
The Treasury is preparing a radical rescue plan for the housing market which may involve pumping billions of pounds into the stricken mortgage markets. Alistair Darling, the Chancellor, has asked his leading advisers to investigate a plan to provide government support for lenders until the financial crisis has abated. The proposal is being investigated ahead of the completion of Sir James Crosby's report into the funding struggles faced by UK banks.
Posted by quiet guy @ 10:35 AM (1227 views) Add Comment
29 Comments
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1. Janitor said...
"In 2006 total net mortgage lending amounted to just over £100bn, with around £60bn of that funded by banks' deposits and the remaining £40bn by securitisation." The government doesn't need to compensate for that. What we need is LESS money being thrown at the market, not MORE!
2. mark said...
you can make all the money available you like, but it does not stop the house prices dropping and joe public now know this......
3. Neiltingley said...
Why the hell should the tax payer be bailing out the housing market ? Put the money into the rail network instead.
4. Sharpe said...
Yes, but with out these ridiculous mortgages housing would be affordable again.
I say we get clubs and pitch forks and trash downing street - government sponsoring this insanity at my ( a prudent savers) expense is outrageous.
5. paul said...
So Peter Spencer, from Ernst and Young (sells financial services) says that the government should write blank cheques for financial services companies. Genius!
"Although the Government is highly wary of being seen as risking taxpayers' money on a rescue operation of the mortgage market, there are precedents for providing such support. The Labour Government of 1974 did so with a £500m loan"
I robbed my local convenience store last week. Does that mean it's okay to do it this week too?
"It will also ensure that the loans are only accepted with a major "haircut" and on such terms that they will only be at risk if house prices plunge by unprecedented and entirely unanticipated rates."
Whoooah. Hang on there - so the very real risk of plummeting house prices is quietly placed in the lap of the taxpayer. I don't think so, matey.
"It can also point to actions being taken by the US administration to shore up its own housing market."
Yes, let's emulate their failures - great thinking.
"Another plan being considered by the Treasury is to multiply the amount of cash it is providing to local authorities to buy up homes from developers."
Yes, good idea. Let's all multiply our cash seeing as there's so little of it right now. Should we leave it in a secluded place with soft lighting and a Barry White cassette?
This is Conway at his flappy worst - crackpot hairbrained schemes to support the house values on his street. Give up already.
6. it_is_going_with_a_bang said...
How about just running the country in a way that allows house prices to return to affordable limits and then stay there?
The only plan really being considered by the government and treasury is how to keep their jobs. With that in mind anything is possible.
7. Maihem said...
Isn't this mathematically equivalent to the government buying houses and giving them to the lenders, who will then want to give out mortgages to get some benefit from the houses.
8. icarus said...
When Crosby was at HBOS it was as exposed to the property market as most. Shareholders had enough confidence in the company to buy just 8% of the recent rights issue. So what qualifies him, either as independent or as an expert?
The taxpayer is at risk only if house prices by unprecedented and unanticipated rates? Please say what rates you have in mind so that the taxpayer can judge how big the risk is. There are many who think that a 40+% drop from the peak is on the cards. Would this be unprecedented and unanticipated? Please remember that this financial crisis is deeper than most of the ones you may have in mind.
Not only are taxpayers being asked to clean up the bankers' mess when investors aren't prepared to do so (wonder why?) but they are now also being told that the quicker the government acts to help the banks the less it will cost. So now a gun is held to their heads.
The other argument these people use is that it's not the bankers but the average citizen who suffers if banks are allowed to fail, so the remedy is to fund the bankers in the hope that this time they will behave prudently and some of that funding will trickle down to the man in the street.
And how secretive will these bail-outs be? What happens if ailing banks are supported in secret (in order to maintain confidence) to make their financial positions look stronger than they really are? Suppose investors support those banks and then lose money when their inherent weaknesses start to show. Can those investors sue the government for failing to comply with its own guidelines about transparency, insider trading etc., that were put in place in order to make information available to enable inveators to make rational decisions?And how do you deal with the problem that when decisions are taken regarding bail-outs there will inevitably be insiders who can bet accordingly?
9. paul said...
