Timmy elsewhereJuly 24, 2014 Tim WorstallTimmy Elsewhere13 CommentsAt the ASI. On the joys of Ms. Mazzucato again. previousIt just ain’t rightnextThat’s fiscal drag for you 13 thoughts on “Timmy elsewhere” bloke (not) in spain July 24, 2014 at 9:23 am Life’s too short to study the outpourings of Ms Mazzucato but there is one point about “financialisation”. I can’t help remembering, that great spurt of building around the turn of the 19th century created our major cities was done almost entirely without credit. it was financed out of current wealth. Pretty well all development now requires credit creation & it’s credit creation supports property prices. Bearing in mind, history shows you don’t require credit creation to build houses, why? bloke (not) in spain July 24, 2014 at 9:56 am Tell you why my concern. I’ve a mate – nice enough chap – he’s a property developer. New build & refurb/conversion. His company’s worth about £30m so he’s what I’d regard as a fairly well off guy. But he knows practically nothing about property. What he knows about building you could get on the back of a postage stamp & have room over. His success is purely due to his financial acumen. The whole enterprise is based on borrowing from the banks & conversations about his business always end up revolving around his access to credit. Now, I’d like to think I know a fair bit about construction. I could certainly throw up a house with my own hands from drawing plans to screwing the house-number on the front door. But I don’t have his preferential access to credit. So I don’t. And I can’t help wondering…what purpose he serves… Dave July 24, 2014 at 11:09 am Oh Timmy, you can be so naive sometimes. It’s easy to make sense of Ms. Mazzucato’s foul rant. All you have to do is replace every reference to ‘finance’ with ‘Jew” and all becomes abundantly clear. “The second key issue that rebalancing must address is not just how to get more value added from the ‘real economy’ and less from ‘Jew intermediation’ (Jews Jewing Jews), but also how to de-Jew the real economy itself!” She comes from a leading family of Italian Fascists, so it’s not much of a surprise to discover that Mazzucato is herself a neo-Nazi. No surprise she’s a Ritchie ally. ITBoy July 24, 2014 at 3:49 pm @B(N)IS – “And I can’t help wondering…what purpose he serves…” Have you tried asking him? 🙂 bloke (not) in spain July 24, 2014 at 4:17 pm ITBoy The subject has been broached. He, of course, tells me he’s instrumental in the creation of new homes. From where I’m standing, I can see he’s instrumental in the creation of the homes he creates. As opposed to the next property developer along the bar. The question is: is the whole system of credit creation, access to credit, property developers (in the current sense) necessary in the creation of homes? The majority of homes in UK cities were created, in a relatively short period, without it. Or does it largely just serve its own purpose? Rob July 24, 2014 at 4:37 pm By what miracle is the Left going to get innovation and growth in the ‘real economy’? The Thought Gang July 24, 2014 at 4:58 pm @ B(n)IS In theory, he takes the risk that someone has to take for something to get built. Someone has to put up the cash, which they stand to lose if something goes wrong before the property is sold and paid for. If you were spending your own cash to build something yourself, your USP would be the risk, not the building. The ‘genius’ of these financial types is that they manage to lay bits of the risk off all over the place to minimise the amount that’s on them, and leverage the fuck out of it. But that’s useful too. If we want to get a block of flats built then the finance industry goes off and finds a whole bunch of people willing to chip in and fund it.. which is better than finding one person willing to put it all on the line. I’d guess, mind you, that someone who’s built up a £30m property development business doesn’t just ‘get’ finance, he also must get (or have had the sense to pay someone who gets) the planning system. That’s where the serious cash is made. Dave July 24, 2014 at 5:34 pm “The question is: is the whole system of credit creation, access to credit, property developers (in the current sense) necessary in the creation of homes? The majority of homes in UK cities were created, in a relatively short period, without it.” I’m not sure where you get the idea that’s now how all those thirties semis, or Victorian railway houses, or Georgian suburbs, were built. The only significant anomaly I can think of in that regard was the mass building of council houses after the Second World War. bloke (not) in spain July 24, 2014 at 10:54 pm “I’m not sure where you get the idea that’s now(t?) how all those thirties semis, or Victorian railway houses, or Georgian suburbs, were built. ” From owning a couple, having seen the original deeds on many, knowledge of local history. The house my grandparents lived in was paid for by