Should mortgage lenders be nationalised

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Jan Hoang Xuan A6

Should mortgage lenders be nationalised?

   Following recent disturbances in the world economy some governments came to a conclusion that it is in their duty to intervene and solve the growing problem. In this case – the problem of mortgage lenders. As with every action from government, it is important to assess whether there truly is a market failure or not. To begin with, a closer look at how this situation arose would be essential.

   Over recent years, the housing market not only in UK but around the world as well had been enjoying a period of prosperity. House prices were ridiculously high, though no one seemed to be bothered by that. Residential Mortgage Backed Securities (RMBS) played a key role in that, as this security type let a vast number of homebuyers to take loans. Investors thought that might just be a perfect opportunity to make some profit, so they also joined this house of madness by lending money to mortgagors through the banking system. However, nothing lasts forever. Investors realised that there is a risk of their money not being returned either on condition that banks and/or lenders fail, therefore they immediately left the market causing dry up of mortgage finances. So, there it is. This is where government ought to, in mortgage lenders’ opinion, step in, pump money and let the vicious cycle continue. Indeed, there is  a market failure. A failure that only government can solve. Should it though? Isn’t the true idea standing behind the capitalism to reward the hard-working, the smart and punish the lazy, the reckless? Why should the latter ones be protected? Why should tax payers money be spent in such a wasteful way? Nationalising UK’s Bradford & Bingley alone has already cost £150bn. In fact, only a small number of banks is to be blamed for this state of affairs to have taken place. Their irresponsible high stake risk taking actions led to a disaster that, now, they want all of us to bear the cost of. How unreasonable that must sound to a person who doesn’t even have a mortgage?

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   'We've had ten years of allowing banks to do what they wish really, to give them absolute freedom to lend.'

Alex Brummer, City editor, Mail on Sunday

   However, with nationalising it would be assured that Bank of England’s base rate is reinforced and has a real life implications, as it has been recently revealed that some mortgage providers do not cut their interest rates in line with the one set up by BoE. Moreover, it has been stated by government authorities and banks’ representatives on numerous occasions that improving access to capital is crucial to get the economy ...

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