|Housing & Residents Team at Westgate|
It's also rumoured we have another councillor in Westgate but until such a time as anyone can prove her existence, I’ll keep an open mind.
At the next meeting of the Council, I’m sure we will hear Labour’s cabinet member, Michelle Fenner, once again speak colourfully and indignantly against the ‘greedy bankers’, she holds personally responsible for the recession. This without any demonstrable grasp of the facts, outside of the political rhetoric, of how we arrived at the biggest financial collapse since the ‘South Sea Bubble’ burst in the 18th century in similar circumstances. In fact, I recommend you listen to the podcast of Melvyn Bragg’s ‘In Our Time’ on BBC Radio 4, as an example of how those who don’t learn from history, are doomed to repeat it.
So for the benefit of readers who would prefer a short encounter with the facts, rather than the political fiction, here's the pocket-sized story of why the financial markets collapsed and governments and banks were equally complicit in the failure.
I think we would all agree that in areas of high home ownership, crime is lower and so, in relative terms, are unemployment and bad health. In fact pretty much every statistic that measures deprivation.
Fannie Mae was actually shorthand for the 'Federal National Mortgage Association', directed by the policies of the US Department of Housing and Urban Development, (HUD).
In the late 90’s the United States Government, much like our own, was determined to increase home ownership among the poor and attempted to use the force of law to influence mortgage lenders to lend more readily to ‘disadvantaged’ groups. By 1996, 42% of mortgage lending had to be to borrowers with incomes below the median and in 2005, this rose to an astonishing 52%.
I think readers may be ahead of me by now in seeing the catastrophe unfold. In fact, in the States, a manual was even published for banks, advising them that a mortgage applicant’s credit history should not be seen as a negative factor in assessing a home loan and that living on unemployment benefits should be no barrier to a lending decision.
On this side of the pond too, while less extreme than the States, Government, under the direction of Gordon Brown, also chose to favour a path of very loose touch regulation of banks like HBOS and RBS, through the FSA and Bank of England, when it came to home loans; following much the same path as the Americans toward the goal of increasing home ownership and greater prosperity built on property.
But then, as we know, it all went horribly wrong because house prices on both sides of the Atlantic stopped rising, promptly reversed and the cost of mortgages started to rise as the US economy stalled. At which point, mortgage debt ceased to pay for itself and the home-owners started missing their monthly payments to the banks.
underwritten the mortgages held on the books of Fannie Mae and Freddie Mac , the two largest financial institutions on the planet as packaged debt instruments, expecting someone else to be servicing them. When these debts started to default in huge numbers in the United States, the lenders, like Bank of America who had bought the debts and many in our own financial centres, started showing large gaps in the their balance sheets. This revealed that they had recklessly joined in this 21st century equivalent of the Pacific Bubble by lending way beyond their assets on loans that they thought were underwritten by government policy.
Of course, it’s a little more complex than this but my story represents the wider picture reasonably clearly. Government, both here and abroad, wanted people to buy homes so they could become happier, healthier and wealthier citizens through the responsibilities they perceived went hand in hand with home ownership.
Governments placed pressure on the banks to lend money at low interest to people who lacked any real ability to sustain a mortgage over time and looked the other way when banks started to lend more than they had in assets. When the bubble burst in the United States, the financial contagion spread to London and centres like Frankfurt and Madrid, with predictable catastrophic consequences.
So ‘Yes.’ bankers have been recklessly greedy encouraged by a culture of eye watering bonuses but since the crash, 20,000 have lost their jobs in the UK’s own financial services industry. However, this particular financial crisis happened principally because governments and politicians like Gordon Brown, thought they knew best, interfered with market forces and interest rates and pressured the banks to lend money, creating a crazy get-rich-quick scheme that fuelled the collective insanity until one day in New York; somebody asked the uncomfortable question about the 'King's new clothes', which caused the whole pack of cards to collapse, starting in Wall Street.
I'm invited to share a dinner with the MEP, Daniel Hannan, this week and I'm very much looking forward to hearing his often controversial views on the same subject and from a European economic perspective.