Albert Edwards, the famously bearish strategist at Societe Generale, has a new note that goes to town on UK chancellor George Osborne, who, as part of his budget plan unveiled in March, proposed that the UK get more involved in subsidizing mortgages.
Edwards has decided that he can no longer keep his mouth shut on the matter, and must lash out at this horribly misguided policy.
George Osborne in his March budget proposed an unusually misguided piece of government interference in the housing market. The measures will see government provide lenders with a guarantee of up to 20 per cent of a mortgage in an attempt to encourage lending to borrowers with small deposits. This means that if a borrower defaults on a loan, the taxpayer will be liable for a proportion of the losses. Numerous critics of George Osborne’s scheme range from the IMF to the outgoing Bank of England Governor Mervyn King, who said “We do not want what the US has, which is a government-guaranteed mortgage market, and they are desperately trying to find a way out of that position.”
He goes on to express the viewpoint that house prices are already way too high.
He points to this chart, showing how high UK prices are relative to other countries.
In the end, he says, this is mere indentured servitude of the youth, under a crushing burden of debt:
What makes me genuinely really angry is that burdening our children with more debt (on top of their student loans) to buy ridiculously expensive houses is seen as a solution to the problem of excessively expensive housing. I would have thought the lack of purchasing power should contribute to house prices declining or stagnating (relative to incomes), hence becoming affordable once again.
You would have thought that George Osborne would be ideologically predisposed to a market solution, wouldn’t you? But apparently not. Why are houses too expensive in the UK? Too much debt. So what is George Osborne’s solution for first time buyers unable to afford housing? Why, arrange for a government guaranteed scheme to burden our young people with even more debt! Why don’t we call this policy by the name it really is, namely the indentured servitude of our young people.
(HT: Katie Martin)
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