It has also encouraged people to borrow beyond their means on the back of ever-increasing house prices. Those people will be filing for bankruptcy, not “enjoying the growing equity in their properties” as real interest rates start to bite.

Northern Rock proved that “irresponsible” lending is dangerous game for banks to play. If a bank has too many debtors who are over-extended, then it leaves itself wide open to punishment if suddenly the economic climate cools.

That may well be true, but it has naff-all to do with Northern Rock. NR had/has a pretty good mortgage book and isn’t in much danger of default, but relied overly on short-term debt purchased in credit markets rather than on savers’ deposits for its funding – so when the short-term debt market went mental after the *actual* irresponsible lending bubble burst in Yankland, it couldn’t pay its creditors even though its assets were sound.

That aside, nice satire. I almost thought you were serious for a bit…

“Easy access to capital is the greatest liberator in a capitalist society, and what our so-called reckless banking system has actually done, is enabled people to get onto the housing market and enjoy the growing equity in their properties.”

One wonders what ‘getting onto the housing market’ entails. Of course, iof a house is repossessed then the only entity that ‘enjoys its growing equity’ is the bank that repossesses it. With repossessions having risen every year since 2004, it appears that 27,000 people last year did not ‘get onto the housing market’, but found an incredibly expensive way to rent a property, in effect.

For if you lend money to someone who can’t repay it, no matter how much they deserve to be ‘on the housing market’, they will never own what they buy with what they borrow. You will.

But surely the borrower has the ultimate responsibility to ensure they can service their debts?

Banks *want* mortgages to be paid.

Must society mollycoddle people, or do they have some personal responsibility? They took the risks, they would have enjoyed the rewards, no?

That may well be true, but it has naff-all to do with Northern Rock. NR had/has a pretty good mortgage book and isn’t in much danger of default, but relied overly on short-term debt purchased in credit markets rather than on savers’ deposits for its funding – so when the short-term debt market went mental after the *actual* irresponsible lending bubble burst in Yankland, it couldn’t pay its creditors even though its assets were sound. ~ John B

So what you’re saying is that NR fell foul because banks indulged in dangerous lending?

That aside, nice satire. I almost thought you were serious for a bit… ~ John B

0:-)

The ‘easy access to capital is the greatest liberator in a capitalist society’ line is quite amusing for missing out half of the economic reality.

Access can’t just be emplaced or enacted with guarantees, it must be justified before we can be confident enough in our taking action: the rates and prices of the products must relate to actual level of risk involved. From the moment risk and price became disassociated realignment became inevitable.

Aaron – the difference is surely that NR were buying the asset-backed securities that the ratings agencies had labelled AAA. It had to rely on those agencies, same as everyone else. So they may have been borrowing short and lending long, but they at least thought they had a bit of a better guarantee that what they were buying wasn’t a pile of shite.

Couple of quick points.

Banks tend to sell off repossessed properties in distress sales at greatly discounted prices and then write off the debt. The people that end up enjoying the property’s growing equity are the lucky speculators (often part of a buying ‘ring’) who get a bargain at auction.

If, as is the case now, it is difficult for first time buyers to get a mortgage then the demand for housing will diminish. The real pressure will be felt in the rental sector. Movement through the housing ladder depends on first time buyers continually coming into the market .

Some of us have been here before and although it’s unlikely to be as bad as it was in the early nineties it will follow a similar pattern, I suspect.

We aren’t locked into market economics as such. Market economics is just a more accurate model of human behaviour (when dealing with near strangers) than other social models have so far come up with. Markets existed in Soviet Russia and probably exist in North Korea. The only difference is that the market currency was in personal favours, power and influence over the political system: a rather more precarious market system and one that involved people being “purged” when their personal influence ran out rather than under a more open system where they simply go bankrupt).

So I agree with your wider point that we want an open system that offers a way in for the poor. But boom and bust is not the way. Primarily you want to control inflation so that people are able to predict how much they are being paid in real terms, while keeping a flexible labour market so that there are more ways for the poor to better themselves. Mere consumer spending is not a way to achieve longterm happiness or prosperity – I thought people on the left would understand that most of all!

“Boom and bust” is a useful process of experimentation and consolidation. In the times of plenty, new ideas can be tried out by entrepreneurs more easily – and the best ideas survive the times of hardship. If we did “put an end to boom and bust” then we would stagnate.

I am not sure there is any necessary requirement that boom and bust take place across a whole economy for innovation and development to take place. But obviously, so long as the economy is growing overall then people are eventually getting wealthier, whether we are doing it gradually or in peaks and troughs.

“What could be more progressive than enabling every hard-working person to enjoy the good-times?”

Except that with average property prices in many parts of the country approaching seven times earnings, hard-working people without considerable savings or parents willing to release some of their own equity have naff-all chance of ‘enjoying the good times’ insofar as that involves purchasing a home.

In fact, the main beneficiaries of this ‘boom’ have been those who bought before the current explosion in values began – mainly older, mainly middle class. Those who have been merrily re-mortgaging time and time again to finance holidays, foreign second homes and mid-life toys are, in fact, not only the beneficiaries of the boom but part of the cause, since as a group they are very unlikely to use their undoubted political clout to push governments in the direction of encouraging accelerated house building through planning relaxation etc.

Add to that the disgraceful buy-to-let explosion, encouraged by banks as a sales driver for loans, but, by removing hundreds of thousands of entry-level properties from the market, effectively locking millions out of these ‘good times’ and it starts to become easy to see why some of us are looking forward to watching the bankers demonstrate the ‘dead cat bounce’.

Yes, and exactly why we need a land value tax – why should the owners of property make all this money for not actually any effort?

Good God, global capitalism may be in meltdown, commentators in the FT and Economist are talking about the inequity of ‘privatising profit whilst socialising losses’, even Mervyn King worries about ‘moral hazard’, yet this is all left-wing liberals can come up with??

How about – ”IF there is no meltdown, what proposals can we come up with for reform of the financial system. ”?

Or, ” IF there is financial meltdown and a re-run of the Great Depression, what should a new New Deal look like, and should Socialism be reconsidered”?

Or shall we just carry on wittering about house prices? Does this blog just exist to prove that everything that people say about liberals is true?

“Everyone, it seems, is desperate to see the first banker throw himself 34-floors to his splatterriffic death.”

Except it won’t happen. They’ll all get their bonuses regardless of how they perform so there is no need for jumping out of the building.

…yet this is all left-wing liberals can come up with?? ~ Phil

Who’s a leftwing liberal?

I think only John B “got” this post. Still…