Thursday, October 09, 2008

Born In The Wrong Time

When Nicolas Sarkozy announced that one of his first reforms would be to remove the restrictions on Sunday trading which make a French Sunday so much like an English Sunday 50 - or even 30 years back, I thought that his government was going to follow in Margaret Thatcher's footsteps, liberalising and deregulating. Note that I do not necessarily think either of these are necessarily good in themselves. The Thatcher years were when our modern culture - or lack of - entrenched itself, and while this was by no means all her fault, the toxic synergy between her determination to win the economic war and her total defeat in the cultural war produced pretty much the British social landscape we see today. I'd hate to see France go the same way.

Another of Mrs Thatcher's reforms liberalised credit and started a thirty-year house price inflation, which has left us in a situation where someone on average earnings often can't afford to buy a house at all. Younger readers (are there any ?) may find this hard to believe, but before Mrs T, to get a mortgage from any financial institution you had to have been saving with them for several years, you needed at least 10% of the value, and the mortgage was restricted to, at the very most, three and a half times earnings. One person's earnings. The process was, fiscally and morally, conservative.

If this is true, the crash has intervened to save Sarkozy from producing his very own French version of the sub-prime mortgage debacle.

Sarkozy, 2007 :

"French households today have fewer debts than any other nation of Europe. Now, an economy that does not have sufficient debts is an economy that does not believe in the future, that has doubts about its abilities, that is afraid of tomorrow. For this reason I hope to develop mortgage credits for families and to ensure that the State intervenes to guarantee access to credit for sick people. I propose that those whose salaries are modest be permitted to guarantee their loan through the value of their home.

We must reform mortgage credits. If mortgages were easier to obtain, banks would focus less on the ability of the person to pay back his loan and more on the value of the property mortgaged. This would benefit directly all those whose revenues fluctuate, such as temporary employees and a great number of independent workers."

As Anne Kling, the source for this story, puts it :

"VoilĂ  l’exacte description du processus qui a conduit nos chers amis amĂ©ricains au fond du gouffre financier" - which I loosely translate as "that's exactly how the Septics ended up in the merde".

I wonder what other toxic ideas are whirling round the Sarkozy cranium ? Can't he just stick to, in the immortal words of Jackie Ashley, trotting beside his delightful wife "with the dazed-codfish expression of a man who's just swallowed a suitcase of happy pills" ?



TDK said...

Margaret Thatcher had two motivations for liberalising credit.

1. There was a recognition that voters divided on the issue of self help vs welfare. Owning a house was a pretty good measure of responsibility, which in turn was a good marker for voting conservative.

I think that was a worthy objective even if we accept that it was a cause of the present crash.

2. More money supply meant a booming economy which meant jobs.

There's no doubt that the second was continued by all governments.

A false boom is great while the bubble rises. Everyone seems to do well and it's easy to ignore the few who say it will end badly. That hubris is part of human nature and we can see the same behaviour in the 1929 crash and in the South Sea Bubble. What government would knowingly restrict credit knowing that such an action would burst the bubble. Far better to pretend that it can rise forever.

Sure easy credit was foolish in late 2007 but was it so foolish in 1980? Couldn't someone have done something in 1992 or 1997 or 2004?

It disturbs me to see so many people focus on a narrow part of the picture.

Shuggy said...

You're kind of repeating the idea oft heard that the right won the economic argument and the left the social argument. This isn't quite right: individualism won them both. Understood this way, I don't think you can treat Thatcherism and the sort of Thatcherism of the soul that you dislike so much as co-incidental. Wasn't her fault? I would be so sure, if I were you.