PROPOSAL TO BOOST THE ECONOMY IN THE SHORTEST POSSIBLE TIME

The basis of this proposal is the same basis, proved and tested, that Gordon Brown used to generate his booming economy when he was Chancellor of the Exchequer , the main difference is, that this time, it is properly regulated.

When the Sub prime Property Market in the USA crashed the effects of which induced the credit crunch in Britain, the credit crunch exposed the driving force behind Gordon Brown’s booming economy, i.e. Loan To Income (LTI) mortgages, and in particular, Loan To Value (LTV) mortgages against the increasing value of the property. These mortgages up to 125% created a booming property market, a thriving building industry, generated many jobs and small businesses upon which the rest of the economy depended. (LTV) mortgages gave first time buyers the opportunity to get on the property ladder.

Property will always increase in value because supply can never meet the demand for homes. This produced an asset that guaranteed the supply of money. The banks were more than willing to loan money as long as the asset value of the property was maintained at a profitable level.

The main control parameters of the property market are:

Supply of money;
Scarcity of building land;
Difficulty in getting planning permission;

These three parameters can be used to produce inflated prices. However, the release of building land and planning permission can be quota controls, to control the rate of housing supply at a reasonable level just below the level of demand. This will guarantee to keep the value of the asset at a level for investors to have confidence upon which to lend and should produce a healthy property market.

However, whoever controls the supply of money to the property market and building industry controls the economy. As we have seen, when unscrupulous bankers had unfettered control, it was enough to tip the balance from boom to bust of a finely tuned economy that had been created over many years of prudence.

How the government can take control of the money supply I will address later.

THE BASIS OF THE ECONOMY

Britain has always been a homeowner-based economy, not like the economies of France and Germany, where the majority of people live in rented accommodation. Homeownership made Britain one of the wealthiest and stable economies in the world.

Property, since the days of Caesar, has always increased in value, any decrease in property prices is only temporary.

MAINTAINING THE VALUE OF THE PROPERTY ASSET

Scarcity of building land, difficulty in getting planning permission and the time it takes to build substantial property using bricks and mortar and with every increasing costs, energy and labour costs, it all adds up to a very valuable asset that increases in value. Programs on how to improve your property started to appear on television, how to make a profit by increase its value for sale. Because of this, the majority of people want to get on the property ladder. Owning your own home gives a sense of security, it gives one confidence to borrow to improve their property and to keep it regularly maintained. It gives the homeowner a sense of, worth, self-esteem and pride in their achievement. These attributes and property that is well maintained, is the ingredients that gave confidence to the Banks to lend to their mortgagor-customers and to each other, the result of all this – a healthy property market, a thriving building industry, DIY, building suppliers industry and many small business – providing good housing stock and a booming economy. 125% MORTGAGES MADE ALL THIS POSSIBLE IN A VERY SHORT PERIOD.

These assets are the foundation of the British economy and credit ratings upon which stability and confidence depend.

LENDING 125% MORTGAGES TO HOMEOWNERS WAS NOT RECKLESS LENDING AND WAS NOT THE CAUSE OF THE CREDIT CRUNCH.

THE MAJORITY OF HOMEOWNERS HAVE TOO MUCH TO LOSE TO BE RECKLESS. IT WAS THE GREEDY BANKERS WHO MESSED UP.

SO WHAT WENT WRONG?

BANKERS KNEW EXACTLY WHAT THEY WERE DOING – THEY MOST CERTAINLY WERE NO NOVICES.

Bankers most certainly knew the enormous value of mortgages backed by the secure asset of property, and that mortgage-securities would be the driving force behind a powerful booming economy. The Bankers knew how the Johnston administration used US Government-Sponsored-Enterprises (GSE’s), which were securities backed by mortgages, to raise enormous amounts of collateral to fund the Vietnam War. They knew they would make a fortune, if they could trade mortgage-backed-securities on the US financial markets in the same way as (GSE's). However, bankers knew mortgages couldn’t be traded unless they were taken out from under their protective regulation. So how did they get their hands on them?

