A.O.B.
Norm and the Nanny State
Published: 04 August 2008
Yet again, there is a call for taxpayers – you, your neighbour and the rest of us – to bail out a victim of the financial services industry.
The Crosby inquiry into the travails of the mortgage market and what can be done to shore up both the system and existing and potential homeowners says that some Government intervention may be necessary.
Voices say this is necessary to avoid the problems of a house price melt-down. Funny, I never heard those voices asking for intervention when house prices blazed uncontrollably. Action then would have made the market fitter to deal with today’s problems.
Intervention is likely to take the shape of Treasury guarantees, courtesy of the taxpayer, of mortgage funds raised in the wholesale market.
But why should irresponsible, reckless even, mortgage providers be provided with such a comfort zone? Banks live in a commercial world. They wanted market share, at any price and milked the wholesale money market.
They reaped the benefits in the good days. Now the pendulum has swung; the wholesale money market has dried up and they are crying for Nanny State to make things better, please.
The argument is that without recourse to Government-backed funds, the mortgage market will be reduced to a trickle – and buyers be faced with mortgage rationing and having to save in earnest. This was once the norm and one benefit was a stable housing market .
Assistance should be limited to help those borrowers facing repossession and eviction as house prices collapse. For many other people, the fall in house prices is just the break they need.
But, for a minute, forget the borrowers. Remember instead that without recourse to Government-backed funds, the lenders will not make as much money as they did before. And propping up bank profits is not the taxpayer’s job.
Margaret Stone is an associate of The Governance Partnership.