Monday, 13 October 2008

Do they ever learn?

It appears that we now have government mandated credit growth targets. According to today's statement from the Treasury, which launched the government's capital injection scheme, participating banks must keep the credit tap running.

"As part of its investment, the Government has agreed with the banks supported by the recapitalisation scheme a range of commitments (including) maintaining, over the next three years, the availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels."

Obviously, the Treasury do not understand the true nature of the economic crisis. The problem is, in a word, debt. There is far too much of it. Households have borrowed more than they should have, and unsurprisingly, many debtors are finding it impossible to service their existing commitments.

It should not need saying, but offering more credit to already debt crushed borrowers, will only make the repayments problem worse. That can hardly be helpful to banks, who have become insolvent due to existing repayments difficulties.

Even the notorious Council of Mortgage Lenders can see the problem. Today, they released a surprisingly sensible statement:

"The CML doubts whether, in the current market where house prices have been falling and demand has reduced, it would be either prudent or desirable for the volume of lending to home-owners to equate to 2007 levels. "

Exactly. It would be neither "prudent or desirable" for households to pile on more debt. However, the Treasury is a recidivistic and irresponsible borrower. Therefore, it is not surprising to see the Treasury trying to push its newly acquired banks into funnelling more credit into the creaking UK economy.

9 comments:

Nick von Mises said...

Fortunately public sentiment has turned so there's very few FTBs out there dumb enough to take up the banks on this offer.

Anonymous said...

Yet loosening credit will still exacerbete the boom/bust resonance of the system - unless before then it has shaken itself to pieces.

B. in C.

Mark Wadsworth said...

The government has put enormous effort and taxpayers' cash into shoring up property prices for the past two years (yes, they saw it coming), this bail out/interest rate cut is just another reckless throw of the dice (which if course won't work as you and NVM have ably outlined), the next crazy attempt, whatever it is will be even more expensive, even more counter-productive and so on.

Don't forget that last week they reintroduced the rule that says unemployed people get their mortgage paid - if you thought you'd be made unemployed, the best thing you could do is rush out and buy a house, right now!

The terrifying thing is, the Tories are already planning ways to 'revive the housing market' and they're not even in power yet - for example cutting SDLT even further or freezing council tax.

Absurd said...

all your banks are belong to us.

aSteve said...

I have absolutely no idea what "As part of its investment, the Government has agreed with the banks supported by the recapitalisation scheme a range of commitments (including) maintaining, over the next three years, the availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels." means. It is incoherent in the extreme... and, I think, therefore, we can disregard it as hot air.

Maintaining availability of lending at 2007 levels could easily be interpreted as zero net lending - relative to 2007. That, I think, would be fairly sane. It would, of course, lead to decimation of house prices... and would likely bankrupt any non-nationalised banks exposed to the housing market.

Another glitch is the phrase "to home owners" - perhaps this suggests a limitation to secured personal loans - rather than mortgages? Maybe the CML is intentionally misinterpreting the statement in order to talk-up the mortgage market (as usual...)?

Sackerson said...

Isn't this a blatant attempt to shore up house prices - and doomed to fail? And what happens to the banking sector when houses do finally fall back to c. 2003 equivalent prices?

electro-kevin said...

"The banking crisis marks the end of Thatcherism." (BBC television news report last night)

Thank God for Nu Lab bringing an end to all of that then.

Modern Socialism (E-K's definition): Any policy which leads to failure, any policy which rewards failure, any policy which leads to more policy (more Government).

This is why socialism, like weeds, takes over so easily - it may seem like clever implementation and maneuvering but the rule-of-thumb to make socialism grow is a very simple one: socialists, by default, always follow those ideals which lead to failure and then convince us that more socialism is needed to put those failures right. The worse they are the stronger they get because their one true skill is in the good marketing of bad ideas - with the right contacts (most notably within the BBC) their mission is a very easy one because blame is apportioned elsewhere.

This is all there is to it.

This is why Brown now looks happier than he has for months. For a while he looked ill because he'd forgotten that his primary function wasn't to be a 'brilliant' Chancellor - for a while he got swept up in all the adulation - and so, when the economy fell apart (as many predicted it would) we could see that his mind was falling apart with rapidity equal to his loss of face.

But now warmth washes through him like rarest brandy - he realises that his Manchurian mission is by no means faltering, in fact it is nearing completion; his real mission was to enable the systematic take-over of Britain by socialists, possibly triggered by subliminal impulses implanted in him whilst at university. This mission is on track and ahead of schedule and has gone further than any '70s radical could have dreamed. Who would have thought that even the banks - arguably the last real bastion of capitalism in Britain - could have fallen for such a simple and subconsciously implemented coup ?

Now for the cover-up: "End of Thatcherism" the "Icelandic 'War' " "Global downturn" all of these phrases designed to divert blame away from socialism. The BBC is well and truly on the case. The BBC - after decades of overtly left-wing recruiting policies - is controlled by the very same memes as Nu Labour. To a large extent I think the opposition party is too.

This serves as a warning to my chums abroad - especially those in Australia - about how quickly it can happen. They incubate within your media and education systems first. And then the buggers burst out of your chest and rampage through the ship eating all of your mates as they go.

Anonymous said...

Well, it doesn't seem like socialism to me. There is a huge inequality in property ownership and income.
Also, I think that the socialist idea of taking control of the banks was to ensure that profits could be redirected through central planning.

But they have taken control of banks which are likely to be running at a loss for some time. So really this is reverse socialism and a complete failure for Brown no matter how you cut it.

I am amazed though that truly our PM wants to maintain housing at a cost of 5x salary. Unbelievable.

Nick von Mises said...

"Well, it doesn't seem like socialism to me. There is a huge inequality in property ownership and income."

If you want socialism to remove inequality, best give up now.