Wednesday, July 30, 2008

Never Never Politicos

Good news for fluffy white bunnies
According to the usual sources, Gordo and Darling's latest wheeze is to rescue the plunging property market with hundreds of billions of HMG mortgage guarantees. Apparently they've seized on a suggestion in the unpublished Crosby Report:

"...for the Government to guarantee, on commercial terms, billions of pounds of better quality tranches of new mortgage-backed securities.

Or to put it another way, the taxpayer would be providing a promise that it would pick up the tab in the event that the value of of those securities was impaired by a huge rise in repayment difficulties or defaults by mortgage borrowers."

So what do we taxpayers get out of it?

Supposedly, any guarantees would be done "on commercial terms" - ie we (presumably!) get paid a fee. But the whole point is there are no commercial terms - if there were, taxpayers wouldn't need to be involved in the first place.

So what else do we get?

Well, if we don't do it, mortgage lenders might go bust.

So? As we've blogged many times, as long as we safeguard retail depositors, we couldn't care less what happens to bank shareholders - they've had the good times, and IIRC they never offered to share the profits with us then.

Builders might go bust.

Er... see previous comments above (plus the owners of Tyler Towers might finally be able to afford repairs to those gaping holes in the roof).

Property prices might plunge even further? But prices are c 30% above what most serious analysts see as long-term sustainable levels: for example, the IMF recently concluded we have the third most overvalued market in the world (see this blog):

Umm... it would help First Time Buyers, Hard-Working Families, and... oh, yes - fluffy white bunnies.

No. The thing that will most help junior Tylers and other first time buyers is lower prices and a serious scorching for houseprice speculators. We need to see some real pain.

Er... umm... ah... hmmmm...

The truth of course is that doomed Labour are doing what they know best - maxxing every single credit card they can lay their slippery little hands on in a desperate bid to buy votes.

We already know they're going to ditch the fiscal rules (see this blog), but that will all be recorded on the official government balance sheet. Their real speciality is Enron borrowing, well away from the official accounts -PFI, unfunded public pensions, nuclear decommissioning, etc etc.

We've blogged this many times (eg here), and whereas the official national debt is just over £0.5 trillion, once we include all the various Enron liabilities, the true figure is over £1.8 trillion. Or 130% of GDP. Or £74 grand per household. And remember, that undeclared debt is growing by around £80bn pa (the figure you should mentally add to Darling's announced annual borrowing totals).

A mortgage guarantee is yet another Enron scam. It is aimed at boosting spending in the economy (aka the feelgood factor), without the tedious necessity of recognising the debt on the official credit card statement.

Guaranteeing property debt is not something taxpayers should ever want their governments to do. The lesson from our American cousins Freddie and Fannie is that even implicit guarantees can turn out to be horrifically expensive.

One other thing - when George finally publishes his own promised fiscal rules, we'll need to look very carefully at how he deals with Enron debt in all its manifold and sneaky forms.

PS So what exactly has happened to Darling's revamped bank regulatory system? Having copped out on increasing the depositor guarantee to £100K (paid for by the banks), and despite all the talk about swift action, the whole thing seems to have been mislaid in the summer long grass. Clearly, the banks are in no hurry - why should they agree to more regulation when they can scare this bunch of clowns into providing as much taxpayer support as they may need.

1 comment:

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