1 00:00:04,080 --> 00:00:09,996 lt's the English-speaking world's favourite game...property. 2 00:00:11,920 --> 00:00:15,515 And today the stakes in the game are higher than ever. 3 00:00:20,160 --> 00:00:24,073 The original property game we know today as Monopoly was actually 4 00:00:24,160 --> 00:00:28,551 invented back in 1 903 to expose the unfairness of a social system 5 00:00:28,640 --> 00:00:33,509 where a small minority of landlords screwed the majority of tenants. 6 00:00:34,760 --> 00:00:38,719 30 years later, an unemployed plumber named Charles Darrow 7 00:00:38,800 --> 00:00:41,917 patented a new version of the game, with the board based on 8 00:00:42,000 --> 00:00:44,514 the streets here in Atlantic City. 9 00:00:46,840 --> 00:00:51,072 lt was Darrow who introduced the little houses and hotels. 10 00:00:54,400 --> 00:00:58,154 What the game of Monopoly tells us, contrary to its inventor's intentions. 11 00:00:58,240 --> 00:01:01,038 is that it's smart to own property. 12 00:01:01,120 --> 00:01:04,192 And if it's smart to own property, it's even smarter 13 00:01:04,280 --> 00:01:07,078 to Iend money to the peopIe who own property. 14 00:01:07,160 --> 00:01:09,196 That's because the phrase, ''Safe as houses'' 15 00:01:09,280 --> 00:01:12,829 has a rather speciaI meaning in the worId of finance. What it means 16 00:01:12,920 --> 00:01:18,040 is there's nothing safer than to Iend money to peopIe who own reaI estate. 17 00:01:18,120 --> 00:01:20,918 Why? WeII, because if they defauIt on the Ioan, 18 00:01:21,000 --> 00:01:23,036 you can aIways repossess the property. 19 00:01:23,120 --> 00:01:25,839 Even if they run away, the house can't. 20 00:01:25,920 --> 00:01:30,675 What's more, the English-speaking world's obsession with property 21 00:01:30,760 --> 00:01:35,197 has been the foundation for a unique economic and political experiment - 22 00:01:35,280 --> 00:01:38,238 the property-owning democracy. 23 00:01:38,320 --> 00:01:42,836 Some say it's a model the whole world should adopt. 24 00:01:42,920 --> 00:01:45,912 The growth of property ownership 25 00:01:46,000 --> 00:01:49,788 gave rise to a new era in the history of finance. 26 00:01:49,880 --> 00:01:52,917 On the back of property, literally trillions of dollars 27 00:01:53,000 --> 00:01:57,357 have been borrowed, some of it by so-called sub-prime borrowers - 28 00:01:57,440 --> 00:02:02,878 people who'd previously been content to rent rather than own their homes. 29 00:02:02,960 --> 00:02:07,511 So it's come as rather a shock to millions of people that real estate 30 00:02:07,600 --> 00:02:12,037 is fundamentally no different from any other financial asset. 31 00:02:12,120 --> 00:02:16,511 lts price can go down as well as up. 32 00:02:16,600 --> 00:02:19,876 lt turns out that no amount of financial alchemy 33 00:02:19,960 --> 00:02:24,795 can turn little suburban boxes into treasure chests with roofs. 34 00:02:27,440 --> 00:02:33,276 Which raises the question, is property really as safe as houses? 35 00:02:33,360 --> 00:02:36,716 Or couId it be that we've Iet our Iove affair with reaI estate 36 00:02:36,800 --> 00:02:39,075 get compIeteIy out of proportion? 37 00:02:59,320 --> 00:03:04,838 Property ownership was once the preserve of an aristocratic elite. 38 00:03:07,240 --> 00:03:10,869 Estates were passed down from father to son, along with titles 39 00:03:10,960 --> 00:03:12,632 and political privileges. 40 00:03:12,720 --> 00:03:17,350 Everyone else was a mere tenant, paying rent to their landlord. 41 00:03:20,040 --> 00:03:22,429 Even the right to vote in elections 42 00:03:22,520 --> 00:03:25,239 was originally a function of property ownership. 43 00:03:26,080 --> 00:03:30,312 In one respect, not much has changed in Britain since those days. 44 00:03:30,400 --> 00:03:34,951 Of 60 miIIion acres of British Iand, around 40 miIIion 45 00:03:35,040 --> 00:03:38,430 are owned by just 189,000 famiIies. 46 00:03:38,520 --> 00:03:42,718 The difference is that they no Ionger monopoIise the poIiticaI system. 47 00:03:42,800 --> 00:03:45,633 Indeed, thanks to reform of the House of Lords, 48 00:03:45,720 --> 00:03:48,837 the hereditary peerage is being phased out of ParIiament. 49 00:03:48,920 --> 00:03:52,390 Now, you can expIain the decIine of the aristocracy in many ways. 50 00:03:52,480 --> 00:03:56,268 But, as far as I'm concerned, the main driver was finance. 51 00:04:02,920 --> 00:04:07,596 Until the 1 830s, fortune smiled on the British land-owning elite - 52 00:04:07,680 --> 00:04:11,673 the 30 or so families with gross annual income from their lands 53 00:04:11,760 --> 00:04:13,751 above �60,000 a year - 54 00:04:13,840 --> 00:04:16,229 roughly � 1 50 million pounds today. 55 00:04:18,640 --> 00:04:21,473 With such vast property assets backing them 56 00:04:21,560 --> 00:04:23,915 and income from agriculture booming, 57 00:04:24,000 --> 00:04:27,959 it was hard to see how the aristocracy could fail to flourish. 58 00:04:30,120 --> 00:04:33,749 Yet, by ignoring a fundamental truth about property, 59 00:04:33,840 --> 00:04:35,512 they ensured their own decline. 60 00:04:36,560 --> 00:04:38,232 GUNSHOT 61 00:04:38,320 --> 00:04:39,639 CROWS CAW 62 00:04:41,920 --> 00:04:44,480 Like many of us today, the great magnates saw the value 63 00:04:44,560 --> 00:04:49,076 of their property as a cash cow and used it to borrow to the hilt... 64 00:04:50,640 --> 00:04:53,712 ..often more than the property was worth. 65 00:04:53,800 --> 00:04:57,918 What they'd failed to understand is that property is only a security 66 00:04:58,000 --> 00:05:00,833 to the person who lends you money. 67 00:05:00,920 --> 00:05:05,277 As a borrower, you still have to earn the money to pay back the loan. 68 00:05:05,360 --> 00:05:07,396 And for the great landowners 69 00:05:07,480 --> 00:05:13,157 of Victorian Britain, that suddenly became a very difficult thing to do. 70 00:05:15,440 --> 00:05:20,798 Nowhere was the pain more acute than here in the heart of rural Buckinghamshire. 71 00:05:29,040 --> 00:05:32,635 There's something undeniabIy magnificent about this huge, 72 00:05:32,720 --> 00:05:34,278 neocIassicaI paIace - 73 00:05:34,360 --> 00:05:37,830 Stowe House - arguabIy the greatest private residence 74 00:05:37,920 --> 00:05:40,070 buiIt in EngIand in the 18th century. 75 00:05:40,160 --> 00:05:43,197 Just Iook at these extraordinary scagIioIa piIIars 76 00:05:43,280 --> 00:05:45,430 or the stunning eIIipticaI pIaster ceiIing. 77 00:05:49,320 --> 00:05:51,959 And yet there seems to be something missing. 78 00:05:52,040 --> 00:05:53,359 Or rather many things. 79 00:05:53,440 --> 00:05:58,070 Because once in each of these aIcoves there was a Roman statue. 