As the last of the building-society-turned-banks loses its independence it seems only right to ask whether the policy of demutualisation pursued by the Conservatives when last in office was anything more than an expensive failure. It is certainly interesting to note the symmetry between that policy an the other great Conservative housing policy- "the right to buy", i.e. that those living in Council owned social housing could buy their homes at a big discount. Indeed it is pretty clear that this policy lies at the root of the British obsession with property. The move from right-to-buy to buy-to-let seems almost inevitable given the way in which the banking system of the UK was deregulated.
It was a classic case of short-termism. The prices that Council tenants paid did not reflect the sunk costs that the state had put into the social housing in the Post Second World War period and the prices were therefore highly attractive- the incentive to buy was substantial. Likewise in the process of demutualisation of the building societies, the prospect of large profits from the launch of these new banks onto the stock exchange proved too much for the deposit holders. Meanwhile, the managements of these new banks, rooted in the housing market, offered greater competition for housing based lending products. The was a significant contributor to the house price bubble, as well as helping to create a culture of property ownership not dissimilar to the share price bubble of the 1920s. In the same way as a stock tip from a shoe-shine boy persuaded Joe Kennedy to exit the stock exchange in 1929, the endless TV shows promising profits from property should have told us what we needed to know about the market: that it was way over heated.
Now the party is over. There is little or no social housing available in most parts of the country and the available private rented sector is not tightly regulated. Insecurity of tenure and rapidly escalating rents seem set to create a major problem of homelessness once again- a problem that had seemed to have become a marginal question in recent years. The regulation of the housing market, before the 1979-97 government, may have gone too far in favour of the tenants, but we must remember that Rachmann was no isolated figure. The criminal actions of Nicholas Van Hoogstraten underline the ruthlessness that evil people are prepared to show- even without the pressures of a property crash.
I remain a believer in the rights of the individual. I do not want the state to take on direct roles in the free market, but to remain a referee and not a player. Nevertheless, in order to preserve liberty there must be a system of law and of justice. In the end, the market has punished those who lost sight of the long term. However, it was a failure of regulation to offer only short term benefits- both to ex-council tenants and to building society shareholders- that has helped to create the mess we are in. The crisis in Britain at least is rooted in a failure of regulation- in political short-termism. Therefore the price of this failure is the large bail-out that we have now seen.
In my view, the British banking system has now largely been secured. However the failure of the US to devote comparable resources to its own problems is now an existential crisis. A failure to secure the American banking system has global consequences- including in the UK.
The Bush administration must now truly go down in history as the most abject failure. Even if Hank Paulson can get a modified bill through the Congress on Thursday, it is quite clear that the Administration should stand down as soon as possible after the election. The crisis can not wait through the prolonged interregnum until January 20th.
The reckless and self serving choice by John MacCain of a wholly unqualified running mate now makes it highly likely that - as I have suggested previously- the next administration will be headed by President Barack Obama. It would be the final insult from the disastrous President Bush if he refuses to stand aside quickly on purely partisan grounds.
The Bush Bust stands as the legacy of this foolish, arrogant and incompetent President.
Meanwhile in Britain we can now only watch and wait and hope that the US Congress will address the crisis with an attitude of greater responsibility than it did yesterday.