Yesterday, I noted the reckless relaxation of mortgage lending rules by the UK's Financial Conduct Authority, which are bound to prejudice some borrowers and increase the risk of mortgage defaults arising.
Then, later in the day, the FT reported this:
The Bank of England has announced plans to scrap rules restricting risk-taking at building societies that it imposed after the collapse of former mutually-owned lenders Northern Rock and Bradford & Bingley in the financial crisis.
They added:
The decision to free building societies from extra restrictions on their lending and treasury activities shows regulators are confident the member-owned lenders are in a more solid position, 17 years after they were hit by the worst crash in their 250-year history.
Apparently, the move was demanded by the Treasury to supposedly support UK competitiveness. It cannot, of course, do that because this is a measure solely focused on domestic markets, but what it does do is seriously increase the risk of another UK financial crisis.
And so, here we go again. Another banking crisis is in the making because, in the absence of any other indicator of growth that is working, Rachel Reeves has fallen back on the perennial obsession of the UK middle classes and is trying to stoke an increase in house prices, which throughout history have only ever been a measure of an increasing economic divide within our society, and not of increasing well-being for all.
This will end in tears, or worse.
Stupidity is rarely displayed so obviously, but it is out in force today.
I see no reason to change my tune today.
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“Apparently, the move was demanded by the Treasury to supposedly support UK competitiveness.” & has the Finance Ministry attempted to explain how, exactly it does this?
Has anybody from the FinMin gone on telly to explain?…………………….Thought not, after all why would FinMin grandees or their boss (Rachel the imbecile) deign to talk to the press or explain their actions?
Last year a pack of liars persuaded Uk serfs to vote for them. I wonder what will happen next time.
& for the avoidance of doubt – Starmer & Reeves KNEW the LINO manifesto was a pack of lies. They knew about the “black hole” (how could them not – given there were endless breifings by FinMin to Reeves & co) & used it as an excuse for no action.
@ Mike Parr,
Talking of UK competitiveness: May 5th, we’re off while most of the world is at work; May 1st, we’re trying to conduct international trade with…?
Very few countries don’t observe May 1st as a holiday on the day, for one reason or another; I’m struggling to see a competitive edge by being contrarian.
Increases in property prices generally increase inequality.
Corbyn lost his bid to be PM partly because he proposed crashing property prices. When the majority of households are owner occupied, then crashing prices is a vote loser.
Putting people in negative equality doesn’t boost the economy or give a fair outcome to the middle classes. Instead, one might argue it would be fairer to target static house prices that become more affordable once wage inflation is factored in.
Lowering some criteria may make sense, though. If someone can prove they could afford rent of a given amount but isn’t allowed a mortgage of the same amount, then they may be blocked from buying property when there is good reason to expect they can afford it.
There were many other favours in the credit crunch. CDOs in particular, which ultimately meant companies fund it hard to work out who was sitting on losses. However, the key changes afterwards weren’t about lending criteria, it was risk estimation. Gone was the assumption that default risk were independent events. Loss estimates in models were also updated.
Some inflation in house prices helps those in negative equity, and static prices likely pushes some into that given local variations. However, it’s clear such increases may benefit current home owners to the detriment of potential future home buyers like our children.
In the end fairness is tricky. If there’s an alternative, perhaps it’s this – significantly increase home building, while making modest changes to lending affordability checks that most help first time buyers. Reform rental rules in favour of longer term tenancies.
Encourage property owners to engage with councils on providing housing stock for social housing – councils like Greenwich are already doing this. A fix for the housing market needs to aim to be fair for most while putting the needs of those most challenged by it first.
They’re relaxing the banking rules because people have not got the money to enter the market, so they are going to allow them to misrepresent their income, in collusion with the banks. For all we know, the fat fee structures will kick in in the banking sector and here we go again…………the market will find some way to price the risk, which will put up insurance premiums and for a time it will good times rolling for all concerned.
This is insanity, as dear old Albert said.
And this insanity will be seen as a sign of hope………..wow………………………
I should really have commented yesterday, but didnt so here goes…….
Please can someone explain what ‘value’ most of the financial sector brings to the UK?
yes, we need – some finance, money transmittion, foreign exchange, ect but the vast bulk of it is simply betting, the banks win, we lose
There is a video coming on this – being edited on my screen right now
Thank you, both.
There are studies, including at the Bank of International Settlements, on such matters. A dozen years ago, one conclusion was that Poland had the optimal size of banking sector.
This bankster, but may be for not much longer, reckons that there is no free market in money and the City and finance are not the handmaidens of industry, but the zero-sum welfare-queens of the real economy. Keynes was too polite.
It is called The Finance Curse.
Thank you, Richard.
One looks forward.
Would you consider one about the Treasury.
I should.
Thank you and well said, Richard.
What is it with the Treasury*?! I briefly reported to the former Treasury official who oversaw the demutualisation of the building societies. I also came across another who oversaw the 1980s privatisations*. Both revelled in the notoriety, thinking it impressed banksters.
*Speaking of the Treasury, apparently, a group of Labour MPs, mainly red wall, has written to No 10, asking for a u turn on cuts and a break up of the Treasury, and implied dismissal of Reeves.
**Aurelien*** reported how the initial privatisations were to raise money. The ideological reasoning came later.
***Speaking of Aurelien. We exchanged messages a few days ago. It was the anniversary of Bobby Sands’ passing. Aurelien reports that Thatcher was looking for a fight, could not see that Northern Ireland is / was a political issue and was callous.
Back to financial services. Quietly, banks in the City, evenly spread between UK and overseas, are laying off employees. EU banks, in particular, are repatriating tasks now that a UK rapprochement with the EU is unlikely.
Noted
Thank you as well, Colonel.
Your post reminds us just how monumentally stupid, bigoted, and yes callous, Margaret Thatcher was.
As it says of Wren in St. Paul’s “If you seek his monument, look around you”, then the same sentiments can be applied to “that” woman.
But in her case it is an appalling vista of an increasingly dysfunctional polity and society with all the vices that entails, and until some in that society are ready to face up to the fact that her “achievement” was in reality the destruction of much that makes a civilised society and its values, the vital process of rebuilding and healing cannot, in reality, begin
Thank you and well said, Karl.
So, in short, we’re headed for another 2008, as people desperate to buy a house or flat are allowed to overextend themselves, and mortgage lenders complacently wait to be bailed out by governments? How do we educate people about this without looking like killjoys? It is largely our children who are walking into the trap.
Anne S
It is not about educating people that over-extending to pay a mortgage is not a good idea. We need to give those people a reasonable alternative. The current alternative of private renting means they over- extend to pay rent with no rotection againsy6 losing their home or their costs increasing. Why is an unaffordable mortgage worse than unaffordable rent?
We need affordable rent
Just appreciating honourable and decent people on this site, who understand the world of finance, who want to see the right thing being done.
Gives me hope 🙂