27 April 2012

Should banks be forced to take on more risk?

Extract from an article by the Daily Mail's Alex Brummer:

Roughly one-sixth of construction output consists of putting up new homes. In the final quarter of last year housing starts were just 20,400 which is half the level of five years ago. Yet commercial housebuilders like Redrow and Persimmon are doing very nicely. How can this be the case? Having cleaned up their balance sheets after the Great Recession, most homebuilders are concentrating on upmarket homes in the South-East that are affordable only to the most affluent. The government’s scheme intended to help people get on the housing ladder, by offering up to 10 per cent in deposit assistance, is not working because the mortgage lenders refuse to offer loans at the appropriate cheaper rates to these people.

... the government could do more to get construction moving. The special liquidity scheme did support mortgage lending, in the wake of the first part of the recession, and the Bank of England may well have been too enthusiastic in pulling back the punch bowl. It was influenced by the fact that the banks felt prosperous enough to pay huge bonuses to executives and the feeling was that taxpayers should not be subsidising such immoral action. (Daily Mail, 26 April 2012)

As usual, it is supposed that the destructive consequences of socialism can be remedied by yet more socialism. Yet more transfer of resources from populations with above-average IQs to populations with a lower average IQ.

There was a time when banks lent money on commercial principles, i.e. only to those who already had some capital assets and who were the sort of people unlikely to default on repaying loans, whatever hardships they might have to undergo in the process. Thus the bank would continue to profit, and not lose, from the arrangement.

But now, of course, it is considered that banks, and taxpayers, should be forced to set their money at risk by lending it to those least likely to repay it, so long as such people express socially-approved intentions.

Even if such people are provided by the government with the money necessary to pay the deposit on a house, the banks still regard them as a bad risk, and refuse to lend them money at artificially low rates, in order to preserve themselves and their shareholders from further losses. This, in the modern ideology, is immoral. What are banks for but to transfer money from populations with higher average IQs to populations with lower average IQs?