What a differenece 58% makes

The Royal Bank of Scotland the Taxpayer last week believed that in the event of a mortgage default it should seek to protect its depositors and share holder's assets by reclaiming the house.

Today, after the Labour government took a 58% stake in it it, suddenly it believes that it makes "commercial" sense to wait six months.

The result of this, if the housing market keeps falling for another year or more ( which seems indicated - but hey predictions haven't been too good so far, so who knows ? ), is that either the mortgage holder will have vastly higher debt to repay at the end ( equivalent to the asset price fall and an extra 6 months interest - which let us assume they can't pay or else what are they in arrears anyway ).

It could be that this is really a commercial decision and the bank being owned by the state, whose ministers and servants have been making menacing statements about the banks for the last few weeks. but equally that could be a flock of flying pigs heading past my shed window.

The net impact of this statement will be:

1) Good headlines for the government - or at least the reduction of bad ones.
2) Greater personal debt for those poor unfortunate people who lose their homes.
3) Greater losses for RBS, depressing the share price and making greater losses for the tax payer.

This government's political ambition has too be the most expensive in UK history.

What about bringing back mortgage tax relief ?

Just had a thought whilst shaving this morning, what about mortgage tax relief ?

The problem is that too many people are defaulting on their mortgages. Currently all the plans seem to bail our the banks at the expense of the people.

What if mortgage tax relief, say on a set amount of the mortgage (as used to be the case ) was used to keep mortgages affordable - stop the defaulting and keep the banks safe ?

I realise there were market distortion reasons for getting rid of it, but if we're going to have to distort the market anyway ?

PS Perhaps Bradford and Bingley will be different to Northern Rock, as we now know the government will stand behind small northern banks. This fact may be enough to prevent to queues outside branches that killed of Northern Rock.

Update: This idea has just been backed by Guido here.