We’re all bankers now

Solvency is maintained by means of a national debt, on the principle, ‘If you will not lend me the money, how can I pay you?

It seems as though in the last week, every time I start to write something about the current state of the markets – the financial ones – things change and I have to start again.

First – and even now, I’m not sure I’ve got the exact order of these events – we had the acceptance of the US government bail-out, then we had the UK government following suit. Then interest rates (but not mortgage rates) went down.

Then the stock market plummeted because the investors weren’t sure that the plans were good enough.

Then we found out that half the country had had its savings in belly-up Icelandic

banks with little hope of getting it back.

So the government promised to guarantee those savings, meaning the UK taxpayer’s piggybank was being raided yet again.

Then shares fell further and quicker than they’ve fallen in a very long time, wiping billions off share portfolios and pension funds.

Then they rose again, a little, once the UK government agreed to nationalise some of the banks, making the taxpayer, in effect, the largest single shareholder in some huge financial institutions.

And now, according to some reports, the stock market is getting a little jittery again because the government wants to make a condition of the bail-out that the banks use the lolly to return to 2007 levels of mortgage lending.

Whoa there! Yes, we need liquidity in the mortgage markets again. Yes, we need people who want to buy houses to get the finance to allow to do so. Yes, we need people who want to sell houses to find buyers who can afford them. Yes, we need housebuilders to be able to sell some houses so they can build more. Yes, we need to get this market moving again.

But one of the things that got us into this mess in the first place was the huge levels of debt that people saddled with: the UK had one of the biggest debt to earnings ratios around.

What we need is a sensibly paced increase of money available to lend: sensible sums which don’t overvalue properties which are then immediately in negative equity. And to be fair, I think the money markets realise this – the Council of Mortgage Lenders said yesterday that they certainly don’t want to see lending shoot back to 2007 levels overnight. And, as of this morning, stock prices are stablising in an upwardly direction, indicating the market is feeling a little better about things.

House prices are still falling though, estate agents are selling less than one house a week on average and the gap between asking price and offer prices is widening by the minute. Confidence is going to take a long, long time to get back into market and the effects of the slowdown thus far have only just begun to be felt.