And good trade bodies should be able to draw not only on past national instances but also draw more widely on global experience – I wonder how many people have been feverishly swotting up on the South American debt problems, the Russian banking crises and those in Japan recently. I know the Treasury has sought inspiration in the Swedish experience.
We are often so focused on the experience of US markets that we run the risk of ignoring or underestimating equally valid models from different parts of the world.
The so-called conservatorship of Fannie Mae and Freddie Mac, together with the latest, welcome, bold gesture from US Treasury secretary Henry Paulson does not equate to President Roosevelt’s New Deal but it’s the closest thing we’ve seen so far. And this time the New Deal isn’t just about the US, but will require concerted action across the G7 nations.
I make the point about the need to study history because of the different analyses that have been presented to me as I have discussed the market’s travails with policy makers, politicians, civil servants and regulators in the past few months.
Let me be clear – I have been backing the interventionist horse from the beginning, not because I am that way inclined normally but because I agree with the head of Deutsche Bank when he said “the market has lost the power to heal itself”.
The root of the problem has always been confidence. Banks have no confidence in each other, the ratings agencies or their own numbers. When you can trust nobody else, you must trust the government to intervene – what other role does it have?
In this turbulent period’s early days I was assured we weren’t going through a housing market bubble. It was true that the market had become overheated but the economic models suggested that having gently overheated, the market would gently cool down again. Ah, the beatific nature of markets.
The next model I heard of was the one-way pendulum. Having swung up as the market overheated, the pendulum would swing down, coming to rest at the centre point. I was not impressed by this notion as it seemed to me that pendulums swing up and then back the other way before coming to rest – students of philosophy, physics and history, if not financial services economics, will recall Foucault’s famous pendulum.
The current illustration given as a reason not to intervene is that of a forest fire. The argument is poetic and sounds reasonable – forest fires are cleansing. They clear away dead wood and allow for new growth. They are part of nature in the same way as markets have their natural rhythms.
This is fine unless you have ever been to Easter Island and seen what a vista without trees looks like. And this is not a fire, it’s a firestorm.
So I am pro-intervention because, as Paulson has said: “It’s better than the alternative.”
AMI has been in regular dialogue with representatives of the Bank of England, the Treasury, the Financial Services Authority and politicians across the spectrum. We have had meetings with Sir James Crosby and his team as we put forward our solutions to the crunch and ideas on bringing about the confidence from which all else can flow.
We have done this to help our members and the wider mortgage community because it is impossible for any part of this industry to do well without the others.
Consumers want mortgage advice. The exceptionally high levels of first-time buyers and those seeking remortgage deals visiting brokers dispel any illusions that consumers don’t want to speak to someone who is genuinely on their side.
Brokers want to deal with lenders that are willing to offer reasonable terms and develop strategic partnerships. I also know lenders want to ensure they are lending responsibly, with the right credit profile for the right risk-adjusted rate. So for me, the mortgage market is a triangle, and this triangle works best as an equilateral one. In fact, to try to reshape it could negatively affect the whole industry.
While nobody is suggesting the market will return to its overheated heights, demand will return so lending and in-termediation must support each other if consumers are to be best served.
It it is the role of trade bodies to offer timely prompts and the secret is in getting the timing right. As Prime Minister Harold Wilson once said: “Kind Canute would have been more successful if he’d waited for the tide to go out.”