FW: [diggers350] crisis? what crisis?

Kestrel neil_axe at hotmail.com
Wed Oct 8 22:21:45 BST 2008

It's an interesting idea that James proposes, where he suggests that the banks should sell the title deeds of the safest mortgage properties to the government, rather than the most risky. This idea has a lot of merit in itself, and while it's not those safe assets that the banks want to offload, they are collectively not in a strong position to negotiate, and I see no reason why the government and taxpayers should take on all the most risky assets while the banks keep all the safest stuff. (assuming we accept that the banks should get a govt bailout at all - and that is a big assumption).  James's key note idea of how the government could transform the terms of occupation into tenancies for those who cannot pay the mortgages that the government get the mortgaged title deeds for is also a good idea to look at further. As he rightly says, as well as being a possible economic solution, it will also help avoid a lot of social misery and problems. Unfortunately I don't think the two ideas he mentions can be operated together, for the simple reason that if the government buy up only the safest mortgages, then these are fairly unlikely to be unable to unable to pay back, even in severe recession, and thus hardly any mortgages will be converted to tenancies.  There is also the fact that safe and risky assets do not come at the same price....thus the govt will able to buy far less mortgages for potential conversion to tenancies, if it focussed on risky assets only. The most risky mortgages are particularly cheap, as not only is there usually already a history of payment problems, but the value of the property the mortgage is secured on is far short of the value of the mortgage  Also this policy if operated would be politically extremely unpopular, as properties which are the safest assets, are those mortgaged by wealthy people with stable jobs, with good histories of meeting previous payments and where the value of property is still way above the value of the property. If the government took on those safe assets, then those people would be the ones who would enjoy the govt safety net scheme to convert mortgages to tenancies in the fairly unlikely event that they got into problems. Meanwhile for most of Joe Public, with their mortgages still held by the banks, the misery of mortgage repossessions would continue.  Kestrel ^!^  

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