Well, first, you must know what you are doing, so they dreamed up ingenious instruments called Collateral Loan Obligation (CLOs), Collateralised Debt Obligation (CDOs) and similar stealth products. To by-pass existing strict banking regulation and the law, they repackaged mortgages in the form of (CLOs), (CDOs), using (Derivative Contracts Synthetic Maxine CLO Squared’s) and similar products, with which to gamble in volatile markets on US Wall Street. In short, a form of gambling using re-packaged mortgages, in a global pyramid selling scam. Bankers and Politicians would have us believe that the risks taken by bankers was all a big mistake, they even have the media convinced of this and the excuse that it was all caused by the downturn in the global economy, yet it is the banker’s who control the global economy. But let’s get it clear. Bankers invented (CLO’s), (CDO’s) and all the instruments they use. They claim to know how the global financial system operates and demand outrageous high salaries and bonuses for their expertise and risk taking. But yet they take no risk, it’s not their money that is at risk, it is the Taxpayer and Homeowner who has to pick up the tab.

But to make the scam work one must know how to have mortgages deregulated. This required the change in the banking system, which according to commentators’ on the Channel4 documentary “How Long Will It Last” presented by Will Hutton, broadcast 29 April 2009 – Gordon Brown was the architect and he was the only one who could make that possible.

CHANGE OF THE SYSTEM

Up until 1997, the Bank of England controlled the financial system. Mortgages were protected from such abuse, under existing safeguards of regulations and the law, mortgages, in particular, were sacrosanct. Mortgages were only to be used for the purchase of property – loans for all other purchases had to be through a bank loan or hire purchase, which were short term and had a higher rate of interest. In order to protect homeowners, the security of their asset and its valuation upon which mortgage deeds depend, lending banks and building societies were strictly regulated. Lending for consumer spending on domestic and luxury goods were kept separate. There was a firewall, similar to Glass Steagall, which kept mortgage banks separated from commercial banks, which Lord Turner referred to commercial banks as, the casino banks.

However, in 1997, Gordon Brown as Chancellor, decided that he didn’t like that anymore. So he introduced a system were we had, the Financial Services Authority, the Treasury, and the Bank of England, (the Tripartite Authorities) carving up the job amongst them. Just one big problem – when there was a crisis, ‘apparently’ nobody knew who was in control. The effect of all this – Gordon as Chancellor at the helm, in effect, handed over possession, power and control of Britain’s economy to unscrupulous foreign bankers over which he had no jurisdiction and no authority – leaving the system unregulated.

By changing the banking system, banks were able to trade (CLO’s) and other similar stealth products through institutions, but an institution is not called a bank, and therefore operated outside strict bank regulations. This was the key to the unscrupulous bankers making a fortune. Banks started lending mortgages up to 125% either on income, or on the increasing value of the property asset (LTVs), the result was a booming economy.

The property assets backing (CLO's) were so valuable, that other loan sharks wanted to get in on the act – adverts started to appear on national television encouraging homeowners to free up equity from their home and to – Spend! Spend! Spend!

Some people were suckered into rent and buy-back scams wilfully calculated to eventually confiscate their homes. The banks’ were handing out credit cards to people who had no assets, many of whom were in temporary employment – shopping on the high street was a wash with cash.

The economy was booming, it was over heating – But what if Gordon Brown, decided to get in on the act and extend the 40% Tax on newly built homes to include second-hand property, this on top of stamp duty? When every Tom, Dick and Harry was in on the act, it wasn’t inconceivable that he might have the same idea. The banks knowing the inflated state of the economy, being afraid that he might introduce such a tax, decided to pull the rug out from under his feet.

The Banks could see that with increasing inflation and if other sharks were to siphon off equity from their customers mortgage-backed-securities, they would become toxic, under mining the value of the assets, against which they had loaned. Banks and the bond market wanted their money back. The only way to do that was to cut off the money supply, take control of homeowner spending by increasing mortgage interest rates or by repossession. Banks and the bond market started to induce a credit squeeze, which had that effect. Homeowners, to pay their mortgage cut back on spending and on essentials such as insurance and maintenance to their property.

