Thursday 5 January 2012

Reward and Punishment

There was an interesting juxtaposition, time wise, of two stories around the New Year, which highlighted for me the different standards applied to different groups and interests in society.
The first story was about the plans of the UK Coalition to crack down on council tenants who sublet their houses, by making it a criminal offence.  The detail was a bit hazy – I can’t see what’s wrong with taking in a lodger, for instance – but I think that they were really targeting people who move out of their council houses into alternative accommodation and then rent out the council house at a profit.  It’s a way of using someone else’s property to make a profit.  ‘Our’ property, in a sense, because the houses are publicly owned.
It was accompanied, of course, by a lot of guff about how council rents were subsidised by the rest of us (not really true these days), and how council houses were really only ever intended for those who could not afford their own homes (again, something of a re-writing of history).  It will have struck a chord, however, with those not entirely familiar with the details of the financing of social housing, and striking a chord is what such announcements are all about.
The second story was about the New Year Honours list, and more specifically about the honour given to the head of a hedge fund who had donated large sums to the Conservative Party.  He’d made large sums of money by betting that Northern Rock would collapse.  The techniques used by hedge funds, though, are a little more nuanced than gambling – this is the sort of gambling where the act of betting influences the outcome, if only you can bet enough money.
And, of course, the short sellers didn’t have enough money or shares to cause a collapse themselves, so they borrowed other people’s, and bought and sold things that they didn’t own.  Some might see that as using other people’s property to make a profit.  ‘Our’ property in a sense, because many of the shares ‘borrowed’ for the casino were owned by pension funds and other large financial institutions, usually on behalf of many of us.
But here’s the point.  In principle, the two actions seem to me to be quite similar, and there is no obvious argument that one is somehow more moral than the other.  So why do we criminalise the small scale abuse but honour and reward the large-scale abuse?  Which one causes the greatest misery for the greatest number?


Anonymous said...

You like many others present short selling as a guaranteed winner, it is not.

Often the combined opposite view drives shares/commodities the other way, or on many occasions there appears to be no logical reason for the share or commodity not falling.

Point is if the hedgefunds as you put it use other peoples's share etc to drive the target downwards and fail it is their loss and they are responsible for the purchase of the shares they utilised.

Not by any means a certain winner, just as on any day the favourite in 3.30 at Kempton isn't.

However if you sublet a council property you are guaranteed a winner every month ( even better if you forget totell the taxman).

John Dixon said...

I'm not sure that I said it was a guaranteed winner. If the gamble pays off, the short-sellers win, and the rest of us lose. And if it doesn't, we still lose because they're betting with our money.

But my real point is that short-selling does far more damage than sub-letting council houses, but we honour the first and criminalise the second.

Anonymous said...

Social Housing not subsidised by the rest of us? oh come off it.

They may nominally charge rent, but as that it paid for by housing benefit, it is ultimately paid for by those of us who work for a living.

Remember no one with, or even looking for a job would actually qualify for social housing in the first place, we have to pay much higher rents for inferior pirvate sector accomodation.

Anonymous said...

Hedge funds have come to specialise in naked short selling - selling assets you do not own without borrowing the equivalent (which bears a cost). This of course should be illegal.

I like your juxtaposition, John, of the two ways of profiting from other people's assets, and the way the UK junta regards them. I have never been a council tenant, though I have been, and am a housing association tenant. Every lease I have signed in social housing has specifically barred subletting. Can it be true that Council tenancy agreements are not as stringent?

John Dixon said...


You seem to be labouring under more than a few misconceptions there.

1. Not all tenants of council housing receive housing benefit.

2. Housing benefit is not restricted to council tenants, or even social housing tenants, it's paid to those whose income is too low to pay their rent. It's an income based benefit not a housing subsidy.

3. "no one with, or even looking for a job would actually qualify for social housing in the first place" is just plain wrong. There is no such qualification rule.

4. You seem to confuse social housing with council housing; there are some similar aspects but also some differences. My post was referring specifically to council housing.

5. Every council which owns council houses has a separate Housing Revenue Account - cross subsidy from the general funds is not allowed. Rents have to be set at a level which keeps the account in surplus; there is no subsidy.