Daily Archives: March 21, 2013

Jim Pickard

Mervyn (now Sir Mervyn) King did not cover himself with glory during the credit crunch, preferring to lecture on moral hazard while others were scrambling to prevent financial catastrophe.

Even so, the governor of the Bank of England’s words of warning about government mortgage guarantees, made in August 2008, are fascinating – in the context of Osborne now setting up a new entity to do just that. (Bear in mind that the chancellor and the governor are close allies.)

At the time Gordon Brown was pushing a UK-style Freddie/Fannie through the Crosby mortgage review. (Fannie and Freddie collapsed into US nationalisation only a month later): hat-tip Hannah Kuchler

“On the question of guarantees all I can say is the Federal Reserve, for the last 30 years have been pointing to the great dangers of offering government guarantees to mortgages.

They pointed out that if you offer a government guarantee to a mortgage, remember they spent a very long time trying to press the argument that Fannie Mae and Freddie Mac were not guaranteed by the Federal Government, they could see the risk that if people believed it then they would be able to attract funds more cheaply than any other source, mortgage funding would go through that

 Read more

Kiran Stacey

HMS Ark Royal on a farewell tourLast month, we mapped out what each department could expect to face in the June spending review given the Treasury’s promise to keep cutting at the same pace as it has done before.

That study showed some of the most sensitive departments were in line for the steepest cuts. Local government was in line for £1.3bn of cuts, the business department, just over £1bn, and most sensitively of all, defence, nearly £700m.

Those calculations, however, only got us up to just over £7bn of cuts. We decided to take a cautious view, sticking to the idea of spending falling at the same trajectory as it has been so far, rather than striving to hit the £10bn figure. Read more

Jim Pickard

George Osborne is edging Britain closer to an American-style government-backed mortgage market by promising to underwrite £130bn of new home loans over the next three years.

Mr Osborne’s advisers insist that the new “Help to Buy” scheme will not lay the foundations for a UK-style Fannie Mae or Freddie Mac. Yet there are striking parallels to the way that the former was set up by FD Roosevelt at the height of the Great Depression, underwriting about one in five US mortgages during its early years.

The two entities enjoyed implicit government backing for 50 years, and were nationalised during the financial crisis of 2008. At that time they were blamed for fuelling the sub-prime loan for relaxing lending criteria to low-income groups under pressure from the Clinton government.

By stepping up government involvement in the UK housing market and helping to

 Read more

by Kate Allen

Britain’s Chancellor has today announced a substantial expansion of the government’s intervention in the housing market. Specifically, he’s going to give government backing to a great deal more mortgage lending. There have already been cries of “Fannie Mae!” as commentators remember the disastrous housing bubble in the US.

But were Fannie Mae and Freddie Mac really responsible for driving up house prices? Hmm, maybe not actually.

US mortgages and house prices

 

The striking thing about this chart is the divergence between total mortgage

 Read more