First, this detailed account of the utter chaos of Europe in the face
of ‘fringe’ countries stepping out of line and wrecking any co-
ordinated response is chilling.
Then Jeff Randall examines how Gordon Brown got us into this hole.
Then some other headlines today
XXXXXXXXXXXXX CS
=====
THE TIMES 3.10.08
European bank rescue plan in tatters amid savings stampede.
Patrick Hosking
Plans for a pan-European response to the global financial crisis lay
in tatters last night as Greece followed Ireland in unilaterally
guaranteeing all bank deposits.
Amid reports that Greek depositors were rushing to withdraw their
savings, Greece's Cabinet agreed to protect all deposits whatever
their size. Previously the maximum guaranteed was €20,000 (£15,600).
A proposal by President Sarkozy of France to create a European €300
billion bailout fund also collapsed, leaving attempts on this side of
the Atlantic to calm investor panic and lubricate the money markets
in chaos.
America's rejigged $700billion bank bailout still hangs in the
balance, awaiting the approval of Congress today. But after days in
which the surprises sprung by European governments had succeeded only
in angering each other, the chances of a parallel joint plan from EU
nations are, for now, slim to non-existent.
The latest chapter in the story of this piecemeal approach to
stabilising the banking system began on Monday evening, when a group
of Ireland's most senior bankers trooped into Government Buildings in
Dublin.
It had been a terrible day in markets worldwide and a catastrophic
one locally. One bank, Anglo Irish, had seen its shares plummet by 46
per cent. There were rumours of large depositors demanding their
money, including one German customer wanting an immediate
€1.5billion. Then came the horrendous news that Congress had rejected
the US bailout plan.
The shaken Irish bankers were grave as they poured out their story to
the Taoiseach, Brian Cowen, and the Finance Minister, Brian Lenihan.
Liquidity was drying up, they said, other banks were refusing to lend
to them except for the shortest periods. According to one source:
“They basically said, ‘Look, tomorrow two of our banks won't survive'.”
Thus began the hatching of the explosive plan for a guarantee of all
Irish bank deposits. Irish officials worked through the night to
cobble together a credible plan.
There was no time to consult other governments, the European
Commission or even the European Central Bank. A guarantee had to be
in place before ordinary bank branches opened on Tuesday. At 4.15am
the plan was completed. The promise would apply to six home-grown
banks, and to no one else.
A couple of hours later Alistair Darling rose from his slumbers to be
told the bad news. The Chancellor had for once had a full night's
sleep, having spent most of the weekend stitching together the
Bradford & Bingley deal.
Mr Darling immediately spoke by phone to Mr Lenihan. Why hadn't he
been told? Why was there no consultation with other EU states? Mr
Lehinan explained that there had been no time.
In Paris, President Sarkozy was already awake and grappling with his
own crisis. Dexia, the Franco-Belgian bank, was in desperate trouble
and short of liquidity after a 28 per cent plunge in its shares on
Monday.
A limousine whisked him to the Élysée Palace, where François Fillon,
the Prime Minister, was on the telephone to Yves Leterme, his Belgian
counterpart.
The previous day, Mr Leterme had given his backing to the partial
nationalisation of Fortis, the Benelux bank, for €11.2 billion. He
had no trouble convincing French leaders that they should now help
him to salvage Dexia. Mr Sarkozy and Mr Leterme both agreed to chip
in €3 billion, and Jean-Claude Juncker, the Luxembourg Prime
Minister, contributed €376 million. The deal was cemented while the
croissants were still warm.
The rescue helped to reinforce Mr Sarkozy's belief that Europe-wide
action was needed. A banking watchdog, curbs on executives' and
traders' pay and a change to accountancy rules for financial
institutions were among his ideas. He was warming too to the idea of
a European bank rescue fund - an idea first floated by JanPeter
Balkenende, the Dutch Prime Minister, who suggested that each EU
state should contribute 3 per cent of its national wealth.
Back in London, share markets were stabilising after the horrors of
Monday, but not for HBOS and its prospective rescuer Lloyds TSB,
whose shares were plunging on growing fears that Lloyds shareholders
would not support the deal on its current terms. Any failure to
complete it could be disastrous for HBOS, whose shares had collapsed
just before the Lloyds rescue on fears that, alone, it would suffer
funding problems and a possible run.
