And what caused this desensitisation? Well that is a question requiring a BIG answer that I am unqualified to pen.Neither am I. But having been involved in the property industry for 30 years it seems to me that the simple answer is greed.Although I’m the first to recognise that Margaret Thatcher did a great deal of good for the UK in economic terms I think it was she and her government who created the foundations for the present mess.Until then “high finance”, as it used to be known, was largely an old boys’ network. In the pre Big Bang days the people who ran the financial institutions were generally wealthy scions of the `old money’ families. They may not have been tremendously `dynamic’, but they didn’t really need to be, as they made a very good living out of fairly conservative lending.These conservative standards were then widely accepted as being correct, and they were generally shared by most members of the public. The prevailing ethos was still that if we wanted something we had to save for it; and the local branches of banks and building societies were generally run by people who had what would now, no doubt, be called a patronising attitude though the word paternalistic might be more accurate. These men (and invariably they were men) were generally well-known figures in the community, stalwarts of the Golf Club, Round Table, Rotary etc. Most importantly, they made the lending decisions on the basis of their knowledge and assessment of the customer. This was long before credit-scoring had been invented, but they knew the customer's background and often their family and knew that they would have to deal personally with the consequences if anything went wrong.So they made lending decisions based on the same principles, namely they only lent what they thought the borrower could afford. It was usually the case that the borrower would have to demonstrate their financial stability by saving a deposit with the lender before they could even apply for a mortgage.And for many years - many decades - this cautious approach worked fairly well.But then more or less at the time Margaret Thatcher came to power things began to change as mortgage lenders began to morph into the `financial services industry'. Insurance salesmen, who until now had been dull fellows who trudged the streets collecting shilling a week contributions, suddenly became masters of the universe, with companies like Allied Crowbar promising them huge earnings if they could persuade punters to part with their cash on a regular basis.Soon, it was this type of company that was making the rules, and greed began to be the driving force. The first dodgy device they came up with was the low cost endowment mortgage. Endowment mortgages had been around for some time, but in accordance with the ethos of the time the policies were guaranteed to pay out enough to redeem the mortgage in 25 years. But there was significant resistance at the coal face amongst borrowers. Because the insurance company had to guarantee that the policy would repay the mortgage they had to set the premiums high – far too high for most borrowers.And so the new financial wizards worked far into the night, mixing their deadly potions until they found the answer - the low cost endowment mortgage!Sheer brilliance! Now, the insurance company only had to promise that the policy would be enough to repay about a third of the mortgage debt. The rest would come from their amazing investment performance. By racking up the projections to perhaps 12% a year for 25 years these shiny new policies were pronounced just as good as the old fuddy duddy ones, and would not only repay the mortgage but leave you with a great big lump of cash as well.And all for half the price. So not only could you now get a mortgage that was cheaper than a repayment mortgage, you would be rich beyond the dreams of avarice at the rainbow’s end in 25 years.And the greed began to spread. Commission was paid not just to the salesman but now to the lenders as well, who in turn started leaning on their branch managers to `recommend' (aka sell) these policies. Gradually, as the greed grew, the branch managers began to be set targets for commission. The first conflicts of interest now began to arise, as although the manager might not like these mortgages he felt bound to recommend them. As the years went by his basic salary might remain virtually the same, so that like an addict being weaned onto hard drugs he gradually became more and more dependent on commission.Needless to say, the low cost endowment mortgages sold like hot cakes – by 1993 they accounted for two thirds of all mortgages. The commission payments soared and the profits of everyone involved soared with them. Everyone wanted a slice of the action, lenders bought insurers and insurers bought lenders in a veritable orgy of greed. Small building societies that were doing a perfectly good job in their local communities were gobbled up as `underperforming’ and turned into new sales outlets.And on the wave of this greed names that had been respected for decades as representing the virtues of `prudence’ (a sadly devalued word thanks to GB) were pimped around to the highest bidder. Worthy but `dull’ building societies like the Abbey National, the Halifax, the Bradford & Bingley and the Northern Rock were fattened up for the market and sold like prize turkeys.But of course there had to be buyers for these fine, plump birds, and buyers there were aplenty. The Conservative (in name only) government had enthusiastically adopted the `greed is good’ ethic and was busily preaching it to the nation. The easy windfall profits from privatisation persuaded even the most sceptical that you really could get something for nothing by just filling in a form.And so the juggernaut trundled on. But like all juggernauts it had a mighty appetite, and needed to lend more and more to feed its bloated belly.The solution? To relax the lending criteria. The antiquated notion of having to save for a deposit disappeared, and 100% mortgages became available. Income multiples were increased, all in the desperate mission to lend more and more and satisfy the greed of these new monsters called shareholders.Of course, as more and more money was pushed into the market the immutable laws of economics meant that the supply of money exceeded the supply of property, and so the price of housing was driven higher and higher.And now the greed virus infected house buyers en masse. No longer was a house primarily somewhere to live and bring up a family, it was now a wondrous investment. Indeed, it was the perfect investment by any standard, as not only was it guaranteed to rise year on year but all gains were tax-free, it was a `highly geared play’, so that actual gains might be many times your actual investment, and best of all you could live in it!So with such a one way ticket it now made perfect sense to borrow more and more heavily, even if it soon