Stacy Herbert spoke to Professor Steve Keen while he was in London. He officially declared George Osborne’s ‘Help to Buy’ scheme a PONZI, and one which should be more accurately named ‘Help to sell’!
Read more at http://www.maxkeiser.com/#2uVRUOUrrzeVurO2.99
Published on Jun 15, 2013
A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors. These schemes usually collapse on themselves when the new investments stop.
The Ponzi scam is named after Charles Ponzi, a clerk in Boston who first orchestrated such a scheme in 1919.
A Ponzi scheme is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers. One difference between the two schemes is that the Ponzi mastermind gathers all relevant funds from new investors and then distributes them. Pyramid schemes, on the other hand, allow each investor to directly benefit depending on how many new investors are recruited. In this case, the person on the top of the pyramid does not at any point have access to all the money in the system.
For both schemes, however, eventually there isn’t enough money to go around and the schemes unravel.
George Osborne’s scheme to boost the housing market through state mortgage subsidies has been dubbed one of the “most stupid economic ideas” of the past 30 years by a leading City commentator.
Albert Edwards, who heads the global strategy team at Société Générale said the chancellor’s flagship Help to Buy programme was artificially inflating property prices and driving young people deeper into “indentured servitude”.
The chancellor said in the budget that the government would provide lenders with a guarantee of up to 20% of a mortgage in an attempt to provide potential buyers with a big enough deposit to purchase a home. If a borrower defaults on a loan, the taxpayer will be liable for a share of the losses.
Edwards – a high profile City strategist renowned as a market doomsayer – said the scheme was artificially propping up the market and preventing prices correcting to affordable levels. First-time buyers need cheaper homes, not greater availably of debt to inflate house prices even further, Edwards said. “This is madness.”
He added that house prices were still overvalued despite Britain being at the epicentre of the global credit crisis and remaining in the “icy grip of private sector deleveraging”. In other countries, such as the US, house prices were now cheap.
“Young people today haven’t got a chance of buying a house at a reasonable price, even with rock bottom interest rates. The Nationwide Building Society data shows that the average first-time buyer in London is paying over 50% of their take home pay in mortgage repayments – and that is when interest rates are close to zero.”
In a research note, Edwards said it made him “genuinely really angry” that burdening young people struggling to pay off student loans with more debt was seen as the solution to the problem of excessively expensive housing.
“Why are houses too expensive in the UK? Too much debt. So what is George Osborne’s solution for first-time buyers unable to afford housing? Why, arrange for a government-guaranteed scheme to burden our young people with even more debt! Why don’t we call this policy by the name it really is, namely the indentured servitude of our young people.
“I believe it truly is a moronic policy that stands head and shoulders above most of the stupid economic policies I have seen implemented during my 30 years in this business. It ranks above some of Alan Greenspan’s very worst blunders”….
The International Monetary Fund has also warned that the plan would fail to improve access to housing while the Treasury Select Committee and Office for Budget responsibility have warned it is likely to drive up house prices.
The stated aim of ‘Help to Buy’ is to assist first-time buyers but as Albert Edwards indicates, it has no such likely outcome. And anyway, ordinary commonsense would say that in a housing crisis, the solution is to build affordable homes… and to bring in rent controls.
This scheme is another one of George Osborne’s ‘brilliant’ re-election ploys .. the purpose of which is to persuade UK property owners.. in readiness for the GE 2015… that the economy is ‘healing’ because house prices are going up (until that is, the bubble bursts). As a corollary, the banks will profit nicely.. all the new mortgage debt will boost speculation in the financial markets and any ‘losses’ from mortgage defaults will be picked up by the tax-payer not the banks.. Wealth will yet again be redistributed upward … from the poorest home buyer to the richest; from the young to the old; from the ordinary tax-payer to ‘bail-out’ the banks’ losses.
There really seem to be no bounds to the contempt with which this government holds the electorate … as Think Left described in George Osborne, leader of the Wrecking Crew mk2
It is clear to me that the British government and the US governments (and many state governments in the US) are no longer serving public interest. They are punishing innocent and disadvantaged citizens to satisfy the ideological (religious) beliefs of a monied elite.