Osborne’s Housing Ponzi Scheme

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

Definition of ‘Ponzi Scheme’

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 Help to Buy scheme ‘a moronic policy’

 

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.

Larry Elliott

http://www.guardian.co.uk/business/2013/jun/04/george-osborne-help-to-buy-moronic

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 

As Professor Bill Mitchell writes:

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.  

6 thoughts on “Osborne’s Housing Ponzi Scheme

  1. Reblogged this on Vox Political and commented:
    Let’s give George Osborne’s ‘Help to Buy’ scheme another kicking: Think Left here takes the opportunity to analyse it, coming up with the inescapable conclusion that it’s a Ponzi scheme or – as readers may be more familiar with the idea – a pyramid scam.

  2. This is only one of many hair brained policies Osbourne is trying in a desparate attempt to get some movement into the economy before the election, regardless in this case of its obvious long-term dangers as explained above. For example, funding for lending gives £80bn for banks much of which will simply rechurn their loans with existing ‘reliable’ customers- i.e. a taxpayer payout to the rich for doing what they were doing already. Anything to avoid the obvious policy, now supported by the majority of economists, to invest in infrastucture such as social housing, but his ideological opposition to anything that could be called fiscal stimulus hamstrings him to use such ineffective and dysfunctional policies.

  3. Pingback: You Are In The Ponzi Scheme Whether You Realize It Or Not | Monty Pelerin’s World « Olduvaiblog: Musings on the coming collapse

  4. Pingback: Monopoly and the Landlords’ Game | Think Left

  5. Pingback: The Landlords’ Game and the Opportunists | Think Left

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