Brown, building societies and the three-way split

I loved the Council of Mortgage Lenders’ lunch in London last Friday. The numbers were down by half but it was none the worse for that.

I mean it was easy to find the people you wanted to meet and it was good to see some of the specialist lenders like Michael Bolton and Trevor Pothecary returning to the table having reinvented themselves in the changing market.

The gossip was interesting too and the CML chairman’s speech delivered by Matthew Wyles was an absolute hooch with his adlibbing on a document obviously prepared for a press release delightfully undisguised.

True, his delivery was slightly bizarre – Wyles was once an aspiring opera singer and didn’t need the PA turned up quite so high but nobody was unduly upset.

That’s because CML director general Michael Coogan had set an end of term mood with the announcement that there was to be no political speaker or a lecture from the Financial Services Authority.

As for the gossip, the building societies were conspicuous by their absence, that’s apart from Nationwide of which Wyles is Group distribution director and which sponsored a number of tables.

Anyhow, as someone on my table remarked, Nationwide is bigger than all the other building societies combined, so in percentage terms the sector was well represented.

The truth is that there was a certain amount of Schadenfreude about the recent demise of the Dunfermline, not because there was any pleasure in seeing yet another mortgage lender hit the dust, but because the mutuals had made such a song on dance about the fate of those building societies that had become mortgage banks, the most notable sinners being Northern Rock, Bradford & Bingley, and Halifax.

And with Moody’s having recently downgraded the AAA ratings of the covered bonds that a number of building societies had deposited with the Bank of England under the Special Liquidity Scheme, the speculation was that there might be more casualties to come.

Subsequent reports over the weekend suggest that the authorities are out to avoid such an outcome and the seven societies affected by the downgrading may be able to offer mortgage assets other than covered bonds to meet the contractual terms of the scheme.

Such a development would also help other societies without covered bonds and therefore currently unable to access the scheme, to exchange some of their mortgage assets for cash.

It would seem that deposit dependent building societies are being squeezed by the FSA to improve their liquidity and strengthen their balance sheets, while the Bank’s base rate of just 0.5% is not only discouraging saving but also forcing depositors, such as pensioners, to withdraw their savings to make ends meet.

Just how the government expects building societies to increase their lending while the three entities that comprise the Tripartite Authorities move in different directions is difficult to comprehend.

The Prime Minister, of course, has adopted the borrow and spend economic of John Maynard Keynes who was a member of the effete Bloomsbury group who as legend has it loved in triangles and lived in squares.

Obviously Gordon Brown doesn’t hanker after a ménage à trois but he seems blind to the idea that two is company and three is a crowd. Thus he persists in regulating in a triangle, leaving everyone else with the impossible task of squaring the circle and that’s good for no one.