Labour try silly briefing about the mortgage problems

Regulation has failed in the financial sector, so let’s have more regulation seems to be the popular cry. What we need is not more, but the right regulation that will tackle the issues that really matter – solvency and liquidity. In other words making sure financial institutions have enough assets and enough cash to do their jobs.

I am fed up with Labour’s pathetic attempts to play politics with the issue of the banking crisis. They want to suggest I was wrong and made the problem worse by saying the mortgage regulation Labour brought in should be scrapped. Their extra regulation clearly did not work. Never have mortgages been so regulated and never have we been in such a mess .I am astounded they think a single line recommendation in a long report which they did not implement can achieve anything! What sort of a world do they live in where a little read Report of advice is more important than the many deeds and misdeeds of government? Have they no idea about how they are responsible for the regulation of financial markets in London, have been so for more than 11 years, and should now tell us what they now think they did wrong.

The Report I helped produce said something much more important than the sentence Labour likes to quote. It said the Bank of England had been shorn of important responsibilities which meant it would not be able to cope with a banking problem when one came along. The Report pointed out how the Central Bank had left money far too loose in the good times, and how the next move was likely to be much more painful. We catalogued how the debt was getting out of control. In others words we warned in advance of this crisis and made proposals to start to correct it.

I am delighted that the Conservative party has now taken up the arguments in the Report to strengthen the Bank of England so it can control and help the banks. I am pleased they now wish to put in place ways of controlling the excessive public debt built up in recent years. Of course it all comes down to spending better and more wisely. There is just so much scope to do this after years of poor management. Let’s keep all the teachers, nurses, doctors, soldiers and sailors, and maybe add some more. But let’s get to grips with the rest, where we are overwhelmed by spin doctors, management consultants, unelected regional governments and people taking money off us and giving some of it back to us. Let’s have a simpler and fairer system, and start planning how to get people back to work after all the mounting redundancies of this summer and coming winter.

The ominous news is the pain is spreading from the City to the High Street, from the property developer to the building site, from the estate agent to the small service business. Banks are having to call in loans, charge more for facilities, value assets downwards and take other unpopular steps to try to make some money to repair their damaged balance sheets. People who blog to say falling house prices are a good thing need to pause and think about how big falls in house prices happening too quickly lead to many other people losing their jobs. A lot of our prosperity in the good times depended on rising property prices and property transactions. A lot of grief will now follow from the drops.


  1. Bazman
    September 28, 2008

    Listening to David Cameron on the TV today it still sounds like the Tory party defending their chums in the City. The days of 'light regulation' are finished Dave. How the Conservative party is going to set up a regulatory body to force any elected government to curb it's spending was not, and cannot be explained. Name and shame does not work because as everyone knows politicians and businessmen have no shame. Another toothless regulator.

  2. not an economist
    September 28, 2008

    Could someone give a link to the report that is referred to in John's Blog? Or at least give the name of it so I can locate it if it is on this site.

    Thank you.

    Reply: Freeing Britain to compete – available as a download here

    1. not an economist
      October 10, 2008

      Where is it available to download? I cant see it anywhere. I look in the download section to the right and it is not one of those listed.

      Sorry to be a pain and a bit dense to boot but Iwould like to read it.

      It is called Freeing Britain to compete and is the last item under downloads, I seem to remember.

      1. not an economist
        October 10, 2008

        Economic Competitiveness Policy review?? I tried that. Simply takes me to an error page with the option of going on to Conservative Home and I cant see a downloadable version there.

        Its okay. Thanks for having the patience to try and help me locate it anyway.

        1. not an economist
          October 15, 2008

          Thankyou for arranging for a colleague to send me a copy of this report by email. Very much appreciated.

  3. Bazman
    September 28, 2008

    The most amazing thing is. I am scoffing a sugary box of out of date Thornton's chocolates, a gift from the company. Chocolate mining, as they were old and out of date on my Knees. My wife asked for quality chocolate and we didn't have any.

  4. Mark Wadsworth
    September 28, 2008

    Mortgage lending is only an issue if people are borrowing money on the strength of ever-increasing house prices rather then their own incomes.

    It is broadly agreed that low interest rates and low inflation are A Good Thing as they help the economy grow.

