What has most made houses unaffordable for many is having made these artificially affordable for many.

Sir, John Dizard quotes and comments Robert Dietz, chief economist at the National Association of Home Builders with: “Affordability is at a 10-year low.” It is not just the tariff-driven double-digit rise in the cost of wood. “We have suffered labour shortages for the past [few]years. Now the builders say that [land approved for building] is low.” “Bad news for housebuilding recovery as America loses its free lunch from world”, October 13.

That might bear some influence bit let us be very clear, what has most made houses unaffordable for many has been all that preferential financing to make house purchases affordable to many, which turned homes into investment assets and increased the prices of houses and the wealth of those who own houses.

For example, should banks have to hold the same capital against “safe” residential mortgages that they need to hold against loans to “risky” entrepreneurs house prices would be much lower...(PS. But there surely would be more jobs to help allow the purchase of houses at its lower prices)

Sir, a monstrous real estate crisis is being fabricated by regulators who can’t come to grips with the simple fact of life that if you blow too much credit into a market, you will create a bubble that, sooner or later, will explode L

@PerKurowski

Parent regulators, not even aware they were the ones blowing the bubbles, shamelessly put all the blame on their toddler banks when these burst.

Sir, Tim Harford writes: “As any toddler can attest, it is not an easy thing to catch a bubble before it bursts” “Forever blowing bubblemania” January 13.

That is entirely true. But though we should not expect our toddlers to know it, parents are fully aware that the bubbles their dearest are chasing, were blown up by them, in the clear expectation that these would burst, or delightfully disappear in the skies.

Harford concludes in that “It’s very easy to scoff at past bubbles; it is not so easy to know how to react when one may — or may not — be surrounded by one”

Not entirely true, because that should not excuse the case of parents not even being aware they’re blowing bubbles.

In the western world, regulators, for instance, by allowing banks to leverage their equity so much when financing residential houses, are, no doubt about it, blowing up a house credit bubble that will surely blow up in our face… even though we cannot exactly know when that will happen.

When with Basel II in 2004 regulators allowed banks to leverage a mindboggling 62.5 times their capital, only because an AAA to AA rating was present, it should have been clear to them that they were blowing a bubble. Seemingly they did not. Worse, when then the AAA rated securities backed with subprime mortgages exploded in their face, they should have been able to put two and two together, but no, they put all the blame on the banks, the toddlers in this case. Even to the extent of describing the excessive bank exposures to AAA rated assets, or to sovereigns like Greece who with a 0% risk weight they had decreed infallible, as an irresponsible excessive risk-taking by bankers. They should be ashamed!

PS. Like Harford’s senior colleague I was also very skeptical about Amazon’s valuation. In April 1999 I wrote in an Op-Ed that Amazon had “joined the rank and files of ‘tulipomanias’” Yes, I admit, it is now worth much more than it ever was at that time. That said, and though Amazon is now way more than about books, I still suspect that, long term, because of: “‘shopping agents’ will permit clients to quickly compare one company’s prices to those of its competition, which would seem to presage an eventual fierce price wars, would create an environment that is not exactly the breeding ground for profits that back the market valuations we are now observing”.

But then I also assumed institutional “efforts aimed at prohibiting any monopolistic controls of the Web”, and in this perhaps I could have been way to naïve.

@PerKurowski

FT, if regulators tell banks: “Blow the ‘safe’ balloons, not the risky”, which balloons are more likely to explode?

Sir, John Plender writes about “the bubble in (so-called) risk-free assets. In March, a third of eurozone government bonds had negative nominal yields. This was unprecedented. It reflected an acute shortage of sovereign debt for use as collateral after the European Central Bank’s resort to quantitative easing, which involves buying government bonds…official intervention created a distortion that drove a wedge between prices and fundamental reality. “Detecting a bubble in advance is not so hard — when you try” July 22.

That is indeed correct, but it obliges the questions of:

Why is it so hard for John Plender, FT, and most other to understand that credit-risk weighted capital requirements for banks, like QEs, represent an official intervention that distorts the allocation of bank credit?

Why do John Plender, FT, and most other, seemingly want to ignore that those capital requirements guarantee “safe” havens to become overpopulated and “risky” bays underexplored?

When banks have thousand of balloons they could blow credit into and regulator tell them in which they can blow easier, it should be easy to predict which balloons might grow too large and explode.

@PerKurowski

Basel’s risk-weighted capital requirements for banks, is a macro-imprudential tool which blows financial bubbles.

Sir, I refer to Wolfgang Münchau’s “What central banks should do with bubbles” July 14.

My answer would be for central banks to make sure that if they must blow, when they blow, it is not for them to take over the role of the markets by directing their winds to where they, in the short term, perceive it to be safer.

We know that financial bubbles never ever inflate with air perceived as risky, but always with air that pays more than what its perceived absolute-safety would seem to validate. In this respect the best bubble inflator ever, must be the current capital requirements for banks which allow banks to earn higher risk adjusted returns on equity on what is perceived as absolutely safe.

Holy mo! What a dangerous macro-prudential tool that is.

Münchau also references bank´s “antisocial and unethical behavior” and so I would also like to ask the following:

What if the capital requirements for banks discriminated against gays, the sick, women or black persons? Would that not be deemed as an “antisocial and unethical behavior”? 

Of course! And all hell would brake lose!

And so why is it that regulators can discriminate in favor of the infallible those who are already favored by being perceived as that, and against “the risky” those who are already being discriminated against by being perceived risky… and nobody cares.

Let us pray it stays with a headache

Sir, after reading Gillian Tett’s “A headache is in store when the credit party fizzles out” May 19, it is clear we should all go down on our knees and pray for that she is right, in that it is only a headache that is in store for us.

As for myself I have serious doubts that the consequence of this blissful-ignorance-bubble resulting from our hide-and-not-seek the risks with derivatives, is unfortunately going to be much more painful than that. When that day comes though, before putting the sole blame on the poor bankers earning their luxurious daily keep, I suggest we look much closer at the responsibility of our financial regulators.