Alistair Darling is poised to intervene to help banks and building societies to secure more finance to grant new mortgages

[Upwind]

from the Times

Great, so more taxpayers' money is to be used to help our profligate financial institutions. Brilliant. Never mind that schools, hospitals, defence force etc need money we have to keep bailing out the bankers.

And why so much intervention to keep house prices from falling? The government did not see fit to intervene when property prices were booming, though it transfered vast wealth from the relatively poor to the rich and from young to old. Now when it seems like prices might fall so that a stable home might finally be within reach for many first time buyers, it is all "doom and gloom" and need for intervention...

Re-inflate the housing bubble. Excellent idea.

If the conservative party spoke some sense on housing policy I would vote for them. But they have Kirstie Allsop as their advisor on housing policy and George Osborne witters on about helping first time buyers by keeping prices high.

I think they deliberately keep confusing first time buyers with first time owners.

Mervyn King, governor of the bank of England, was just on the news, and seemed even more critical of this harebrained idea than I am

Agree with you Upwind. It's really depressing.

I love Mervyn King though. Wish he was chancellor.

So while our government has its priorities in keeping the money in the banks brimming over and allowing the rich to get richer I have one thought.

When the old folk are freezing to death this year because they are frightened to turn on the heating will he step in and help then? And I don't mean any silly little measure but proper help and for all old folk, not just those who tick the boxes on their silly forms.

And can we please excuse those warm front grants to the disabled and to schools?

oh, no, that's right, so much going on with trying to bail out banks and get even more people to borrow more than they should be in order to keep house prices high.

I hope people remember this when it is time to vote.

I hope they realise the lies Labour tell and remember that they don't have two choices. This isn't America, if you don't vote Labour you have more than one alternate so you can easily avoid voting Tory.

I hope people remember this, I really, really do!

they probably won't.

Mervyn King is great. Wonder if he will resign should the government ignore his warnings?

I suspect that people won't remember all this when it comes time to vote - they will just remember whatever the media chooses to remind them of.

I only heard the headlines of MK saying that we risk a recession. Is that what you refer to?

Don't worry, Labour WILL lose the next election but permit me to offera dissenting view on the the MPC's role in NOT preventing the bubble. The MPC's warnings are all a bit late and it doesn't take a scholar, as MK is, to work out the risks that the UK economy faces. It is the good times that the MPC should have taken action. Theit failure to raise interest rates and calm the bubble earlier was in fact one of the central errors.

And now that we are in a hole, the MK should be biassing things the other way i.e. bringing confidence to the economy.

It seems to me that MK doesn't understand that his role is not academic but infact markets will take signals from his own confidence and actions.

ToughDaddy - he was critical of the interventions the government has been proposing

From the independent:

His remarks stand in stark contrast to ministers who say they are searching for ways to "rescue" the housing market, most notably through measures such as a "holiday" for stamp duty and an extension of the Bank of England's special liquidity scheme.

Reports yesterday suggested that the Chancellor, Alistair Darling, is considering ordering the Bank to extend the scheme, making it easier for the high-street banks to lend. While the Bank is committed to what might be called a "son of SLS", officials have always made it publicly clear that the SLS was never intended to "kick-start" the mortgage market.

Yesterday, Mr King reiterated that stance, voicing considerable opposition to any move that would in effect result in the state funding the mortgage market. "Funding is not something the central bank can supply ... It would be a very dangerous move to move to a situation where the Government saw its major role as guaranteeing lending," Mr King said.

"Why should the taxpayer take on the risk of borrowing by individual borrowers, some of whom are risky? It's the lenders who should take on the risk. Pretending there's a magic solution is not the answer."

ToughDaddy - I thought that the housing bubble did not fall within the MPC's remit? That their only target was inflation as measured by CPI, which conveniently excludes house prices? I think you are right, however, that interest rates were kept too low for too long.

But when it became clear that there was hyperinflation in house prices, tools other than interest rates could have been used to prevent a bubble. For example, in France, if a Bank has issued a mortgage for more than your house is worth, should you fall into arrears, they can only reposess the house and can't chase you for the outstanding. So banks have an incentive to lend more sustainably. In countries like Germany tenants' rights are better and so private renting is a realistic long term option and there is not the same desperate pressure to "get on that ladder before it is too late". The government could have made loans irrecoverable beyond, say, 5x a person's salary, or made a 5% cash deposit a requirement of taking out a mortgage....

Wasn't it the BoE (MPC) that re-energised the housing market bubble in August 2005 when it looked like prices were starting to cool off BY CUTTING interest rates. How smart was that?

The govt's error was to go for CPI but that does NOT excuse the MPC from their narrow view of inflation. Many have been arguing forMPC to keep an eye on asset prices as well but MK et al have been CPI nurds. Now they are talking about broader economic measure but too late.

The lending banks should get primary blame in all of this- you would have thought that they would have learnt by now. And the arcane science used to justify their credit products is laughable.

It is too easy to blame a govt for everything but I think that the market agents and the regulators, MPC in particular, should be at the front of the queue for blame.

PS The economist made some academic argument about why it is consumer inflation and not asset price inflation that should be measured but look where that has got us.

MK had better understand that he is an agent and not simply and academic market commentator!! His mandate is not to simply control current (spot) inflation but to control future (forward) inflation. With house prices being the fuel of CPI inflation he should be ACTING when he sees a house price boom that will feed everything else. THAT IS HIS JOB; not simply describing the passage of past events!!!!!!!

... ooh and stating the obvious that we risk a UK recession!! My 9 year old son is aware of that one; thanks Merv!

Fair points toughDaddy. Not sure whether Merv was outvoted in August 2005? Have vague memories of that happening at some point...

I would be furious if they started using "broader economic measures" of inflation now. It would probably be an excuse to include house prices, now that they are falling. And so justifying assymetric intervention by proxy

Good point about central bank asymmetry. I think that Merv is very conscious of this and the moral dilemna BUT I think that the assymetry should be addressed by adjusting Central bank behaviour at the TOP OF THE CYCLE. That is where central banks are scared to act. Implicitly, their function is to reduce volatility of the economic cycle. That means reducing the downturn amplititude but also being brave enough to mact at the top of the cycle.

Even now, I think he is getting it wrong. Much of the CPI inflation is IR insensitive (oil prices, imports etc) so holding spot interest rate does do much for spot CPI. The MPC et al are failing to take measures to influence the forward curve in orderto dampen the downturn. There are neglecting some of the possible actions thatthey could take. They are all trying to cover themselves from taking future blame but not acting.

should.... be so holding spot interest rate does NOT do much for spot CPI

Surely imported stuff responds to bank of England interest rates because the strength of sterling is correlated with interest rates? So the lower the interest rate, the weaker Sterling is, the less favourable import exhange rates are. And that is why the value of GBP has taken a nosedive since Mervyn's speech...

Was referring to overseas (China for example) wage inflation. We imported deflation over the last decade and now importing some more inflationary pressures.