Part of the deal today to inject £40bn into the biggest banks is that they will be expected to return to their 2007 lending levels in return for state support. The only problem is: that was the height of the bubble.

Does the government seriously want to go back to the “glory days” of self-certified mortgages (liar loans), crazy buy-to-let deals on unbuilt properties and eight-times salary mortgages? Surely not. This would store up new potential losses for bank investors, which now include taxpayers.

Admitting otherwise would be to concede that we are in for a serious downturn. As a result, ministers are in a bind.

UPDATE

The Council of Mortgage Lenders seems to share these concerns: “The CML doubts whether, in the current market where house prices have been falling and demand has reduced, it would be either prudent or desirable for the volume of lending to home-owners to equate to 2007 levels.”

FURTHER UPDATE

The CML has withdrawn its comments. Have they been sat on?

October 13, 2008 11:36am in Alistair Darling, Banks, UK politics | Comment