The British have included a little Subprime Mortgage Crisis in their 2013 Budget

Posted by PITHOCRATES - March 24th, 2013

Week in Review

Governments like people buying houses.  Because it is the biggest engine of economic activity.  Generated from  building houses.  And then furnishing them.  And they’ll do just about anything to encourage people to buy houses.  No matter the damage it can cause.  As we’ve recently learned.  But that hasn’t stopped government from making the same mistakes (see Budget 2013: The good, the bad and the ugly by Sam Bowman posted 3/20/2013 on Adam Smith Institute).

Bank guarantees to underpin £130bn of new mortgage lending for three years from 2014. Apparently the Treasury has not learned the lesson of 2008: injecting taxpayer money into the housing sector will simply inflate prices, distorting price signals and stoking the housing bubble that already seems to be growing in the housing sector. Houses are expensive because supply is restricted by the planning system. Instead of throwing money at the problem and driving prices up even more, the government should have the courage to liberalize planning to allow more development, including on green belt land.

Government ministers picking winners. Fiddling with tax breaks for specific industries is a mug’s game. There is no way the government can know which industries to promote, and these projects inevitably collapse into a mess of overcomplicated grant schemes and politics-driven bailouts of failing firms. Only consumers can pick winners.

Government spending is still rising. Despite all the talk of cuts, the government will still be spending £761bn this year, nearly £20bn more than last year. By leaving healthcare alone and failing to carry out the big structural reforms needed to reduce social security spending, the government  is not matching its rhetoric on spending with the action needed. We’re still going to be borrowing £108bn this year – that’s £295m a day, every day, with no end to the borrowing in sight.

While those on the Left blame Wall Street and greedy banks for the subprime mortgage crisis the British press knows who was at fault.  The U.S. government.  They’re the ones who kept interest rates artificially low.  Creating a housing bubble.  It was Bill Clinton who pressured lenders to make bad loans (to fix discrimination in lending that was not there).  This is why banks turned to subprime lending.  And the adjustable rate mortgage (ARM).  To qualify the unqualified.  Which they only did because Fannie Mae and Freddie Mac guaranteed those loans.  Even buying them to get them off of the banks’ books.  So the U.S. government caused the subprime mortgage crisis.  Not Wall Street.  Or greedy bankers.

Land use restrictions have long kept housing prices high.  Rich people have used their influence with government to restrict new housing in some very nice areas.  You can’t build new housing in some of the most exclusive neighborhoods.  Which keeps housing availability low.  Housing prices high.  And the ‘undesirables’ out of these rich people’s neighborhoods.  Allowing the rich to stick with their own kind.

Friends of the government get special favors.  Solyndra gets government loans to produce something there is no market for.  They go bankrupt.  Yet the government continues to spend money to pick winners the market passes on.  Some things never change.  No matter where you are.

Wherever you look these days governments give examples of what not to do.  Yet no one ever heeds these warnings.  And they make the same mistakes over and over again.  No matter how bad those mistakes were.  And as far as mistakes go, few were as bad as all the bad policy decisions that led up to the subprime mortgage crisis.  Yet President Obama has already talked about doing more of the same.  As are the British.  Why?  Because of that insatiable desire governments have to spend.  It has toppled empires in the past.  And yet they still spend.  As they will always continue to spend.  Because spending gives them power.  Which trumps everything else.  Even the trust of the people.

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