Playing the Blame Game


by Shariq
24th February, 2009 at 7:53 pm    

Matt Yglesias takes on the phenomenon of holding people who took out risky mortgages, as equally responsible for the credit crisis as banks and regulators.

And I just don’t think it’s the responsibility of individuals to know that all the experts, and all the conventional wisdom, are secretly wrong. All kinds of people have been buying iPhones because everyone says they’re great. And if this November, the iPhones all suddenly explode injuring tons of people, I think there’ll be a lot of blame to go around. But really just about none of that blame will land on iPhone owners—it would land on Apple and AT&T and regulators and gadget reviewers and everyone else. If not, if the people who run the country and its media don’t actually expect their pronouncements to be taken seriously, then really they ought to all quit and make way for people who take their responsibilities seriously.

Things were similar in this country with Gordon Brown pronouncing that he had a put an end to ‘boom and bust’. It was an act of hubris for which he has no defense. Unless he helps bring about the recovery of the global economy it will also be his legacy.


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  1. Ravi Naik — on 24th February, 2009 at 8:31 pm  

    I totally agree with Matt. However, can something be said to those who take unrealistic mortgages?

  2. Nesrine — on 24th February, 2009 at 8:46 pm  

    Hmm, I don’t know Shariq, I think that most people in debt who are crying foul talk about banks like they had no choice in taking the debt. The reason why blaming borrowers isn’t popular is because it is a mass addiction. If everyone were hooked on drugs they would blame the pushers for making it too easy, to available and too in your face.

  3. Sunny — on 24th February, 2009 at 8:57 pm  

    Wait, there’s various issues here, not just blaming people for taking out ‘unrealistic’ mortgages.

    They were also paying for a property that soon fell steeply in value. No wonder they bailed. See the video on the top right.

  4. Refresh — on 24th February, 2009 at 9:06 pm  

    Matt raises other points which should also be addressed: He mentions, in the example he gives of the iPod, where he mentions product reviewers.

    I would also blame the personal finance pages of all the papers and the switch websites.

    The banks and their high-fliers make their money from those at the bottom. After all they are also the ones being called on to bail out the rich, as well as pay for the fall in house prices and of course pay with their jobs.

    Gordon Brown’s biggest mistake has been not taking on the bankers head-on and in public. He could have got through this without having to engineer a global miracle.

  5. Riz Din — on 25th February, 2009 at 12:59 am  

    I’m going to take the other extreme and say the article is pretty weak and pathetic, and it pains me to read about this kind of justification for not taking responsibility for one’s actions.

    ‘Get a grip’ I want to shout to Matt from the rooftops! Stand up and be man, damn it!

    Frankly I don’t care about the motives of the lenders. The more options they put on the table the better. If I want to stuff my face with a product I know I’ll have trouble digesting over the long-term, well, that’s my bad. It’s called market forces. If they put out stuff they can ill afford, they’ll fail. In some cases, both failures happen at the same time – so be it. Let the market punish incompetence.

    The final comment on the ipod is pushing it somewhat. If an ipod blows up, I won’t blame a reviewer but will sue the ass of the manufacturer and expect regulatory enforcement. Why? Because I am entitled to a safe ipod – by law, it is not allowed to blow up in my face. House prices and interest rates, however, can go up and down and round and round…we all know that.

    If we continue to outsource personal responsibility like this we will live never learn – our species progressed through trial and error, not trial alone.

  6. shariq — on 25th February, 2009 at 1:04 am  

    Nesrine, Sunny, isn’t the point that people were happy taking unrealistic mortgages and other debt because everyone was telling them that house prices would continue to rise i.e it didn’t matter if they lost their jobs or couldn’t service their debt, because they would recoup their gains by selling their property.

    Similarly, as the video does a good job of pointing out, the reason mortgage providers were happy lending without any checks was because they knew they could keep selling them on to wall street.

    They also believed/were pushing the idea that property prices would continue to rise. So it didn’t make a difference if you took out a 100% mortgage because even though you didn’t have equity in the house, you could always sell it in.

    I think there is an argument that it wasn’t Americas fault that China and the Gulf States wanted to invest their surpluses back in America creating the supply of credit.

    An interesting thing I read a while back was that China plans on creating a universal health care system to encourage consumers to spend more and save less.

    But on the whole the only reason people were addicted to credit was because no one told them any better.

  7. shariq — on 25th February, 2009 at 1:36 am  

    “If they put out stuff they can ill afford, they’ll fail.”

    Except we can’t allow the banks to fail because that screws everything up. It seems like short to medium nationalisation is the only way forward – Riz are you in favour of that?

  8. Sunny — on 25th February, 2009 at 1:41 am  

    I’m somewhat with Riz on this – that people need to take responsibility for their own actions.

    But let’s take that point further. the bankers put tons of options on the table. People who wanted homes bit the bait because they expected house prices to keep rising, and were just glad to get on the ladder.

    Now, there is the argument that regulation should prevent mortgage companies from selling such bad financial products.

