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Adair Turner - Monetary Policy And Credit Supply - Youtube

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This is excellent.

At 14:45 is spot on, lending on real estate which already exists.

At 15:45: "To a significant extent, modern banking systems finance a competition between ourselves for the purchase of real estate which already exists, and effectively for locationally specific real estate, namely the land on which it sits."

Only 15% of lending was for productive purposes (businesses); the vast majority of lending was for speculation on the land

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Amazing how these people always have an epiphany after the fact once they leave the position where they could have made a difference

wikipedia says Adair Turner was appointed to lead the FSA on 29 May 2008. wiki also states in the FSA main article that Osborne announced his intention to abolish the FSA on 16 June 2010. Not sure that Adair Turner ever had much of an opportunity to make a difference - the people who made a difference (for the worse) were every single Prime Minister and all their Chancellors from the 1970s onwards, who got their seat at the table thanks to the voters. Collectively we appear to have the system we want, though I struggle to see its merits.

The reality is that everyone sees it all the time, but nobody talks about what they see once its their responsibility to keep the Ponzi rolling. Epiphanies after the fact are just part of the fun - the movement from opposition to power requires a politician to apparently lose the ability to see what was once blindingly obvious; hence why this quote isn't getting old any time soon, as far as I am concerned:

Alun Cairns (Vale of Glamorgan) (Con): Does the Prime Minister agree that when the Leader of the Opposition talks about the economy, he sounds just like a Victorian undertaker looking forward to a hard winter? Does the Leader of the Opposition not accept that we cannot get out of a debt crisis by borrowing more money?

The Prime Minister: My hon. Friend makes a very good point. The fact is that the economy that we inherited was completely unbalanced. It was based on housing, it was based-on finance, it was based on Government spending and it was based on immigration. Those were four incredibly unstable pillars for sustained economic growth, and what we have had to do is a major recovery operation. That operation is still under way, but given the new jobs created, the private sector businesses that are expanding, the new people setting up their businesses, we are making progress.

Source: Hansard, Wednesday 30 January 2013, (emphasis added).

The amazing thing is that he was talking like this as late into the current parliament as January 2013, especially given that about two months later Osborne would announce Help to Buy in the Budget. Hey-ho.

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wikipedia says Adair Turner was appointed to lead the FSA on 29 May 2008. wiki also states in the FSA main article that Osborne announced his intention to abolish the FSA on 16 June 2010. Not sure that Adair Turner ever had much of an opportunity to make a difference - the people who made a difference (for the worse) were every single Prime Minister and all their Chancellors from the 1970s onwards, who got their seat at the table thanks to the voters. Collectively we appear to have the system we want, though I struggle to see its merits.

The reality is that everyone sees it all the time, but nobody talks about what they see once its their responsibility to keep the Ponzi rolling. Epiphanies after the fact are just part of the fun - the movement from opposition to power requires a politician to apparently lose the ability to see what was once blindingly obvious; hence why this quote isn't getting old any time soon, as far as I am concerned:

Source: Hansard, Wednesday 30 January 2013, (emphasis added).

The amazing thing is that he was talking like this as late into the current parliament as January 2013, especially given that about two months later Osborne would announce Help to Buy in the Budget. Hey-ho.

My bad.. thought he was in charge pre 2007 ..with his view and understanding it`s a shame he wasn't in charge it may have been different but i doubt it ,but like you say TPTB just want puppets in those positions ,fit the blinkers and pull the strings

Blanchflower is a classic case he`s talking the polar opposite now compared to his view when he was part of the MPC

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I like Steve Keen's answer. Only lend 10X the annual rental yield on a property. So if a house could be rented for £10,000 a year the most you could borrow against its purchase would be £100,000. You would have to save the difference between that and it's selling price.

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What a load of balls. Basically he's decided to become an apologist for high house prices.

