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May 29, 2008

Real estate bubble ahoy!

The Ma government has a plan to encourage young people (20-39) to marry and have kids: give them a chance to have no interest on a home loan, with the subsidy covering up to NT$2 million [edit: the subsidy is not NT$2 million, but simply makes a loan of up to that amount zero interest for a couple years]

Doesn't this sound very, very much like the cause of the sub-prime mortgage problem? People who can't really afford a house buying one thanks to zero interest on the early years of their payments? And we'll already have Chinese investors/speculators entering the market ...

Update: A thoughtful reader notes ...

[This measure] doesn't seem that unreasonable to me at all. Government subsidies in form of tax exemptions and low interest loans have been in place for the better part of the last century, in many not too die-hard stoneage capitalist societies. It has been in TW before as well under KMT as under DPP rule (as far as I know). Anyway - it has been in place in Germany, other Western countries and I suspect even the US for a long time. To many good effects. It has helped millions of working class people to own their homes.

To link this to the current sub-prime crisis seems an unfair shot to me. That was created more by the hands of unscrupulous wonnabe bankers. To avoid this rip-off of the working class by the banks there has been the model of 'buiding societies' around since (in England) the 1750s, that may be more of a history thing, but in Germany these societies, called 'Bausparkasse', a basicially co-op banking system, enabled millions of families an affordable home over the last 100 years.

During the 1970s and 80s traditional banks took on this challenge by developing their own models, some corruption and mismanagement scandals within the co-ops did their other part, which means that the difference between traditionell banking and co-ops is rather murky now. To understand the scale of the scandal you have to know that corruption was almost unheard of in as well German unions as in the government beaurocracy before the 1980s.

Which is even more important in this perspective is that of most lower or middle class Germans lost all their other savings, be it cash, stocks, government bonds or insurances through several crises like WWI, inflation 1923, Great Depression and WWII.

Btw, as far as I read in the Mandarin article the benefit of course isn't 2mn NTD but affects a zero interest rate up to that sum, which is a quite a difference, and I think you should be precise when you talk numbers.

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