When property is not properly maintained, it becomes shabby and devalues other properties in the area. The properties are more likely to be vandalized and so this disease spreads until the whole area is affected, the property asset becomes toxic. This happened in Cleveland in the US. American homes, many are timber, which if not properly maintained, and exposed to the elements, they quickly deteriorate.

One should keep in mind – whose idea was it to change the banking system? Was it Gordon Brown’s idea? Was it the Banker’s? Or was it both? Who persuaded whom?

However, it was reported in the media that although Gordon Brown blames the bankers he said, he didn’t know what the bankers had been doing. Well, if Gordon Brown didn’t see the crises coming Jeff Randal is most certainly convinced that all of us saw it coming, in his words is “Rubbish”. Jeff Randal blames us the consumer for not living within our means. But Randal, One can only live outside their means if their bank will allow it. Greedy bankers suckered many into loans and then a year or so down the line put up interest rates.

WHILE THE ECONOMY WAS BOOMING, UNSCRUPULOUS BANKERS GOT GREEDY

To raise more collateral to fund their greed, they borrowed funds from China and other foreign banks that were short term and loaned this money on long-term mortgages, which they packaged up and sold on – The more of this stuff they sold the bigger their bonuses.

The credit crunch and recession in Britain was caused by unscrupulous greedy bankers and Gordon Brown’s unregulated Laissez faire policy which left the vault door wide open for unscrupulous greedy bankers to have a field day. Whilst homeowners were sleeping in their beds, bankers were undermining the financial foundations of their property asset, by taking mortgages out from under existing strict banking regulation and the law – and to add insult to injury, Brown and Darling handed over hundreds of billions of taxpayer’s money into the hands of bankers with no legal binding agreements whatsoever. It beggars belief.

THE CONSEQUENCES FOR HOMEOWNERS AND THE TAXPAYER
• Bankers with no risk to themselves were gambling with homeowners’ mortgages backed by the asset security of their homes in unregulated volatile markets – and they lost them, the effects for homeowners, taxpayers and the economy have been devastating.
• Homeowners and taxpayers, through no fault of their own, have been made liable for hundreds of billions of pounds.
• Many homeowners struggled for many years to get on – and stay on – the property ladder. Why after paying their taxes, should they pay for bank losses by way of: increased interest rates, repossessions – made homeless with predatory bailiffs plundering their property?
• The Bank of England, on the one hand, used taxpayers’ money, to replenish bank losses caused by bankers' gambling, loaning it at an imposed penalty interest rate. Whilst on the other hand, the Banks in open defiance refuse to pass on the Bank of England’s cut in interest rate benefit to mortgagor-customers. Instead, they use the benefit to offset and reduce the penalty interest rate – all at the expense of the taxpayer and benefit relief meant for homeowners.
• Why should homeowners and taxpayers pay with: financial hardship; unable to put food on the table; mental stress; and devastating effects of it all for the rest of their life and their children’s lives – whilst the bankers are having a party?
• Even for homeowners who have no mortgage the effects of bankers’ greed and gambling has caused their property to drop in value. Everyone is affected in some way or another.
• Why should the super-rich bankers get away with their staggering profit, big bonuses, and asset stripping, scot-free – at the expense of homeowners’ losing their home, the enormous costs to the taxpayer, the financial vandalism and damage they have caused to our economy?
• Why involve the taxpayer? This involvement of the taxpayer has set a dangerous precedence, and whilst it continues, it is another form of stealth tax, wilfully calculated – most foul.
• At no time has the taxpayer been responsible for the conduct and dealings of private investors and private commercial banks.
• At no time did homeowners and taxpayers give authority to any bank, institution or any government to create, or gamble with instruments used to raise collateral putting their homes at risk.
• The fact that Gordon Brown and Alistair Darling, by your own admission, that their emergency legislation is covert, showed the purpose of their intent, to keep secret the extent and severity of liability to be placed upon homeowners and the taxpayer.
This litany of grievances is not the policy of a democratic government. It is the policy of a dictatorship. In principle and in law the Bankers and the Government acted unlawful, inter alia.