    I can see the counter argument that banks should be allowed to sell what they want and then pay for the risks. The only problem is that banks are now regularly seen as ‘too big too fail’. Furthermore, their collapse can lead to contagion and a general collapse in the credit markets, and thus the risk far outweighs the cost of bailing them out.

    Essentially then, banks don’t have to pay for their mistakes. Which is why regulation somewhat makes sense.

    Oh, and ensuring they don’t get too big.

    I think there is an argument that it wasn’t Americas fault that China and the Gulf States wanted to invest their surpluses back in America creating the supply of credit.

    It’s everyone’s fault really. Free market economics argues that rather than produce their own products, Americans should buy them from the Chinese, who then end up lending the money back to the US because they’re overflowing with credit. So in one sense, all this was inevitable wasn’t it?

  9. billericaydicky — on 25th February, 2009 at 7:43 am  

    Having dealt in property as well as building it for forty years I have lived through several previous recessions. One of the things that has always struck me is how no one ever learns from the past. I am not saying every house buyer should study economic history but there shouls be at least some knowledge of the last crash of the early nineties past down from one generation of a family to another.

    There is something called Kondratiev’s wave theory which should be compulsory reading and accompany every mortgage application. He was a Russian economist who showed exacty how, starting from the South Seas bubble in the 1720s, economic cycles can be predicted. Although he died in one of Stalin’s gulags he could have predicted what is happening at the moment.

    Every generation still believes that the last recesssion was the last and that house prices will now continually climb. Anyone who claims to the contrary is actually shunned as if what they are saying is some kind of hex that will make prices fall. I have actually come in for a lot of hostility because I have stated the obvious.

    I bought my first house in 1969 for £3000. I had to put a large deposit down and had to have saved regularly with the building society for two years before they would consider me. I was told that the society had to submit every friday the state of its assets and loans to the regulator who might phone up on Monday morning to say that they could make no more loans until the asset sheet was in better shape.

    Every one of those people in trouble over a mortgage now must have had a parent or uncle who had experienced the last recession and there is no excuse for taking on credit which could not be sustained.

    I expect to be saying the same thing in twenty years time if I am still alive because nobody ever learns.

  10. douglas clark — on 25th February, 2009 at 8:33 am  

    I really fail to understand the short term nature of most peoples views on mortgages and life in general, really.

    With the obvious exception of people that lose their jobs and are unable to replace them with equivalent ones, the whole point about a house is having a roof over your head. I know that the dinner party set used to sit smugly discussing just how much they’d made in a month, but it was aspirational nonsense. Unless you were willing to move to a completely different – cheaper – part of the country, you were effected adversely by the fact that the purchase price of a ‘better’ property had increased too. You were on an up escalator, but so was everyone else. Very few folk were in a position to take out a mortgage on a second property and, for them this rule does not apply. They were sitting on a genuine profit. And, I, for one don’t really care whether they win, lose or draw. It was their risk, let them live with it.

    But, as Maslow said, we need a roof over our heads. Whether we get that through a mortgage or a rent is neither here nor there. The correct aspiration of any citizen who has a mortgage ought to be to pay the damn thing off. Then you are beholden to no-one. All the other scenarios are a form of gambling.

    It actually doesn’t matter much if house prices fall in the shorter term, say five years or so. Because a house should be for life, not just for Christmas. And the longer term trend is inexorable.

  11. cjcjc — on 25th February, 2009 at 8:49 am  

    The iphone / mortgage comparison is simply bollocks.

    Both sides of the mortgage transactions were in the wrong.

  12. cjcjc — on 25th February, 2009 at 9:06 am  

    ie I agree with Sunny

    It’s everyone’s fault really.

    The people who *should* have stayed objective were of course the regulators, central bankers and finance ministers.

    And the prime suspect is Alan Greenspan and his cheerleaders (inc one G Brown).

    This is an interesting paper btw by the creator of the “Taylor Rule” for setting interest rates.

    http://www.stanford.edu/~johntayl/FCPR.pdf

    He concludes:

    “In this paper I have provided empirical evidence that government actions and interventions
    caused, prolonged, and worsened the financial crisis. They caused it by deviating from historical
    precedents and principles for setting interest rates, which had worked well for 20 years. They
    prolonged it by misdiagnosing the problems in the bank credit markets and thereby responding
    inappropriately by focusing on liquidity rather than risk. They made it worse by providing
    support for certain financial institutions and their creditors but not others in an ad hoc way
    without a clear and understandable framework. While other factors were certainly at play, these
    government actions should be first on the list of answers to the question of what went wrong.”

  13. douglas clark — on 25th February, 2009 at 9:52 am  

    billericaydicky,

    Housing market money, apart from the few that can afford to gamble, is frankly a shill game. You always need somewhere to live. And it’s going to cost you. Subject to finding a deserted island somewhere.

    However, you are right to say that is the sort of time scale you need to think about for investment decisions to work.

