*Socialism is a dirty word in many parts of the US*, but as the FT reports, the government has turned its mortgage market into a *giant nationalized enterprise on a par with China’s Red Army* with over 90% of mortgages subsidized by the state and aided by so-called "progressive" or "redistributive" policies.
*In the UK, the government have also become entwined with the housing market, albeit in different ways.* Rates have also been slashed close to zero; tens of thousands are buying homes arm-in-arm with the state under 'shared equity schemes'; and one-third of all mortgages come from the two state-controlled banks (Lloyds and RBS); *very reminiscent of supposedly communist China*, where most banks are majority-owned by the state with small public floats.
The BoE has (supposedly temporarily) pumped over GBP14bn into a scheme called *“Funding for Lending”* aimed at forcing down the price of business loans and mortgages; *also reminiscent of the “short-term” rescue of Fannie and Freddie five years ago*. In spite of all this government-sponsorship (or perhaps due to its bubble reflation), analysts argue, "we still have a market where pricing is not at a rational level."
*The question remains how can they avoid another crash if and when they withdraw support from the market?* "It's broadly accepted nowadays that China still lives under the banner of 'communism' despite capitalist markets playing an increasing role in society. In Britain and America – at least where the housing market is concerned – the reverse process seems to be taking place."
Ironically, at the same time, China is trying to stall a bubble created by their own capitalism-driven shadow banking system by curving ownership and raising taxes on real estate.
Via The FT,
*Socialism is a dirty word in many parts of the US.* After all, America is a global symbol of free markets, muscular capitalism and the small state. *Yet somehow the government has turned its mortgage market into a giant nationalised enterprise on a par with China’s Red Army* or Britain’s National Health Service.
US mortgage finance vehicle Fannie Mae, created by Franklin D Roosevelt to drag the US out of the Great Depression, underwrote around one in five mortgages during the 1940s. *It was seen as the archetype of Keynesian intervention*. Yet Roosevelt’s efforts have been eclipsed by those made by 21st-century governments around the world to pull their economies out of the post-credit crunch tailspin.
Today, *in the US, almost nine out of 10 mortgages issued in the US are subsidised by the state* ... *Housing, in other words, has become an arm of the state.*
...[the FHA] is so integral to the market that *without it prices could have fallen a further 25 per cent*, according to Moody’s Analytics.
And at the same time the Federal Reserve is soaking up some $40bn of mortgage debt a month...
It is hard to dispute that if you own a residential property in any of the 50 states its value is being held up by the whim of politicians and central bankers.
...*“The US doesn’t use the term socialist very much to describe policies like this, they use words like “progressive” or “redistribution”*
...
This new status quo is not entirely the result of conscious decisions by the political classes. *Washington was forced to prop up real estate when it realised it was so closely entwined with financial markets and their “too big to fail” banks* that letting either collapse would be disastrous.
...
But *attempts to send the two mortgage underwriters back into the private sector* have withered on the vine.
...*“There was momentum before the election but that has completely evaporated,”*
...
*Across the Atlantic, the tentacles of the state have also become entwined with the housing market*, albeit in different ways. The British government would not set Soviet-style targets for tractor production or widget manufacturing. Housing is a different matter.
The central interest rate has been slashed to close to zero. Tens of thousands are buying homes arm-in-arm with the state under “shared equity schemes”. Most strikingly, *one in three mortgages taken out in the UK are through two government-controlled banks.*
Lloyds Banking Group and Royal Bank of Scotland remain in majority state ownership with little sign of progress on a mooted sell-off. Lloyds had 26.7 per cent of the mortgage market last year; RBS had 7.5 per cent.
This is *reminiscent of supposedly communist China*, where most banks are majority-owned by the state with small public floats.
...
*“We still have a market where pricing is not at a rational level.”*
Perhaps the *interventions by the government have been, well, too successful?*
...
“Is it just going to drive up house prices? By and large, in the short-run, the answer is, yes,”
...
...the move *could create a new “housing bubble”*, replicating the sub-prime crisis in the US.
...
The question goes to the heart of the dilemma faced by politicians on both sides of the Atlantic. *How can they avoid another crash if and when they withdraw support from the market?*
...
“But politicians will struggle to square the circle. It seems likely they will *remain chained to policies that prop up the housing market, even as they keep paying lip service to first-time buyers* who they cannot help en masse at the same time.
“It’s broadly accepted nowadays that *China still lives under the banner of ‘communism’ despite capitalist markets* playing an increasing role in society. In *Britain and America – at least where the housing market is concerned – the reverse process seems to be taking place*.”
