fun with drivel
Via Jamie Kenny, Tim “The Tory Blogger for Tories Who Actually Read Blogs” Montgomerie approvingly quotes someone who thinks the world financial crisis is all down to people living together without the approval of either a) your friendly local shaman or b) the State*. The argument, if this is the right word, runs like this; those terrible sinners are more likely to break up, therefore they are more likely to default on their mortgages, therefore the bad mortgages must be theirs.
Even before looking at the factual content of this, there are already a couple of logical flaws here – the assumption that all relationship breakdowns lead to a mortgage default, which assumes facts not in evidence, and the further assumption that because you have one group of hypothetical bad loans, and the banks have a lot of bad loans, it must be that group of bad loans whatdunnit.
Anyway, let’s plug in some numbers. Here’s the divorce rate at the very top of the boom – 2006-2007. It was the lowest for 29 years, 132,562 divorces. Now, obviously, you can’t be divorced if you didn’t get married; but the same forces drive the rate of relationship breakdown for everyone. What are they?
Essentially, people split up because they can’t stand each other for reasons internal to their relationship, or because of strains from outside, which are basically economic. The first group of causes, if it changes at all, changes over decades with change in the broader culture; it would be fair to assume there will always be some percentage of relationships that fail, and over the whole population they are fairly random. It went up from the 50s to the 80s, now it’s going down.
The second group is driven by external forces, specifically the economy – now you would expect this to fluctuate quite a lot, and I would be so bold as to forecast a sharp rise this year. So even if you grant that the rate is higher among the unmarried, it would be really surprising and unlikely if they weren’t correlated – they didn’t respond similarly to the tectonic shifts of the culture and the winds of the economy. Therefore, the whole argument is really unlikely to hold any water, because there probably wasn’t a surge of relationship breakdowns at the top of the boom, and that is still when the damage we are now seeing to the banks originally happened.
Now, the IMF estimates that the total writeoff from US-originated mortgages will be about £1.5 trillion. The US economy is between four and five times the size of ours. Taking a wild-arsed guess, and assuming that the property craziness was roughly similar in both countries (fair enough IMHO), that would mean a total loss of £0.3 trillion – 300 billion quid. (Yes, this is not a very serious model, but as Daniel Davies would say, at least I’m using a model.) The average house price was £224,064 at the peak. Let’s be conservative and project an average LTV (Loan to Value) of 90%, so an average loan would be £201,657.
Even if every divorce resulted in a 100% total loss, we’d still only have £26.7bn of losses from this cause. In fact there aren’t enough divorces even to cover the losses at RBS alone. Even if there were – what? – three times as many nondivorces, which is a crazily charitable assumption because the married are more likely to buy property, that gets us only to £107bn. And this is assuming that the property involved in a default becomes completely worthless. This is obviously silly – the only person who believes that is George Osborne. In fact, if we reckon the crash will get to 30% off the average, we’d need three times as many relationship failures again to balance the books. Not even wrong.
So, why bother spending time and effort refuting an argument that is clearly utter nonsense?
Well, one of the things that struck me was that the comments at Monty’s were surprisingly reasonable. I went in with a crude financial model and my Patent Pachyderm Pants, expecting the bearpit. But the ambience was, indeed, conservative in a good way. So what is Monty up to pushing this crap? The best argument I can see is that the Tories are still starry-eyed about the US Republicans, despite everything that happened since 1995.
This is weird – the Tories didn’t win the Thatcher wars by copying the Republicans, but rather the opposite, and the kinship between Thatcher and Reagan is overstated on the right out of nostalgia. Reagan would have been thrashed around Thatcher’s cabinet room as a Wet and a Spender, and there simply is no parallel in UK politics for the Culture War stuff. But the Tories did, post-Thatcher, fall in love again with the Gingrich years, and it’s arguable that Michael Howard’s ministerial career and 2005 election campaign were efforts at drumming up something in that line.
Clearly, the idea is not yet dead. Which is possibly a good thing – if the Tory gut is still wishing to Live Like Republicans, there’s a racing chance of beating the buggers with post-1995 tactics.
*What is conservative about having your personal life approved by the State or the Church, anyway?