A run of that magnitude would be unthinkable for Britain and deeply
damaging personally for Gordon Brown, who two weeks earlier took the
axe to normal anti-monopoly rules to wave through the deal.
Meanwhile Dublin's move was having awkward consequences. Depositors
on both sides of the Irish Sea were beginning to vote with their
feet. Allied Irish Bank reported a surge in new deposits, as did Bank
of Ireland, as anxious savers rushed to pull their money from British-
owned banks and put it in the six favoured institutions with a rock-
solid guarantee.
British bank leaders were furious. Dublin's move might be good for
Irish banks but it was bad for British ones, for whom deposits were
lifeblood in such difficult conditions. By Tuesday evening, several
banking leaders were putting their concerns directly to Mr Brown, Mr
Darling and Mervyn King, Governor of the Bank of England, in a
conference call.
The freezing of the money markets was still worsening in spite of
hopes that a revamped US bailout plan could be passed. They asked for
more liquidity. Specifically they wanted the Bank of England to relax
the rules of its Special Liquidity Scheme (SLS), a mechanism that is
already thought to have injected more than £100 billion into the
banking system.
Mr Brown refused to follow Dublin's lead in guaranteeing all deposits.
By Wednesday, the fury over Ireland's unilateral guarantee was
hardening in the City and across Europe. British banks were
incandescent with their Irish counterparts, whom they accused of
having deliberately exploited the situation to ring up corporate
depositors and urge them to defect to “safer” Irish banks.
The case for an ambitious, co-ordinated response across Europe seemed
stronger than ever to some on the Continent. That evening one
European government source disclosed that France wanted Britain,
Germany and Italy to back a €300 billion bank rescue fund at Mr
Sarkozy's planned summit this weekend.
Within minutes, however, a German government spokesman bluntly
rejected the idea in comments echoed by Angela Merkel. Confusion set
in as French officials accused Germany of leaking the scheme to kill
it off.
By late Wednesday evening French officials were changing tack to
describe the €300billion fund as a Dutch idea, which they had always
rejected. The Hague said it had no idea what France was talking about
The Élysée announced that a meeting between Mr Sarkozy and Mr
Balkenende, due that evening, had been postponed for a day because
the Dutch Prime Minister “has a problem with his airplane”. [ ! ]
By yesterday lunchtime, Hendrieneke Bolhaar, a Dutch finance ministry
spokesman, said that the idea for a bank rescue fund had come from
The Hague after all.
But farce then took over as Mr Balkenende emerged from his meeting
with Mr Sarkozy - held after his aircraft started working again - to
slap down the spokesman. There has “never been any question of a
European fund”. It is all a “misunderstanding”, he said.
Instead, taking up a concept first mooted by Mr Balkenende, Mr
Sarkozy is expected to float the idea that each EU country
demonstrate that it has at least 3 per cent of its GDP at its
disposal to help out in a financial crisis.
One EU diplomat told The Times that early French thinking on co-
ordinated national funds had probably been mistakenly conflated into
the idea of an EU fund, given that 3 per cent of EU GDP amounts to
around €300 billion.
With the fund off the agenda, Mr Sarkozy finally persuaded Mr Brown
and Mrs Merkel to meet him, Silvio Berlusconi, Mr Juncker, José
Manuel Barroso, the European Commission chairman, and Jean-Louis
Trichet, the chairman of the European Central Bank, in Paris on
Saturday afternoon.
The official aim is merely to agree on a European plan for tighter
investment bank regulation to put to the next G8 summit. Unoffically,
Mr Sarkozy would also like a decision on a EU response to the crisis
and at the very least an agreement not to follow Ireland's - and now
Greece's - go-it-alone example.
But there has been little this week by the way of co-ordination to
suggest that the plan has a chance.
-----------------------------
Additional reporting by Adam Sage, Francis Elliott, David Sharrock
and David Charter
=========================
TELEGRAPH 3.10.08
The roof was bound to fall in on Labour's housing market.
Jeff Randall argues that Gordon Brown's record will be different from
the Tories' of the early 1990s only in that, for many victims, the
pain will be greater.
