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Higher House Prices Mean The Banks Can Be Reprivatised

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Readers of Housepricecrash may be interested in the views of economist Shaun Richards on house prices on Mindful Money. It may be a little more thought through than a previous comment I think stirred some debate. It was not from Shaun. Anyway the nub of the argument is that the Coalition is repeating mistakes but also that rather cynically house price inflation has been left out of the inflation measures and make it a lot easier for banks to look like they are in good shape before reprivatisatino. It might be worthy of comment.

http://www.mindfulmoney.co.uk/wp/shaun-richards/uk-bank-share-sales-will-be-made-easier-by-house-price-rises-wont-they/

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Readers of Housepricecrash may be interested in the views of economist Shaun Richards on house prices on Mindful Money. It may be a little more thought through than a previous comment I think stirred some debate. It was not from Shaun. Anyway the nub of the argument is that the Coalition is repeating mistakes but also that rather cynically house price inflation has been left out of the inflation measures and make it a lot easier for banks to look like they are in good shape before reprivatisatino. It might be worthy of comment.

http://www.mindfulmoney.co.uk/wp/shaun-richards/uk-bank-share-sales-will-be-made-easier-by-house-price-rises-wont-they/

I was thinking about this the other day and came to the exact same conclusion.

Cue bono?

With a massively increased house price bubble funded byu the ever generous taxpayer, the financial sector will at last safely "mark-to-market" their once below mortgage value properties and thereby be freed to continue business as - pre 2007 - usual. And, as usual, the proles will be left with the bill

It seems increasingly as if government is just a scam to fleece taxpayers for the benefit of mega private corporations

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If house prices are higher than their customers can afford to pay back over the lifetime of the mortgage, then people will start defaulting and the banks will go bust and need nationalising again. A quick but unsustainable spurt in house prices would be nothing but a kick of the can.

There are two ways out of this: higher nominal wages so people can afford to service their debts, or defaults so the debts don't need servicing any more. Flat/falling nominal wages and high/higher debts are the exact opposite of a solution to this crisis, but it's what we are getting.

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If house prices are higher than their customers can afford to pay back over the lifetime of the mortgage, then people will start defaulting and the banks will go bust and need nationalising again. A quick but unsustainable spurt in house prices would be nothing but a kick of the can.

There are two ways out of this: higher nominal wages so people can afford to service their debts, or defaults so the debts don't need servicing any more. Flat/falling nominal wages and high/higher debts are the exact opposite of a solution to this crisis, but it's what we are getting.

Why do you think the rates are so good for those with large deposits?

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Readers of Housepricecrash may be interested in the views of economist Shaun Richards on house prices on Mindful Money. It may be a little more thought through than a previous comment I think stirred some debate. It was not from Shaun. Anyway the nub of the argument is that the Coalition is repeating mistakes but also that rather cynically house price inflation has been left out of the inflation measures and make it a lot easier for banks to look like they are in good shape before reprivatisatino. It might be worthy of comment.

http://www.mindfulmoney.co.uk/wp/shaun-richards/uk-bank-share-sales-will-be-made-easier-by-house-price-rises-wont-they/

What happened to Shaun sorry, JaneTracy?

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I think that's just about it! Banks with loans on the same assets they were before, are now much more "healthy"! :blink:

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Readers of Housepricecrash may be interested in the views of economist Shaun Richards on house prices on Mindful Money. It may be a little more thought through than a previous comment I think stirred some debate. It was not from Shaun. Anyway the nub of the argument is that the Coalition is repeating mistakes but also that rather cynically house price inflation has been left out of the inflation measures and make it a lot easier for banks to look like they are in good shape before reprivatisatino. It might be worthy of comment.

Is that your attempt at an apology, MMeditor?

From the 21 September 2011 piece, Inside the ‘House Price Crash’ community.

Basically contributors appear to be frustrated would-be first-time buyers who resent renting and are hoping prices will "crash" so they can cash in. Presumably if any of these people eventually buy a property they abandon the site and look for one that talks up the property market.

So, what happens on the discussion boards of 'House Price Crash'? I lurked and found out what the purveyors of property doom were talking about.

Typical thread titles include "Why a mansion tax works", "I've been worried we were wrong but…", "Estate agents discuss overvaluing", "London property bubble about to burst" and "Sellers struggling".

There's obvious delight in any loss of homeowners' equity.

You must be a little desperate for clicks if you've condescended to pimping your meagre wares to readers of such lamentable quality.