While waving an iPad around he said that high land prices are an inevitable feature of modern economies now that all of our other wants and needs are so easily and inexpensively satisfied with modern technology. Tell it to somebody paying a utility bill, or a childcare bill, or a care home bill, or a university tuition fee, or buying a train ticket, or paying their income tax and national insurance etc.

At no point did he even consider the possibility that the cure for property bubbles might be to let speculators learn to be more cautious by losing their shirts when the bubble bursts.

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What a load of balls. Basically he's decided to become an apologist for high house prices.

While waving an iPad around he said that high land prices are an inevitable feature of modern economies now that all of our other wants and needs are so easily and inexpensively satisfied with modern technology. Tell it to somebody paying a utility bill, or a childcare bill, or a care home bill, or a university tuition fee, or buying a train ticket, or paying their income tax and national insurance etc.

At no point did he even consider the possibility that the cure for property bubbles might be to let speculators learn to be more cautious by losing their shirts when the bubble bursts.

There's nothing modern about land. There's loads of it. He's an economist, he's getting confused between Hongkong - where there's little land, and the UK, wheres theres load.

There's a noticable thing happening with political-economists, to give them there full title.

Until 20 odd years ago, they just hang around in the bankground giving vague advise to governments.

Then government and finance started implementing these policies more + more.

Dumb stuff like - efficient markets, mangled to mean that the market is right, all the time.

Then expanding stupid models to financial products, and then cranking up the leverage on them. Massively.

Then 2007 happened

Bang!

They are regarded as nothing more than astrologists.

Economic graduates are being put in the same box as religuous studies - its all belief rather than facts.

There's a lot of people making a lot of effort to disassociate themselves from those past naive theories.

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He seemed like a Tony Blair-type, unable to accept that the political class are getting it badly wrong and that the common man is suffering and angry because of their incompetence. Their standard line is always that policymakers in the UK basically got everything right, the reason the outcome is so bad is because mysterious unnamed forces meant there were no good policy options on the table, if they had done something else the outcome would have been even worse, blah blah blah.

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Personally I have a lot of time for Adair Turner. I would say he has his finger on the pulse and is up there with Steve Keen. Osborne and Balls need shooting.

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What a load of balls. Basically he's decided to become an apologist for high house prices.

While waving an iPad around he said that high land prices are an inevitable feature of modern economies now that all of our other wants and needs are so easily and inexpensively satisfied with modern technology. Tell it to somebody paying a utility bill, or a childcare bill, or a care home bill, or a university tuition fee, or buying a train ticket, or paying their income tax and national insurance etc.

At no point did he even consider the possibility that the cure for property bubbles might be to let speculators learn to be more cautious by losing their shirts when the bubble bursts.

I think that you're seeing what he said through a lens of your own expectations, and that you are going to struggle to make the accusation that he is an "apologist" stick without reference to that lens.

I can go along with a slightly different perspective which is that he argues (IMO correctly) that without material reform, our present private bank based mechanism for generating new money will inevitably lead to asset bubbles. Further to that, a fear of Great Depression debt-deflation cycles will always lead to very loose monetary policy and so called extraordinary monetary policies being enacted in the wake of big enough busts; obviously the consequences of this are that speculators do not immediately get the chastening experience that they might otherwise have got. However, as his reference case for what happens next is Japan, I'm not sure that he's an apologist for high house prices. Just because the bubble hasn't unwound yet, doesn't mean that it's never going to unwind.

Most importantly I think that you are projecting onto him normative judgements when he makes it pretty clear that what he is seeking a correct description of how our banks actually work and how that informs the house prices we presently have. For the avoidance of doubt, IMO he is not saying "this is why prices should be high" or "this is why prices are going to remain high", he is saying "this is why prices are high". By advocating much higher capital requirement for banks he is by pretty clear extension advocating lower house prices, (if the driver of prices is the cost of credit, raising the cost to the bank of making loans raises the cost of borrowing borne by borrowers, thus reducing the size of the debts they can service and thus use to finance purchases).