80 00:06:04,560 --> 00:06:08,109 The exquisite Georgian firepIaces have been ripped out 81 00:06:08,200 --> 00:06:11,033 and repIaced by bog-standard ones Iike this. 82 00:06:13,040 --> 00:06:14,996 Why? 83 00:06:15,080 --> 00:06:20,871 How did this most stately of stately homes become a mere shell of its former self? 84 00:06:22,560 --> 00:06:26,519 The answer is that this house beIonged to the principaI victim 85 00:06:26,600 --> 00:06:29,478 of the first modern property crash - 86 00:06:29,560 --> 00:06:34,031 Richard PIantagenet TempIe-Nugent-Brydges-Chandos-GrenviIIe, 87 00:06:34,120 --> 00:06:36,395 2nd Duke of Buckingham. 88 00:06:37,840 --> 00:06:41,879 Stowe was only part of the Duke's vast empire of real estate. 89 00:06:41,960 --> 00:06:48,479 ln all, he owned around 67,000 acres in England, lreland and Jamaica. 90 00:06:49,560 --> 00:06:53,394 These immense properties seemed more than adequate 91 00:06:53,480 --> 00:06:55,596 to back his extravagant lifestyle. 92 00:06:55,680 --> 00:06:58,513 And he spent money as if it might go out of fashion 93 00:06:58,600 --> 00:07:00,875 on mistresses, on illegitimate children, 94 00:07:00,960 --> 00:07:05,715 on anything that he felt was compatible with his standing as a Duke of the Realm. 95 00:07:06,800 --> 00:07:09,075 PEACOCK CRIES 96 00:07:10,600 --> 00:07:14,309 By 1 845, the jig was up. 97 00:07:14,400 --> 00:07:18,393 Grain prices had begun their long slide downwards, 98 00:07:18,480 --> 00:07:21,199 and so had the income from agricultural land. 99 00:07:21,280 --> 00:07:23,874 Rural property prices plummeted. 100 00:07:23,960 --> 00:07:27,509 Suddenly, the aristocracy found that their borrowings 101 00:07:27,600 --> 00:07:30,160 had outrun the value of their estates. 102 00:07:30,240 --> 00:07:34,028 The Duke was spending far more than his income 103 00:07:34,120 --> 00:07:38,033 and most of that was being absorbed by interest payments. 104 00:07:38,120 --> 00:07:43,478 But there was to be one final bout of conspicuous consumption. 105 00:07:44,560 --> 00:07:48,758 In preparation for a visit by Queen Victoria and Prince AIbert, 106 00:07:48,840 --> 00:07:53,550 the Duke decided to spIash out and refurbish Stowe House from top to bottom. 107 00:07:53,640 --> 00:07:58,270 15 saIoons were stuffed fuII of the most expensive furniture 108 00:07:58,360 --> 00:07:59,588 that money couId buy. 109 00:07:59,680 --> 00:08:03,514 The fIoorboards were groaning under the weight of Genoa veIvet, 110 00:08:03,600 --> 00:08:06,512 embroidered satin and goId brocade. 111 00:08:06,600 --> 00:08:10,195 When the Queen saw the resuIts, she commented rather waspishIy, 112 00:08:10,280 --> 00:08:15,195 ''I am sure I have no such spIendid apartments in either of my paIaces. '' 113 00:08:15,280 --> 00:08:20,195 SadIy, the cost of this mega-makeover proved to be the finaI straw 114 00:08:20,280 --> 00:08:22,111 for the ducaI finances. 115 00:08:23,720 --> 00:08:26,359 ln August 1 848, to the Duke's horror, 116 00:08:26,440 --> 00:08:31,309 his son had the entire contents of Stowe House auctioned off. 117 00:08:31,400 --> 00:08:35,075 Now, his ancestral stately home was thrown open 118 00:08:35,160 --> 00:08:39,995 for throngs of bargain-hunters to bid for the silver, the wine, the china. 119 00:08:41,720 --> 00:08:45,759 Today, Stowe is a private boarding school. 120 00:08:50,760 --> 00:08:55,390 lt's a poignant symbol of the transience of landed wealth. 121 00:08:57,440 --> 00:08:59,431 ln the modern world, it turned out, 122 00:08:59,520 --> 00:09:05,072 a regular job and a steady income mattered more than an inherited title - 123 00:09:05,160 --> 00:09:06,878 no matter how many acres you owned. 124 00:09:10,280 --> 00:09:14,512 Divorced by his Iong-suffering and much-betrayed Scottish wife, 125 00:09:14,600 --> 00:09:18,752 whose entire wardrobe had been seized by Sheriffs Officers in London, 126 00:09:18,840 --> 00:09:22,150 the Duke was finaIIy forced to reIinquish Stowe 127 00:09:22,240 --> 00:09:24,515 and move into rented accommodation. 128 00:09:24,600 --> 00:09:27,956 He eked out his days at his cIub, the CarIton, 129 00:09:28,040 --> 00:09:30,998 writing a succession of highIy unreIiabIe memoirs 130 00:09:31,080 --> 00:09:34,834 and incorrigibIy chasing actresses and other men's wives. 131 00:09:35,920 --> 00:09:38,912 The fall of the Duke of Buckingham was a kind of harbinger 132 00:09:39,000 --> 00:09:43,790 for a new democratic age in which every adult would be given the vote 133 00:09:43,880 --> 00:09:47,998 whether they owned a stately home or paid rent for a humble flat. 134 00:09:48,080 --> 00:09:51,629 As aristocratic fortunes from agriculture declined, 135 00:09:51,720 --> 00:09:54,359 so the franchise was widened. 136 00:09:54,440 --> 00:09:58,672 Yet the advent of universaI suffrage didn't mean that property ownership 137 00:09:58,760 --> 00:10:00,318 had become universaI. 138 00:10:00,400 --> 00:10:03,437 On the contrary, as recentIy as 1938, 139 00:10:03,520 --> 00:10:08,548 Iess than a third of the UK housing stock was in the hands of owner-occupiers. 140 00:10:08,640 --> 00:10:11,074 It was on the other side of the AtIantic 141 00:10:11,160 --> 00:10:15,153 that the first true property-owning democracy wouId emerge. 142 00:10:15,240 --> 00:10:19,756 And it wouId emerge from the biggest financiaI crisis ever seen. 143 00:10:37,600 --> 00:10:40,034 An EngIishman's home is his castIe 144 00:10:40,120 --> 00:10:43,317 and Americans know that there's no pIace Iike home too, 145 00:10:43,400 --> 00:10:45,470 even if aII the homes are rather simiIar. 146 00:10:47,400 --> 00:10:52,679 Today we take the universal right to own our own home for granted. 147 00:10:54,280 --> 00:10:55,872 But before the 1 930s, 148 00:10:55,960 --> 00:11:00,431 no more than two-fifths of American households were owner-occupiers. 149 00:11:03,680 --> 00:11:05,830 lf the old class system, 150 00:11:05,920 --> 00:11:09,595 based on elite property-ownership was distinctively British, 151 00:11:09,680 --> 00:11:13,468 the revolution that created a new property-owning democracy 152 00:11:13,560 --> 00:11:17,109 was born out of a great American financial crisis. 153 00:11:21,480 --> 00:11:26,634 When the Depression struck in 1 929, the US economy nose-dived. 154 00:11:26,720 --> 00:11:29,712 The minority of people who did own their own homes 155 00:11:29,800 --> 00:11:32,314 couldn't afford the mortgage payments. 156 00:11:32,400 --> 00:11:37,599 Tenants too struggled to pay the rent when all they had coming in was the dole. 157 00:11:39,000 --> 00:11:43,755 Nowhere were the effects of the Depression more painful than in Detroit. 158 00:11:47,040 --> 00:11:48,758 Soon the automobile industry here 159 00:11:48,840 --> 00:11:52,719 employed only half the number of workers it had in 1 929, 160 00:11:52,800 --> 00:11:54,518 and at half the wages. 