I think you made the point well a while ago icarus, that bailing B&B could make the Bank of England legally liable if the details are kept from the shareholders - as indeed they are being now.
I think P4AC has an FOIA application with the Information Commissioner to get some more details about the BoE's "secret" bailing of B&B.
10. planning4acrash said...
This is coordinated with Fed actions. We have globalised corporate socialism now. Let govt take over,&social support goes2 the most powerful.
11. Malct said...
icarus, how about -
"it's not the average citizen but the bankers who suffer if citizens are allowed to fail, so the remedy is to fund the average citizen in the hope that this time they will behave prudently and some of that funding will trickle down to the banks."
12. Sneaker said...
Summary:
1. government decides to bail out the mortgage lenders
2. government has built up no surplus, even at the top of the cycle, so has only two options: (1) BORROW i.e. PRINT the money, or (2) raise TAXES
3. printing money hurts the people in around a year's time; taxing the people hurts now - both are politically unacceptable, but one hurts less now, so guess what it's going to be: PRINTING MONEY = INFLATION
4. either way, we, the people, are going to pay by paying more for everything: food, clothing, oil, transport, everything else is going to go up in price as a result of the government desperately trying to find a way to get re-elected
5. WE ARE GOING TO BE MADE TO PAY, IN ORDER TO PROP UP HOUSE PRICES AT UNAFFORDABLE LEVELS, SO WE CAN CONTINUE TAKING OUT EXCESSIVELY HUGE MORTGAGES -- that's right, PAYING, IN ORDER TO BE ABLE TO CONTINUE PAYING.
The government is, unwittingly, trying to ensure that we pay far too much for housing, by charging us to support the mortgage industry now, the hope being that we will then be able to continue borrowing massive mortgages to pay unsustainable house prices.
This is pure doublethink: affordable housing requires lower prices. Propping up the industry supports excessively high prices.
THE GOVERNMENT CAN'T WORK OUT WHETHER IT IS FOR US -- OR AGAINST US.
13. planning4acrash said...
I just worked out why government must bail out the banks. It isn't for their friends on wall st, its for social control & 2 sustain socialism. If banks go bust, money supply plummets, prices spiral down, and families cld afford houses on 1 salary again!
14. last_days_of_disco said...
We don't need central banks. Its totally within our power to get rid of them. Everyone was richer before we had central banks. They are just an unwanted drag on our economy and make the business cycle worse by their meddling. They are a false savings, they cost a lot and give no protection. They are worse than useless.
The thing that terrifies them more than anything is if a sizable chunk of people started opting out of their bogus money, just use gold or silver, or make your own credit agreements with people, pay in kind, etc, etc. Not even the "all powerful" Fed can stop that if it starts happening on a big enough scale. And pay the higher taxation. Be willing to pay the price, the benefits will far outweigh the costs.
Its a social mood thing, if fiat money is useless, ditch it. The return of the honorable trader, whose name makes his credit notes worth something. Its almost impossible for governments to prevent this because they can't police every interaction between everyone. Also the people that do things this way, will grow stronger and wealthier than the big centralized juggernaut and basically field better armies, be able to fund better weapons research, etc, etc. So its hard to stomp out.
Democracies need rich folks to back them and soon enough the banks are going to get poorer. They may be holding lots of bogus fiat money but the means of production will be in the hands of others. And in a democracy the people running campaigns will need money from somewhere to run them, real money. There are lots of ways to avoid fiat currency in business deals today. And increasingly businesses will start doing deals like that because its easier and is more stable.
So deals being done in terms of barrels of oil instead of dollars/barrel of oil, etc, etc. With computers and the internet managing complex commodity based trades/transactions are totally within the realms of everyday accounting. Basically trading real stuff for real stuff and just leaving out the fiat money component, except for reporting. All doable, today. And there is no law I can think of against that. :-) Its a wonderful world.
Maybe I could buy a house using diamonds and gold. Straight swap. Totally legal I think? The transaction could be reported in fiat currency and tax paid etc, etc, but the transaction happens in real stuff. Gets rid of all the weirdness caused by people printing more pounds.