    The problem is that low interest rates tend to feed straight through into house price increases, which become a self-perpetuating house price bubble, the flip side of which is a credit bubble, which one day suddenly goes *pop* (as happened to The Tories back in 1989).

    Now, 'twas not always the case that we in the UK had these house price bubbles (the one before that was in the early 1970s). From the 1920s to the 1960s, house prices were pretty low and stable (expressed as a multiple of earnings), partly because of the planning system – we built far more houses, and partly because of stricter lending criteria but also because of the tax system. Local councils were funded by Domestic Rates until 1988 rather than handouts from central government (Council Tax is just a balancing figure), and on top of that we had Schedule A Taxation (until 1964 or so).

    Ergo, in the spirit of devolving powers back to local councils (as recommended by Hannan/Carswell); under the overall banner of simplification; and in the light of the past few decades of boom'n'bust (whether under Tory or Labour governments), how about replacing all existing taxes that relate to property ownership or occupation or wealth generally (in other words, Council Tax, Business Rates, Stamp Duty Land Tax, Inheritance Tax, Insurance Premium Tax, VAT on domestic fuel, the TV licence fee, capital gains tax etc etc) with a Land Value Tax based on site-only land values as at the bottom of the coming house price crash, which will conveniently be roughly when the Tories are back in government in 2010?

    1. mikestallard
      September 29, 2008

      Another idea, which is less radical, is restoring the Bank Manager who can look prospective borrowers in the eye and ask to see their credentials, their assets and their track record before lending them money which s/he knows they cannot afford and have no intention of repaying.

    2. Acorn
      September 29, 2008

      Mark (and Blank X).
      Have a look at the following:-

      I have mentioned before that there should be a cost for holding land out of the market which is why I favour Land Value Tax but the land Barons don't.

      According to the Valuation Office, residential land is fetching £3.1 million a hectare (£1.26 m per acre), for small plots, in England and Wales, on average. Land planning and taxing is probably the biggest problem any UK government needs to sort.

      1. Mark Wadsworth
        September 30, 2008

        Acorn, that's a good summary but it seems a tad politically slanted. I'm with Friedman on all this. In other words, I agree with your conclusions, but coming at it from a slightly different angle.

  5. Blank Xavier
    September 29, 2008

    Property prices are in fact fixed in the long term. Any change other than the rate of inflation represents distortions in the market which are artificially driving prices up or down.

    As people in the UK are aware, prices have been rising continously for a long time. This is not good news. Property prices *ALWAYS* revert to their real values – sooner or later.

    If, as they have been, property prices are unusually high, it means the people who take out mortgages on these high prices are going to get well and truly shafted when prices fall back to real values.

    What we really want most of all is to see *STABILITY* in our markets. Predicitability. When we have these boom-bust cycles, it's like getting drunk (lots of fun!) followed by the hangover (seriously not fun). A lot of people suffer in those hangovers – they are not worth the boom that causes them. Better to be stable.

    We also need to question exactly what are the factors which are artifically supporting property prices? there have been two main factors in the UK in the recent past; liberalization of credit and land use restrictions.

    Credit is no longer easily obtained (which has triggered the property slump, since people can no longer get enough credit to afford the artifically high prices, so prices are falling like crazy).

    Land use restrictions remain in place as they ever did.

    As such, once prices have fallen enough that people can afford property again, we will, sure enough, see another boom and another bust. Our property market is currently configured – by Government regulations on the use of land – to experience boom and bust.

  6. Stuart Fairney
    September 29, 2008

    Your comments on the B & B nationalisation are erudite as always, but perhaps you can help me?

    Do you know who gets the £612M that Santander have paid for the deposits of B & B? I would have thought this must belong to the shareholders as the womers of the bank (I am not a shareholder) but I have a horrible feeling it's going to end up under Darling's remit.

    I appreciate parliament has been completely sidelined in yet another dodgy backroom deal, (unlike the USA which at least pretends to still be an open democracy), but do you know this answer?

    Reply: I have not yet seen the details. We also need how the acquiring bank is rewarded for taking over the deposits, which are of course liabilities for them.

  7. Pete Chown
    September 29, 2008

    It's a bit off-topic, but I just wanted to say how well I thought George Osborne did with his comments on Bradford and Bingley. I believe we should protect retail depositors, while avoiding a British Leyland style bail out for City firms which lent unwisely. That is exactly what Osborne's resolution regime would achieve.