161 00:11:56,120 --> 00:12:01,956 By 1 932, the dispossessed of Detroit had had enough. 162 00:12:05,560 --> 00:12:10,918 On March 7th, 5,000 workers laid off by the Ford Motor Company 163 00:12:11,000 --> 00:12:14,595 marched to the factory to demand unemployment relief. 164 00:12:16,680 --> 00:12:21,310 What followed would force Americans to completely rethink 165 00:12:21,400 --> 00:12:24,198 their attitude to property ownership. 166 00:12:30,360 --> 00:12:32,510 As the unarmed crowd reached Gate 4 167 00:12:32,600 --> 00:12:35,637 of the company's River Rouge plant in Dearborn, 168 00:12:35,720 --> 00:12:37,631 scuffles broke out. 169 00:12:37,720 --> 00:12:39,950 Suddenly, the factory gates opened 170 00:12:40,040 --> 00:12:42,873 and a phalanx of police and security men rushed out 171 00:12:42,960 --> 00:12:44,712 and fired into the crowd. 172 00:12:44,800 --> 00:12:47,519 GUNSHOTS 173 00:12:53,160 --> 00:12:55,799 Five workers were killed. 174 00:12:57,400 --> 00:13:03,032 Days later, 60,000 people sang The lnternationale at their funeral. 175 00:13:09,320 --> 00:13:12,312 The Communist Party newspaper accused Edsel Ford, 176 00:13:12,400 --> 00:13:16,439 son of the firm's founder, Henry, of allowing a massacre. 177 00:13:22,240 --> 00:13:24,356 Could anything be done 178 00:13:24,440 --> 00:13:27,671 to defuse what was beginning to seem like a revolutionary situation, 179 00:13:27,760 --> 00:13:33,949 pitting the seriously propertied Fords against their property-less ex-employees? 180 00:13:34,040 --> 00:13:36,873 ln a remarkable gesture of conciliation, 181 00:13:36,960 --> 00:13:40,748 Edsel Ford turned to a Mexican artist named Diego Rivera. 182 00:13:40,840 --> 00:13:44,833 He invited him to paint a mural that would show Detroit's economy 183 00:13:44,920 --> 00:13:48,310 as a site of cooperation, not class conflict. 184 00:13:53,160 --> 00:13:56,118 Diego Rivera was a IifeIong Communist. 185 00:13:56,200 --> 00:14:00,079 His ideaI was of a society in which there wouId be no private property, 186 00:14:00,160 --> 00:14:03,197 in which the means of production wouId be commonIy owned. 187 00:14:03,280 --> 00:14:07,319 In his eyes, Ford's River Rouge pIant was the very opposite, 188 00:14:07,400 --> 00:14:10,597 a capitaIist society in which the workers worked 189 00:14:10,680 --> 00:14:14,036 and the property owners, who reaped the rewards of their efforts, 190 00:14:14,120 --> 00:14:15,235 mereIy watched. 191 00:14:24,280 --> 00:14:30,549 When the murals were unveiled in 1 933, the city's dignitaries were appalled. 192 00:14:30,640 --> 00:14:37,034 They saw them as Communist propaganda, ''a travesty on the spirit of Detroit''. 193 00:14:38,120 --> 00:14:40,759 The power of art is a wonderful thing. 194 00:14:40,840 --> 00:14:44,276 But it was clearly going to take something rather more powerful than art 195 00:14:44,360 --> 00:14:47,511 to heal a society so deeply split by the Depression. 196 00:14:49,040 --> 00:14:52,430 Other countries turned to the extremes of totaIitarianism. 197 00:14:52,520 --> 00:14:55,557 But in the United States the answer was the New DeaI. 198 00:14:55,640 --> 00:14:58,234 And that incIuded a New DeaI on housing. 199 00:14:58,320 --> 00:15:00,993 In radicaIIy increasing the number of Americans 200 00:15:01,080 --> 00:15:03,275 who couId hope to own their own homes, 201 00:15:03,360 --> 00:15:08,309 the RooseveIt administration pioneered the idea of a property-owning democracy. 202 00:15:08,400 --> 00:15:11,870 It proved to be the perfect antidote to Red revoIution. 203 00:15:18,360 --> 00:15:21,432 ln effect, the government would rig the housing market 204 00:15:21,520 --> 00:15:25,308 to incentivise Americans to become property owners. 205 00:15:28,600 --> 00:15:32,036 Customers at local mortgage lenders, known as savings and loans, 206 00:15:32,120 --> 00:15:34,634 the equivalent of British building societies, 207 00:15:34,720 --> 00:15:37,678 would have their deposits guaranteed by the Government 208 00:15:37,760 --> 00:15:39,671 even if a bank went bust. 209 00:15:43,080 --> 00:15:47,517 Crucially, a new Federal Housing Administration was set up 210 00:15:47,600 --> 00:15:51,718 to offer larger, longer and lower-interest loans. 211 00:15:51,800 --> 00:15:55,110 After the 1 930s, most mortgages in the United States were fixed 212 00:15:55,200 --> 00:15:57,111 for 20 or 30 years. 213 00:15:58,320 --> 00:16:02,996 A new Federal National Mortgage Association, nicknamed Fannie Mae, 214 00:16:03,080 --> 00:16:06,629 was set up to create a nationwide market for home loans. 215 00:16:06,720 --> 00:16:10,713 (TV REPORTER) This coupIe is going through a modeI house now. 216 00:16:10,800 --> 00:16:12,916 The husband, apparentIy, isn't very keen about it aII, 217 00:16:13,000 --> 00:16:15,753 but his wife is entranced by such convenient features 218 00:16:15,840 --> 00:16:17,831 as the sturdy buiIt-in ironing board. 219 00:16:18,920 --> 00:16:22,037 By reducing the monthly cost of a mortgage, 220 00:16:22,120 --> 00:16:24,680 these reforms made home-ownership possible 221 00:16:24,760 --> 00:16:27,149 for many more Americans than ever before. 222 00:16:27,240 --> 00:16:30,357 (TV REPORTER) They both wouId Iike to have this pIace for their very own. 223 00:16:30,440 --> 00:16:32,556 Too bad they can't afford it. 224 00:16:32,640 --> 00:16:35,029 Ah! But maybe they can. 225 00:16:35,120 --> 00:16:37,680 For according to this sign, they can buy this house 226 00:16:37,760 --> 00:16:41,196 with monthIy payments that are Iess than they now spend for rent! 227 00:16:47,520 --> 00:16:51,399 lt's not too much to say that the modern United States, 228 00:16:51,480 --> 00:16:58,318 with its seductively samey suburbs, was born out of these New Deal reforms. 229 00:16:59,480 --> 00:17:03,359 From the 1930s then, the US Government effectiveIy underwrote 230 00:17:03,440 --> 00:17:07,035 the mortgage market, bringing borrowers and Ienders together. 231 00:17:07,120 --> 00:17:10,556 And that was the reason for the big expIosion in property ownership 232 00:17:10,640 --> 00:17:14,110 and mortgage debt in the decades after WorId War II. 233 00:17:14,200 --> 00:17:16,077 There was just one catch - 234 00:17:16,160 --> 00:17:22,508 not everyone in American society had an invitation to the property-owning party. 235 00:17:29,320 --> 00:17:33,791 When these houses were built in Detroit back in 1 941, 236 00:17:33,880 --> 00:17:36,394 whether you got the money or not for a mortgage 237 00:17:36,480 --> 00:17:39,916 depended on which side of this divide you lived. 238 00:17:41,200 --> 00:17:45,239 It was a reaI estate deveIoper who buiIt this six-foot high waII 239 00:17:45,320 --> 00:17:48,118 right through the middIe of Detroit's 8 MiIe district. 