    Bet that house you bought is worth more, at least in pounds sterling, in forty years time than it is now!

    Sadly, I expect neither thee nor me will be there to pick up the winnings. The point about long term investments is that they only become available when they are, largely, irrelevant.

  14. MaidMarian — on 25th February, 2009 at 12:32 pm  

    Matt is correct – no one put a gun to the heads of people and forced them to take out a loan. To use this as a stalking horse to make a pretty cheap anti-government point is poor.

    bilericaydickey (9) – ‘I bought my first house in 1969 for £3000. I had to put a large deposit down and had to have saved regularly with the building society for two years before they would consider me.’

    When my wife and I bought our flat at the end of 2004 we had saved a 15% deposit and the bank (HSBC) took us through a stringent affordability calculation. We were allowed not more than 90% of the value of the property, subject to bank commissioned survey.

    What galls us is is that those of us who saved regularly, accrued double digit deposits, break out in a cold sweat at the thought of 100%+ lending etc are the ones who will have to bail out the feckless. Granted, that fecklessness extends to lenders, but to excuse borrowers is wrong.

    I think that the words that you and douglas clark (10 + 13) are looking for are ‘buy-to-let.’ I struggle to think of anything more ovbiously wrong and reckless. If you are looking to point the finger, I suggest starting with the BTL crowd.

    And if a few BTL empires get credit crunched, I wont shed a tear.

  15. Refresh — on 25th February, 2009 at 1:35 pm  

    I am all for taking responsibility, however if a young person is coming out of uni with debts of around £30,000; and there is little prospect of putting together a deposit and someone comes along and offers you 100% mortgage. What do you do? Given that you’ve calculated it would take you another 5 years before you get close to putting something down, and everyone is telling you (from government to your trusted broadsheet) that prices are going up – what would you do? You would buy now, to ‘get on the ladder’, and be accepted as the part of the property-owning class.

    As for deposits, I had to borrow mine to get me going. So even if its a 10% deposit, how do we think these deposits accrue. Its borrowed.

    As for the government, they should have built those 1,000,000 homes, instead of worrying about knocking a few thousands of property owned by middle england. And of course they relied on the feelgood factor which the country fooled themselves into over the last decade. Which by the way was a continuation of the Tories before them.

  16. Refresh — on 25th February, 2009 at 1:37 pm  

    Totally agree with Maidmarian – no tears for BTL.

  17. soru — on 25th February, 2009 at 2:00 pm  

    Free market economics argues that rather than produce their own products, Americans should buy them from the Chinese, who then end up lending the money back to the US because they’re overflowing with credit

    I think the real root cause is the Chinese suppression of trade unionism: they really do take people who push for higher wages and shoot them in the back of the head.

    Without functioning trade unions, a capitalist economy behaves exactly as Marx described it in Victorian England: artificially low wages, higher industrial profits, and so naturally 19C-style boom/bust cycles. The economy is, to a greater degree than normal, concentrated in fewer hands and so more volatile, subject to radical change based on individual action. If your economy is backed mostly by labour, you are rarely going to find that 15% of people have been lying about whether they were going to work or not for the last 10 years.

    The new trick the Chinese have discovered is how to export that risky capital the rest of the world: a big fat money exhaust pipe. All the benefits of capitalism (wealth-creation incentives leading to flexible fast growth) without, for the elite at least, the downside (the paper pseudo-wealth gets exported, the real economic assets stay under local control).

  18. Riz Din — on 25th February, 2009 at 4:40 pm  

    All very interesting comments indeed. I’ve got time on my hands and a full mug of coffee, so here goes with a few additional thoughts:

    * SHARIQ – I can’t watch the video in full because my machine is too old and keeps crashing, but I question the take that ‘the reason mortgage providers were happy lending without any checks was because they knew they could keep selling them on to wall street.’ Despite the disintermediation model, the mortgage providers, for a large part were ‘Wall Street’ and they were selling this stuff to each other.

    Who knew and who didn’t is an interesting question, and I do think there was some self-trickery going on, because some people involved may have known the true risks and been content to collect their bonuses and let the banks take the hit, but this is more due to the bonus culture, etc (i.e. parasites in the system versus the whole system being a parasite). And while we can blame the banks for encouraging excessive risk taking, I don’t think its fair to blame them as being knowingly evil and hatching a grand plan to screw everyone over in the process, themselves included.

    You ask if I am in favour of short to medium term nationalisation? Kind of. I’m in favour of the result that best penalises bad actions and rewards good actions, accounting for the fact that the financial system lies at the heart of the economy. I’m not in favour of wasting tax payer money. I don’t know enough to propose a good solution when liabilities exceed assets by an unknown amount – after all, the pain has to be suffered somewhere in the system and no one can make it simply disappear (which is what the UK government seems to be betting on with its insurance/guarantee schemes – I really don’t like this solution). In a worst case scenario could it bankrupt the UK?

