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Pre Credit Crunch Dinosaurs Still Alive In 2010?

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A new blog post over a PricedOut asking for nominations.

Crazy mortgage lending, greed, hubris, global financial meltdown and an economy changed forever – it’s now all pretty familiar, right?

But one of the most puzzling things about the credit crunch is how little the economic and housing commentariat has changed to reflect the devastation the crunch wrecked on pre 2007 received opinion. A large group of talking heads, media darlings and policy makers - who didn’t see the crisis coming or even contributed to the boom - are still out there talking.

In the celebrity world of housing these are pretty obvious. Kirstie Allsop is, unfortunately, still on prime time and is still listened to – not just on property porn, but on mainstream political shows like Question Time and in profile pieces in the broadsheets. The threat that she may be given a place in the House of Lords has, thankfully, receded with the Coalition. But she remains testimony to the fact that changing events need not spell the end of your career if you have a good agent, a millionaire husband and an untrammelled sense of your own importance.

If only celebrity world was the exception – but the old guard pervade at all levels of economic opinion makers too.

Take Gavyn Davies – close friend and advisor to Gordon Brown, architect of the UK’s laissez faire Faustian pact with the city and, for a period, economist to those wonderful chaps over at Goldman Sachs (how many failed projects can one man sign up to?). Gavyn has just been given a prime new wonk slot at the Financial Times – initially called ‘Econoclast’ until even the FT sensed this was too much irony for one small blog to take.

Or how about Howard Davies? Supremo of the failed Financial Services Authority between 1997 and 2003, he set up the institution in all its fabulous weakness (a body that marked a whole new low for the phrase ‘due diligence’). He then got a juicy job as non executive director at Morgan Stanley in 2004 (Morgan Stanley famously only just avoiding wipe out in 2008) and also became Director of the London School of Economics in 2003 (an institution that should have been – but wasn’t – an academic centre for thinking about flaws in the economic orthodoxy before the crisis hit).

Howard, perhaps with tongue firmly in cheek, has a new book out called ‘The Financial Crisis – Who is to Blame?’ and is just about to set off on a tour of TV studios to talk about it. We’ll see if he points the finger at himself.

And finally, step forward Stephen Nickell. With an academic roll call as long as your arm – you’d get an honouree degree in stodgy econometrics just by being able to read through his list of published articles – Stephen has formed a key plank in the economic and housing establishment.

A strong believer in the ‘Barker consensus’ (in brief the approach put forward by Kate Barker in her keynote Barker Report that set out a political narrative that the only house price issue to look at was supply, whilst not troubling ourselves with the obvious boom in speculative housing demand, lax mortgage lending or other disconcerting issues like immigration), Nickell was also an important government advisor at the National Housing Advisory and Planning Group (recently abolished by the Coalition government).

Not only this, but Nickell was also a member of the MPC when it famously ‘missed the bubble’. Rather than think that monetary policy was too lack between the period of 2000 to 2006 (when house price inflation was at times topping over 20% growth each year), Stephen actually thought that it was too tight – voting for an interest rate decrease in 23 out of the 66 meetings he attended between 2001 and 2006 and being in a minority voting for a decrease on 13 separate occasions (an impressive voting record for cheap money, even for the MPC).

He also voted, alongside Kate Barker, for the infamous cut to the base rate in August 2005, when MPC members outvoted Mervyn King in the disastrous decision that pumped moral hazard all over the UK front pages and led to the 2006 and 2007 ‘crack up boom’ of RMBS fuelled mortgage lending insanity.

Where is Stephen now? Languishing at an Oxford high table as he slowly winds down to retirement whilst reflecting deeply on his role in the **** up?

Fat chance – this is an economist after all. Stephen not only has be showing remarkably little self doubt, but has secured a nice monthly slot with the respected and otherwise excellent Prospect Magazine (read by many a decision maker).

The fate of many an aging academic, Stephen is regrettably stuck in a timewarp floating somewhere above the year 2005 (to summarise: “don’t worry about the bubble or the speculating boomers, it’s only about supply” is his familiar tune).

His Prospect article from July 2010 is a classic of this genre. To quote the Nickell wisdom “the supposed housing bubble and ‘reckless’ lending had absolutely nothing to do with the financial crisis in this country” and that mortgage lending reform should be “low” on the list of political priorities of the UK government.

You can read the first free paragraphs of the article here: http://www.prospectmagazine.co.uk/2010/07/number-cruncher-11/

PricedOut disagree. So we put together a letter stating why we think Nickell is mistaken, just in case anyone was still taking him seriously. The published letter is in this September’s issue and is hidden behind an internet pay-wall (although free to browse at WH Smith). The full letter is below:

Stephen Nickell claims that loose mortgage lending has not been a factor in the financial crisis in the UK – he is wrong.
Firstly, bad UK lending was a direct cause of the implosion of some UK lenders. Bradford and Bingley collapsed because of the horrendous state of its loan book – dominated by UK Buy-to-Let and self certified mortgages. In March 2009 it reported an extraordinary 20-fold increase in bad debts, whilst the number of its mortgages three months or more in arrears trebled to 4.6%. Its failure to find a willing buyer for this cocktail of bad lending led directly to its nationalisation.
Secondly, the perception that UK lenders had lent too much, too loosely was an important factor in the loss of confidence that international investors had for many UK institutions. And when the UK housing bubble was much larger than its US counterpart, this nervousness was not without reason.
And thirdly, he assumes that the avoidance of a US style short term car crash – prevented in the UK thanks to record low interest rates and the absence of ‘non recourse’ lending – has come at no long term cost. Yet Britain’s high levels of mortgage debt make us much more vulnerable to future economic shocks – both as individuals and as a nation – and is not cost free (just ask any pensioner reliant on a decent income from their savings).
Any sensible government should be very concerned at preventing a recurrence of this level of risk exposure. Tougher UK mortgage regulation needs to be at the heart of the Coalition’s post crisis road map.

Any other nominations for pre crunch dinosaurs still alive and well in 2010? And why does the UK housing establishment have such a blind spot on mortgage financing and the bubble?

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