Reported by Zero Hedge 44 minutes ago.
*In the UK, the government have also become entwined with the housing market, albeit in different ways.* Rates have also been slashed close to zero; tens of thousands are buying homes arm-in-arm with the state under 'shared equity schemes'; and one-third of all mortgages come from the two state-controlled banks (Lloyds and RBS); *very reminiscent of supposedly communist China*, where most banks are majority-owned by the state with small public floats.
The BoE has (supposedly temporarily) pumped over GBP14bn into a scheme called *“Funding for Lending”* aimed at forcing down the price of business loans and mortgages; *also reminiscent of the “short-term” rescue of Fannie and Freddie five years ago*. In spite of all this government-sponsorship (or perhaps due to its bubble reflation), analysts argue, "we still have a market where pricing is not at a rational level."
*The question remains how can they avoid another crash if and when they withdraw support from the market?* "It's broadly accepted nowadays that China still lives under the banner of 'communism' despite capitalist markets playing an increasing role in society. In Britain and America – at least where the housing market is concerned – the reverse process seems to be taking place."
Ironically, at the same time, China is trying to stall a bubble created by their own capitalism-driven shadow banking system by curving ownership and raising taxes on real estate.
Via The FT,
*Socialism is a dirty word in many parts of the US.* After all, America is a global symbol of free markets, muscular capitalism and the small state. *Yet somehow the government has turned its mortgage market into a giant nationalised enterprise on a par with China’s Red Army* or Britain’s National Health Service.
US mortgage finance vehicle Fannie Mae, created by Franklin D Roosevelt to drag the US out of the Great Depression, underwrote around one in five mortgages during the 1940s. *It was seen as the archetype of Keynesian intervention*. Yet Roosevelt’s efforts have been eclipsed by those made by 21st-century governments around the world to pull their economies out of the post-credit crunch tailspin.
Today, *in the US, almost nine out of 10 mortgages issued in the US are subsidised by the state* ... *Housing, in other words, has become an arm of the state.*
...[the FHA] is so integral to the market that *without it prices could have fallen a further 25 per cent*, according to Moody’s Analytics.
And at the same time the Federal Reserve is soaking up some $40bn of mortgage debt a month...
It is hard to dispute that if you own a residential property in any of the 50 states its value is being held up by the whim of politicians and central bankers.
...*“The US doesn’t use the term socialist very much to describe policies like this, they use words like “progressive” or “redistribution”*
...
This new status quo is not entirely the result of conscious decisions by the political classes. *Washington was forced to prop up real estate when it realised it was so closely entwined with financial markets and their “too big to fail” banks* that letting either collapse would be disastrous.
...
But *attempts to send the two mortgage underwriters back into the private sector* have withered on the vine.
...*“There was momentum before the election but that has completely evaporated,”*
...
*Across the Atlantic, the tentacles of the state have also become entwined with the housing market*, albeit in different ways. The British government would not set Soviet-style targets for tractor production or widget manufacturing. Housing is a different matter.
The central interest rate has been slashed to close to zero. Tens of thousands are buying homes arm-in-arm with the state under “shared equity schemes”. Most strikingly, *one in three mortgages taken out in the UK are through two government-controlled banks.*
Lloyds Banking Group and Royal Bank of Scotland remain in majority state ownership with little sign of progress on a mooted sell-off. Lloyds had 26.7 per cent of the mortgage market last year; RBS had 7.5 per cent.
This is *reminiscent of supposedly communist China*, where most banks are majority-owned by the state with small public floats.
...
*“We still have a market where pricing is not at a rational level.”*
Perhaps the *interventions by the government have been, well, too successful?*
...
“Is it just going to drive up house prices? By and large, in the short-run, the answer is, yes,”
...
...the move *could create a new “housing bubble”*, replicating the sub-prime crisis in the US.
...
The question goes to the heart of the dilemma faced by politicians on both sides of the Atlantic. *How can they avoid another crash if and when they withdraw support from the market?*
...
“But politicians will struggle to square the circle. It seems likely they will *remain chained to policies that prop up the housing market, even as they keep paying lip service to first-time buyers* who they cannot help en masse at the same time.
“It’s broadly accepted nowadays that *China still lives under the banner of ‘communism’ despite capitalist markets* playing an increasing role in society. In *Britain and America – at least where the housing market is concerned – the reverse process seems to be taking place*.”
Reported by Zero Hedge 44 minutes ago.