Clause 1
Banking Bill
11:00 am
Brooks Newmark (Whip, Whips; Braintree, Conservative)
I agree that the Paulson plan was flawed, in that it effectively asked taxpayers to stump up for all the bad assets. My hon. Friend’s solution is to try to separate off the bad assets—effectively creating a good bank and a bad bank—but he will find that many assets defined as toxic are not really. They are assets that are effectively under water compared with when particular individuals took out loans. These houses still have a value and over time these particular assets will, with inflation, rise and no longer be toxic assets.
A weakness of some of the solutions that have come up is that there is no solution to deal with the front-end crisis, which is a super-decline in asset values, almost to an extent that the values of houses are lower than any rational market would say that they are. One needs to come up with a solution that gives confidence to people who are borrowing and to the housing market, so that over time many of these so-called toxic assets effectively reflate their way out of their toxicity.