I’m not of the school that getting people to spend will lead to some massive improvement in outcomes. I don’t agree that consumer spending needs to be maintained – I think that we merely need to make sure we are making use of our labour resource efficiently …

However I see what you are saying – you are saying that more flexible mortgages will make the OCR more effective. However, the Bank said in June that the OCR doesn’t seem to be any less effective, even with the proportion of people on fixed mortgage rates rising markedly:

http://www.rbnz.govt.nz/research/bulletin/2007_2011/2008jun71_2sethi.pdf

(Page 10)

As a result, I think they see the OCR as influencing other important measures, such as confidence and the exchange rate – rather than solely leading to an increase in households disposable income …

Letting people break their mortgage contracts like this will undoubtably have long-term consequences which go beyond the benefit of people spending more.

I’m sure he knows what he is saying – he is a smart man. However, I just don’t like it when politics trumps sense.

Poor show, Phil Goff.

I agree he is playing politics – but why should the fact that he is a politician put him above simple economic logic? I will never accept “he is playing politics” as an excuse for mentioning bad policy – as “playing politics” in this sense is equivalent to creating misinformation, which saddens me.

Ultimately, banks and their customers signed contracts that were in their mutual best interest ex-ante. If it is in both the banks and the clients interest to renegotiate the contract (as may be the case when someone is struggling to make payments) then they CAN renegotiate a contract between them. If the government forces them to do it then they are effectively hurting one body to help the other – namely hurting banks to help some households who overburdened themselves.

If government does do this two things happen in the future:

1) banks place a higher risk on contracts (given government involvement) and increase interest rates – maybe they don’t even loan to some people when it would have been mutually beneficial.
2) households are willing to take more risk with their mortgage – as they realise the government will intervene to help them out.

No good, no no good.

He believed those most likely to be affected were people who had bought in the past few years at the peak of the housing boom and whose mortgages were higher than their properties were now worth.

Sounds like he is trying to encourage renegotiating loan terms where people have negative equity. “in particular circumstances… where there is hardship”.

It’s hardly a call to arms to rip up your mortgage contract and seize the means of production while your at it.

I think when a company goes bankrupt employment agreements are broken.

Yes of course he is playing politics (i do believe that’s his job).