Reply to: How the pound in your pocket has vanished

[Zero Liability]

As I see it the banks have been acting as government agents with regard to house prices.

That is more or less what most of the big ones are.

[xoggoth]

Too right. Forgot to get any cheap sweets from the pound shop so wasted at least 2 quid in change to trick or treaters.

[Sysman]

If house prices are limited only by how much banks are willing to lend, and the amount banks are willing to lend is predicated on the government's promise of tax-payer funded bail-outs, then house prices are limited only by the extend to which the government is happy to see them rise.

The banks are a bit of a red-herring in all of this.

As I see it the banks have been acting as government agents with regard to house prices.

[minestrone]

Clinton dicking around with the community reinvestment act got the ball rolling, he forced the banks to lend sub prime. IIRC McCain and Bush tried to get the changes reverted but the Democrats with Obama blocked it.

Lawyers should never be allowed to run for any office in any place in the world.

[SpontaneousOrder]

If house prices are limited only by how much banks are willing to lend, and the amount banks are willing to lend is predicated on the government's promise of tax-payer funded bail-outs, then house prices are limited only by the extend to which the government is happy to see them rise.

The banks are a bit of a red-herring in all of this.

[petergriffin]

The so called "pound in your pocket" is only 3% of the entire money supply. The rest is bank-created and about 30% of it goes into house prices (source: BoE 2012, I don't have the link handy but I could try).

Edit: according to the former head of the FSA, it's 75%:
http://blogs.independent.co.uk/2012/...-so-expensive/

[Zero Liability]

So explain to me how it is Canada have avoided this crisis whist maintaining a regulated financial industry?

What makes you think it did? The US and UK both have highly regulated financial industries and activist central banks yet had one, so how is it a differentiator anyway?

Something else to bear in mind is that Canada - and Australia - are commodities exporters, and this category of goods soared a bit after the crisis. This cushioned the blow for them but that is now reversing. However, they have kept much quieter about the support the government provided their banking industries.

This is very true, especially in the US, going back to Carter and even Reagan.

So arguably Gordon Brown was right in saying that "it started in America"

With one caveat - the US arms of British banks also participate in their version of open market operations.

The US is to blame for the global spread of credit expansion but it's not like politicians and central bankers here and elsewhere didn't actively resort to and encourage it and benefit from it whilst the good times were upon us.

[OwlHoot]

Deregulation? The banks were strong-armed into lending to 'sub-prime' borrowers. That sounds like the opposite of deregulation to me.

This is very true, especially in the US, going back to Carter and even Reagan.

So arguably Gordon Brown was right in saying that "it started in America"

[scooterscot]

What other langagues can you speak

Mah lingo haes git th' gchq servers pure burnin` a nook in th' ground. Tis na wonder thay cuid ne'er intercept a scots invasion, lik'.

[alreadypacked]

Aye, a says, sae explain tae me hoo it is canada hae avoided thes crisis whist maintainin' a regulated financial industry?

What other langagues can you speak

[SpontaneousOrder]

Aye, a says, sae explain tae me hoo it is canada hae avoided thes crisis whist maintainin' a regulated financial industry?

Some muggers shoot their victims in the face. Other muggers don't. I see no paradox.

[scooterscot]

Question does not compute

Aye, a says, sae explain tae me hoo it is canada hae avoided thes crisis whist maintainin' a regulated financial industry?

[SpontaneousOrder]

So explain to me how it is Canada have avoided this crisis whist maintaining a regulated financial industry?

Question does not compute

[scooterscot]

So explain to me how it is Canada have avoided this crisis whist maintaining a regulated financial industry?

[Zero Liability]

That would suggest deregulation of the financial industry is the true culprit behind the UK credit crisis. A policy put in place by the Tories. You can't spend what you've not got. The banks realised this and gave Labour a lottery ticket.

The question is, will lending ever constrain back to historic levels? It would seem to me we'll have a zombie economy for many many years while salary and lending ratios are out of kilter.

Er no, it would suggest central banks are behind it as they supply the cheap credit and coordinate fractional reserve banking. Calling this 'deregulation', just because the banks can lend at lower reserve ratios (if any at all) is extremely misleading.

Not to mention strong government encouragement - both Labour and Tory - to banks to lend, including implicit bailout promises that materialised. Same tulip as the US. This isn't a problem limited to one party.

Now that banks are being held to higher reserve ratios of a whopping 4% the argument has emerged that this will increase risky lending. Blatantly self-interested nonsense, of course.