We hate central planning. We think it’s a waste of time, our money and normally creates new imbalances and rent-seeking constituencies within our economy.
We have more wisdom from central planners being rammed down our throats that at any other time in the modern era.
Just look at the percentage of our economy that is made up of public spending and the uneducated economic policy responses our leaders muddle together time and again.
However, we have recently seen a new vote-winning policy cranked out of this desperate, economically illiterate government that takes our amusement/despair to new levels.
Step forward Moron George and his ‘Help to Buy’ scheme.
Betting the house
What George Osborne’s wise and sincere new housing policy would have is that the government would deploy its balance sheet in yet another market it has no business of participating in: the domestic mortgage market.
The government would provide banks with a guarantee of up to 20 per cent of a mortgage, in the hope of simulating lending to riskier buyers with small deposits. Tax payers would be exposed to these mortgage defaults.
This policy has received pretty short shrift since its announcement, with our favourite rebuttal coming from a strategist called Albert Edwards, of French bank Societe Generale, best known amongst financial nerds with a cynical view of the fraudulent financial system.
Here’s Mr Edwards letting rip:
Why are houses too expensive in the UK? Too much debt. So what is George Osborne’s solution for first time buyers unable to afford housing? Why, arrange for a government guaranteed scheme to burden our young people with even more debt! Why don’t we call this policy by the name it really is, namely the indentured servitude of our young people…
When governments become market speculators
So, in an attempt to prop up house prices, the government becomes part of the market (again).
Do the brains in Whitehall not understand that the UK government is then ‘long property’? Not just long property, but long sub-prime property. The UK government then has direct exposure to house prices and direct financial incentives in keeping them high or manipulating them. This can be the start of a growing marriage between government and property as politicians become increasingly anxious to ensure house prices stay up and go up.
But, what role does our government have in being a property speculator?
We should leave the property market to Real Estate Investment Trusts, Middle Eastern Sheikhs, Candy brothers and the masses to worry about.
And, as Mr Edwards also argues so well, it’s another policy that means the whims of today are paid for future generations of debt slaves.
It didn’t work before and it won’t this time
We also have a handy blueprint to look at regarding this policy.
It comes in the form of a decade and a half of government interference in the US housing market by presidents Clinton, Bush Jr. and their central banker uber-personality Sir Alan Greenspan, starting in the later 1990s.
How’d it go then?
A range of Government-Sponsored Enterprises called Freddie Mac, Fannie Mae and Ginnie Mae started mortgaging people who couldn’t afford what they were buying. Warm, fluffy, public-minded thoughts superseded cool, calculated lending practices and profit motives.
This increased availability of credit got house prices moving faster than they should. This moving house price gravy train then attracted ever more ingenious lenders to game the rules and credit scoring system, who were then followed by even more ingenious bankers who worked out how to package these duff mortgages into shitty parcels to pass onto greater fools, usually the other side of the Atlantic or in Japan.
This bubble grew and grew until it burst, nearly crashing the global financial system.
It all started with central planners meddling with houses.
Whatever you think of certain parasitic bankers they are just agents in a system where the biggest ripples are caused by wise central bankers and politicians.
Please do NOT repeat history!
Listen here, George.
The fact that such a policy could come out of this government is testament to the sheer desperation of not just this administration but generally of today’s central planners.
You are still holding shares in UK mega-banks on our national balance sheet that were floored by a recent US soviet-style property planning experiment.
Use them as glowing reminder of what happens when meddlers like you, digital Dave and thick Nick mess with our markets and houses.
Get your hands off my house George!