Bank bad public good?

Risk transfer, and they did not ask us

It's a bargain!It's a bargain!
'Too big to fail', was a popular way for banks to portray themselves, until that is, the public had to bail them out following the financial crisis. Several years on and the Royal Bank of Scotland, now in better health due to all that public money, is running an advert related to George Osborne's 'help to buy' scheme. This is so funny.

First a ridiculous style of management took RBS, and other lenders, to the brink and did so in an era of property price expansion that was encouraged by government. Then, when it had gone wrong, and without any consultation the public were signed up to a rescue plan and so 'bought' RBS. Now some years later and again without consultation the public are helping again.

This time it will be different, so they say! House prices are too high in relation to typical incomes, especially so in the London and South East of the UK. Furthermore, it has been impossible to see any government policy since the downturn began that would alter this. It would be more honest for the present government to admit this rather than tinker with the problem.

Buying anything comes with a risk, there's no reason why property should be different. It's the duty of the purchaser to evaluate the risk and traditionally it was this caution that helped to stabilise the market. And in extreme cases act to lower prices. But no, the government has decided that risk management really means risk elimination. Or so they think, but what they have done is risk transfer. It's now the public who will step in if things go wrong.

The start of the present financial crisis is now so far back in time perhaps we should remind ourselves that property bubbles across the world are the root cause. Also if we take out the 'recovery' in London and the South East the rest of the UK is still marking time. So why does the government want to stimulate the economy via another period of property expansion? As the risk is the boom will have to end some point, they all do, and boom does follow bust!

You could argue that a single market stimulant, like the help to buy policy, cannot possibly work with equal effect in both the North and South of the UK as conditions are so different region by region. And you would be right. So does this mean that the government has given up on the North? Again it would be honest if they could say yes to this. For it would seem so. As Witterings from Witney says the help to buy is simply buying votes.