There’s an excellent expose in today’s Spectator of the origins of the the US sub-prime mortgage problem in the policies of the Clinton administration. A left-inspired attempt at social engineering by government pressurising the banks to abandon their traditional lending policies (only lend to people who have good prospects of repaying the loan) in favour of lending more to people on low incomes and minorities, and indeed giving preferential treatment to such persons.
This increased home ownership by encouraging about 2 million American families to take on debt they couldn’t afford. It was all right as long as they could refinance using the equity created by a booming market to do it.
We had something similar here with banks lending mega-multiples of salaries to fuel the biggest house price boom in memory. Gordon Brown, as Chancellor, did nothing whatever to stop it. Indeed, as I have pointed out above, he had a vested interest in stoking it for all it as worth because of the extra stamp duty and inheritance tax it brought in its wake.
What leftish governments were doing on both sides of the Atlantic was to blow more and more air into a bubble that was bound to burst as all previous ones have done. They used a variety of methods to persuade the banks to go along, from compliance units monitoring lending policies to adopting an inflation index (the CPI) which deliberately ignored house price inflation and requiring the Bank of England to set interest rates in accordance with that – ensuring a massive inflation of cheap credit.
To paraphrrase ‘The Weakest Link’ ‘Gordon and Bill have been the weakest players in this round. But will the votes follow the facts?’