"Homeowners rightly expect their investment to be protected by
sensible policies's I am determined that, as a country, we never
return to the instability, speculation, and negative equity that
characterised the housing market in the 1980s and 1990s.'' Gordon
Brown's Budget speech, July 1997
Crash! Another of the Prime Minister's plates has just spun off its
stick. British house prices fell for the 11th consecutive month in
September. The average home lost 1·7 per cent of its value last
month, according to the Nationwide building society, leaving prices
12·4 per cent lower than they were one year ago.
After a decade of wild speculation – the buy-to-let frenzy was little
more than a huge bet on ever-rising values – the property market is
less stable than a house built on sand. Worse still, many homeowners
are being plunged into negative equity, especially first-timers who
bought in the past two years.
To say that it's all going horribly wrong understates by the length
of Downing Street the extent to which Labour is presiding over chaos.
The next phase of Mr Brown's bust will be a fresh spate of defaults,
bankruptcies and home repossessions. At this rate, his record will be
different from the Conservatives' of the early 1990s only in that,
for many victims, the pain will be greater.
Two months after Labour swept to office in 1997, a confident
Chancellor told a credulous country: "Volatility is damaging both to
the housing market and to the economy's stability will be central to
our policy to help homeowners. And we must be prepared to take the
action necessary to secure it."
Little did we know how such an empty promise would reveal his
fundamental misunderstanding of market forces. Almost from day one,
they contrived to highlight his impotence. The trouble was, while
house prices were rising sharply in the early years of the Blair-
Brown regime, very few seemed to care.
By 2004, however, even Mr Brown had worked out that there was a
potential downside to a property market going up like a hot-air
balloon. All that guff about safeguarding stability was in danger of
backfiring.
Having unleashed a torrent of cheap debt and a culture of reckless
borrowing, something had to be done. There was an opportunity for the
then chancellor to appear in control. He looked for a whiz-bang idea
and came up with the National Housing and Planning Advice Unit
(NHPAU). Crackerjack, eh?
As if we did not have enough quangos and advisory bodies clogging the
body politic and draining the taxpayer, the purpose of Mr Brown's
exciting new venture would be "to provide independent advice on
affordability matters to the Government".
A reasonable man would have spotted the catch: here was another state-
funded think tank whose only goal was to offer the Government
evidential fig-leaves to cover conclusions that it had already
reached. But so inured had most of the electorate become to Labour's
proliferation of politicised consultancies that it was hard to see
the dead wood for the sleaze.
Anyway, with house prices defying gravity, a reasonable man was hard
to find. Those who warned that a crash was inevitable were dismissed
as the commentariat's version of nutty doomsayers with cardboard
placards proclaiming "The End is Nigh". The world, it seemed, was
full of experts, eager to explain why this time it would be
different. By early 2006, average house prices had reached about
£200,000. At the same time, average salaries were roughly £25,000.
It was clear to anyone who could count beyond five without using
fingers that this chronic imbalance – a ratio of eight to one – was
unsustainable. It would need only a small increase in the cost of
money or unemployment for the roof to fall in. Never mind, most
ministers, with their visceral hatred for voters who live beyond
Labour's urban heartlands, couldn't wait to have a crack at the
"housing crisis". And we knew what that meant: crashing through
pledges to protect the green belt in favour of new estates of
"affordable" units.
Skipping over the fact that the Government had encouraged an
explosion in immigration, which exacerbated spiralling property
prices, Downing Street seemed delighted to learn from its house-
trained advisory unit, NHPAU, that a building blitz was required.
Last June, just 15 months ago, NHPAU made an astonishing prediction:
United Kingdom house prices could rise to the equivalent of 10 times
average salaries by 2026. It's impossible to know where wage levels
will be in 18 years, but even if they grew at only 1 per cent a year,
that would put the average salary at about £30,000 and therefore,
according to NHPAU, the average house price at £300,000.
Did such an outcome ever seem likely to you? Of course not. And the
reason is that it's an economic absurdity. With advisers like these,
who needs pin-stickers? Only three months after NHPAU's dire warning,
its crystal ball was smashed by the credit crunch. Northern Rock, the
mortgage lender that behaved more irresponsibly than most, crumbled.
