Tag Archive | "house prices"

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

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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.

Posted in General, Labour | Comments (2)

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