BRITAIN’S housing bubble is a threat to the global stability of capitalism – this is the assessment of Crispin Odey, the country’s leading hedge fund manager.
Odey made his reputation and vast fortune speculating that shares prices would crash in 2008 when the bank crisis first broke and again by predicting the crash in share prices earlier last year with the slowdown of the Chinese economy.
Hedge funds make their profits by ‘borrowing’ shares at a high price which they then sell and if their prediction of a crash is proved correct they then buy back the same shares at a much lower price and return them to their real owners, pocketing the difference.
Now, however, Odey is a worried man as his company saw its profits more than halved last year from £174.2 million in 2014 to £84 million. What is worrying him is that a crash of epic proportions is about to break, a crash so big that even the hedge funds that make fortunes betting on a crisis will be swept into oblivion, along with the banks.
One of the threats to the world banking system identified by Odey, is the inflated prices of housing in London and the south-east creating a housing bubble very much like the sub-prime mortgage bubble that burst in the US in 2008 which came close to bringing down every bank in the world.
The only thing that saved the banks then, was the capitalist state stepping in and assuming their debt along with pumping tens of trillions of dollars, pounds and Euros into the system through quantitative easing.
The working class, who were forced to pay for the banks’ debts through wage freezes lasting years and austerity cuts, were assured by their own ruling class that the lessons had been learnt – no longer would banks be allowed to behave ‘irresponsibly’, never again would ‘sub-prime mortgages’ be allowed, capitalism would reform itself.
Capitalism cannot reform itself, sub-prime mortgages, which many thought had been made illegal, have reappeared in Britain over the past few years with a number of banks offering home loans to people with ‘poor’ credit history – this definition of ‘poor’ includes those who have been declared bankrupt.
In particular, these sub-prime mortgages have been aimed at the buy-to-rent market and are designed to take advantage of the astronomic rise in house prices, as well as luring those priced out of the market into taking on massive mortgage debt.
The interest rates charged by these lenders are around 8% compared to the more usual 1.5%.
Any rise in interest rates will wipe these borrowers out while these ‘loans’, which appear on the books as bank assets, will turn bad, precipitating the same crash as in 2008 but on a much larger scale.
With the return of sub-prime mortgages has come the reneging by the Tories on their promises to regulate the banks and bring them under control. Last July, Osborne sacked the head of Financial Conduct Authority (FCA) Martin Wheatley for being overzealous in investigating the banks.
The pretence of regulation has disappeared completely with the announcement that the FCA is dropping its long awaited review into banking, leaving the banks free to carry as normal, rigging interest rates and creating even bigger bubbles in the stock market.
Just how immune the banks are to any form of control was demonstrated at the weekend, when it was revealed that two major investment banks (City Group and Credit Suisse) paid no tax in the UK in 2014. A further seven banks paid £21 million in corporation tax despite profits of £3.6 billion.
While the Labour shadow chancellor can only complain that Osborne is ‘too close’ to the banks, the fact is the banks are in charge.
Under capitalism they dominate and no attempt to reform them or regulate them is possible. The only way forward is to bring down capitalism through the socialist revolution and replace it with a socialist system where the banks and industry are nationalised and placed under the direction and for the benefit of the whole of society.