Since when, a poisonous cocktail of rising taxes, higher fuel and
food bills, and a collapse in the availability of mortgages has been
addressing the problem that Mr Brown was so keen to solve. The gap
between house prices and income is shrivelling. Unfortunately for the
Prime Minister, confidence is so low that even those who can secure
funding are reluctant to buy.
During the summer, the number of homes on the market for every buyer
rose to 15, more than double the ratio in June 2007. Conditions have
since deteriorated, leaving many estate agents facing the chop.
In some areas, the market has ground to a halt. This sclerosis will
continue until sellers capitulate and slash prices further. It's a
return to affordability, but not as we know it.
At the nadir of the 1990s slump, house prices fell 10·7 per cent in
one year. The current "correction" has already zipped past that and
there is worse to come. "We are only in the initial stages of what is
likely to be a severe economic downturn," says Capital Economics, a
forecasting group.
Along with "no return to boom and bust" and "British jobs for British
workers", let us add to Mr Brown's list of boomerang boasts an
outrageous one-liner from his first Budget: "I will not allow house
prices to get out of control." That one has just whacked him on the
back of the head.
The property market went completely out of control on the way up, and
is about to do the same on the way down. As it shatters on re-entry
to economic reality, the debris will bury Labour's hopes for a fourth
term. The house that Tony and Gordon built will be crushed by falling
prices.
=========================
OTHER HEADLINES ---
Times
Panicked shoppers send John Lewis sales diving.
Department store group reports one of the year's worst weeks as
customers feel the pinch in face of global bank crisis.
UBS axes commodities arm and culls 2,000 jobs.
The Swiss bank has confirmed job cuts at its investment banking
division i
----------------------
Telegraph
Building societies demand action from Gordon Brown over savings.
Building societies have demanded "urgent" action by the Government to
restore a "level playing field" in the savings market after Ireland
guaranteed the deposits of six national lenders.
--------------------
Financial Times
France poised for recession.
France will report a contraction in the next two quarters as a weaker
job market curbs consumption and exports flag, forecasts from
national statistics office INSEE showed, flagging the arrival of
recession.
Brown attacks Irish banks over guarantee.
The UK prime minister has piled pressure on Ireland to stop banks
using a new €400bn government guarantee to poach business from
British rivals, amid signs that it could trigger a flight of funds
across the Irish Sea.
THE TIMES 3.10.08
European bank rescue plan in tatters amid savings stampede.
Patrick Hosking
Plans for a pan-European response to the global financial crisis lay
in tatters last night as Greece followed Ireland in unilaterally
guaranteeing all bank deposits.
Amid reports that Greek depositors were rushing to withdraw their
savings, Greece's Cabinet agreed to protect all deposits whatever
their size. Previously the maximum guaranteed was €20,000 (£15,600).
A proposal by President Sarkozy of France to create a European €300
billion bailout fund also collapsed, leaving attempts on this side of
the Atlantic to calm investor panic and lubricate the money markets
in chaos.
America's rejigged $700billion bank bailout still hangs in the
balance, awaiting the approval of Congress today. But after days in
which the surprises sprung by European governments had succeeded only
in angering each other, the chances of a parallel joint plan from EU
nations are, for now, slim to non-existent.
The latest chapter in the story of this piecemeal approach to
stabilising the banking system began on Monday evening, when a group
of Ireland's most senior bankers trooped into Government Buildings in
Dublin.
It had been a terrible day in markets worldwide and a catastrophic
one locally. One bank, Anglo Irish, had seen its shares plummet by 46
per cent. There were rumours of large depositors demanding their
money, including one German customer wanting an immediate
€1.5billion. Then came the horrendous news that Congress had rejected
the US bailout plan.
The shaken Irish bankers were grave as they poured out their story to
the Taoiseach, Brian Cowen, and the Finance Minister, Brian Lenihan.
Liquidity was drying up, they said, other banks were refusing to lend
to them except for the shortest periods. According to one source:
“They basically said, ‘Look, tomorrow two of our banks won't survive'.”
Thus began the hatching of the explosive plan for a guarantee of all
Irish bank deposits. Irish officials worked through the night to
cobble together a credible plan.
There was no time to consult other governments, the European
Commission or even the European Central Bank. A guarantee had to be
in place before ordinary bank branches opened on Tuesday. At 4.15am
the plan was completed. The promise would apply to six home-grown
banks, and to no one else.