    * SUNNY – Very true that housebuyers bit the bait and expected house prices to keep rising, but the bait to buy things is everywhere in today’s society, and we have no compulsion to buy…well, not yet, although the gvt could always force us to buy things as part of its ‘stimulus!’. Okay, if the products were mis-sold I’d see validity in calling the regulator to book, but most people are saying that folk bought things they couldn’t afford and I say to that, ‘too bad’. I guess I see a difference between bad selling of products (bad) and the selling of bad products (fine).

    Re the size of banks, I’m in full agreement that they are seen as too big to fail. Surely the solution is to encourage a more competitive environment with lots of small players. Instead the government gives the go-ahead for the Lloyds-HBOS meger….umm, right, like, that makes sense, what.

    I say we have to make banks pay for their mistakes. Afterall, many of the banks are technically bankrupt but the shareholders still have a wedge of equity remaining. How does that work? And let’s not forget the bondholders. These guys should have got rinsed out sometime in late 08. Instead, these zombie banks are walking among us.

    Hey, it does bring to mind the idea of ‘reverse-triage’ concept used in times of war, on the battlefront. The idea here is to spend less effort in treating the severely wounded and more time aiding the people with lesser injuries, because they can be patched up and quickly sent back out to fight. Perhaps the government should focus less on dedicating all the tax-payer cash to prop up the zombies, allow them a dignified death, and focus instead on fixing the deserving less damaged banks and companies that can quickly return to functioning form.

    Re the last point, I don’t see anything wrong with globalisation, but perhaps the problem is not enough free market? After all, if China had floating exchange rates they may not have accumulated hundreds of billions of reserves which were then reinvested in the US.

    * BILLERICAYDICKY – I guess I’m more optimistic with respect to learning from the past. I know it seems as if we are going nowhere fast, but in a healthy free market, people would take history into account. Perhaps after repeated bailouts, it simply became more profitable to join in the global money train than to pay too much attention to history. My theory is that over the very long-term, policy makers and individuals will better appreciated the value of allowing economies to have small, natural ups and downs, and not to meddle too much with people’s incentives. Also, if demographic trends continue along current lines we will have less young people and more old people in society so the lessons of history will in the collective mind of the masses should be a bit more prominent versus fading away as relic of outmoded thinking.

    * DOUGLAS CLARK – It does appear as if we have moved toward a more short-term system. In a land where information is available in real-time, we want instant results, but perhaps the pendulum will swing back over the longer horizon as their is simply more profit in taking the longer view.

    Also, I agree that we ought to have the aspiration to pay off our debts, but don’t think other approaches are necessarily a form of gambling. For example, if the cost of repayment is less than the risk-free interest rate you can earn by putting money in the bank, then surely you are better off not paying off anything at all. Also, even if you have the cash, is it ever worth paying it off if you can park your money in an offset mortgage – this way, your bring your mortgage payment down to zero, but still have access to your cash if ever needed.

    Laslty, re your last point about house price rises being inexorable over the long-term, is this true in real-terms? Look at Hong Kong, Japan. Also, will house prices in parts of Detroit (they are selling entire houses for $200) ever recover? I believe long-term charts of average house prices fail to properly show this tail risk of extreme events ruining your asset, and potentially your life. If you are renting, you meet the Maslow need of shelter but you still have capital to spare and are not tied in to a rare event leading to personal ruin for you and your family. Am I missing something? I still feel in the minority in thinking that house purchases are largely foolish decisions. I mean, you go an visit a place for a few hours a say, ‘yes, I’ll take it, even though it will likely cost you all your life savings and put you in a position of servitude for a large part of the rest of your life. I don’t like the idea one bit.

    * CJCJC – Everyone was wrong indeed, but how are we defining wrong? Here are two ways:

    1) People got the process right but the world is a system of probabilities and it landed on snake-eyes (i.e bad luck).
    2) People got the process wrong and the negative result was inevitable.

    In case (1) it isn’t really fair to blame anyone. Also, know we are in the solutions phase of the crisis, people are turning to history to make sure we don’t go wrong in the second way. Alas, the paper you quote suggests we should not hold out any hope of salvation – we truly are at the mercy of the meddlers.

    *MAIDMARIAN – Your comment brings to mind this Ayn Rand quote I just read, ‘The smallest minority on earth is the individual. Those who deny individual rights cannot claim to be defenders of minorities.’ This is my biggest concern – instead of rewarding the few deserving folk like yourselves, the system is penalising you because you are the minority among a majority of feckless risk-takers. By penalising you the gvt gives you guys an incentive to join the helter-skelter next time around, when it should be sending the very opposite signal.

