Debunking bubble economies - The UK pt2

Let's try to debunk the common misconceptions about the UK housing bubble and banking system:
  • House prices reflect fundamentals: a £1.2 trillion a year mortgage market and record numbers of properties for sale on the markets. Fundamentals?
  • We don't have subprime issues in the UK: looks like 50% of the mortgages written since 2007 are actually liar-loans!
  • Banks have been conservative in their lending behaviour: sure, they just forgot to check the validity of their client statements when lending hundreds of thousands of pounds to each of them
  • Regulation works — it doesn't: regulators are mostly incompetent or close their eyes because they don't want to be the ones ruining the party.
This is an interesting report from Bloomberg dated back on the 13th of July — I saved it to post about it, but time has been lacking massively for me to spend time writing.
July 13 (Bloomberg) -- The Financial Services Authority plans to ban self-certification mortgages as the regulator moves to crack down on risky lending.

The FSA found that 46 percent of households in the U.K. had either no money left or a shortfall after their income payment, the FSA said in a report on its website. The London-based regulator, which published a consultation paper on the 1.2 trillion-pound mortgage market, may issue final rules next year.

Self-certification loans don’t require consumers to validate their income. By 2007, customers’ incomes weren’t checked in 45 percent of new mortgages in the U.K., the regulator said in October as it called for a ban on the home loans as part of a crackdown on risky credit in the country’s mortgage market.
The Council of Mortgage Lenders today said the FSA’s proposals ran the risk “that the gain will not match the pain in the short term.”

There will always be a regulatory trade-off between protecting consumers from over-borrowing, and increasing the barriers to home-ownership,” Michael Coogan, the group’s director general, said in a statement. “The mortgage market for the time being has already corrected, to a degree that the main consumer concern right now is about access to finance, not about risky lending.”
Michael Coogan, working for the Council of Mortgage Lenders, has interests that are clearly opposed to those of the general public and of the borrowers. He nonetheless tries to make us believe that all these regulations are bad for consumers... I'll let you decide on this good faith about this statement and his integrity generally speaking.

In fact, these rules, in a fractional reserve lending system are actually good for both the lender, the consumer, and in a fractional reserve lending banking and crony capitalistic society like ours, it's also good for the tax payer, as he's not going to have to bail out banks which behaved irresponsibly and load money they shouldn't have.

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