Monday, 5th May 2008

Babies and Bathwater

2:13pm

In all the talk about how incompetent and greedy (one or the other is usually OK, it's the combination of the two that is so toxic) mortgage bankers and City Spivs have ruined the housing market and plunged the western world into the greatest crisis since...(cont.pg94)....there's something that's been missed.

The changes in the mortgage markets in the past few decades may not all have been perfectly wonderful, but they did change the world for the better in aggregate:

Until the 1980s, banks and building societies would often ration mortgages, meaning that families had to wait for months or years before they would receive a deal.

My detailed knowledge doesn't extend that far back, but I'm pretty sure that there was actually regulation of what could be loaned, rather than it just being the building societies themselves.

Stephen Nickell, a former Bank of England executive, said it was becoming "almost impossible" for first-time buyers to secure a mortgage. This meant that, despite falling house prices, young families and professionals were being trapped having to rent rather than own a home.

"What we're seeing now is a loan strike," he said. "It's almost as if we are back in the bad old days of mortgage rationing. No one will lend to first-time buyers.

Now perhaps 125% mortgages, or funding them entirely from the wholesale markets, weren't the very finest inventions of all time, but thinking back to how tough it was to get a mortgage before the Great Deregulation of the early 1980s, those highly paid spivs have actually been providing us with something of value these last couple of decades, haven't they?

Let's not throw out that benefit by re-regulating the market in the wrong way ,shall we?