    * REFRESH – Going to university is a privilege, not a right, and you have to assess the cost against the benefit. It is separate to buying a house and indeed if you want to buy a house that much, perhaps amassing a massive debt at university is not the way forward. If someone offers you a 200% mortgage would you take it because you really want to buy a house and buy a time share on a private jet or yacht? No. The answer is very simply, especially for a university graduate. You buy what you can afford. Harsh, but true. ; )

    (forgive the snarky tone)

    * SORU – Labour does seem to be being exploited in China, but I’m not sure about the idea of ‘artificially low wages’. If trade unions keep wages up, it restricts the quantity of labour demanded. What do you say to the marginal peasant who wants to work at $5 a day to feed his family? The minimum wage is nice club to be a part of, but what about people left out in the cold. If the government can’t enforce labour laws, I’d rather the Western companies put net-cameras in all their factories so you could see the conditions yourself.

    Lastly, if it is true that economic power is increasingly concentrated in the hands of the few relative but the Labour gvt and Obama’s administration are about to make it a hell of a lot worse (the Tories and GOP would probably do something similar, so no hope their either!). On the upside, I guess we as a society have at least gained personal freedoms (liberty, etc, until recently, anyway!).

  19. Refresh — on 25th February, 2009 at 4:53 pm  

    Snarky tone forgiven. I learnt it myself in my early days on PP. It was the only way to survive. Look how mellow Sunny is. Should have seen him then.

    I gave university simply as an example. It is not a privilege, or at least shouldn’t be. The example is really of young people setting out.

    Affordable housing is what has been missing. Not people over-reaching themselves.

  20. Riz Din — on 25th February, 2009 at 5:06 pm  

    Agree about the severe lack of affordable housing Refresh, although its nothing a massive house price crash can’t fix.

    ; )

    Now for the ‘humbling post’:

    After my earlier post, I have had a flash of humility. In this world of plentiful information we can pull together so many facts from all sorts of complex systems (economy, society, sciences, etc), such that we can weave together a narrative or body of reasoning that meets our personal criteria, which we will have established from the outset of the journey, consciously or otherwise. As with my comments above, it’s very easy to come up with ‘yes, but what about …’ rebuttals and counterpoints.

    However, if I step back a little to see the bigger picture, to observe ourselves as observers if you will, I will see that I am filtering all the information of other peoples views through my own, rather narrow lens, even if I have to I’ll squint my eyes a little to see what I want to see. At the end of the day, we don’t really know how the complex system of the economy got here, not do we really know a way out. It is all probabilities and there are plenty of facts and data to support everyone’s bias and to build an argument for every case. In this large scale discussion, which is taking place all around the world, how many people are truly open minded enough to see everything with the same critical eye, versus naturally and instinctively opposing other peoples views and supporting solutions emminating from their favoured schools of thought. Indeed, while I describe my current thinking perhaps as a kind of Panglossian Libertarianism I have to accept not only that I really know very little indeed and my school of thinking could be wrong, but also that my outlook on the world has changed with my age, and just as I previously believed and then rejected other schools of thought, so the same may come of the current mode. Oh, how little we really know.

  21. shariq — on 25th February, 2009 at 6:18 pm  

    Riz, completely second your thoughts in your ‘humbling’ post. I’ll still disagree with your ‘panglossian libertarianism’, but ure correct that ultimately no one really knows the right answer.

  22. MaidMarian — on 25th February, 2009 at 10:22 pm  

    Refresh – On this point about university.

    There is a further point there which is that there is real generational aspect to this. What we see is people with university debt paying rent to BTL landlords many of whom had a free university education and the benefits of enormous house-price inflation (and possibly the right to buy).

    Yes – this is about young people setting out, and I have no doubt that some of those young people have borrowed recklessly. But those people have had the housing market loaded against them.

    I can only agree that affordable housing has been missing, but that needs to be taken up with the NIMBYs.

    Saying all this – the cynic in me harbours a nagging suspicion that if the government allowed banks to go to the wall, with all that meant for mass reposessions, the talkboards would be waist deep in bile about, ‘government refusing to help homeowners etc.’ I’d hope I’m wrong.

  23. persephone — on 25th February, 2009 at 11:33 pm  

    Whilst on the subject of banks going to the wall & mortgages, I learnt that Northern Rock has been re-launched back into the market this week offering 90% mortgages

    As to difficulties of university graduates having loans after leaving college, as graduates they will also, in time, earn more on average than non graduates. Perhaps its a question ogf adjusting expectations to wait to buy a house (ie when you can afford it). Some time back you would not expect to buy a house shortly after leaving uni.

  24. MaidMarian — on 25th February, 2009 at 11:52 pm  

    Persephone – ‘adjust expectations.’ That’s a euphemism for get shafted by the previous generation, yes?

    Consider a new graduate with a, far from improbable £20k debt, incurred to repay fees charged at a time when the lifetime payback value of a degree has diminished severely. Our graduate is paying for a service that is worth less for him than for the older generation that got for free as a right. Moves in the labour market have now made degreed de rigeur (rightly or wrongly).

    With rent payments, our graduate may well be paying off the mortgage of an older landlord who benefited from much cheaper house prices and inflation and has indulged in BTL. The landlord may even have been given a council house under RTB.

    Not that long ago, new graduates were about four years off becoming a first-time buyers; now it is 12 years (I’ll try to find the link!).