240 00:17:48,200 --> 00:17:50,873 He had to buiId it in order to quaIify for Ioans 241 00:17:50,960 --> 00:17:53,315 from the FederaI Housing Administration. 242 00:17:53,400 --> 00:17:56,437 The Ioans were to be given for construction on that side of the waII, 243 00:17:56,520 --> 00:17:58,829 which was a predominantIy white neighbourhood. 244 00:17:58,920 --> 00:18:02,549 On this side, on the bIack side, there was to be no federaI credit, 245 00:18:02,640 --> 00:18:06,679 because African Americans were regarded as fundamentaIIy uncreditworthy. 246 00:18:10,600 --> 00:18:14,149 lt was part of a system that divided the whole city - 247 00:18:14,240 --> 00:18:16,708 in theory by credit-rating, 248 00:18:16,800 --> 00:18:18,472 in practice by colour. 249 00:18:18,560 --> 00:18:22,109 Segregation, in other words, wasn't accidental, 250 00:18:22,200 --> 00:18:25,397 but a direct consequence of federal policy. 251 00:18:28,800 --> 00:18:31,075 This map by the FederaI Home Loan Board 252 00:18:31,160 --> 00:18:34,869 shows the predominantIy bIack areas of Detroit, the Iower east side 253 00:18:34,960 --> 00:18:38,794 and so-caIIed coIonies Iike the one we're in now in Birwood-Griggs, 254 00:18:38,880 --> 00:18:41,075 marked with a Ietter D and coIoured red. 255 00:18:43,160 --> 00:18:44,513 You can see why the practice 256 00:18:44,600 --> 00:18:47,558 of giving whoIe neighbourhoods a negative credit rating 257 00:18:47,640 --> 00:18:50,029 came to be known as ''red-Iining''. 258 00:18:50,120 --> 00:18:53,476 The resuIt was that when peopIe from round here needed mortgages, 259 00:18:53,560 --> 00:18:56,154 they had to pay significantIy higher interest rates 260 00:18:56,240 --> 00:18:58,276 than the foIks in the white part of town. 261 00:19:00,840 --> 00:19:04,469 Half a century later, the two categories of borrowers 262 00:19:04,560 --> 00:19:08,633 would come to be known euphemistically as prime and sub-prime. 263 00:19:10,240 --> 00:19:14,870 But in the 1 960s, this divide was the hidden financial dimension 264 00:19:14,960 --> 00:19:16,951 of the Civil Rights struggle. 265 00:19:17,040 --> 00:19:21,830 Blacks were to be excluded from the new property-owning society. 266 00:19:21,920 --> 00:19:26,596 There would be a heavy price to pay for this exclusion. 267 00:19:28,200 --> 00:19:34,275 On July 23rd 1 967, property in Detroit literally went up in flames. 268 00:19:36,280 --> 00:19:40,592 (TV) Four days of rioting, Iooting and arson rocked the city of Detroit 269 00:19:40,680 --> 00:19:43,672 in the worst outbreak of urban raciaI vioIence this year. 270 00:19:44,800 --> 00:19:50,272 Anger at economic discrimination spilled over into five days of rioting 271 00:19:50,360 --> 00:19:52,590 that left 43 people dead. 272 00:19:52,680 --> 00:19:57,117 Significantly, most of the violence was directed not against people, 273 00:19:57,200 --> 00:19:58,713 but against property. 274 00:19:58,800 --> 00:20:02,588 Nearly 3,000 buildings were looted or burned. 275 00:20:08,920 --> 00:20:13,357 The real lesson for policy makers was that excluding ethnic minorities 276 00:20:13,440 --> 00:20:17,592 from the property-owning democracy was a fast track to trouble. 277 00:20:17,680 --> 00:20:21,958 To make people feel like stakeholders in the social status quo, 278 00:20:22,040 --> 00:20:24,679 you had to make them property owners. 279 00:20:28,120 --> 00:20:32,238 lndeed, widening home ownership might even turn the malcontents 280 00:20:32,320 --> 00:20:34,470 into conservatives. 281 00:20:35,600 --> 00:20:39,832 This was a lesson that Margaret Thatcher was quick to learn. 282 00:20:39,920 --> 00:20:44,311 Here in Britain, the idea of the property-owning democracy 283 00:20:44,400 --> 00:20:46,994 became a keystone of 1 980s Conservatism. 284 00:20:47,080 --> 00:20:52,154 By selling off council housing at bargain-basement prices, 285 00:20:52,240 --> 00:20:57,075 Thatcher ensured that more and more British couples had a home of their own. 286 00:20:58,760 --> 00:21:03,595 That also meant that more people than ever had mortgages. 287 00:21:05,320 --> 00:21:09,359 Up untiI the 1980s, government incentives to borrow money and buy a house 288 00:21:09,440 --> 00:21:12,557 made pretty good sense for the average British famiIy. 289 00:21:12,640 --> 00:21:16,155 Interest rates were reIativeIy Iow in the '60s and '70s, 290 00:21:16,240 --> 00:21:18,470 and the infIation rate tended to creep up, 291 00:21:18,560 --> 00:21:22,269 so that the reaI vaIue of mortgage debt tended to faII. 292 00:21:22,360 --> 00:21:24,032 But there was a sting in the taiI. 293 00:21:24,120 --> 00:21:26,793 The very same governments that professed their faith 294 00:21:26,880 --> 00:21:31,158 in the property-owning democracy were aIso committed to fighting infIation, 295 00:21:31,240 --> 00:21:33,549 and that meant raising interest rates. 296 00:21:34,600 --> 00:21:37,876 The British and American policy of encouraging people 297 00:21:37,960 --> 00:21:43,592 to take out mortgages and then cranking up interest rates led in the late '80s 298 00:21:43,680 --> 00:21:48,117 to one of the most spectacular booms and busts in the property market's history. 299 00:21:48,200 --> 00:21:53,638 lt was to the '80s what the sub-prime meltdown has been in our own time - 300 00:21:53,720 --> 00:21:57,349 the first, but not the last time that America's mortgage market 301 00:21:57,440 --> 00:21:59,237 has gone stark raving mad. 302 00:22:13,280 --> 00:22:15,316 To many of us, it's come as a shock 303 00:22:15,400 --> 00:22:18,278 that a crash in the American property market 304 00:22:18,360 --> 00:22:21,193 could trigger a major financial crisis. 305 00:22:23,240 --> 00:22:28,473 ln fact, as so often in the ascent of money, it's happened before. 306 00:22:33,440 --> 00:22:37,558 ln March 1 984, American government regulators received a copy 307 00:22:37,640 --> 00:22:41,997 of a video showing mile after mile of half-built houses and condominiums 308 00:22:42,080 --> 00:22:47,074 along lnterstate 30, just outside Dallas in Texas. 309 00:22:52,160 --> 00:22:55,072 You can still see the empty slabs today. 310 00:22:57,720 --> 00:23:01,474 The investigation triggered by these un-buiIt homes wouId expose 311 00:23:01,560 --> 00:23:04,757 one of the biggest financiaI scandaIs of aII time - 312 00:23:04,840 --> 00:23:07,638 a scam that wouId make a mockery of the idea 313 00:23:07,720 --> 00:23:10,632 of property as a safe form of investment. 314 00:23:10,720 --> 00:23:13,234 This isn't a story about reaI estate - 315 00:23:13,320 --> 00:23:15,595 more Iike surreal estate. 316 00:23:19,200 --> 00:23:23,512 Savings and loan associations - America's building societies - 317 00:23:23,600 --> 00:23:27,878 were not only central to Roosevelt's New Deal on housing. 