    The economic problems carry a potential trap for the Tories, I think. Labour will say that the problems show the need for more regulation, and the Tories are the party of deregulation, therefore the Tories would make the problems worse. This is a rather naïve view, but it could play quite well as a political soundbite.

    To avoid being caught by this, the Tories have to show that they will provide better regulation, rather than more regulation or deregulation. Osborne's proposal is a big contribution to this, I think. The government has taken one day at a time, dithering with Northern Rock, then nationalising Bradford and Bingley before people really expected them to (or before I expected them to, anyway). No one knows what is going on, which contributes to instability. Osborne's resolution regime should at least tell people what they can expect, helping the markets return to normal.

    1. mikestallard
      September 30, 2008

      Don't you think the right people to decide all this are the people whom we elect to serve us in parliament?
      In the greatest crisis since the 1930's (Newsnight), or maybe the greatest crisis of any sort since the fall of the Roman Empire, parliament is not recalled.
      Instead the silent Scottish Genius sits and works it all out for himself with his experienced economist's brain……..

  8. David Burch
    September 29, 2008

    I am getting increasingly worried that there is a certain sense of madness happening with the governments here and in the US unable to react correctly to the "bank crisis". There appears to be a clear message that if this is what is going to happen when a crisis hits the bank sector then all banks are better off nationised as failure is not allowed. That is the conclusion but not one I want at all.

    I am heading down the other road of letting then fail one by one until we are left with the remaining probably responsible banks. This conclusion means that bankers are not rewarded for failure.

    This is showing up Brown and Bush to be absolute clowns and it is thankful that Cameron is not in power at present otherwise it would effect him as well.

    I feel that this crisis goes further into the economy than is at first apparent. The crazy house price situation and the waste in national and local government spending needs a review.

    I want a stable economy and government is charged with managing this. That is not what is happening on either side of the pond. Unfortunately the alternatives do not fit into a 45 second sound bite (or one post on a blog), however that is what is needed.

  9. Webloyalty
    September 29, 2008

    Every political party wants take mileage out of every issue. Labour is no different. At some point of time, I keep wondering if there is any political party that really cares for the people. They just want some issues to pop-up so that they can take political advantage of it.

    – David.

  10. no one
    September 29, 2008

    listening to andrew lansley health speach today i really dont think he gets it

    it being how bad the nhs is for ordinary people

    i could have done that speach so much better myself, i would have promised you could leave a hospital when its obviously too dirty and go somewhere else, the money following that patient that has walked off that site, with immediate financial impact on that business unit

    i would have promised that departments which routinely diagnose or treat prostate cancer several years later than their counterparts in other parts of the country would be closed

    getting rid of targets is fine, if patients are genuinely empowered, and can go somewhere else if their wait in A & E is longer than 4 hours

    i would have promised that patients making a complaint would be offered a meeting with the senior nurse/doctor of that department and not just fobbed off with the complaints dept

    i would have promised legal fees paid when patient need to take a hospital to court, use the courts with proper legal representation instead of a complaints system which does not work, but importantly level the playing field so the complaining patient gets expensive legal team if the nhs decides to use one

    really think the health policy needs more work

  11. Tim
    September 29, 2008

    I feel the mortgage regulation point is a red herring for labour, The FSA took on mortgage regulation in 2005 , the net results are that the costs of taking out a mortgage are higher. mortgage regulation was about having a defined process and taking in consideration client affordability.

    Were Northern Rock and laterly Bradford & Bingley came unstuck is not on the mortgage regulation but in a lack of good old fashioned banking supervision. The fsa failed to ensure that its business model was robust and to question why for instance Bradford & Bingley was agressivley expanding such a large proportion of their loan book in to buy to let investment some off plan development in what could be seen as a property market that was reaching its heights.

  12. Dr Dan H.
    September 30, 2008

    A point nobody has touched upon is bankruptcy. I can remember a time (and I'm only 37) when bankruptcy was a major stigma, and was to be avoided at all costs. Over time this stigma and the consequences of bankruptcy were watered down and down, until we have he current situation where in some circles it is seen almost as a Get Out Of Jail Free card.

    This wants reversing, to make people much more averse to landing themselves in bankruptcy; this should (after word gets around about the new laws; a few Government-commissioned documentaries might be useful here) make people less interested in running up huge credit balances.

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