A couple of hours later Alistair Darling rose from his slumbers to be
told the bad news. The Chancellor had for once had a full night's
sleep, having spent most of the weekend stitching together the
Bradford & Bingley deal.
Mr Darling immediately spoke by phone to Mr Lenihan. Why hadn't he
been told? Why was there no consultation with other EU states? Mr
Lehinan explained that there had been no time.
In Paris, President Sarkozy was already awake and grappling with his
own crisis. Dexia, the Franco-Belgian bank, was in desperate trouble
and short of liquidity after a 28 per cent plunge in its shares on
Monday.
A limousine whisked him to the Élysée Palace, where François Fillon,
the Prime Minister, was on the telephone to Yves Leterme, his Belgian
counterpart.
The previous day, Mr Leterme had given his backing to the partial
nationalisation of Fortis, the Benelux bank, for €11.2 billion. He
had no trouble convincing French leaders that they should now help
him to salvage Dexia. Mr Sarkozy and Mr Leterme both agreed to chip
in €3 billion, and Jean-Claude Juncker, the Luxembourg Prime
Minister, contributed €376 million. The deal was cemented while the
croissants were still warm.
The rescue helped to reinforce Mr Sarkozy's belief that Europe-wide
action was needed. A banking watchdog, curbs on executives' and
traders' pay and a change to accountancy rules for financial
institutions were among his ideas. He was warming too to the idea of
a European bank rescue fund - an idea first floated by JanPeter
Balkenende, the Dutch Prime Minister, who suggested that each EU
state should contribute 3 per cent of its national wealth.
Back in London, share markets were stabilising after the horrors of
Monday, but not for HBOS and its prospective rescuer Lloyds TSB,
whose shares were plunging on growing fears that Lloyds shareholders
would not support the deal on its current terms. Any failure to
complete it could be disastrous for HBOS, whose shares had collapsed
just before the Lloyds rescue on fears that, alone, it would suffer
funding problems and a possible run.
A run of that magnitude would be unthinkable for Britain and deeply
damaging personally for Gordon Brown, who two weeks earlier took the
axe to normal anti-monopoly rules to wave through the deal.
Meanwhile Dublin's move was having awkward consequences. Depositors
on both sides of the Irish Sea were beginning to vote with their
feet. Allied Irish Bank reported a surge in new deposits, as did Bank
of Ireland, as anxious savers rushed to pull their money from British-
owned banks and put it in the six favoured institutions with a rock-
solid guarantee.
British bank leaders were furious. Dublin's move might be good for
Irish banks but it was bad for British ones, for whom deposits were
lifeblood in such difficult conditions. By Tuesday evening, several
banking leaders were putting their concerns directly to Mr Brown, Mr
Darling and Mervyn King, Governor of the Bank of England, in a
conference call.
The freezing of the money markets was still worsening in spite of
hopes that a revamped US bailout plan could be passed. They asked for
more liquidity. Specifically they wanted the Bank of England to relax
the rules of its Special Liquidity Scheme (SLS), a mechanism that is
already thought to have injected more than £100 billion into the
banking system.
Mr Brown refused to follow Dublin's lead in guaranteeing all deposits.
By Wednesday, the fury over Ireland's unilateral guarantee was
hardening in the City and across Europe. British banks were
incandescent with their Irish counterparts, whom they accused of
having deliberately exploited the situation to ring up corporate
depositors and urge them to defect to “safer” Irish banks.
The case for an ambitious, co-ordinated response across Europe seemed
stronger than ever to some on the Continent. That evening one
European government source disclosed that France wanted Britain,
Germany and Italy to back a €300 billion bank rescue fund at Mr
Sarkozy's planned summit this weekend.
Within minutes, however, a German government spokesman bluntly
rejected the idea in comments echoed by Angela Merkel. Confusion set
in as French officials accused Germany of leaking the scheme to kill
it off.