    The first rung of the housing ladder is rapidly disappearing and mortgage durations have gone up by and large from 25 to 30 years – and higher. I personally doubt that the ladder will exist at all in 10 years.

    Add to that that more of those struggling to buy property today should expect to stay much longer in their low-spec first flat than did previous generations.

    If you can not understand why, ‘adjusting expectations,’ sticks in the craw, well I don’t know what to say.

  25. Refresh — on 26th February, 2009 at 12:02 am  

    MaidMarian, there is also the argument that some people went into buy to let with the intention of securing a pension. Whatever the motivation, it does point to the wider problem which was bringing down the state in favour of the private sector. This applied to pensions as it did to housing, and the push to have more private landlords. The fear of Rachmanism had subsided by then.

    We had three philosophical issues at play, we had to have private landlords, because ‘private was more efficient’, we had the idea that unless you owned your own home you hadn’t ‘arrived’. Add to that ‘democratisation of credit’. Rising house prices just made it inevitable everybody needed to own not just a home, but property.

    On the continent, if I recall, renting your home is the norm.

    With regards the NIMBYs, I agree there is always an element of this. But a government with the majority it commanded, could have done anything. It could have built whole cities, it could have put in place its integrated transport policy, it could have exceeded its targets of 50% of young people at University and the jobs that should have flowed from it. And most importantly it could have been leading the world on renewables and green technology – something I spent a great deal of time promoting.

    But sadly, it always had its eye on wrong-footing the tories and the next general election. It even forgot about the local ones. Watching the BNP stake out their political territory from the sidelines.

    On the subject of universities, it did not reverse Thatcher’s idea of driving the academics out of their ivory towers. It bought, wholesale, the socialist ideal of education to broaden ones mind and put it in the oh so modern setting: lifelong learning became lifelong training.

    Even today the government is looking to keep the forces of conservatism onside. They should be lynching the bankers, even if it just happens to be expedient. They would certainly make great headlines – we should not need the Independent to run campaigns against them, it should be instinctive.

  26. Riz Din — on 26th February, 2009 at 12:11 am  

    MM – surely the lower value of a degree in the labour market is a direct function of too low a price (free education) to start with, which led to an excess quantity of graduates flooding the market. The market takes time to clear but isn’t the solution is to start pricing the things. I guess I am just looking at it from a different perspective. Whatever the cost of an education, you should always weight it up against the potential benefits.

    Also, perhaps the lucky gits who got a free education had unfair surplus cash to invest in BTL properties!

    But why not adjust expectations. The previous generation had it too good and we should not think ourselves entitled to any of the riches the government bestowed on them – who ever had the bright idea that it is a good thing to own a house and give a higher education away for free (or indeed that a higher number of university graduates is automatically a good thing). What a flagrant waste of resources.

  27. Riz Din — on 26th February, 2009 at 12:15 am  

    Refresh

    ‘Rising house prices just made it inevitable everybody needed to own not just a home, but property.’

    really? even when house prices were so high in recent years that it was far more economical to rent (i.e rent payments < interest only mortgage payments).

  28. Refresh — on 26th February, 2009 at 12:17 am  

    Persephone
    With regards graduates and employment – I am not sure that the salaries are really there. Yes of course those that ended up in banking, finance and legal profession perhaps are ok. But generally it probably isn’t so rosy.

    We should also get away from the idea that graduates from institutes should deserve more than from the cliched university of life. We should have an education system which encourages learning and vocational training as needed. As an obvious example, Media graduates surely cannot bring much more than technical expertise to a role, compared to someone who becomes a producer but has studied medieaval history.
    My guess is the media graduates would give us Big Brother; whilst the second a program on cosmology with Carl Sagan.

  29. Refresh — on 26th February, 2009 at 12:22 am  

    ‘really? even when house prices were so high in recent years that it was far more economical to rent (i.e rent payments < interest only mortgage payments).’

    Yes I think so. It was the equity everybody was interested in. In fact people taking out 100% mortgages probably take pretty serious steps to curtail their living expenses so that they could keep up the payments.

    A friend of mine who never owned his own home, has been wracked with guilt for years that he hadn’t bought a home, something he could leave his kids. And worse, is driven by the idea that he will have no pension worth speaking off. It was already difficult for many people and now this.

  30. Riz Din — on 26th February, 2009 at 12:34 am  

    Refresh – I don’t mean this in a bad way at all but your friend may have been fooling himself all along. Up until the ruin of interest rates you were able to lock in bonds paying above 5%. That compounds quite nicely as a gift to the kids if you are that way inclined. And, from a risk-return perspective, it’s a much safer bet than houses, and far more liquid! Many people think ‘I’d rather pay a mortgage than waste money on rent’ but the equation doesn’t work like that one bit because most of the mortgage payment is rent (or interest), often 100%.

    As for people taking out 100% mortgages and curtailing their expenses, they are pretty crazy for taking such leveraged bets on house prices in the first place. Talk about risking the house!