318 00:23:27,960 --> 00:23:32,715 By the 1 97 0s, they were the foundation of America's property-owning democracy. 319 00:23:34,520 --> 00:23:37,910 Then, in the 1970s, the savings and Ioan industry was hit 320 00:23:38,000 --> 00:23:42,198 first by doubIe-digit infIation and then by higher interest rates. 321 00:23:43,960 --> 00:23:49,318 lt was a lethal double punch for institutions that were forbidden by law 322 00:23:49,400 --> 00:23:51,391 to raise the rates they paid to savers, 323 00:23:51,480 --> 00:23:55,996 and which were receiving interest payments from local mortgage borrowers 324 00:23:56,080 --> 00:23:58,036 that had been fixed decades before. 325 00:24:01,240 --> 00:24:06,917 The response in Washington was to remove nearly all these restrictions. 326 00:24:08,720 --> 00:24:12,679 When deregulation was enacted in 1 982, 327 00:24:12,760 --> 00:24:14,591 President Reagan was cock-a-hoop. 328 00:24:14,680 --> 00:24:16,955 AII in aII, I think we hit the jackpot. 329 00:24:18,560 --> 00:24:20,835 Well, some people certainly did. 330 00:24:25,360 --> 00:24:29,035 Liberated from the old constraints, the people running savings and loans 331 00:24:29,120 --> 00:24:32,999 suddenly saw a chance to make some serious money 332 00:24:33,080 --> 00:24:35,753 from the once boring business of mortgage lending. 333 00:24:37,520 --> 00:24:42,275 By raising savings rates, they could attract much more money from depositors. 334 00:24:42,360 --> 00:24:44,510 Then they could use these deposits 335 00:24:44,600 --> 00:24:47,433 as the basis for as many loans as they liked. 336 00:24:51,200 --> 00:24:54,317 Crucially, though, one thing didn't change. 337 00:24:54,400 --> 00:24:58,279 Savers' deposits were still insured by the government. 338 00:25:00,560 --> 00:25:05,839 lt was an invitation to a gigantic free lunch for financial cowboys. 339 00:25:07,800 --> 00:25:11,110 This is the Wise Circle Grill just outside Dallas, 340 00:25:11,200 --> 00:25:17,116 filled every lunchtime with local citizens of unblemished integrity. 341 00:25:17,200 --> 00:25:20,988 Twenty years ago, the clientele was rather different. 342 00:25:22,320 --> 00:25:27,348 The city of DaIIas had more than its fair share of frauduIent savings and Ioans, 343 00:25:27,440 --> 00:25:31,718 and this was where the DaIIas property cowboys came to hang out. 344 00:25:31,800 --> 00:25:36,430 The Wise CircIe GriII was the pIace to have brunch 345 00:25:36,520 --> 00:25:39,592 when they weren't whooping it up on their Southfork-styIe ranches. 346 00:25:42,440 --> 00:25:45,079 It was aII very, very 1980s. 347 00:25:45,160 --> 00:25:49,597 To one group of DaIIas deveIopers, the Empire Savings and Loan Association 348 00:25:49,680 --> 00:25:54,310 offered the perfect opportunity to make money out of thin air... 349 00:25:54,400 --> 00:25:57,392 or rather, out of fIat, Texan Iand. 350 00:26:00,480 --> 00:26:03,836 The surreal saga of Empire Savings and Loans began 351 00:26:03,920 --> 00:26:06,559 when chairman Spencer Blain teamed up 352 00:26:06,640 --> 00:26:10,679 with a flamboyant high-school dropout turned property developer 353 00:26:10,760 --> 00:26:15,276 named Danny Faulkner, whose speciality was extravagant generosity... 354 00:26:15,360 --> 00:26:17,112 with other people's money. 355 00:26:17,200 --> 00:26:19,191 COINS CASCADE 356 00:26:19,280 --> 00:26:23,478 The money in question came in the form of deposit accounts 357 00:26:23,560 --> 00:26:26,870 on which Empire paid alluringly high interest rates. 358 00:26:26,960 --> 00:26:31,511 This is FauIkner Point, one of the very first deveIopments 359 00:26:31,600 --> 00:26:36,116 that Danny FauIkner ever buiIt, and it spawned a veritabIe empire 360 00:26:36,200 --> 00:26:40,239 of FauIkner Crest, FauIkner Creek, FauIkner Crescent, 361 00:26:40,320 --> 00:26:42,675 FauIkner Fountains, FauIkner Oaks. 362 00:26:43,760 --> 00:26:47,150 Danny FauIkner's favourite trick was ''the fIip''. 363 00:26:47,240 --> 00:26:53,793 He'd buy some parceI of Iand for peanuts, and then seII it on to naive investors 364 00:26:53,880 --> 00:26:56,838 who got the money Ient to them by - 365 00:26:56,920 --> 00:26:59,593 you've guessed it - Empire Savings and Loans. 366 00:27:02,400 --> 00:27:06,075 Danny FauIkner may have cIaimed that he was iIIiterate, 367 00:27:06,160 --> 00:27:07,912 but he certainIy wasn't innumerate. 368 00:27:10,920 --> 00:27:15,436 Many investors never even got a chance to view their properties close up. 369 00:27:15,520 --> 00:27:19,752 Faulkner would simply fly them over in his helicopter without landing. 370 00:27:22,360 --> 00:27:26,990 By 1 984, property development in Texas was out of control, 371 00:27:27,080 --> 00:27:29,799 paid for by government-guaranteed deposits 372 00:27:29,880 --> 00:27:34,158 that were effectively going straight into the pockets of the developers. 373 00:27:36,040 --> 00:27:40,397 On paper at least, the assets of Empire had grown 374 00:27:40,480 --> 00:27:46,430 from $1 2 million to $257 million in just over two years. 375 00:27:46,520 --> 00:27:50,593 The troubIe was that the demand for condos by Interstate 30 376 00:27:50,680 --> 00:27:53,831 couId never possibIy have kept up with the vast suppIy 377 00:27:53,920 --> 00:27:57,799 that was being generated by FauIkner, BIain and their cronies. 378 00:27:57,880 --> 00:28:00,838 When the reguIators finaIIy bIew the whistIe in 1984, 379 00:28:00,920 --> 00:28:02,956 that reaIity couId no Ionger be escaped, 380 00:28:03,040 --> 00:28:05,474 and hundreds of the buiIdings that they erected 381 00:28:05,560 --> 00:28:08,472 ended up being buIIdozed or burnt to the ground. 382 00:28:08,560 --> 00:28:10,596 Today, 24 years on, 383 00:28:10,680 --> 00:28:12,955 it's stiII a Texan wasteIand. 384 00:28:14,880 --> 00:28:19,749 ln 1 991, Faulkner and Blain were both convicted and jailed for fraud. 385 00:28:19,840 --> 00:28:23,799 One investigator called Empire ''one of the most reckless 386 00:28:23,880 --> 00:28:28,749 ''and fraudulent land investment schemes in American history. '' 387 00:28:28,840 --> 00:28:32,674 ln all, nearly 500 savings and loans collapsed. 388 00:28:32,760 --> 00:28:34,876 According to one official estimate, 389 00:28:34,960 --> 00:28:38,919 nearly half had seen ''criminal conduct by insiders''. 390 00:28:43,680 --> 00:28:49,277 The full cost of the crisis was $1 53 billion, 391 00:28:49,360 --> 00:28:53,353 making it one of the most expensive financial crises in American history. 392 00:28:53,440 --> 00:28:56,318 And the federal government which had deregulated 393 00:28:56,400 --> 00:28:59,073 the savings and loans in the first place 394 00:28:59,160 --> 00:29:05,474 had to pick up the bill, which is another way of saying that taxpayers forked out. 395 00:29:05,560 --> 00:29:09,394 It was the first cIear sign that there might be a downside 396 00:29:09,480 --> 00:29:12,472 to the idea of the property-owning democracy. 