BANKS HAVE DELIBERATELY CUT OFF THE MONEY SUPPLY

Banks after having been bailed out, in open defiance have stopped lending, effectively inducing a recession.

Whilst there is no firewall between mortgage banks ant commercial (Casino banks), bankers and politicians will treat the taxpayer as a bottomless pit of money, which they can dip into every time they want bailed out.

Lord Turner of the FSA said. “Instead of waiting until a bank has run up so much debt to such an extent that it is reported as a catastrophic melt down. My job is to take away the punch bowl before the party gets out of hand”.

I can already see the newspaper headlines: Banks have been dipping their mugs into the punch bowl so often triggering the small limits set by the FSA that the accumulation of their debt siphoned off over the years from the taxpayer has run into hundreds of billions of pounds. It has become an accepted practice for the taxpayer to pick up the tab of bankers’ gambling.

WHAT IS NEEDED TO RESTORE CONFIDENCE AND STABILITY.

Throwing money at the banks in an attempt to give them confidence to lend, is putting the cart before the horse.

A healthy property market is the only secure asset that can bring back confidence in the economy.

Instead of bailing out banks to the tune of hundreds of billions of pounds, which in open defiance refuse to lend deliberately inducing a blockage in the money supply, the government must first restore confidence in the mortgagor-homeowner. Mortgages must be made sacrosanct so that unscrupulous bankers cannot use them to raise collateral putting homes at risk. Mortgages must be separated from other forms of commercial dealings by a firewall, in a similar way to Glass-Steagall in the US, which gave security to America. If commercial banks want to gamble in commercial markets, they do so at their own risk. But let it be made clear that the practice of gambling with other peoples homes and possessions is not acceptable and regardless of Gordon Brown’s changes to the banking system in 1997, in principle and in law such practice has always been, and still is, unlawful and a criminal offence.

80% of new cars manufactured in Britain are for the export market. Unless you have a healthy export market for them, and as there is no home market for cars, and as they depreciate in value and have a short shelf life, throwing money at the car industry will only create stockpiles of thousands of out-of-date cars that will have to be auctioned off.

To stimulate the economy and employment, companies should be encouraged to create assets that appreciate, building a firm foundation upon which stability can be sustained and should be rewarded with tax cuts. The idea being, More Growth for Tax Relief. This incentive would give confidence for companies to succeed, giving secure employment, inter alia. This I believe is also the view of Joseph Stiglitz, winner of the 2001 Nobel Prize in Economics. He is a professor at Columbia University and the former chief economist at the World Bank. He is the co-author of The Three Trillion Dollar War: The True Cost of the Iraq Conflict. Link to: Amy Goodman interviews Joseph Stiglitz. http://www.democracynow.org/2009/2/25/stieglitz.

PROPOSAL FOR A NEW FINANCIAL SYSTEM PROPERLY REGULATED.

THE NEW DEAL 20/80 FINANCIAL SYSTEM

All investments in the Financial System are at the investor’s own risk, no bailouts,

The Financial System is made up of:

The Financial Wholesale Markets

The Mortgage Bank System

The Commercial Bank System

The two Banking Systems must be separate into the Mortgage Bank System and the Commercial Bank System, in a similar way to Glass Steagall Act. The two systems having their own interest rate, each rate set by the Bank of England.

To invest in the Financial System, it is compulsory that:

20% of all investments go into the: Mortgage Bank System, and the other;

80% into the: Commercial Bank System.

The Mortgage System interest rate at all times must be kept at a lower rate than the commercial market rate, any cut in interest rate by the Bank of England, at all times, is for the benefit of the mortgagor and must be passed on immediately to the mortgagor. The investment to be long term and the mortgage sacrosanct. At no time can mortgages be used to raise collateral for commercial purposes. Mortgages can only be used for improvements of the property and maintenance to the property.

