Another day, another reckless throw of the dice (32)

HomFrom The FT:

Britain's banks and building societies have warned that they will have to slash mortgage lending and raise rates on home loans if the government insists on prompt and full repayment of the £300bn (1) they have received in state support since 2008.

In a recent paper aimed particularly at policymakers, the Council of Mortgage Lenders set out its case for continuing government support for the Special Liquidity Scheme and the Credit Guarantee Scheme, which must be fully repaid by the ends of 2012 and 2014 respectively.

Government aid to the banking sector is a politically charged topic (2), and at a recent meeting between the CML and Treasury, the industry was told that no solution was likely before the next election. Ministers may dismiss calls for an extension of aid as self-interested industry pressure, but analysts have been flagging the issue for months, even as house prices have risen and mortgage lending picked up...

Whoo-hoo!

1) Just to put that in perspective, £300 billion is about a quarter of outstanding mortgages in the UK.

2) OT1H, the bankers are desperate for more cheap and easily available credit to enable them to keep earning their bonuses; and the government is desperate to keep the house price bubble inflated to win the Home-Owner-Ist vote; but OTOH taxpayers who actually stopped to think about it ought to be against their money being used in this way.So while a taxpaying Home-Owner-Ist may be in two minds, tenants and homeowners who do not subscribe to the Home-Owner-Ist philosophy ought to be absolutely dead against this. I wonder how it will all pan out?

3) Thinking aloud, politicians always waffle on about 'encouraging saving', and the main way of saving is spending less than you earn and leaving the money in the bank and/or paying off debts as quick as possible, until it's time to make a big purchase or retire. If these house price bubble support schemes were withdrawn, interest rates would go up on mortgages and on savings, and all things being equal, tax rates would go down.

So people would have higher disposable incomes, and they'd be more likely to leave money on deposit and/or they'd be more likely to pay off their mortgages ASAP. Remember that easy credit only encourages consumption/production in the short term - in the long run you can consume more (and hence more real things are likely to be produced) if you borrow as little as possible and save up for stuff instead, if you pay less in interest, then you've more money to spend on the good stuff.