Money is good. There, I have said it. Just in case many of you think I am some mini-socialist on a computer, I am not I am a damn capitalist pig. I like capitalism, I like the way it, over other forms of monetary policy, gives the most freedom to the individual and reduces government dictates into your life. But I hate government managed capitalism. In the sense that during the good times, government keeps out and during the bad times, they prop up the system.
The whole point of getting capitalism to work is that the bad companies, the individuals who are incompetent are made to go bankrupt and loose their ability to con and swindle the public (I may like capitalism, but I am under no illusions to what its purpose is), while the good companies can continue to screw the public for what they are prepared to pay.
Good governments save up the tax receipts in the good times, so that in periods of slumps, they can manage the fall out, keep essential services running and keep the tax rate stable so that companies that are surviving, do not have the horrible shock of rising taxes during a recovery.
California has completely failed in this. Look closely, as what is happening over there, will be happening in the UK after May next year. At the moment, there is a lot of posturing due to the upcoming election. Once that is over, all hell will break loose and this ‘phoney recession’ that we are living through will suddenly bottom out.
If our politicians had any guts, they would have let those banks hit the wall. But there would have been a regulatory process in place to ensure that governments could have taken over the running of the essential services such as transfer of wage payments, withdrawals & deposits and debt repayments. Instead, the ‘light touch’ economy of the UK is hopelessly inadequate at doing anything much other than skimming taxes from business and enjoying long lunches in The City with the boys in suits.
And so these banks continue to survive, with the same people who f**ked about with our money, now screwing about with our taxes. Those long lunches are still going on, and the rich, well, they are getting richer.
The average house price in London is £260,000 (about $420,000). The average London wage per year is £26,000. Sensible lending gives a guide of three to four times the annual wage for the handing out of a mortgage to ensure affordability and guaranteed repayments. For an average worker he must take out a mortgage TEN times his salary in order to buy the average house in London.
I hate to be blunt, but house prices will not be coming down anytime soon. And let us be honest, if I wanted to live an ‘average life’, I would have to slave in a fantastically paid job to be able to afford just an average dwelling. I am very happy to see the fruits of success, but something tells me, there is still a huge lopsidedness in the economy of the UK. After all, why are house prices so high in London? Did we find oil, is there a gold rush, was some new technology invented that made Tower Hamlets the new Silicon Valley?
No. House prices went up because, firstly, there are a lot more singletons in London (either marrying later or divorces), thereby driving up demand. Secondly, people are living longer, which means there are more elderly people who remain in their house. Thirdly, the population has gone up, both through births and migration (internally, EU and beyond the EU). Fourthly, the Green Belt, a hackneyed 70 year old piece of planning means that London cannot expand naturally to cope with its population. All of this has lead house prices to be higher. But TEN times higher than the average wage? Surely, the income of people would have kept a check on demand?
Oh yes, those banks. How else can people get a mortgage? Well, they go to their bank. Fill out a few forms. Chat, discuss over coffee/wine and then get the keys to their new abode. The renovate it according to the latest TV programme’s style and wait to sell at a higher price. Except…well, there is only a finite amount of money in the bank.
At the moment, I am one of the ‘lucky’ ones. I did not rush to buy a house, and so I am debt free (although, not exactly living ‘well’, I am living within my means). However, there are a lot of people who are struggling right now to live. And that is with interest rates at a record low. They will increase in the future, no currency can continue to take a battering like Sterling has in recent months. And then what?
There will be a lot of repossessions. A lot of people made homeless. Yet, somewhere, somehow, those crooked banks that have supplied the mortgages in the first place will get their cash back. They are the ones who helped to inflate house prices to ten times the average wage, since, after all, without a mortgage, you cannot afford to buy that property. And so, while there will be the destitute and the homeless, barely covered by the state, someone will be in that winebar on Friday night, sipping champagne with friends and thinking how smart they are.
It’s nice when you have a government subsidy backing you up, isn’t it?