Finally, surely it is just a plain fact presently that the mechanisms of money creation, the globalisation of world trade and the globalisation of capital markets have fed into the UK broken housing sector in a way that has elevated prices in a way that will be sustained to some extent even after a significant correction. Essentially as billions of workers overseas become available to do some of the work we would like to do, our ability to secure goods and services, including housing, in exchange for our labour weakens. At the same time countries pursuing economic policy that generate and sustain a savings glut provide a ready source of cheap money to be funnelled via recourse mortgages into UK residential property, driving down interest rates and pumping prices. Acknowledging that these things have happened is not the same as accepting that they are optimal. Further down the line things may change outside the UK economy and they may unwind a little. It's not impossible to imagine that they are democratically unstable in the sense that the disquiet on these boards about the consequences of high house prices might eventually feed into some mechanism where public opinion leads the political class to shift from their present position to favour in all things net creditors and the banks. Stranger things have happened, as pre-revolution Russian aristocrats would readily confirm.

But for as long as so much of the economy is in reality run by the banks for the banks, who could take issue with Turner's suggestion that house prices will be higher than they were before the financial sector secured its hold on the commanding heights of the economy? IMO the observations that he makes about house prices being higher because of the way our banking system works are just the truth; without reform of banking and money or an enormous transformation in some other part of the puzzle, even in the presence of asset bubbles and their collapses, house prices are going to be higher relative to earnings than they would be if we prized high-quality, genuinely affordable housing more highly than we prized keeping various losers at RBS in the highly paid jobs to which they've grown accustomed.

Personally, I don't think that we should accept the current state of affairs as either optimal or inevitable, but I am not optimistic about it changing any time soon. The history of banking suggests to me that there is nobody driving the damn thing. The financial sector is a technology of a kind which innovates according to its own lights and in the UK it enjoys a shocking special flower status which means that regardless of the harm that it does or the extent to which it expresses values which clash with the values we espouse, it gets left alone to do its vampire squid thing.

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I think that you're seeing what he said through a lens of your own expectations, and that you are going to struggle to make the accusation that he is an "apologist" stick without reference to that lens.

I can go along with a slightly different perspective which is that he argues (IMO correctly) that without material reform, our present private bank based mechanism for generating new money will inevitably lead to asset bubbles. Further to that, a fear of Great Depression debt-deflation cycles will always lead to very loose monetary policy and so called extraordinary monetary policies being enacted in the wake of big enough busts; obviously the consequences of this are that speculators do not immediately get the chastening experience that they might otherwise have got. However, as his reference case for what happens next is Japan, I'm not sure that he's an apologist for high house prices. Just because the bubble hasn't unwound yet, doesn't mean that it's never going to unwind.

Most importantly I think that you are projecting onto him normative judgements when he makes it pretty clear that what he is seeking a correct description of how our banks actually work and how that informs the house prices we presently have. For the avoidance of doubt, IMO he is not saying "this is why prices should be high" or "this is why prices are going to remain high", he is saying "this is why prices are high". By advocating much higher capital requirement for banks he is by pretty clear extension advocating lower house prices, (if the driver of prices is the cost of credit, raising the cost to the bank of making loans raises the cost of borrowing borne by borrowers, thus reducing the size of the debts they can service and thus use to finance purchases).

I would say it was pretty clear from that speech that he thinks high urban land prices are going to be a long term feature of developed economies based on his argument of 'now that everything else is so cheap, people are just going to chuck all their money into buying land.' He cleverly avoided making this a normative statement by claiming it was inevitable. The beauty of claiming that something is inevitable is that you never have to say whether you want it to happen or not, and if not how you intend to avoid it. You can also silence your opponents who want a different state of affairs by saying that there's no debate to be had because what they want is impossible. It's a very Blairite way of framing an argument.

