The real causes of the housing bubble and credit crisis in both Britain and America are due to identical factors. Governments of both countries, and all political persuasions, were stupid, naive and complacent, bankers and financial whiz kids were greedy, stupid, and complacent.

Both countries followed similar policies, for over thirty years, encouraging home ownership and deregulating financial markets. Both countries' governments encouraged banks to give mortgages to people who would not have qualified to obtain one previously. In Britain, banks and building societies relaxed their previous strict rules and where before couples had had to provide a large deposit before being considered for a mortgage, 100% or even 125% mortgages became common. Simultaneously, where once banks and building societies had strictly regulated the amount they would lend, they began lending huge amounts to borrowers.

In Britain, the housing bubble was particularly pronounced; Britain is an island and there is a lack of land in the places where the most people want to live and where the work is. Successive governments, both conservative and labour, allowed people to buy their council houses at much reduced rates, no new social housing was built to replace those homes. Private rented accommodation was scarce and expensive. House prices in the south east of England rose increasingly rapidly. The price of an ordinary family house in one Surrey suburb, within easy commuting distance of London, trebled in fifteen years.

Property developers built houses on every spare bit of land in the area around London thinking only of profit. Fifteen Hundred houses were built in an isolated area outside one dormitory town. This development was without shops, school, or any bus services, and little regard was given to how the town, and its infrastructure, would cope with the needs of these new inhabitants.

Then banks offset risky loans with banks all round the World, who in turn traded these, plus their own risky loans. When the crunch finally came, none of the banks actually knew the extent to which they were liable for these risky investments.

Bankers and financial whiz kids came up with all sorts of wheezes. One of their best, in Britain, was called a hedge fund. It worked similarly to a rich people's betting shop except people did not bet on soccer results or horse races but on stocks and shares. They did not only bet on which stocks and shares would rise but also which would fall, Stock markets are sensitive creatures, the merest whisper sends them into a panic.

Successive British governments allowed all this to continue unabated, believing that financial markets were better deregulated, to allow the market to decide. They forgot that people with an interest can sway markets and that, in the absence of rules, human nature, greed and vanity overtake moral principles and good sense. British governments tried to encourage other countries to deregulate their financial markets and disparaged them when they did not. It never occurred to them that, perhaps, other countries were right to be cautious.

All these strands, loose credit, ridiculously rising house prices, deregulated financial markets, no social housing, all trundled along nicely until the rumblings came across the Atlantic from America, and the whole lot came crashing down together.

None of this was the fault of the poor, but it is they that will suffer most. The poor will lose their jobs and pensions and therefore, be unable pay their mortgages and so lose their homes. All of these things happened because of a lack of common sense on the part of those who should know better.

Learn more about this author, M.Collins.
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