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.
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.
Comments
What are you talking about ? The Price was attractive relative to the property market and the sunk costs ( MYTH) were bricks and mortar which is nothing. Value was created by everyone else getting a mortgage and to imagine that this lies behind the wish of the British to own property is to get the cart before the horse .The buyers have done well and the social effect has been a great help as I well know. Social housing carries great social costs with it and what was right for the period after the scond world war ( When Conservatives built it ) is not right now .It has become not only a means of creating dependency a halt to mobility (literally and in terms of class) . Its distorting effects are ferocious and its contribution to family breakdown single motherhood and crime are incalculable. I doubt you spend a lot of time in these areas.
Furthermore; vicious service charges have been aimed at these owners on the basis that they made what the left call un-earned income on the property which they also ignorantly think is the state’s money .
This success story you have , with the baying mob , for no good reason yoked to behaviour of de-mutualised Bulding societies where the problem has been a speculative bubble which ( I believe ) would have happened anyway due to the growth of the money supply and the over heating of the economy disguised by inflation not appearing ( Housing removed and goods imported)
Now your true colours are out are they not .The f irst time there’s a problem back you go to the state who you are suggesting to should take back large parts of the provision of housing . Funny that Clegg has chosen this moment to pretend he is to the right of the Conservative Party
What will the song be next week C?
It is blindingly obvious that the sunk cost were not factored in-the counil houses were sold for less than replacement cost as well as for less than the market price. That realy was a mistake- which has left local government with mch less capital than they should have had.
Most of the benefits of these policis were short term, the costs have turned out to be long term. If the policiy was ever to berepeated, it should take into acount the longer term costs as well as the short run of the electoral cycle- but then Cameron is probably not able to cope with looking beyond the next election anyway.
Yes it is true that the regulatory system of the banking sector as organised by Gordon Brown has been shown to be useless as is no surprise to anyone who has to deal with the FSA. As Scotsman goes from tea to hard liquor so new Labour have gone from hating business to embracing slash and burn casino capitalism which has been used to cover the deep damage done to the real economy by a high tax over regulated social democratic anti business regime .No common sense .
On housing ; by replacement cost I take it you mean the amount it costs to purchase another dwelling not the building replacement cost which is nothing .The sunk cost means nothing at all in this context as it was the cost of building on worthless land whose subsequent increase in value was driven by demand from no Council house dwellers and not the Council. You say the state should benefit from this surreptitious drain on the mortgage payer. Well god knows why?The same people are housed and I can testify to the fantastic improvement in the areas. There are housing lists because they are giving away free houses. All bad.
The benefit of right to buy have to been good and they are long term I greatly hope to see it extended as well as other ways of dispersing the opportunity to build capital. On Cameron you are very very wrong . If he only wanted to win he would be promising tax cuts but then only a really cynical and opportunist Party would do that
Can you think of anyone who fits that description C ?
( Subtle aint I )
Anyway before you get on your huffy horse its good to see you back blogging I always enjoy your stuff.
The precedents give you no cause for hoping so. President Roosevelt was elected in November 1932. By the time he was inaugurated in March 1933 (they did things differently then) the situation had of course radically altered with the effective shutdown of the entire US Banking system, meaning that between the election and inauguration the crisis had multiplied many times. True Roosevelt didn't help by refusing to talk to Hoover but still America did not interrupt the Constitution. Make no mistake it is the Constitution. To do what you suggest even if Bush and Cheney both stepped down would require a Constitutional Amendment or you'd have President Pelosi for 2 months! Nothing in Bush's record suggests he would do what you suggest, and no Democrat especially Obama will rip up the Constitution to make him. The Consitution says January 20th 2009 and so it will be January 20th 2009
Lepidus