Anyway, do thank Shaun for the insight that keeping up house prices might have something to do with the government's need to get the under capitalised banks off its balance sheet. That had escaped our attention, busy as we are being resentful, which is I'll admit, exhausting.

My working assumption was that Osborne was talking up mortgage guarantees for no reason, (I thought perhaps he'd been mixing his drinks).

It is a good job we have Shaun's towering intellectual to throw some light on the hidden mysteries of our economy.

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Is that your attempt at an apology, MMeditor?

From the 21 September 2011 piece, Inside the ‘House Price Crash’ community.

You must be a little desperate for clicks if you've condescended to pimping your meagre wares to readers of such lamentable quality.

Anyway, do thank Shaun for the insight that keeping up house prices might have something to do with the government's need to get the under capitalised banks off its balance sheet. That had escaped our attention, busy as we are being resentful, which is I'll admit, exhausting.

My working assumption was that Osborne was talking up mortgage guarantees for no reason, (I thought perhaps he'd been mixing his drinks).

It is a good job we have Shaun's towering intellectual to throw some light on the hidden mysteries of our economy.

As it happens Mr Richards should not be tarred with any previous editorial failures of the MM blog- his blog posts are excellent and his expertise will likely be very useful in sorting the issues surrounding imputed rents in the national accounts.

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As it happens Mr Richards should not be tarred with any previous editorial failures of the MM blog- his blog posts are excellent and his expertise will likely be very useful in sorting the issues surrounding imputed rents in the national accounts.

Many of his posts are excellent, e.g. the more technical stuff on inflation metrics - but:

  • if you lie down with dogs, you're gonna catch flees; John Kay writes a column for the FT, not the Sunday People. It's fair enough to use the quality of editorial policy as a rule of thumb guide to the quality of the journalism/blogging

  • the manner of the allusion in the thread OP is almost trolling!

  • the piece is not that interesting, and IMO the conclusion pulls the punch

But as a concluding point who will benefit from house prices rising the most? Our banks! Their mortgage books will be flattered by such moves particularly if house prices pick up in the weaker regions where their mortgage books are the most exposed. As we review the twisting of our economy to help them one more time we also need to consider the consequences of the same group of people trying to sell us some UK bank shares. Moral hazard alert? Or perhaps miss-selling alert?

He fails to identify that the 'people' who benefit the most are not the banks. If the government ramp an asset price (houses) in order to ramp another asset which has become almost a commerical property/retail property price derivative (bank shares) the beneficiaries are:

  • bank shareholders (the government, and by association the coalition and indirectly, tax payers)

  • bank employees (and by association any political party that depends on the discretionary political contributions made by bank employees using funds from the PLC that employs them AND any politician looking for a nice sinecure/directorship)

  • leveraged property investors/speculators (including huge swathes the elected representatives of all property parties)

  • over-leveraged voters (and by association any party that is perceived to have acted in their interest)

Help to Buy is real crossing the Rubicon stuff. The attempt to sustain or even inflate UK property prices from here is a political choice. This is only to do with the banks to the extent that they are just one linkage in a tried and tested system of short-term political choices which act in the medium term (let alone the long term) to the detriment of anyone who does not own assets (or is not holding an asset position financed by borrowing).

It's no longer about the banks. As a nation, we allowed the bank to facilitate our collective wish, to be a nation of people who derived their income from their property wealth, as if inside every 2 bed maisonette from Peterborough to Penzance there was a comic simulacrum of the Duke of Westminster. We MEWed and HEWed and flipped for a decade until somebody outside called time, and we had to face the fact that we were almost irretrievably bust.

Now some bunch of clowns are trying to limp on for the remaining 22 months of a 60 month parliament by building anticipation of more of the same.

Mervyn King at his final TSC was talking openly about how the credit driven inflation of house prices facilitated a wealth transfer:

“That led to a transfer of wealth to the older generation… the younger generation taking out a lot of debt and the older generation having a lot of liquid assets that they got from the proceeds of selling houses.”

Source: Telegraph, The elderly must suffer low rates so the young can pay down their debts.

Help to Buy is a political choice, motivated buy short-term thinking political thinking of the worst kind (and 22 months is quite enough time for something unruly to turn up in the bond markets and make the whole exercise pointless - if you must do short term, don't do it over the medium term!). The You Gov survey suggests to me that the most aggressive analysis the Help to Buy proposals were subjected to were focus groups and public opinion surveys; its a very risky method of attempting to drive sentiment for purely electoral ends. Unfortunately, because we're collectively so deep in denial the sentiment being driven is the hope that salvation lies just one step further along the road to disaster.