397 00:29:13,880 --> 00:29:17,589 Yet the savings and loans crisis was a mere tremor 398 00:29:17,680 --> 00:29:19,910 compared with the property earthquake 399 00:29:20,000 --> 00:29:23,356 that would strike the US market 20 years later. 400 00:29:27,480 --> 00:29:30,836 Savings and loans was an all-American crisis. 401 00:29:30,920 --> 00:29:32,876 But the sub-prime quake 402 00:29:32,960 --> 00:29:38,159 would shake the entire world of finance to its very foundations. 403 00:29:43,280 --> 00:29:45,748 When this wall was built 404 00:29:45,840 --> 00:29:49,389 to divide white homeowners from black renters in the 1 940s, 405 00:29:49,480 --> 00:29:54,508 black families found it virtually impossible to get mortgages. 406 00:29:54,600 --> 00:29:58,832 Sixty years later, that had all changed. 407 00:30:00,400 --> 00:30:03,517 ''We want everybody in America to own their own home, '' 408 00:30:03,600 --> 00:30:08,037 President George WBush declared in October 2002, challenging lenders 409 00:30:08,120 --> 00:30:12,398 to create 5.5 million new minority homeowners 410 00:30:12,480 --> 00:30:15,153 by the end of the decade. 411 00:30:15,240 --> 00:30:20,360 Positively encouraged by the federal government to relax lending standards, 412 00:30:20,440 --> 00:30:23,910 mortgage companies swarmed into areas like this one, 413 00:30:24,000 --> 00:30:26,639 offering all kinds of alluring deals. 414 00:30:31,920 --> 00:30:36,118 Because so many of the new borrowers had patchy credit histories, 415 00:30:36,200 --> 00:30:39,476 these loans came to be known as ''sub-prime''. 416 00:30:47,960 --> 00:30:51,839 That made you a perfect candidate for a NlNJ A loan. 417 00:30:53,200 --> 00:30:55,953 The problem was that behind low introductory payments, 418 00:30:56,040 --> 00:30:59,999 these new mortgage loans were very different from the old, 419 00:31:00,080 --> 00:31:02,389 30-year fixed-rate repayment loans of the past. 420 00:31:02,480 --> 00:31:04,835 Since the 1980s, 421 00:31:04,920 --> 00:31:09,152 the housing game has radicaIIy changed throughout the EngIish-speaking worId. 422 00:31:09,240 --> 00:31:12,038 Mortgages are for shorter and shorter durations 423 00:31:12,120 --> 00:31:15,874 and more and more borrowers are opting for interest-onIy mortgages. 424 00:31:15,960 --> 00:31:20,909 That makes househoIds far more sensitive than they were to interest-rate hikes. 425 00:31:21,760 --> 00:31:25,833 So how come the lenders didn't worry that these sub-prime borrowers 426 00:31:25,920 --> 00:31:29,754 were almost certain to default if interest rates rose? 427 00:31:29,840 --> 00:31:32,513 The answer to that question 428 00:31:32,600 --> 00:31:37,549 and the key to the sub-prime crisis was another ''S'' word... 429 00:31:45,760 --> 00:31:48,149 Instead of putting their own money at risk, 430 00:31:48,240 --> 00:31:51,277 sub-prime Ienders immediateIy soId the Ioans on 431 00:31:51,360 --> 00:31:53,510 to banks here, in and around WaII Street. 432 00:31:53,600 --> 00:31:56,353 And the banks then securitized the Ioans, 433 00:31:56,440 --> 00:32:00,274 which means they bundIed them together and then sIiced and diced them 434 00:32:00,360 --> 00:32:02,112 so that at Ieast the top tier 435 00:32:02,200 --> 00:32:06,352 couId be cIassified as tripIe-A-rated, ''investment grade'' securities. 436 00:32:06,440 --> 00:32:10,592 And the banks then soId these securities to investors 1 ,000 miIes away from Detroit 437 00:32:10,680 --> 00:32:12,636 who were happy to pay 438 00:32:12,720 --> 00:32:16,713 for just a few extra hundredths of a percentage point in interest. 439 00:32:21,400 --> 00:32:24,676 The key to securitization was the distance 440 00:32:24,760 --> 00:32:27,513 between the mortgage borrowers in, say, Detroit, 441 00:32:27,600 --> 00:32:31,354 and the people who ended up receiving their interest payments. 442 00:32:31,440 --> 00:32:34,671 By the time small towns in Norway bought these securities, 443 00:32:34,760 --> 00:32:39,390 they had no idea what was really behind their investment. 444 00:32:41,320 --> 00:32:42,912 FinanciaI aIchemy? 445 00:32:43,000 --> 00:32:46,197 WeII, it was a business modeI that worked beautifuIIy 446 00:32:46,280 --> 00:32:49,909 as Iong as interest rates stayed Iow, peopIe kept their jobs, 447 00:32:50,000 --> 00:32:53,595 and reaI-estate prices continued to rise. 448 00:32:57,320 --> 00:33:01,791 Unfortunately, none of these things happened in Detroit. 449 00:33:01,880 --> 00:33:04,235 ln 2006 alone, 450 00:33:04,320 --> 00:33:08,472 sub-prime lenders injected more than a billion dollars 451 00:33:08,560 --> 00:33:12,997 into those areas of the city where home values were already falling 452 00:33:13,080 --> 00:33:16,834 and unemployment and mortgage rates were already rising. 453 00:33:19,720 --> 00:33:23,759 Where Detroit led, other cities soon followed. 454 00:33:36,680 --> 00:33:42,038 MEN READ OUT ADDRESSES 455 00:33:42,120 --> 00:33:47,069 It's Thursday at noon and I'm witnessing a twice-daiIy rituaI 456 00:33:47,160 --> 00:33:49,913 here on the steps of the Memphis Courthouse. 457 00:33:50,000 --> 00:33:53,754 About 30 homes are about to be auctioned off here, and the reason is 458 00:33:53,840 --> 00:33:56,991 that the mortgage Ienders have forecIosed on the homeowners 459 00:33:57,080 --> 00:33:59,640 for faiIing to keep up with their interest payments. 460 00:33:59,720 --> 00:34:01,870 2926 South Radford Avenue... 461 00:34:01,960 --> 00:34:06,033 Memphis is reaIIy becoming ForecIosure City these days. 462 00:34:06,120 --> 00:34:09,157 In the past five years, something Iike one in four househoIds 463 00:34:09,240 --> 00:34:12,835 has received a notice threatening them with forecIosure. 464 00:34:14,480 --> 00:34:18,268 Since the sub-prime mortgage market began to turn sour 465 00:34:18,360 --> 00:34:22,148 in the early summer of 2007, shockwaves have been spreading 466 00:34:22,240 --> 00:34:24,037 through all the world's financial markets, 467 00:34:24,120 --> 00:34:27,635 wiping out hedge funds, obliterating venerable investment banks 468 00:34:27,720 --> 00:34:31,269 and costing the survivors hundreds of billions of dollars. 469 00:34:35,040 --> 00:34:39,192 Remember that pillar of the 1 930s New Deal mortgage market, 470 00:34:39,280 --> 00:34:40,713 Fannie Mae? 471 00:34:40,800 --> 00:34:44,873 With its younger brother, Freddie Mac, it grew to own or guarantee 472 00:34:44,960 --> 00:34:47,599 around half of all American home loans. 473 00:34:47,680 --> 00:34:51,116 ln September 2008, Fannie and Freddie 474 00:34:51,200 --> 00:34:53,156 were effectively nationalised 475 00:34:53,240 --> 00:34:56,550 to avoid a complete collapse of the mortgage market. 