Feeling attracted to the idea of getting your mortgage covered should the sky fall in? Brian Fallow comments on the perils of Key’s policy plans:
“We are in the mess we are in because of a cavalier attitude towards debt and risk by households and their bankers, both here and in more important economies overseas. Yet the prevailing view seems to be that the solution is to be equally reckless with the taxpayer’s money. Having privatised the gains, it’s time to socialise the losses. That doesn’t just relocate the problem. It makes it worse by creating a disconnect between actions and consequences.
The latest example of this is the National Party’s proposed “rescue package” for people who lose their jobs and consequently struggle to meet their loan obligations. It sounds compassionate. It might even be seen as a pragmatic measure that would limit further downward pressure on house prices.
But that is a thin coating of sugar around a bitter pill, made of a substance called moral hazard.
It heightens the risk that we will entrench, rather than reduce, the very structural problems which underlie the credit crunch.”