We are probably unable to sustain our current standards of living by any means other than borrowing like crazy, and the trend on that is pretty robust since 2008. Which means that we cannot maintain our current standards of living. Fair enough. It was a massive boom and now it's over. However, in order to have the best standard of living possible in the medium to long term we need to find a way to reduce the burden of debt and allocate the losses as fairly as possible.

Nobody made anyone borrow ludicrous amounts of money to buy some old gits semi. If the boomer managed to find some Gen X mug, good on them. It was a trade. The boomer won, the Gen X debt junkie lost. Is it really the best plan for the government to brazenly to distort one of the most crucial aspects of our actual economic system, the money, in order to try to redress the terms of the trade?

What about the rest of us who weren't in on this trade? There are only about 10-12 million CML mortgages, and roughly 20% of them must be Buy to Let. Madness, plain and simple. In the performing arts they have a phrase to characterise pale endeavours; the conclusion to original piece is somewhat "dialled in". He needs a decent editor.

Edited by ChairmanOfTheBored

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Many of his posts are excellent, e.g. the more technical stuff on inflation metrics - but:

  • if you lie down with dogs, you're gonna catch flees; John Kay writes a column for the FT, not the Sunday People. It's fair enough to use the quality of editorial policy as a rule of thumb guide to the quality of the journalism/blogging

  • the manner of the allusion in the thread OP is almost trolling!

  • the piece is not that interesting, and IMO the conclusion pulls the punch

He fails to identify that the 'people' who benefit the most are not the banks. If the government ramp an asset price (houses) in order to ramp another asset which has become almost a commerical property/retail property price derivative (bank shares) the beneficiaries are:

  • bank shareholders (the government, and by association the coalition and indirectly, tax payers)

  • bank employees (and by association any political party that depends on the discretionary political contributions made by bank employees using funds from the PLC that employs them AND any politician looking for a nice sinecure/directorship)

  • leveraged property investors/speculators (including huge swathes the elected representatives of all property parties)

  • over-leveraged voters (and by association any party that is perceived to have acted in their interest)

Help to Buy is real crossing the Rubicon stuff. The attempt to sustain or even inflate UK property prices from here is a political choice. This is only to do with the banks to the extent that they are just one linkage in a tried and tested system of short-term political choices which act in the medium term (let alone the long term) to the detriment of anyone who does not own assets (or is not holding an asset position financed by borrowing).

It's no longer about the banks. As a nation, we allowed the bank to facilitate our collective wish, to be a nation of people who derived their income from their property wealth, as if inside every 2 bed maisonette from Peterborough to Penzance there was a comic simulacrum of the Duke of Westminster. We MEWed and HEWed and flipped for a decade until somebody outside called time, and we had to face the fact that we were almost irretrievably bust.

Now some bunch of clowns are trying to limp on for the remaining 22 months of a 60 month parliament by building anticipation of more of the same.

Mervyn King at his final TSC was talking openly about how the credit driven inflation of house prices facilitated a wealth transfer:

Source: Telegraph, The elderly must suffer low rates so the young can pay down their debts.

Help to Buy is a political choice, motivated buy short-term thinking political thinking of the worst kind (and 22 months is quite enough time for something unruly to turn up in the bond markets and make the whole exercise pointless - if you must do short term, don't do it over the medium term!). The You Gov survey suggests to me that the most aggressive analysis the Help to Buy proposals were subjected to were focus groups and public opinion surveys; its a very risky method of attempting to drive sentiment for purely electoral ends. Unfortunately, because we're collectively so deep in denial the sentiment being driven is the hope that salvation lies just one step further along the road to disaster.

We are probably unable to sustain our current standards of living by any means other than borrowing like crazy, and the trend on that is pretty robust since 2008. Which means that we cannot maintain our current standards of living. Fair enough. It was a massive boom and now it's over. However, in order to have the best standard of living possible in the medium to long term we need to find a way to reduce the burden of debt and allocate the losses as fairly as possible.

Nobody made anyone borrow ludicrous amounts of money to buy some old gits semi. If the boomer managed to find some Gen X mug, good on them. It was a trade. The boomer won, the Gen X debt junkie lost. Is it really the best plan for the government to brazenly to distort one of the most crucial aspects of our actual economic system, the money, in order to try to redress the terms of the trade?