476 00:34:56,640 --> 00:35:01,714 Established Wall Street names like Bear Stearns, Lehman Brothers 477 00:35:01,800 --> 00:35:04,109 and Merrill Lynch have vanished. 478 00:35:04,200 --> 00:35:09,320 Unlike savings and loans, this crisis extends right around the world. 479 00:35:09,400 --> 00:35:15,236 The four Norwegian municipalities of Rana, Hemnes, Hattfjelldal and Narvik, 480 00:35:15,320 --> 00:35:19,632 which had invested their citizens' taxes in sub-prime backed securities, 481 00:35:19,720 --> 00:35:24,316 are now sitting on an investment worth roughly 1 5% of what they paid for it - 482 00:35:24,400 --> 00:35:27,039 a loss of $1 00 million. 483 00:35:30,720 --> 00:35:32,472 In the EngIish-speaking worId, 484 00:35:32,560 --> 00:35:35,358 we tend to think of property as a one-way bet. 485 00:35:35,440 --> 00:35:38,796 The simpIest way of getting rich is to pIay the property market. 486 00:35:38,880 --> 00:35:42,270 In fact, you'd be a mug to invest your money in anything eIse. 487 00:35:44,480 --> 00:35:47,677 But the remarkable thing about this supposed ''truth'' 488 00:35:47,760 --> 00:35:51,958 is how often reality gives it the lie. 489 00:35:52,040 --> 00:35:55,828 For like stock markets, property can soar in value 490 00:35:55,920 --> 00:35:59,117 only to crash in the most spectacular way. 491 00:36:02,640 --> 00:36:06,553 ln Britain, between 1 989 and 1 995, 492 00:36:06,640 --> 00:36:10,110 the average house price fell by 1 8%. 493 00:36:13,280 --> 00:36:17,637 But that was nothing compared with what happened here in Japan. 494 00:36:26,120 --> 00:36:28,076 The view's good. 495 00:36:28,160 --> 00:36:31,675 Very Austin Powers decor. I'm Ioving that. 496 00:36:34,080 --> 00:36:35,752 Oh, that's the boiIer. 497 00:36:37,360 --> 00:36:39,271 OK, weII, Iet's cut to the chase. 498 00:36:39,360 --> 00:36:43,717 How much is this pIace going to cost if I put the money down now? 499 00:36:43,800 --> 00:36:45,153 SPEAKS JAPANESE 500 00:36:45,240 --> 00:36:47,708 So that wouId be cIose to $2 miIIion. 501 00:36:47,800 --> 00:36:49,518 OK, that's Iike a miIIion... 502 00:36:49,600 --> 00:36:54,754 a miIIion pounds buys me this bijou apartment in Tokyo. 503 00:36:54,840 --> 00:36:56,876 But this is a smart neighbourhood, right? 504 00:36:58,880 --> 00:37:04,512 That may sound like a lot, but in recent Japanese history, it's a real bargain. 505 00:37:08,240 --> 00:37:10,834 Between 1 985 and 1 990, 506 00:37:10,920 --> 00:37:14,230 property prices in Japan rose by a factor of roughly three. 507 00:37:14,320 --> 00:37:17,278 Banks fell over themselves to ride this wave. 508 00:37:23,960 --> 00:37:27,509 But it wasn't a wave. lt was a bubble. 509 00:37:29,200 --> 00:37:31,316 And in 1 990 it burst. 510 00:37:34,080 --> 00:37:36,753 Prices here in Tokyo fell... 511 00:37:38,200 --> 00:37:42,876 ..by 7 5%, wiping out all the previous gains. 512 00:37:44,960 --> 00:37:46,916 This costs �1 miIIion now. 513 00:37:47,000 --> 00:37:51,949 How much did it cost back in 1990, at the peak of the property bubbIe? 514 00:37:52,040 --> 00:37:55,749 - So roughIy three times the vaIue. - Three times? 515 00:37:55,840 --> 00:37:58,912 So cIose to...possibIy $6 miIIion. 516 00:37:59,000 --> 00:38:00,752 �3 miIIion. Wow! 517 00:38:00,840 --> 00:38:05,118 We think we've had a property crash in the West, but this is a reaI property crash. 518 00:38:12,880 --> 00:38:17,351 So no, property isn't a uniqueIy safe investment. 519 00:38:17,440 --> 00:38:20,398 House prices can go down as weII as up. 520 00:38:20,480 --> 00:38:23,438 And as assets go, houses are pretty iIIiquid, 521 00:38:23,520 --> 00:38:27,957 which means you can't unIoad them in a hurry if you get into a financiaI jam. 522 00:38:28,040 --> 00:38:30,156 And that, pretty much, is the downside 523 00:38:30,240 --> 00:38:33,232 of the idea of a property-owning democracy. 524 00:38:33,320 --> 00:38:36,551 The question now is whether we EngIish-speakers 525 00:38:36,640 --> 00:38:40,758 have any business trying to export our modeI to the rest of the worId. 526 00:38:47,800 --> 00:38:52,749 The real flaw in the property-owning democracy, as recent events have proved, 527 00:38:52,840 --> 00:38:57,960 is that the housing market, like any asset market, is prone to booms and busts. 528 00:38:58,040 --> 00:39:02,636 But maybe there's another way of looking at property - 529 00:39:02,720 --> 00:39:04,631 as a means of unlocking new wealth 530 00:39:04,720 --> 00:39:08,315 by providing collateral for aspiring entrepreneurs. 531 00:39:10,480 --> 00:39:13,552 Could property ownership be the answer to the problems 532 00:39:13,640 --> 00:39:15,790 of the world's poorest countries? 533 00:39:18,400 --> 00:39:23,235 You've heard of sub-prime borrowers. Well, welcome to a sub-prime country... 534 00:39:24,720 --> 00:39:29,396 ..Argentina, where economic underachievement 535 00:39:29,480 --> 00:39:31,436 has been a way of life for a century. 536 00:39:36,680 --> 00:39:40,719 These slums on the outskirts of Buenos Aires seem a million miles 537 00:39:40,800 --> 00:39:44,315 from the elegant boulevards of the Argentine capital's centre. 538 00:39:45,920 --> 00:39:49,117 But are people here really as poor as they look? 539 00:39:50,920 --> 00:39:53,718 One man didn't believe so. 540 00:39:53,800 --> 00:39:59,397 Peruvian economist Hernando de Soto saw the shabby residences like these 541 00:39:59,480 --> 00:40:02,517 in developing countries all over the world as representing 542 00:40:02,600 --> 00:40:06,559 literally trillions of dollars of unrealised wealth. 543 00:40:10,680 --> 00:40:13,240 The probIem is that the peopIe who Iive here, 544 00:40:13,320 --> 00:40:15,993 and in countIess shanty towns around the worId, 545 00:40:16,080 --> 00:40:19,277 don't have secure IegaI titIe to their homes. 546 00:40:19,360 --> 00:40:22,670 That's bad, because without a IegaI titIe to property, 547 00:40:22,760 --> 00:40:25,672 you can't use it as coIIateraI to borrow money. 548 00:40:25,760 --> 00:40:27,512 And if you can't borrow money, 549 00:40:27,600 --> 00:40:31,479 then you can't possibIy raise the capitaI you need to start a business. 550 00:40:34,720 --> 00:40:39,874 Part of the trouble is that in poor countries, it's a bureaucratic nightmare 551 00:40:39,960 --> 00:40:43,191 to establish secure legal title to property. 552 00:40:43,280 --> 00:40:47,717 lt can take months - sometimes years - longer than in the English-speaking world. 553 00:40:47,800 --> 00:40:49,631 For Hernando de Soto, 554 00:40:49,720 --> 00:40:52,871 breathing financiaI Iife into aII this dead capitaI 555 00:40:52,960 --> 00:40:57,397 is the key to providing the poor with a more prosperous future. 556 00:41:03,520 --> 00:41:08,036 The shanty town of Quilmes, on the southern outskirts of Buenos Aires, 557 00:41:08,120 --> 00:41:12,159 provides a natural experiment to test De Soto's theory. 