Wednesday, 22 May 2013

Osborne Converts To Socialism!!

In what appears to have been a Damascene conversion, George Osborne has apparently decided to make Welfare Socialism the basic principle of his economic policy. The change comes as a dramatic shift from his previous cuts in welfare spending.

A first use of this principle appears to be a proposal that flows from the use of the “cash for clunkers” scheme introduced several years ago to stimulate the car market. Under that scheme, the Government provided additional cash to encourage people to trade in their old banger, and buy a new car. The proposal is also similar to a recent development in the US. There, a new set of derivatives has been established that allow people to buy cars, they otherwise would not be able to afford, by obtaining sub-prime loans against them. The loans are then bundled up, with safer car loans, and then sold on to other banks and finance houses. The idea is that if, and probably when, some of these loans default, these sub-prime loans will be balanced out by the safer loans in the bundle. But, just in case they do not, the derivatives provide insurance from other finance houses, who will pay out in the event that too many loans default.

Osborne has extended this principle. As a means of stimulating car production and the economy a proposal is being considered to provide government underwriting of car loans. The idea is that lots of people have always wanted a car, but never been able to afford one, or even to save enough to put down a deposit for one. The Government plan is apparently to provide anyone who wants one with a 20% loan that they can use as a deposit on a new car. The ideology behind the scheme is pure welfarism. There are lots of things that people want that they can't afford, so the government is going to enable them to have them by guaranteeing their loans. Cars are a useful place to start because of the effect on the economy.

One 18 year old from Salford told reporters that he had passed his test last year, but couldn't afford a car. But, with the Government guaranteeing his loan, he had his eye on a nice silver Porsche Boxster, he said.

If the scheme is successful, its intended to extend it to a range of other things that people would like to have but can't afford, such as boats, Caribbean Cruises, and so on. The Government is also looking to use the idea to solve a series of other problems. For example, where people have bought houses in flood zones, and can't get insurance, the Government will now underwrite the risk, so the insurance companies will be free to take their premium, safe in the knowledge that their pay out will always be limited.

Asked about the potential for “moral hazard”, a spokesman at the Treasury commented, “Hazard shmazard. We've already printed so much money that you can use tenners as confetti, so printing a bit more money to cover all of these additional debts won't make any difference.”

But, an economist from Fathom Consulting said that the proposals were “Nuts!”

But, don't worry too much. Although, the US has seen the introduction of sub-prime car loans as described, the Government here is not really considering such underwriting of people's debts for cars etc. So far, they only have plans to do that for houses!

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