Sticky Plaster Economics
Sometimes I think government forgets what it is there for: externalities. Any two people can go about and conduct their business with each other. If it only effects them, fine and dandy, if not the government of the day needs to have it's ear out.
No good comes from 125% mortgages. Anyone who needs that much evidently can't save, not even enough for the legal fees. Fine, you say, the lender wants to give out a load of unsecured cash and the customer wishes to take it, good for them. Well, no. Multiply that several times over and you have a contributing factor to the grand mess we are in now.
Without reining in crazy practices like that when the government is recapitalising the banks they are just asking for trouble repeated. Leaving it be is bordering on the criminally negligent.
Speaking of irresponsibility; the government wants mortgage lending to return to 2007 levels. Why?
1. This is at the height of the overpriced housing market where stupid lending practices were at their most preposterous
2. There is absolutely no need for it. It is nothing as a measure
If it turned out that for a single year absolutely no-one wanted to move home, that's not necessarily a bad thing to be discouraged. The people who earn their living off the back of people moving around will have to find something better to do, sure, but there is no inherent need to encourage house moving and it certainly shouldn't form part of any government target. Other countries get on perfectly fine without it.
While we're at it, this Lloyds/HBOS deal still seems to be on the cards. Again, why?
1. Neither company has money to lend out to its potential customers so how one proposes to buy the other out I don't know
2. Why are no banks allowed by the government to fail? They are too big to fail. So the answer to that is to break the competition laws to allow a monolithic merger? Don't be ridiculous.
The problem stems from the fact that the industry is too large and too integral to the economy to be allowed to obey the standard rules of market. But nationalisation is also way off in the distance. This middle ground approach that is being taken can only be seen as a fudge because there is no vision or desire of it being the permanent state of affairs.
Guess what, if it not meant to be permanent then it is ultimately wrong. Fine for quick fudge but attention needs to be quickly turned to working out the correct way to run our banks.