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Mortgage Monopoly is the name of the game in 2009

Share prices picked up in the week following chancellor Alistair Darling’s pre-Budget report as did the value of sterling, but this probably owed more to the US bailout of troubled Citigroup on fairly relaxed terms and clarification of president-elect Barack Obama’s new Treasury team than our own chancellor’s borrow and spend gamble.

The pedigree of Obama’s team is impressive by any standards and it includes components of Bill Clinton’s Treasury team that put the US economy to rights twixt the ravages of Reagan-omics and the fiscal follies of George W Bush.

Timothy Geithner, who was under-secretary for international affairs in the Clinton administration, is to be Treasury secretary, Larry Summers, who was Clinton’s Treasury secretary, is to be chairman of the National Economic Council, and Paul Volcker, who as Federal Reserve chairman saw the US through the turbulence of the 1970s and 1980s, is to head the newly-created Economy Recovery Advisory Board.

So things are looking up then? Well, according to Anatole Kaletsky, writing in The Times on December 1, there are reasons to be optimistic, although what is happening in the US could be a false dawn.

He wrote: “The new economic team’s decision that the Fed could finance essentially the whole US mortgage and consumer credit market immediately triggered an unprecedented drop of up to a point in long-term mortgage rates to 5.5%.

“Just as importantly, the Fed’s willingness to offer an unlimited backstop to the mortgage market instantly increased the supply of new lending. Before the week was over, anecdotal evidence suggested a flood of new app-lications for mortgage refinancing, many of them including equity withdrawal some of which will doubtless flow into consumer spending.”

It is a relief to note this good news but it’s ironic that in the UK, where Prime Minister Gordon Brown is masterminding the global economic recovery, the recommendations of the Crosby report are unlikely to be implemented until the spring.

Equally grim is the prospect of entering 2009 with newly nationalised banks accounting for a mortgage market share of well over 50% and a Lending Panel in place (comprising representatives of the government, the regulators, the Bank of England, trade bodies, consumer groups and even some lenders) to monitor lending levels and the practices of banks and building societies.

This is unchartered territory and threatens a scenario in which trade associations such as the Council of Mortgage Lenders are effectively neut- ered and the government uses its economic as well as political clout to control the market.

We have some evidence of this happening already. The Royal Bank of Scotland, in which the government now has a 57% stake, has fallen in line with Darling’s wishes and promised not to repossess homes from the date at which customers start missing their repayments. That is in addition to a promise to maintain committed overdrafts to small businesses for at least a year and not to raise overdraft rates until the end of 2009.

Given that degree of leverage, it is not surprising that Messrs Brown and Darling don’t want to rescind on the Lloyds TSB/HBOS deal despite the fact that it breaks the monopoly rules and that it is now evident HBOS could have been rescued independently, thanks to the £37bn government bailout ann-ounced only days after Brown facilitated the demise of HBOS with his friend and chairman of Lloyds TSB, Sir Victor Blank.


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