Wednesday, July 14, 2010

No more Boom and Bust Honest: but must not touch interest rates

Lord Turner: 'Housing market behind boom and bust'

No more Boom and Bust Honest: but must not touch interest rates.... Lord Turner, the chairman of the Financial Services Authority, is calling for radical reform of the global financial structure. He speaks to Today presenter, Evan Davis, before setting out his views in a speech later today.

Posted by the number cruncher @ 12:30 PM (2101 views)
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14 thoughts on “No more Boom and Bust Honest: but must not touch interest rates

  • mark wadsworth says:

    Of course it is, but tinkering with bank regulation is only attacking symptoms not causes; the key to this is keeping land prices down in the first place and reducing taxes on income.

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  • Eternal Sceptic says:

    Surely reckless lending was the root cause of the trouble and low interest rates is just one manifestation of this problem.

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  • How could this be achieved Mark?

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  • mark wadsworth says:

    It’s something that Number Cruncher and Drewster and Tennant Super and others keep mentioning, it’s called “land value tax” or something like that. You’ll have to ask them.

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  • “How could this be achieved Mark?”

    No need to go creating unpopular taxes – just auction off 10% of all MoD land with prior consent for housing. They don’t need anything like the amount they’ve got..

    ~~

    Interesting that the FSA’s stress test criteria included a 50% fall in house prices..

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  • LTV limits…. we havent thought about them…… havent we???

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  • 4. uncle tom said…”just auction off 10% of all MoD land with prior consent for housing”

    They’ve already done that once. Sold off Mod residential property at giveaway prices at the bottom of the market (bit like Gordon’s gold). Annington Homes bought about 58,000 of them and apparently did well out of selling them on at a markup, (many being snapped up by BTL speculators), and leasing some back to the MOD. Outfits like Nomura no doubt made nice profits from their involvement in the deal.

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  • LVT is an example of indirectly taxing externalities.
    Such taxes are inherently better than many of the current taxes: income tax is almost a polar opposite (taxing production) as are sales taxes (taxing consumption and/or trade).
    A possible problem I see with taxing externalities is that a corrupt state’s interests then become aligned with increasing said externalities (increased tax take) – in the case of LVT the higher the price of land the higher the tax take. As such this would be a weak argument in favour of taxing production (weak since we shouldn’t have a corrupt state in the first place!).
    But as many are aware I believe there should be no tax and no state.

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  • 4. uncle tom said…

    “How could this be achieved Mark?”

    No need to go creating unpopular taxes – just auction off 10% of all MoD land with prior consent for housing.

    And the builders would ‘snap it up’, yum yum……how do you hold up a land bank?

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  • clockslinger says:

    UT @ 4, the 50% fall was purely a hypothetical exercise and the parameters of the latest tests are different, meaning much more lenient. It doesn’t suggest the FSA secretly think property will fall 50% or anywhere near. I’d rather they ran stress tests at a far more demanding level than this to enforce failsafe lending ratios and run tests that take only a limited account of the fact that after the banks decision to hand out a mortgage is made, the debt can be offloaded back into the CDO market.
    The bitterly disappointing bit of the Batlugs interview of LT for anyone saving a little for their future is that interest rate increases are now completely off the agenda except in the very last resort, and I can’t imagine what that would be.
    Lord T ultimately genuflects to the Eton cabals “save the spendthrift” agenda, dressed up as “stimulating” our vigorous but so very, very tiny export manufacturing sector, don’t you know!

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  • I think the idea of stress tests is interesting. I had assumed that the banks would go bust again if house prices fell at all. But actually the financial health of banks must be insensitive to house prices if they are testing a 50% house price drop scenario. This means the govt could allow house prices to fall without risking a lot of their own money (our money that is).

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  • cyril

    This is a very good point.

    There was a reader/poster on here I met some time ago who worked for a bank and confirmed they stress tested to that level.

    Braindeed

    There would need to be somethin in place to make any new development land off limits for ‘big’ developers and speculators. We need plots for families.

    Clockslinger

    I heard the interview on R4 yesterday and got the impression alot of money ghad yet again been wasted to come up with some pretty obvious answers and no real solutions (or solutions that favoured those with the land and property portfolios).

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  • Goldbug9999 says:

    A one off sale of new land isnt the sustainable solution. We should move to a view point that land is owned collectively by British citizens i.e. we each “own” 1/60,000,000 of Britain land (by value not area) as would every child born here for ever more. Those that actually occupy more land than this have to compensate that don’t by paying “rent” in the form of LVT.

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  • mark wadsworth says:

    666, good point on taxing externalities, but there are two different approaches to LVT:

    1. A tax on capital values depresses prices so automatically dampens bubbles. In theory, the tax take might be £nil, but so what? At least that’s property price bubbles dealt with.

    2. A tax on rental values, being “a tax on what you take and not on what you make”. If the government want to maximise revenues, they are best off allowing much more development (of commercial and residential) and providing those things that boost rental values (good transport links, good policing, clean streets etc etc).

    What’s not to like in either case?

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