While he did claim to advocate higher capital reserves for banks, he never linked this to lower house prices. In fact it was quite amazing that in a speech which was mostly about house prices and which was made 2 quarters into a London HPC that he never even mentioned the fact that the UK might have an HPC of a similar size to the HPI that occurred 1997-2007.

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I would say it was pretty clear from that speech that he thinks high urban land prices are going to be a long term feature of developed economies based on his argument of 'now that everything else is so cheap, people are just going to chuck all their money into buying land.' He cleverly avoided making this a normative statement by claiming it was inevitable. The beauty of claiming that something is inevitable is that you never have to say whether you want it to happen or not, and if not how you intend to avoid it. You can also silence your opponents who want a different state of affairs by saying that there's no debate to be had because what they want is impossible. It's a very Blairite way of framing an argument.

I think that the heart of the speech is to address something much more important than the aspect you've chosen to focus on and which is overlooked to a great extent - and you've done it yourself above. People don't chuck their money into land, they chuck borrowed money into buying land. They get that borrowed money from banks and the banks create it ex nihilo de novo. The failure to reform banks at a fundamental level for explicitly political reasons (e.g. they are funnelling too much credit into residential property) is itself a explicitly political act. New Labour did it, the Coalition are now doing it. Pump a crap economy with cheap credit. As your only channel to pump credit is the private banks and they only want to lend against real estate, pump your property bubbles and let the chips fall where they may.

While he did claim to advocate higher capital reserves for banks, he never linked this to lower house prices. In fact it was quite amazing that in a speech which was mostly about house prices and which was made 2 quarters into a London HPC that he never even mentioned the fact that the UK might have an HPC of a similar size to the HPI that occurred 1997-2007.

He's giving a technical talk; you can't expect him to fill in all the gaps, that's what your brain is for. He talks at length about the way in which the cycles that give you the asset bubble go into reverse. At least Turner is talking openly about it. I guess we will have to wait for the book he mentions in the speech to get a more detailed picture, but if one of the few high profile, high status critics of the bonkers status quo can't get a dispassionate hearing on hpc, then we really are screwed until such time as this thing blows itself up good and proper.

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if one of the few high profile, high status critics of the bonkers status quo can't get a dispassionate hearing on hpc, then we really are screwed until such time as this thing blows itself up good and proper.

At what point did he criticise the status quo? He seemed to agree with all of the decisions policymakers have made so far. It's not rational to approve of the process by which the status quo came about and then disapprove of the outcome. They either got it right or they didn't.

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At what point did he criticise the status quo? He seemed to agree with all of the decisions policymakers have made so far. It's not rational to approve of the process by which the status quo came about and then disapprove of the outcome. They either got it right or they didn't.

I think you are picking on the wrong guy. Adair is just trying to unrathel what has happened. He is not trying to offer answers as to what he thinks should be done. I hope he does eventually.

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At what point did he criticise the status quo? He seemed to agree with all of the decisions policymakers have made so far. It's not rational to approve of the process by which the status quo came about and then disapprove of the outcome. They either got it right or they didn't.

At about 3:22 he states that monetary authorities are conducting business as if current extraordinary monetary policies involving them in the allocation of credit will end and they will withdraw from playing a role in how new credit money is allocated. Turner states that henceforth monetary and fiscal policy must have a point of view on the allocation of credit.

If that ain't a criticism of the neo-liberal informed assessment of the wisdom of capital markets status quo, what is?

I hope that other posters are not discouraged from watching the clip. I think that the content is first rate and covers a lot of ground that I had to wade through a shelf of books to get to grips with. Turner is not some captive researcher puppet of a central bank or Treasury stooge - he is a smart guy trying to work out what happened and why it happened. His ideas about what should happen next are better news for the median wage earner than they are for the partners at Goldman Sachs - if we are setting out to tar and feather people like him then forget the battle - the war is already lost.

Edited by bland unsight

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