Vericool Finance

Here’s an unmissable business proposition: How would you like the Government to guarantee your every liability? It would certainly come in handy should a big client go bust, or if you had bad credit card debts; or, indeed, to help manage any of those other little uncertainties to which a business is prone.

Sounds farfetched? It’s exactly the deal that mortgage lenders are attempting to push on the Government to tackle the defunct market in mortgage finance, which has all but dried up since the onslaught of the credit crunch: demand for home loans fell 68% year-on-year in June.

And it’s not just the lenders who want action. Estate agents, house builders, cabinet ministers, and every other beleaguered group with an interest in reviving the housing market are on the same bandwagon.

Hence the anticipation greeting former HBOS chief Sir James Crosby’s interim report on the mortgage crisis. But help there came none. Sir James’s central conclusion – that the situation is bad and unlikely to get better for at least three years – is depressing enough. What’s more he believes there’s virtually nothing that can be done about it.

There were hopes that Crosby might endorse an extension of the Special Liquidity Scheme (the emergency measure under which the Bank of England advances loans to banks); or even call for the establishment of a government agency, along the lines of America’s Fannie Mae and Freddy Mac, to guarantee UK mortgages.

No such luck. Had Chancellor Alistair Darling asked the famously hair-shirted Bank governor Mervyn King to conduct the review, he could scarcely have got a more unpalatable result. King’s view is that, for reasons of moral hazard, the markets must be allowed to take their punishment, however uncomfortable to ordinary householders. Sir James seems to be of much the same opinion.

Creating Gordon Mac might breathe life into mortgage-backed securities but it would postpone a solution to the core problem. The main issue is not the supply of credit, but the wilting demand for it from consumers convinced that Britain’s spivved up housing market has further to fall. Nothing will be resolved until overvalued property prices fall steadily back to Earth.

But there was no need for Crosby to succumb to such blatant defeatism. There are plenty of ways to ameliorate the misery without putting the taxpayer on the hook or bailing out the banks – and it is in the Government’s own interest to act now.

Darling has made it clear that he will wait until the autumn’s pre-Budget report to act. By then, on current trends, the Government may have a real crisis on its hands.