To make sure that mortgage loans are spent on the property, all invoices and labour receipts must be produced to HM Inland Revenue Vat Department in the same or similar way as the existing DIY Vat Scheme for new home builds.

The Commercial Markets

Proposals for incentives for investors to invest:

For investing 20% of their investment in the Mortgage Bank System this would give:

a reduction in corporation tax on the other 80%;

insurance plan may be another possibility.

The other 80% of their investment is at the investor’s own risk.

This model is a proposal for discussion. The idea is that the majority of people have no money to invest. But as money is a commodity, upon which the economy depends, those who are fortunate to have considerable sums of surplus money. If they want to invest it in any kind of financial market, they can only invest through a licensed bank or financial institution that operates the 20/80 financial system controlled by properly regulated and legislation with a deterrent for any abuse of the system, so that there would be no place to invest other than in a 20/80 financial system.

No doubt investors may look to other countries for a better deal. However, as many countries are affected by the downturn in the global economy, it may be possible to persuade other countries to adapt a similar plan.
Like it or not, LTV mortgages up to 125% have proven to produce a booming economy in a very short time and is the only asset that can be used to bring back confidence and stability. People should be allowed to borrow up to 125% mortgage as long as they have a project such as, creating a new house or for buying and renovating an old house, and mortgages should be made available for maintaining their property.

On Wednesday 13 May 2009, in The Telegraph Business Section, it reported that Gordon Brown has proposed a maximum loan-to-value (LTV) level of 90%. Lord Turner, FSA chairman, said: ”A key choice in product regulation would be between (LTV) and (LTI) limits. There is a prima facie case that (LTI) limits are more likely to be appropriate given that it is the relationship between income and loan repayments which determines whether a household can service its debt”.

It is obvious from his statement that he is dithering. The property market and building industry would not recover under Lord Turner’s proposal. His proposal would strangle the money supply to the property market and building industry causing further unemployment, a down-ward spiral affecting the economy. If you want to recharge the economy you have to decide whether you want a trickle charge or a booster charge. Gordon Brown said, “these are not normal times and require therefore extraordinary solutions”.

When Norman Lamont took Britain into the ERM which fixed the level of the pound within a band. Because Britain’s economy is based on homeownership, different from the rest of Europe, where the majority of people live in rented accommodation, the economy went into recession which caused negative equity. The only thing that could take up the strain in Britain’s economy was the property asset. Britain had to come out of the ERM, but it cost Britain 48 billion pounds. Britain’s economy depends on the financial industry, manufacturing for export and the property asset. But the ERM fiasco exposed proof, that unless you have a healthy property market and building industry, it can tip the balance between boom and bust.

How to raise collateral to kick start my proposal and how it will self-generate would require strict control and regulation on the banks and in particular the bankers.

The building industry is the biggest employer, but there are only a small number of firms that control and supply of materials to the industry and they have bought up all the small local DIY shops. They now own the producers and manufactures of materials. The government needs to look at this to prevent money being taken out of Britain.

I believe the money masters are determined to have Gordon Brown thrown out of office. If I were Gordon Brown, I wouldn’t rely on green shoots of the City, they are only giving him enough rope to hang himself. There are only two ways Gordon Brown can over-come his dilemma. He either creates a Government Bank, use quantitative easing to loan mortgages up to 125%. For the other banks to compete they would have no alternative but to start lending, or he put my proposal to the money masters, but they would be looking for their pound of flesh.

Although I am disappointed with the way things went wrong with the economy, I would strongly advise that serious consideration should be given to my proposals, which I believe, is the only solution to get the economy back on track. It is the key to winning the next election.

As many homeowners are facing repossession and all the devastating consequences that it can have on their families, this situation cannot be allowed to continue.

The key to recovery must be first and foremost to place confidence in the mortgagor-homeowner. Once homeowners have confidence in the financial security of the investment in their home, only then will confidence spread to the banks to lend and to the rest of the economy.

Homeowner and Taxpayer.
Building & Civil Engineering Contractor and Property Developer.