Tuesday, 11 February 2014

Lord Turner has lucid moment: shock

From The Telegraph:

In a wide-ranging series of comments on the UK economy, Lord Turner said that he thought the Government’s Help to Buy scheme was “a step too far” and should now be tightened by a price cap.

He said that although he supported the Bank's original Funding for Lending scheme, he questioned whether the latest move to resuscitate the housing market - Help to Buy - was necessary.

He argued that capitalist economies’ obsession with credit meant that the cycle of boom and bust is inevitable, with crashes likely every 15 to 20 years.

Some of his most outspoken comments were reserved for the property market, and the way in which banks rely on real estate despite its role in the most recent crisis and many before it.

“Where did HBoS make its losses? Where did RBS make its? It was commercial real estate.”

Lord Turner said that bankers were always likely to revert to lending based on property as such transactions provide assets for security and require little or no relationship with the borrower.

“At this point in the cycle, people convince themselves prices are going only one way,” he said.

“It’s very easy for us now looking back to say ‘weren’t our bankers lunatics? They must have been crazy and irresponsible.’ But in order to stop it happening again, we can’t point to individuals; we need to look at why the system is bound to push them towards it.”


Ralph Musgrave said...

Of course you have to be raving bonkers to encourage a housing bubble having just gone thru 5 years of disgracefully high unemployment, all sparked off by a property price crash.

The reason for this lunacy is well explained in Positive Money’s latest book “Sovereign Money”. That is, the thicko politicians and who rule the world (and their equally thick advisers) think that government funded stimulus necessitates more debt, despite Keynes having spelled out loud and clear that deficits can be funded by new money rather than debt.

So rather than simply have central banks and governments create money and spend it (or cut taxes), governments try to encourage private banks to create and lend out money – to – er – fund property speculation.

Mark Wadsworth said...

RM: "deficits can be funded by new money rather than debt"

Agreed, that's basic MMT, but then you get inflation, which is why you need taxes, and what is the best thing to tax if you are worried about inflation..?

Bayard said...

"such transactions provide assets for security and require little or no relationship with the borrower"

Yeah, it's always awkward developing a relationship with someone you intend to shaft.

Ralph Musgrave said...

Mark, Assuming stimulus is needed (and that's the assumption if one claims that debt funded stimulus or "help to buy" type stimulus is needed) then stimulus funded by new money won't be inflationary.

Put another way, if the economy is at capacity, ANY FORM of stimulus will be inflationary (QE or whatever). And if the economy is below capacity, NO FORM of stimulus will be inflationary: makes no difference whether the stimulus takes the form of help to buy, QE, interest rate cuts, new money etc etc.

H said...

You just have to play Monopoly to see the truth of what Lord T is saying.

Mark Wadsworth said...

RM: "Assuming stimulus is needed.."

Well that's the first question, isn't it?

H, Monopoly was invented by a Georgist to illustrate that land speculation always leads to misery for the many. This message somehow got lost in translation.