  31. Refresh — on 26th February, 2009 at 1:03 am  

    Riz, regarding my friend, he had his own problems. I mentioned him to illustrate what drives people.

    As for alternatives such as bonds, I am not sure people will trust any financial instrument. Vast majority of people did bank on house prices going up, and they will again. What has brought the system to its knees is what the banks did with those loans.

    We went through a period, not dissimilar to the dot com boom, where the banks valued themselves on the number of mortgages they held. Regardless of their risk-value. It was a simple land grab.

    The irony is, coming back to my friend, he has lived in the US and has an investment banker friend and was always telling me how to pull off this or that scam, because he could see others doing and getting away with it. Just as an example, the billions that was wasted on hiring Indian IT personnel to deal with Y2K. And how they charged by the hour but double and treble billed. His problem was he could see how it was done, but couldn’t quite work the angle for himself. The existing economic system should as a matter of course presume corporate dishonesty as a way of life unless proven otherwise.

  32. Riz Din — on 26th February, 2009 at 9:51 am  

    The reasons I mentioned bond type savings is because they are underwritten by the gvt deposit gurantee (not corporate bonds but bank account saving bonds), so even if you don’t trust the bank will pay, you can be sure the gvt will step up to the plate.

    Re your friend, there will always be those who go for the quick bucks, even through dodgy means. However, I don’t blame the corporate system as much as the individual – if these guys are not screwing over others by working for a firm, they will be playing the angles themselves (claiming benefits, tax dodging etc). I don’t have a problem with self-interest, but structures need to be in place to prevent this…in the corporate world, I think it comes down to the agency and monitoring problem i.e the shareholders don’t want this type of employee but they are too far removed from the company to know what is really going on. My own solution would be to raise the level of liability (not limited) to include a portion of shareholders personal assets. Perhaps this type of structure would prevent companies from getting too large? Alas, it can’t compete with the limited liability model, which is the global standard.

  33. persephone — on 26th February, 2009 at 10:22 pm  

    MaidMarian @24 and Refresh @ 27

    I do think there are alternatives & ways to adjust. I worked for two years before going to uni to avoid debt after graduation and have friends who lived with their parents until they could afford to buy their own places & I have a relative currently at Uni who works whilst studying. These are some of the adjustments I am talking about.

  34. MaidMarian — on 26th February, 2009 at 11:48 pm  

    Persephone – Are you trying to annoy me?

    Living with parents is now practically standard and I don’t know anyone who did not work whilst at university.

    What you are proposing is an extended adolescence.

    I don’t want to adapt, I just want the generation before me to adapt to not living high on the hog.

    Seriously – why is it that the generation that has had every benefit should not ‘adapt?’

    Here is an adaptation for you – they sell their houses to fund personal care in their old age rather than making the NHS a bureaucracy that funnels wealth fron young to old. Should they adapt?

  35. Refresh — on 27th February, 2009 at 12:55 am  

    Riz, in the example I gave the perpetrators were the executives and shareholders.

    A more prominent example was the fuel surcharge cartel run by British Airways and Virgin. And there are many others. The idea of a business having its primary duty, legally enshrined, to its shareholders is a major problem for us all. This must go.

    Its primary duty must be to its customers. And the return, profit, is their reward.

    Another example, in the headlines again, is how customers were ripped off over bank charges. They think they are clever enough to rework this to fall back in line with legal requirements. A revised version of the scam is that they offer all their customers an automatic buffer of say £150; and should you end up dipping into it they charge you £22 pounds for the privilege and give you 7 days to put it right. Do it again after 7 days, its another £22. How that is different to the £38 charge for sending a computer generated letter I really don’t know.

    Now they don’t even have to deal with calls from their clients – it becomes automated. Kerching.

    To counter dishonesty you need to look at how various companies operated, ethically based. Quakers ran some very successful companies based on their moral upbringing as one example.

    Trust them? Never. Blue chip or not.

  36. Riz Din — on 27th February, 2009 at 10:21 am  

    Refresh – Get rid of the pursuit of profit? That way ruin lies for a nation, me thinks.

    I agree that many firms are not to be trusted in the same we are we may trust an honest individuals, simply because there is a strong incentive to cheat and boost profits. However, surely the regulations etc could be such that it is not profitable for companies to be untrustworthy on a risk-return basis. Thus, I see failure of law enforcement as a major problem, and application of suitable penalties to incentive firms not to cheat the system. It’s easy to look at what the pursuit of profit has resulted in on the negative side, but on the positive side of the ledger, look at rising living standards in recent centuries (oh, apart from in the communist countries, where profit as a concept doesn’t exist…I just had to throw that it there!)

  37. Refresh — on 27th February, 2009 at 11:46 am  

    Riz, pursuit of honest profit within an ethical framework is what I am getting at.

    I agree profit should be comensurate with trustworthiness. Build a system around that and we have the future economy. There are clues in what has passed before, I mentioned the Quakers and we should also look at the Rochdale Pioneers, the Building Societies, Mutuals in general.

