Sunday, 22 March 2009

Gordon Brown - not a banker

The title is a bit direct, and i have gone a bit off piste but i think i can relate it to the general themes in the blog. Consumer behaviour.

Gordon Brown is concerned about regulation of mortgage providers - good. He has expressed a view that in future they limit borrowers to three times salary - bad. Stupid idea, too late.

Free markets tend to be more efficient, this recession is a painful adjustment. But it is a bit late to interfere. The horse has bolted, gone 300 miles down the road, turned into a soap factory and has gone a bit Shergar.

If you create rules then people readjust their behaviour accordingly (Goodhart the deputy governor of the Bank of England pointed this out in the 1990's). What will householders do if we we limit them to three times salary? Panic or get poorer. Everyone remortgaging will be at the mercy of the lenders, paying higher rates because they cant get a mortgage. More people will try to sell find they can't. Result house prices go down further.

It is a bit late but if the banks had been regulated in the same we restricted householders (don't lend more than 4 times income or assets) much of this would not have happened. We all knew house prices were too high in 2003 and 2004, what we did not know was the banks would lend recklessly.

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United Kingdom
Just curious about marketing, psychology, economics, business, irrational behaviour, people, models, communications, advertising, market imperfections, b2b marketing. I work in the marketing communications industry for OgilvyOne.