meant that the payments were taking up a bigger and bigger chunk of income. After all, in the not too distant future you’d be able to sell up, take your huge tax-free profit and retire to Spain.But now the lenders were reaching saturation point, and they’d lent as much as they could to anyone capable of repaying the loans. Time for more stirring of the cauldron.And Abracadabra! What have we here? Why, the self-certified mortgage!Another master stroke. Now all those greedy, slavering beasts who had no visible means of support but were driving round in black X5’s with `privacy glass’ could get a slice of the action. And how they piled in, only too happy to feed the fire. Although they may have had to pay way over the odds, who gives a flying f**k if the property’s going to double in two or three years. Of course, the lenders loved them – they knew they were probably tax-evading villains, but so what - they were willing to pay a chunky premium interest rate and boost the profits even further.For quite a while, this new source of borrowers kept the juggernaut fairly content, but then with a dreadful inevitability once again the market began to falter, and yet more sacrificial lambs were needed.Stir, stir… Round about the cauldron go In the poison'd entrails throw . . . For a charm of powerful trouble Like a hell-broth boil and bubble.Stir, stir …And now the most powerful spell ever, the incantation to end all incantations..Yes, it’s …The Buy to Let mortgage!Even the evil geniuses who had stirred the cauldron so assiduously must have been awed and amazed by the sheer power of this fiendish creature from the blackest of black lagoons.The potential was almost unlimited. Just as that dread moment was approaching when everyone who wanted a house had a house, with the awful consequences that the demand for loans might begin to diminish, here was the perfect answer. And so went out the cry, “You fools! Don’t you realise that one house can never be enough? One house bad, two houses good, four houses bloody good! Why settle for the profit on one house when through our magic spell you can have the profit on twenty!”Like lemmings racing for the cliff edge the punters pushed and jostled to grab a slice of the latest action. Why, this was just like the good old days of privatisation, and under a Labour government! Three cheers for Tony and Gordon!There was of course a slight difference – most people didn’t borrow ten times their savings to buy British Gas shares. But hey, that’s gearing, it’s what all these derivatives guys in the City are doing and they seem to be doing all right for themselves. There were even special covens formed, called `property clubs’ where a great wizard could, for a suitable bung, cast a spell and persuade a foolish developer to sell you a cutting edge city centre apartment for a huge discount – what was the spell called? Ah yes, `Instant Equity’.The BTL mortgage was, without a doubt, the greatest of all the evil devices to tempt ordinary mortals into the flames of hell. One problem was that by now many of the obvious candidates for more borrowing were already up to their ears, and even with non-status and self-certs they just didn’t have enough cash to feed the juggernaut. So this meant having to tempt people who weren’t natural speculators, and who weren’t even particularly greedy at all. A serious challenge.But now to the rescue came Galloping Gordon. Splat! Down went Equitable Life. Pow! Pension funds were robbed of £500m a year. Suddenly, all these decent, conservative (definitely with a small `c’) prudent (!) people – just the sort of people who would once have run the local Midland Bank branch – saw their life’s savings being destroyed by Bruiser Brown.So where to turn? How to provide for an old age that reflected a life’s hard work?You guessed – buy to let. These were the poor sods persuaded, in their desperation, by the forked tongued estate agents and `financial advisers’ that this was a `new paradigm’ – the Promised Land, where steady capital growth would be matched by steadily increasing rental income. “We don’t believe in overstating the returns”, the blurb would piously say, knowing their target audience, “We pride ourselves on taking a conservative approach to future projections, so that we are not prepared to estimate future returns at more than 10% to 15% per annum.”Hook, line and sinker. Some for their own retirement, others to provide something for their children, it didn’t matter so long as they kept signing on the dotted line.But eventually even this supply of punters, the last and hardest to convince, had run out. And by now everyone who was even remotely interested in borrowing anything at all was awash in debt.The evil ones stirred and stirred …Scale of dragon, tooth of wolf Witches' mummy maw and gulf Of the ravin'd salt-sea shark Root of hemlock digg'd i’ the darkBut to no avail. This time their powers failed them.And so, slowly at first, then faster and faster the whole edifice began to crumble. The bricks and mortar turned into sand. The one way ticket to prosperity and a bright future became a return trip to poverty.OK, a little dramatic licence, not to mention purple prose. But I come back to what I said at the outset. Nearly all of the present troubles can be traced to one simple word – greed. It’s one of the seven deadly sins, and an inevitable part of human nature, and realistically if it didn’t exist we’d probably still all be living in caves, so a smattering of greed is no bad thing.But the worst aspect of this sad history is that it’s been state sponsored greed that has really caused the problems, not the greed of individuals, who in many cases believed they were doing the right thing for themselves and their families. From the days of privatisation to allowing a mortgage market to operate virtually unregulated and to be run by spivs and speculators, to allowing mutual organisations to be raped and pillaged by those same spivs and speculators, to destroying the value of pension funds and forcing savers into the hands of crooks, this and previous governments have, through their own immoral behaviour, helped to create a society that is not only morally bankrupt but is rapidly heading to being financially bankrupt as well.And the worst of it is that although we, their electorate, are learning financial morality the hard way they are just getting worse. The Great British Public have been bamboozled into spending what they didn’t have and borrowing beyond their means, but the lessons are now being learnt, and although the pain will be serious – terminal in some cases – the end result should be a sadder but wiser generation.But in the meantime, Galloping Gordon is doing exactly what we’ve been castigated for – borrowing from anyone who will lend so that he can carry on spending like a drunken sailor, with never a thought as to how it’s all going to be repaid.
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