What about the rest of us who weren't in on this trade? There are only about 10-12 million CML mortgages, and roughly 20% of them must be Buy to Let. Madness, plain and simple. In the performing arts they have a phrase to characterise pale endeavours; the conclusion to original piece is somewhat "dialled in". He needs a decent editor.

Fair points as always.

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Many of his posts are excellent, e.g. the more technical stuff on inflation metrics - but:

  • if you lie down with dogs, you're gonna catch flees; John Kay writes a column for the FT, not the Sunday People. It's fair enough to use the quality of editorial policy as a rule of thumb guide to the quality of the journalism/blogging

  • the manner of the allusion in the thread OP is almost trolling!

  • the piece is not that interesting, and IMO the conclusion pulls the punch

He fails to identify that the 'people' who benefit the most are not the banks. If the government ramp an asset price (houses) in order to ramp another asset which has become almost a commerical property/retail property price derivative (bank shares) the beneficiaries are:

  • bank shareholders (the government, and by association the coalition and indirectly, tax payers)

  • bank employees (and by association any political party that depends on the discretionary political contributions made by bank employees using funds from the PLC that employs them AND any politician looking for a nice sinecure/directorship)

  • leveraged property investors/speculators (including huge swathes the elected representatives of all property parties)

  • over-leveraged voters (and by association any party that is perceived to have acted in their interest)

Help to Buy is real crossing the Rubicon stuff. The attempt to sustain or even inflate UK property prices from here is a political choice. This is only to do with the banks to the extent that they are just one linkage in a tried and tested system of short-term political choices which act in the medium term (let alone the long term) to the detriment of anyone who does not own assets (or is not holding an asset position financed by borrowing).

It's no longer about the banks. As a nation, we allowed the bank to facilitate our collective wish, to be a nation of people who derived their income from their property wealth, as if inside every 2 bed maisonette from Peterborough to Penzance there was a comic simulacrum of the Duke of Westminster. We MEWed and HEWed and flipped for a decade until somebody outside called time, and we had to face the fact that we were almost irretrievably bust.

Now some bunch of clowns are trying to limp on for the remaining 22 months of a 60 month parliament by building anticipation of more of the same.

Mervyn King at his final TSC was talking openly about how the credit driven inflation of house prices facilitated a wealth transfer:

Source: Telegraph, The elderly must suffer low rates so the young can pay down their debts.

Help to Buy is a political choice, motivated buy short-term thinking political thinking of the worst kind (and 22 months is quite enough time for something unruly to turn up in the bond markets and make the whole exercise pointless - if you must do short term, don't do it over the medium term!). The You Gov survey suggests to me that the most aggressive analysis the Help to Buy proposals were subjected to were focus groups and public opinion surveys; its a very risky method of attempting to drive sentiment for purely electoral ends. Unfortunately, because we're collectively so deep in denial the sentiment being driven is the hope that salvation lies just one step further along the road to disaster.

We are probably unable to sustain our current standards of living by any means other than borrowing like crazy, and the trend on that is pretty robust since 2008. Which means that we cannot maintain our current standards of living. Fair enough. It was a massive boom and now it's over. However, in order to have the best standard of living possible in the medium to long term we need to find a way to reduce the burden of debt and allocate the losses as fairly as possible.

Nobody made anyone borrow ludicrous amounts of money to buy some old gits semi. If the boomer managed to find some Gen X mug, good on them. It was a trade. The boomer won, the Gen X debt junkie lost. Is it really the best plan for the government to brazenly to distort one of the most crucial aspects of our actual economic system, the money, in order to try to redress the terms of the trade?

What about the rest of us who weren't in on this trade? There are only about 10-12 million CML mortgages, and roughly 20% of them must be Buy to Let. Madness, plain and simple. In the performing arts they have a phrase to characterise pale endeavours; the conclusion to original piece is somewhat "dialled in". He needs a decent editor.

Excellent post.

Indeed, a lot of people were, and still are, "in it together", first inflating the bubble, and now preventing it from bursting: from Brown & King, to Cameron & Carney, all happy to please the property owning voting majority, and banks shareholders and employees. And this alliance of insanely reckless short-termism is still together, trying to prevent its bursting. And our media says nothing.

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and 22 months is quite enough time for something unruly to turn up in the bond markets and make the whole exercise pointless - if you must do short term, don't do it over the medium term!

Excellent post - and the quoted bit gave me a giggle...

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