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Government is Already Bailing Out Home Owners. Part 1

Told you so! This is always the way. And it's going to be nothing compared to what will be required from central control for historic levels of handouts in 2026. You thought the plandemic bailouts were big!

The question is, how much more will they do it as we go into the coming boom ... and alas, the inevitable correction we're forecasting around 2026?

Fantastic if you already own property because it means house prices will rise to the extent of the bail out. Terrible if you're still a tenant or still living with Mum and Dad because now the chance of getting on the ladder is even further out of reach and you will be hoping for them to die even that much the sooner.

Here's some extracts from the media on the pioneering NatWest deal. Moral hazard and subprime activity in bold, mean boom times soon:

DEFAULT: Natwest will allow its retail and wealth borrowers to switch to an interest-only mortgage for six months or extend their mortgage term. The term extension includes a six-month cooling off period so people can go back to the original term if they want to

DANGER: The lender said each option could be done without an affordability check or having their credit score impacted. 

BAILOUT: Natwest also said it would not force anyone to leave their home if they are unable to pay their mortgage for at least 12 months. 

DANGER: This in addition to its existing support which allows borrowers to switch to a new rate without an affordability check and the option to secure a new rate up to six months before their current one ends. 

BAILOUT: For borrowers who are behind on mortgage payments, Natwest has a policy to give them 60 days ‘breathing space’ where it will not apply any charges or make contact while they seek money advice. 

DEFAULT: They can also repay missed payments over a 24-month period, or reduce their monthly payment up to £0 if needed for up to the value of three missed payments.  

I wonder what bargain government have struck with the banks to get this through? They've already struck an implicit deal with the 15 million UK mortgagors - homeowners know they will be bailed out if the party gets their vote. Whichever party is irrelevant, all of them offer this tariff!

The daft thing about this is that banks must have struck a deal not only with government, but also the investment banks the retail banks sell aging mortgages to as they become even more risky. The financial markets are intimately linked to mortgaged home owners via Credit Default Swaps and Mortgage Backed Securities derivatives which are also refinanced by Collateralised Debt Obligations. All these complex sounding financial names are hugely significant and represent tens of trillions across global markets. Allowing mortgagors to technically default like this is a 'credit event' meaning the CDSs being used as insurance would normally be obliged to pay out. Changing the nature of a mortgage contract should trigger a 'credit event'. But has government underwritten it all?

I find this all exciting. Not because I'm a psycho. But because I've spent 15 years trying to point this out since the last time it developed into the so called Great Recession in 2008. And not a single person thought it was relevant. I'm not bitter about the lack of attention. It's exciting because this collective behaviour must mean there is a much deeper force driving social organisation, for this is the biggest kind of financial activity if all and everyone is looking the other way. Something much deeper in the collective psyche is perhaps going on and this possibility is fascinating.

What deeper distortions are now already festering, ready for 2026 to correct, of which the entire population and the whole spectrum of professors, consultants, advisors and experts is totally oblivious? The Queen has sadly passed away and back in 2008 she asked LSE professors why they didn't see it coming last time. Will the King be paying them a visit in about 3 years. Will the next generation of professors have forgotten about last time too?

And we're not even close to the real manic buying at booming prices by way over leveraged home owners and financial instutions. Nowhere near. 

We've still to see the excitement of even more nut case government interventions' to pump it all to ever new heights.