my great-grandfather. He had five built by the local builder, who also built the rest of the street. Various strands of the family lived in three, two were rented out. For a house I owned in E. London, the plot was on a 99y lease & the deeds say a house to be built for not less than £350. The road has a dozen styles of houses in it but, with Vic/Edwardian houses you also look at the dressings. Builders built basic brick shells but all those pillasters, cornices, nameplates – all the bits you now see picked out in white – came out of a builders merchants catalogue & were often chosen by the customer. (A have a genuine original copy.) So not al houses are dressed to the same style or level. One seemed to have got everything in the book. And you can often work out which house in the road the builder built for himself. It’s the one with the extra width for the gate to the yard with a room over. Some houses are built for owner occupier. Many were built for rent, like my great grandfather’s. Out of his own money. But, back in those days, most of the value of a house was in the fabric. What the land was worth can be derived from the ground rents on the leaseholds. Often tiny sums. Now, most of a house’s value is in the planning permission (as Tim regularly points out). As far as I can work out, the credit created to pay for that ends up with the credit creation/development nexus. It certainly doesn’t go to the builder builds the house. bloke (not) in spain July 24, 2014 at 11:25 pm @TTG “In theory, he takes the risk…” In practice, of course, he takes very little risk. His development money is borrowed from the banks. But he gets it at relatively low rates because property is regarded as a safe “investment” for the banks. The property is, itself, the collateral for the loan. But, as we learnt in the toxic asset debacle, ultimately the risk isn’t carried by him or the credit creators. It’s socialised through the government to the taxpayer. And the system protects itself by ensuring property prices remain high. By further credit creation. As it’s currently doing. Dave July 25, 2014 at 1:37 pm B(n)iS> The vast majority of those houses were built by developers, mostly much larger ones than your great-grandfather. If you look around somewhere like Muswell Hill, or the Golders Green estate, or any number of other places, entire suburbs were built by the same people, in the same basic style, at the same time. (Golders Green was built by Laing & Co for the Bishop of London, so it has no pubs and lots of churches – the Laings are also famously religious. It’s ironic given that it’s always been a strongly Jewish area.) As for your friend the property developer, I can’t comment on his practices, but in my experience a large proportion of property developers simply don’t appreciate the risks they’re taking, the gambles they’re making, or the luck they’re enjoying if those pay off. A lot of them confuse making money because they’ve invested in property in a rising market with making an actual profit on the development – and so what they’re really doing is just borrowing money to speculate on property. I’ve even met one pretty well-known flash-in-the-pan Hampstead property developer who didn’t appear to understand that gearing increases your risk as well as your profits. Sure, you can borrow 40 million with 10 million down, but if the market slumps by 10%, you’ll lose half your money; 20% and you’re wiped out. It looks great if you pull it off and make a profit on 50 million, but there’s massive risk involved – for the investor, not the banks. bloke (not) in spain July 25, 2014 at 2:43 pm @Dave I’ve lived in Muswell Hill. House built in 1901, Just off the Broadway I converted into flats. You’re right. That street was a developer. But the point I’ve been making, those houses were built with 1901 money. Equity. They weren’t built using 1931’s money. And you’re entirely correct about property risk. I’ve just been chatting to a guy has an apartement in Spain. Luxury penthouse in Spain’s premiere marina resort. Valued at 2m€+ before the crash. Currently failing to sell at 800k€. I’m looking to rent what would have been a 1m€+ 5bed villa with pool. I might offer 1k€ p/m if I’m feeling generous. That’s what happens when a property market tanks. I see absolutely no reason it won’t happen in the UK. I wouldn’t buy a dog kennel here. bloke (not) in spain July 26, 2014 at 8:33 am After pondering, I’d like to add to my thoughts: None of this credit creation ever actually goes into the building of homes. Although the value of houses rise, the costs of building them is constrained by the competition within the house building sector. The cost of building a house would be exactly the same, irrespective of the amount of credit creation or the level of house prices. Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *Comment Name * Email * Website Save my name, email, and website in this browser for the next time I comment.