Support mortgage lenders to keep borrowers in indentured servitude?

April 3rd, 2008

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Last week, there was an article in the mainstream news media, Call to support mortgage lenders,

THE global credit crunch is destroying competition in the home-lending market, leading to the threat of permanently higher mortgage rates.

The warning comes from two leading economists, who are calling on the Rudd Government to establish a scheme similar to those operating in the US and Canada, under which it would use its AAA credit rating to bolster the funds available for home lending, helping to keep small operators in business.

So, these ‘leading’ economists are asking the government to get into the landlord business? By reviving the shadow banking system that way (see Rising price of money through the demise of ?shadow? banking system), they hope to re-introduce ‘competition’ into the mortgage industry to lower mortgage rates.

These economists do not understand the concept of competition. In the real economy, competition means utilising scarce resources in a more efficient way to produce more, create new products or make better products. But for the mortgage industry where the product is credit, how can the idea of ‘competition’ be applied when the product (money and credit) can be created limitlessly out of thin air by the government (central bank) and financial system?

Mortgage rates have to rise for a good reason. Money had been too cheap for too long, and this is the primary reason why there are so many bad debts in the global financial system as far too many gorged on debt that they cannot really repay. Rising mortgage rates is just a reversion to what should have been long time ago. Supporting mortgage lenders will not solve the problems of scarcity in the real world- it will merely lead more people into indentured servitude.

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