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Monday, 21 November 2011

It's déjà vu all over again

So the government has decided that the best way to get the economy moving is to build some affordable housing and to get the tax payer to underwrite the risk of the mortgages.

Two points:

  1. Nobody got rich building unaffordable housing, but equally nobody got rich by building property, selling it to people who can't really afford it and guaranteeing the banks that the buyer could make the payments.  The same goes for all sorts of other assets such as planes and ships.  If you build it, sell it and guarantee the sellers obligations to the banks you still effectively own the asset.
  2. Haven't we been here before, like in 2007?  The cause of the failure of the mortgage backed securities market and the rest was the fact that in order to give a veneer of rising prosperity, mortgages were given out willy nilly, packaged up with  fancy ribbon and flogged off.  The truth was that once you stripped away the icing of credit enhancement and cash collateralisation that gave them their desired credit rating, underneath they were mostly a heap of doggy doo.
But what the heck, it's only tax payers money. We wouldn't want to waste it. Oh it looks that was what we were doing in 2009.


Demetrius said...

Wasn't this how the US housing market went bust big time? Lending lots of money to people who could not afford to buy or maintain houses?

Bill Bell said...

Maybe you could just get Local authorities to borrow the money at low rates and build the houses themselves?

Oh hang on, that's socialism and isn't allowed. We have to have hybrid bullshit corporatist capitalism where we introduce banks as unnecessary intermediaries who take a nice chunk of fees along with some consultancies to design the whole bullshit mess, we can also get the IBs in on it by packaging up the resulting liabilities as securities and flogging them to the long term saving sector and we can cap it all off with a government guarantee which makes the entire exercise pointless in the first place.

What a shower this lot are.