Ever bought a house with gold coins anyone?
15. gardeniadotnet said...
@14. last_days_of_disco
Crazily Brilliant!!!
16. gardeniadotnet said...
Disco...
I'd patent/trademark/copyright that theory if you can.
I've saved the thread in case you need to establish an "information trail" to establish Intellectual Property Rights.
17. Malct said...
so have I
18. last_days_of_disco said...
Haha, very kind of you, but this is simply how the world worked before fiat money. Not exactly an original idea.
Now the interesting thing for me is to see how the bond market reacts tomorrow now that the FED bailout has become law.
19. Malct said...
xat - seriously
20. Malct said...
no tax on gifts
no tax on houses as giftd ie no stamp duty
21. Malct said...
"Its a wonderful world". - yeah for a few morons - so what's the big difference discodays?
22. denzil said...
@disco.
It's a system that still works a little in my part of Somerset. I bumped into an old school mate in my local last night. He had been haymaking, using his tractor (anybody who is anybody in Somerset owns a tractor) to collect and deliver the bales. His payment as it always is at this time of year is cider and cheese. As you point out @17 it's a system that works well and has probably done so for centuries.
I wonder what the success of a website would be where you could barter your services in return for the service of another. Something like an E-Bay type arrangement but instead of bidding money you bid a service. For instance I would quite happily clean a few windows for some homemade strawberry jam or I'd part with a dozen of my chickens eggs for some apples.
Does sound very Darling Buds of May.
23. Malct said...
let
it happen
local exchange trading
see also transition towns
24. icarus said...
disco - you could use currencies as long as there was no government monopoly on their issue. According to Hayek a system in which individual banks issued their own currencies is feasible. Each bank would have an interest in keeping its currency popular and constant in value. There'd be self-correcting mechanisms - if a bank loaned too much there'd soon be a general sense that its currency was losing its value and it would become less popular. There would be no need for central banks or any of their functions, including issuing money in a monopolistic way, setting interest rates etc. You can download the book, 'The Denationalisation of Money' here:
http://www.iea.org.uk/files/upld-book431pdf?.pdf
25. Tenyearstogetmymoneyback said...
Sneaker @ 12
You seem to have missed a fundamental point in your analysis which is that if we have massive inflation then
a £500000 house won't seem overpriced.
To give an example just 40 years ago my parents paid £5000 for their three bedroom semi. My Mum was quite
worried about borrowing such a huge amount. As you can probably guess within a few years it didn't seem such
a huge amount.
High inflation would keep the average debt loaded voter on side. Although they would moan about petrol being £50 a gallon
their salary of £200000 a year would make their mortgage payments of £2000 a month seem trivial.
The only problem the Government has is in convincing people that this would be alright having sung the praises of low inflation.
:- Duncan
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27. stillthinking said...
Isn't the problem the same as before though i.e. that the government cannot replace the money lost through a large housing crash. The UK will need to borrow funds certainly, but not now, which is why GB was such a chronic idiot to backpedal over the 20% tax issue, causing further inflation now could trigger industrial action (which looks as though its en route anyway).
GBs hands are tied during the inflationary flare off, and when we eventually go into deflation, aside from the government being in a worse financial situation than now, there won't be any way of pushing money into the economy fast enough.
If you are looking at property losing value at 20,000 per year possibly for several years, then the only reason to step back in before the end would be if buying immediately somehow got you 60000k in other mysterious savings. Stamp duty won't save a buyer that much, tax relief on owner occupied mortgages won't save that much.
28. paul said...
The barter idea is good, but what happens when I need bandages, but farmers only have cheese? What about when I am a business that needs 400 crates of butylene, but all I have is millet to pay for it?
Barter is nice in a Darling Buds of May kind of way, but money allows for complex transactions by having a common currency. Its only when money stopped being attached to goods that things went wrong, because those in charge of the printing presses couldn't resist temptation to just keep printing to keep themselves rolling in it.
Fiat money is the problem, not money.
29. denzil said...
Paul,
I wasn't really proposing moving to a barter system entirely. The barter system would run in parallel and is supplemantary with our current system. It's more like an adult version of Swap Shop.