Commentary

Risky Mortgage Investment a Global Phenomenon

Anyone thinking that the subprime disease is an American problem should read this article from the UK’s Telegraph. The Brits are about to nationalize Bradford & Bingley, the 8th largest mortgage lender, for the same reason the US is poised to bailout our banks–risky loans and mortgages to what the Brits call “amateur” homebuyers (first time buyers). Eighty percent of the bank’s mortgages are to these borrowers that, as in the US, “self certify” their income. Reports the Telegraph:

The Government may merge the bank, which has mortgages worth more than £40 billion, with the nationalised Northern Rock. Every taxpayer in Britain will be exposed to the equivalent of £5,500 in mortgage debt as a result. In another day of frantic action around the world, the American Government also agreed a $700 billion deal to take on bad banking debts following several days of intense talks in Washington. However, British taxpayers are now more exposed to mortgage debts than their American counterparts, who are saddled with the equivalent of £2,750 per taxpayer. European regulators were also rushing last night to rescue Fortis, a large Belgian bank, which is Britain’s third biggest motor insurer. Fears are mounting about the viability of Wachovia, an American bank seeking a takeover. Investors are braced for another volatile day on share prices as stock markets digest the various rescue packages now being launched. The Centre for Economics and Business Research (CEBR), a leading forecaster, will today predict that the British economy will fall into recession in the second half of this year. It believes that the economic prospects could worsen even further if the Treasury and Bank of England cannot re-establish confidence in the financial markets.

The perspectives of free market economists can be found here. More from Reason Foundation on the financial crisis can be founder here , here, and here.

Samuel R. Staley, Ph.D. is a senior research fellow at Reason Foundation and managing director of the DeVoe L. Moore Center at Florida State University in Tallahassee where he teaches graduate and undergraduate courses in urban planning, regulation, and urban economics. Prior to joining Florida State, Staley was director of urban growth and land-use policy for Reason Foundation where he helped establish its urban policy program in 1997.