By late Wednesday evening French officials were changing tack to
describe the €300billion fund as a Dutch idea, which they had always
rejected. The Hague said it had no idea what France was talking about
The Élysée announced that a meeting between Mr Sarkozy and Mr
Balkenende, due that evening, had been postponed for a day because
the Dutch Prime Minister “has a problem with his airplane”. [ ! ]
By yesterday lunchtime, Hendrieneke Bolhaar, a Dutch finance ministry
spokesman, said that the idea for a bank rescue fund had come from
The Hague after all.
But farce then took over as Mr Balkenende emerged from his meeting
with Mr Sarkozy - held after his aircraft started working again - to
slap down the spokesman. There has “never been any question of a
European fund”. It is all a “misunderstanding”, he said.
Instead, taking up a concept first mooted by Mr Balkenende, Mr
Sarkozy is expected to float the idea that each EU country
demonstrate that it has at least 3 per cent of its GDP at its
disposal to help out in a financial crisis.
One EU diplomat told The Times that early French thinking on co-
ordinated national funds had probably been mistakenly conflated into
the idea of an EU fund, given that 3 per cent of EU GDP amounts to
around €300 billion.
With the fund off the agenda, Mr Sarkozy finally persuaded Mr Brown
and Mrs Merkel to meet him, Silvio Berlusconi, Mr Juncker, José
Manuel Barroso, the European Commission chairman, and Jean-Louis
Trichet, the chairman of the European Central Bank, in Paris on
Saturday afternoon.
The official aim is merely to agree on a European plan for tighter
investment bank regulation to put to the next G8 summit. Unoffically,
Mr Sarkozy would also like a decision on a EU response to the crisis
and at the very least an agreement not to follow Ireland's - and now
Greece's - go-it-alone example.
But there has been little this week by the way of co-ordination to
suggest that the plan has a chance.
-----------------------------
Additional reporting by Adam Sage, Francis Elliott, David Sharrock
and David Charter
=========================
TELEGRAPH 3.10.08
The roof was bound to fall in on Labour's housing market.
Jeff Randall argues that Gordon Brown's record will be different from
the Tories' of the early 1990s only in that, for many victims, the
pain will be greater.
"Homeowners rightly expect their investment to be protected by
sensible policies's I am determined that, as a country, we never
return to the instability, speculation, and negative equity that
characterised the housing market in the 1980s and 1990s.'' Gordon
Brown's Budget speech, July 1997
Crash! Another of the Prime Minister's plates has just spun off its
stick. British house prices fell for the 11th consecutive month in
September. The average home lost 1·7 per cent of its value last
month, according to the Nationwide building society, leaving prices
12·4 per cent lower than they were one year ago.
After a decade of wild speculation – the buy-to-let frenzy was little
more than a huge bet on ever-rising values – the property market is
less stable than a house built on sand. Worse still, many homeowners
are being plunged into negative equity, especially first-timers who
bought in the past two years.
To say that it's all going horribly wrong understates by the length
of Downing Street the extent to which Labour is presiding over chaos.
The next phase of Mr Brown's bust will be a fresh spate of defaults,
bankruptcies and home repossessions. At this rate, his record will be
different from the Conservatives' of the early 1990s only in that,
for many victims, the pain will be greater.
Two months after Labour swept to office in 1997, a confident
Chancellor told a credulous country: "Volatility is damaging both to
the housing market and to the economy's stability will be central to
our policy to help homeowners. And we must be prepared to take the
action necessary to secure it."
Little did we know how such an empty promise would reveal his
fundamental misunderstanding of market forces. Almost from day one,
they contrived to highlight his impotence. The trouble was, while
house prices were rising sharply in the early years of the Blair-
Brown regime, very few seemed to care.
By 2004, however, even Mr Brown had worked out that there was a
potential downside to a property market going up like a hot-air
balloon. All that guff about safeguarding stability was in danger of
backfiring.
Having unleashed a torrent of cheap debt and a culture of reckless
borrowing, something had to be done. There was an opportunity for the
then chancellor to appear in control. He looked for a whiz-bang idea
and came up with the National Housing and Planning Advice Unit
(NHPAU). Crackerjack, eh?
As if we did not have enough quangos and advisory bodies clogging the
body politic and draining the taxpayer, the purpose of Mr Brown's
exciting new venture would be "to provide independent advice on
affordability matters to the Government".
