Categorised | General, Labour |

Housing Crisis, what they don’t want us to know

I am no economist, nor am I a banker, but I invite those that are to pick holes in my assertion or put my mind to rest. I have never been a great advocate of government intervention, but I believe they need to do far more and now, before we reach a genuine crisis driven by the falling property market.

Many people have suggested that the property market is long overdue for a “correction”, but just how far should this be allowed to go? If we assume that a bank has secured its lending against an asset, which subsequently falls, surely at some stage the banks will be required to write down the difference, just like any other business? If this is the case, they could, theoretically, breach their covenants in terms of their reserves.

Banks have very strict rules in relation to their reserves and many may end up having to go cap in hand to the market in an effort to raise money to shore up their capitol reserves. In a nervous market, this is going to be very tough, particularly if there are several banks trying to do this at the same time. The affect of a major bank failing could have catastrophic consequences for the city, Sterling and the UK economy. This would almost certainly lead to some form of government bailout, which would very costly indeed at no doubt lead to the breaking of our own fiscal rules in terms of borrowing.

Therefore, surely the government would be better advised to intervene now, invest what is required to stablise the property market and avoid a banking crisis. The government must know the risks, they pay hundreds of millions of pounds to expert advisors every year. Now, they may want to keep this information from the public, but they simply can’t afford to ignore it.

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2 Comments For This Post

  1. In Agreement Says:

    I think Frustrated Voter will be wondering if his prophecy was read by not only the UK government, but everyone in Congress. A month in politics, where a week is usually a long time, must now seem like a different age to most. What’s interesting is that it’s usually only the ivory-towered executives who feel the change. Now everyone down to the single-mum, the increasingly mobile pensioner, nuclear family and dare I say student, are all victims in more than one way. How nervous do we have to feel?

    Intervention out of necessity is only what we democratically elect our politicians to get on with. As long as they act on UK interests first, and not by political gain.

    But although I agree with Frustrated Voter’s last comment about keeping information from the public, it is hard to hide a $700b tax bill, which is today’s plaster on the wound. Must the government be more open with us in order to buy-in to necessary changes in financial borrowing rules, or is it exactly that openness that is now shaking the confidence of the markets and the public?

  2. Frustrated Voter Says:

    Thanks for your comments, although of course, I would have preferred to have been wrong on this occasion. My final sentence was meant to suggest that the government were keeping things from us, rather than they should.

    I think earlier intervention may have avoided some of the problems we have today, as it is, I suspect that the $700bn, will not be anough and that the EU will have to stump up a similar amount to deal with dodgy debt. When we consider the amount of money that governments from all over the world have already put into the stock market and loaned to banks, the numbers must be truly amazing. Next we should be asking our governments to let us know just how much money they have invested on our behalf in loans, stocks, shares and bailouts, I suspect most people will be shocked.

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