    It requires a shift in attitude away from glorifying Richard Branson et al and the masters of the universe. We need an education system which stops talking up entrepenuership, unless there is a strong ethical component behind it. Being an entrepenuer should be taught as a part of a service to the community.

    As someone said, anglo-saxon capitalism died in 2008.

  38. Riz Din — on 27th February, 2009 at 1:03 pm  

    I guess I believe in something a little different – a system that is fully supportive of the pursuit of individual gain and indeed promotes this. I believe community based approaches work really well for small societies but the incentive to cheat is just to great in today’s cities, and capitalism seems to be the best way to long-term success. I think more entrepreurs need to be encouraged, that is more risk taking, not less, but all within a structure that prevents the system from feeding on itself (no easy task)! One natural limit to large size corporations for example, could be a partnership type structure of liability sharing versus giving a firm a life in its own right. I guess my view is that everyone should be free to do what they want to do, so long as it doesn’t interfere negatively with the life’s of others. Freedom of the individual type stuff.

  39. Shamit — on 27th February, 2009 at 1:06 pm  

    Riz

    Very well said but I think giving Corporations life enables people to participate in owning corporations. So aside for that particular structural change you are calling for — I think you are spot on.

  40. Riz Din — on 27th February, 2009 at 1:19 pm  

    True true. I’m not against shareholders per se, just the current model of limited liability. Was it around when Adam Smith wrote his worthy tome? I don’t know. I must look at Wiki.

    Back from wiki world … and it says the Limited Liability Act came into force in 1855, whereas Adam Smith lived up until 1790. What would he have thought of it I wonder. Wiki also says of the criticism:

    ‘Limited liability is supposed to encourage enterprises but it has also been argued that it distorts the free market by allowing the entrepreneur to externalise some risk and impose it on society at large.’

    So much for my original thinking. Has every thought been had by someone else .. bah! At least it provides some measure of validation.

    My original contribution might then be: Unless we have a global enforcer and writer of company law, we will always end up in a race to the bottom with one country offering limited liability, then another, and so on. So, thinking out loud, maybe my solution lies somewhere down this road.

  41. Refresh — on 27th February, 2009 at 1:49 pm  

    Riz,

    I am not sure you are correct about community-based ventures only operating adequately in small societies.

    All those mutuals that became banks served the nation’s housebuyers without a hitch for well over a 100 years. So quite large institutions.

    The co-operative sector in itself is huge, and is a major player in the US, as are credit unions. Quite a few of which are work-based including within massive corporations. You could say the workers are doing it for themselves.

    In Spain, one of its biggest conglomerates is actually a cooperative.

    At one time the Co-op was the biggest retailer in the UK. Have a look around, I think you will be pleasantly be surprised.

    Quaker Oats was started by Quakers.

  42. Shamit — on 27th February, 2009 at 2:08 pm  

    “In Spain, one of its biggest conglomerates is actually a cooperative.”

    Refresh

    I think you are talking about Monsanto.

    But if you look at the reward structure co-operatives such as MOnsanto which become too big you would find there is no equality even though that is the co-operative credo.

    While each member owns the co-operative the rewards aren’t shared in an equitable fashion — it depends upon the assessment of the contribution you have supposedly made. At least a shareholder in a publicly owned or privately owned comapny will earn exactly the same as any other shareholder per share when it comes to dividend but it does not work that way for co-operatives especially Monsanto.

    Also, Monsanto’s success beyond the Basque region has been achieved by playing the Corporate game like any other multinationals and most of the companies they own beyond the Basque region are public or private limited companies.

    Cooperatives are great for a small scale especially dealing with social issues may be renewable power generation in a small community or transport links in rural communities. But when they want to scale up they need different sets of skill sets and a different agenda which then needs to be profit oriented. Thats where I think Riz makes the right assesment

  43. Refresh — on 27th February, 2009 at 3:17 pm  

    Mondragon is what I had in mind. Very interesting history

    http://en.wikipedia.org/wiki/Mondrag%C3%B3n_Cooperative_Corporation

    Contributes 3.8% of Basque GDP (2006)

    Another example here in the UK is John Lewis – high quality, reliable, profitable and growing.

  44. persephone — on 28th February, 2009 at 5:24 pm  

    MaidMarian @ 34

    Its not clear why you think ensuring you are financially more secure before embarking upon Uni makes for an extended adolescence.

    Living high on the hog? Generation with benefits? Most who have worked hard to get where they are also pay taxes that fund the NHS which is rarely relied upon by the higher rate taxpayers that I know. I also do not know why I am paying over the odds for a lack lustre state education.

    Yep I would happily adapt & fund my own old age, just as long as I got a refund of the years of being a 40% taxpayer. But if all the higher rate tax payers did the same then there would be a much reduced NHS & state education would be further stretched (if there at all) which would mean less free education for the next generation of forthcoming students…

    Adaptation cuts both ways.

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