I am perplexed by why anyone has any doubt about who is responsible for the property ‘bubble’. The blame, surely, must be laid firmly at the door of national governments - whether in Spain, the UK, the US or elsewhere.
After all there was no secret about what was happening. Far from it. Look at any charts or financial information over the past five years and you will see that an unrealistic and unsupportable disparity between average incomes and property prices was obviously developing along with a massive rise in personal debt.
All the signs of a lethal ‘bubble’ were present even to the simple minded and had been flagged (at least for us Britons) as being similar to those that triggered the 1990s recession – rising mortgage to salary multiples, self-certification loans, increased mortgage terms and property over-valuations. Meanwhile, property prices were rising at a rate that could only be considered artifical and for which there was no fundamentally sound reason.
In Spain, of course, all of this was mixed in with a total lack of planning or building control whether aesthetic, legal or logical. Meanwhile, naiively, the Spanish believed that they had universally inherited the Midas touch despite being clueless about the size of the market, what the market wanted and how much property it required at a given price.
So, why are governments to blame when their populations were so obviously driven by an hysterically illogical belief in the acceptability of debt when combined with an absurd conviction that property was the supreme elixir of wealth?
The answer is simple. The population of a country are not economists and tend to be as unsophisticated about financial matters as they are about the complexities of urban traffic flow. This is understandable and why, as taxpayers, a population employs, through the state apparatus, specialists and specialist departments - whether for health and safety or for the economy. These specialists, such as the FSAs, are paid (normally highly) to ensure the long term well being of the majority of the population.
Unfortunately, over the past few years governments and the state apparatus responsible for economic stability and control have failed – utterly - despite previous lessons and the facts indicating a catastrophe being obvious and available to them.
An apt analogy may be the desire of the population of a given town to move at unrestricted speed within their urban area (something, in principle, we all want!). Despite a recent devastating, high speed crash - imagine a town council deciding to remove all traffic lights and speed inhibitors. Over a period of time there would be many near fatal accidents of which the council would be fully aware before a truly terrible and all too predictable calamity - perhaps involving a lorry full of aviation fuel.
Recognise the lack of having learnt a previous lesson, removal of regulation, the irresponsibility and the lack of attention to the clear warning signs? This is largely what has happened with the economy – with the property market allowed to freely tumble, like a bottle of nitro-glycerine, down a rocky slope.
None of us have a moral or intellectual problem with the imposition of traffic lights (despite disliking their inconvenience) if they prevent terrible and unnecessary accidents. We expect and place our governments (locally or otherwise) under a duty of care to ensure that they prioritise our safety and well being. Indeed, invariably, we elect our politicians on the basis of their claimed economic capability and tolerate any number of state financial regulations and impositions to ensure economic stability and safe growth.
We have been governed by the incompetent and innumerate – who have colluded in this mess together with their pulsilanimous FSAs, state banks and economics departments. Their negligence has resulted in a situation of such gravity that most of us are unlikely to see anything so devastating ever again.
I can only hope that something has been learnt from the ‘bubble’ – not least that a healthy, stable property market is fundamentally important to the economy and well being of any country. As such, it requires real care and constant attention with the regulation of the availability of ‘debt’ being one of the most important controls. As a government, if you allow debt availability to spiral out of control then you are no better than a bystander who knowingly connects a fireman’s hose to a petrol pump.
Copyright Nick Snelling who is a journalist and author of ‘How to Sell your Spanish Property in a Crisis’ available from Amazon and all good book stores.
This message was last edited by Nick Snelling on 2/28/2009.