Tuesday, 20 October 2009

Boom, bust, and micromanagement

The Register picked up yesterday's story about the FSA's proposals to ban self-cert mortgages, highlighting the impact this would have on independent IT contractors.
Other measures, designed to protect borrowers, include ensuring firms do not "profit" from people in arrears.

“The FSA needs to ensure that firms only lend to people who can afford to pay the money back. The reforms that we have announced today will ensure that the mortgage market works better for consumers and that it is sustainable for firms,” the organisation said.
The debate was taken up on Tim Worstall's blog:
"It is only because the governments bailed out the banks that they feel the need or the ability to interfere with basic market decisions like this. What’s next? They’re only allowed to lend to public sector workers?"
Quite. More to the point, as another poster noted,
"Imagine banks with idiotic lending policies had been allowed to fail, rather than being propped up with taxpayers money – would a lesson have been learned? as it is, what lesson have the banks learned now?"
It went like this:
  • UK government policies ensured low interest rates, and an inflated money supply
  • US government policies encouraged lending to those who could not afford to pay
  • House prices sky-rocketed
  • Knowledge of past bailouts encouraged reckless behaviour on the part of banks considered 'too big to fail'
  • The absence of a 100% reserve requirement, and the lack of clear separation between investment banking and retail banking, endangered millions of innocent savers
  • Inevitably, the vast edifice of dodgy credit came tumbling down, with massive collateral damage to the rest of the economy
  • The government stepped in, using inconceivable sums of taxpayer's money to support reckless banks
  • The government now wants to micromanage the lending decisions of all banks
What we really need is a fundamental overhaul of our monetary and financial system, and an end to government meddling.

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