A reasonable man would have spotted the catch: here was another state-
funded think tank whose only goal was to offer the Government
evidential fig-leaves to cover conclusions that it had already
reached. But so inured had most of the electorate become to Labour's
proliferation of politicised consultancies that it was hard to see
the dead wood for the sleaze.
Anyway, with house prices defying gravity, a reasonable man was hard
to find. Those who warned that a crash was inevitable were dismissed
as the commentariat's version of nutty doomsayers with cardboard
placards proclaiming "The End is Nigh". The world, it seemed, was
full of experts, eager to explain why this time it would be
different. By early 2006, average house prices had reached about
£200,000. At the same time, average salaries were roughly £25,000.
It was clear to anyone who could count beyond five without using
fingers that this chronic imbalance – a ratio of eight to one – was
unsustainable. It would need only a small increase in the cost of
money or unemployment for the roof to fall in. Never mind, most
ministers, with their visceral hatred for voters who live beyond
Labour's urban heartlands, couldn't wait to have a crack at the
"housing crisis". And we knew what that meant: crashing through
pledges to protect the green belt in favour of new estates of
"affordable" units.
Skipping over the fact that the Government had encouraged an
explosion in immigration, which exacerbated spiralling property
prices, Downing Street seemed delighted to learn from its house-
trained advisory unit, NHPAU, that a building blitz was required.
Last June, just 15 months ago, NHPAU made an astonishing prediction:
United Kingdom house prices could rise to the equivalent of 10 times
average salaries by 2026. It's impossible to know where wage levels
will be in 18 years, but even if they grew at only 1 per cent a year,
that would put the average salary at about £30,000 and therefore,
according to NHPAU, the average house price at £300,000.
Did such an outcome ever seem likely to you? Of course not. And the
reason is that it's an economic absurdity. With advisers like these,
who needs pin-stickers? Only three months after NHPAU's dire warning,
its crystal ball was smashed by the credit crunch. Northern Rock, the
mortgage lender that behaved more irresponsibly than most, crumbled.
Since when, a poisonous cocktail of rising taxes, higher fuel and
food bills, and a collapse in the availability of mortgages has been
addressing the problem that Mr Brown was so keen to solve. The gap
between house prices and income is shrivelling. Unfortunately for the
Prime Minister, confidence is so low that even those who can secure
funding are reluctant to buy.
During the summer, the number of homes on the market for every buyer
rose to 15, more than double the ratio in June 2007. Conditions have
since deteriorated, leaving many estate agents facing the chop.
In some areas, the market has ground to a halt. This sclerosis will
continue until sellers capitulate and slash prices further. It's a
return to affordability, but not as we know it.
At the nadir of the 1990s slump, house prices fell 10·7 per cent in
one year. The current "correction" has already zipped past that and
there is worse to come. "We are only in the initial stages of what is
likely to be a severe economic downturn," says Capital Economics, a
forecasting group.
Along with "no return to boom and bust" and "British jobs for British
workers", let us add to Mr Brown's list of boomerang boasts an
outrageous one-liner from his first Budget: "I will not allow house
prices to get out of control." That one has just whacked him on the
back of the head.
The property market went completely out of control on the way up, and
is about to do the same on the way down. As it shatters on re-entry
to economic reality, the debris will bury Labour's hopes for a fourth
term. The house that Tony and Gordon built will be crushed by falling
prices.
=========================
OTHER HEADLINES ---
Times
Panicked shoppers send John Lewis sales diving.
Department store group reports one of the year's worst weeks as
customers feel the pinch in face of global bank crisis.
UBS axes commodities arm and culls 2,000 jobs.
The Swiss bank has confirmed job cuts at its investment banking
division i
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Telegraph
Building societies demand action from Gordon Brown over savings.
Building societies have demanded "urgent" action by the Government to
restore a "level playing field" in the savings market after Ireland
guaranteed the deposits of six national lenders.
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Financial Times
France poised for recession.
France will report a contraction in the next two quarters as a weaker
job market curbs consumption and exports flag, forecasts from
national statistics office INSEE showed, flagging the arrival of
recession.
Brown attacks Irish banks over guarantee.
The UK prime minister has piled pressure on Ireland to stop banks
using a new €400bn government guarantee to poach business from
British rivals, amid signs that it could trigger a flight of funds
across the Irish Sea.
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