558 00:41:14,000 --> 00:41:19,279 On one side of the town, there are some of the most squalid slums l've ever seen. 559 00:41:20,400 --> 00:41:24,313 But just a few miles away, it's a very different story. 560 00:41:27,080 --> 00:41:30,516 It was in the earIy 1980s that a group of squatters here 561 00:41:30,600 --> 00:41:35,196 Iobbied the government for secure IegaI titIe to their homes. 562 00:41:35,280 --> 00:41:39,239 They were successfuI, and those wiIIing to pay a nominaI rent were granted Ieases 563 00:41:39,320 --> 00:41:42,676 which, after 20 years, converted into fuII ownership. 564 00:41:42,760 --> 00:41:46,196 You can teII they're owner-occupied by the fact that there's a fence, 565 00:41:46,280 --> 00:41:50,398 the waIIs are painted, there's even a rather excitabIe guard dog. 566 00:41:50,480 --> 00:41:54,792 After aII, owners tend to Iook after properties better than tenants. 567 00:41:54,880 --> 00:41:56,632 And some of the owners here 568 00:41:56,720 --> 00:42:00,599 are even reaIising the vaIue of their properties by putting them up for saIe. 569 00:42:03,560 --> 00:42:08,839 Yet there seems to be a flaw in the theory, for owning their own homes 570 00:42:08,920 --> 00:42:14,074 hasn't made it significantly easier for people here to borrow money. 571 00:42:14,160 --> 00:42:17,948 Just 4% of them have managed to secure a mortgage. 572 00:42:18,040 --> 00:42:22,033 The reaIity is that owning property doesn't give you security - 573 00:42:22,120 --> 00:42:24,680 it just gives your creditors security. 574 00:42:24,760 --> 00:42:27,638 ReaI security comes from having an income, 575 00:42:27,720 --> 00:42:30,632 as the Duke of Buckingham discovered in the 1840s, 576 00:42:30,720 --> 00:42:33,314 as Detroit homeowners are discovering today, 577 00:42:33,400 --> 00:42:36,597 and as I suspect the peopIe of QuiImes wouId probabIy agree. 578 00:42:36,680 --> 00:42:39,274 For that reason, it probabIy isn't necessary 579 00:42:39,360 --> 00:42:43,831 for every entrepreneur in the deveIoping worId to take out a mortgage on his home 580 00:42:43,920 --> 00:42:45,911 or, for that matter, on her home. 581 00:42:46,000 --> 00:42:51,836 In fact, property ownership may not be the key to weaIth-generation at aII. 582 00:43:02,960 --> 00:43:06,077 This is Betty Flores. 583 00:43:06,160 --> 00:43:09,277 She runs a small coffee shop in El Alto, 584 00:43:09,360 --> 00:43:11,874 a poor suburb of the Bolivian capital, La Paz. 585 00:43:11,960 --> 00:43:16,954 Betty is one of an increasingly large number of women around the world 586 00:43:17,040 --> 00:43:20,669 who have borrowed money with no security at all. 587 00:43:20,760 --> 00:43:23,115 She's the personification 588 00:43:23,200 --> 00:43:27,273 of an extraordinary new financial movement known as microfinance. 589 00:43:29,120 --> 00:43:32,908 Did you borrow the money to set up this coffee stand? 590 00:43:33,000 --> 00:43:37,915 COMPANION TRANSLATES 591 00:43:38,000 --> 00:43:40,389 SHE REPLIES IN SPANISH 592 00:43:40,480 --> 00:43:45,600 Yes, to make the...the stand. She borrowed money to make the stand. 593 00:43:45,680 --> 00:43:47,591 Has she paid it aII back? 594 00:43:49,520 --> 00:43:53,229 - She's paid it off a Iong time ago. - Oh, I see. 595 00:43:56,240 --> 00:43:59,789 Stories Iike Betty's point to one of the great reveIations 596 00:43:59,880 --> 00:44:02,678 of the microfinance movement in a country Iike BoIivia. 597 00:44:02,760 --> 00:44:06,514 It turns out that women are actuaIIy a better credit risk than men, 598 00:44:06,600 --> 00:44:09,717 with or without a home as security for the Ioan. 599 00:44:09,800 --> 00:44:12,837 It aII rather fIies in the face of the conventionaI image 600 00:44:12,920 --> 00:44:15,115 of the spendthrift femaIe. 601 00:44:17,720 --> 00:44:21,952 These women are hardly what you would call good financial risks. 602 00:44:22,040 --> 00:44:25,669 They probably have just a few dollars between them. 603 00:44:25,760 --> 00:44:30,470 Yet with no security, they are being lent money. Here in Bolivia, 604 00:44:30,560 --> 00:44:33,074 lenders have come to realise 605 00:44:33,160 --> 00:44:36,948 that creditworthiness may in fact be a female trait. 606 00:44:39,080 --> 00:44:42,356 Carmen Velasco set up Pro Mujer 607 00:44:42,440 --> 00:44:46,638 to provide finance to poor but enterprising women. 608 00:44:46,720 --> 00:44:50,030 Because the loans are unsecured by property, 609 00:44:50,120 --> 00:44:54,079 the challenge is to get the women to pay them back...but they do. 610 00:44:54,160 --> 00:44:58,756 From day one, they have to know that they have to repay on time, 611 00:44:58,840 --> 00:45:02,515 that they have interest rates and they have to save. 612 00:45:02,600 --> 00:45:06,798 So it's a process of Iearning, and at the beginning it's very difficuIt, 613 00:45:06,880 --> 00:45:09,314 because they are not used to handIing a Ioan. 614 00:45:09,400 --> 00:45:14,235 But IittIe by IittIe, they get used to it, and they feeI so proud when they repay. 615 00:45:19,000 --> 00:45:22,754 I must say, I'm hugeIy impressed by what I'm seeing here at Pro Mujer. 616 00:45:22,840 --> 00:45:25,274 You can sense in this hive of activity 617 00:45:25,360 --> 00:45:30,195 the transformation that microfinance has brought into these women's Iives. 618 00:45:30,280 --> 00:45:33,192 And behind me you can see the bottom Iine... 619 00:45:33,280 --> 00:45:37,068 women Iining up to repay their Ioans punctuaIIy. 620 00:45:37,160 --> 00:45:41,551 Maybe it's time to change that oId catch phrase from ''as safe as houses'' 621 00:45:41,640 --> 00:45:43,676 to ''as safe as housewives''. 622 00:45:45,640 --> 00:45:49,315 Of course, it would be a mistake to assume that microfinance 623 00:45:49,400 --> 00:45:51,914 is some kind of economic magic bullet. 624 00:45:52,000 --> 00:45:56,915 Just giving out loans won't necessarily consign poverty to the museums. 625 00:45:57,000 --> 00:46:01,755 But then, betting everything on the house won't do that, either. 626 00:46:07,160 --> 00:46:09,116 Financial illiteracy may be rampant, 627 00:46:09,200 --> 00:46:12,988 but somehow we were all experts on one branch of economics - 628 00:46:13,080 --> 00:46:15,674 the property market. 629 00:46:15,760 --> 00:46:19,799 We all knew that property was a one-way bet. 630 00:46:21,200 --> 00:46:23,998 Except that it wasn't. 631 00:46:26,840 --> 00:46:30,389 All over the world, it seems, property prices are falling... 632 00:46:32,920 --> 00:46:36,469 ..from Memphis to Santiago, 633 00:46:36,560 --> 00:46:38,437 from London to La Paz. 634 00:46:40,600 --> 00:46:43,592 Encouraging home ownership may weII create 635 00:46:43,680 --> 00:46:46,399 a poIiticaI constituency for capitaIism. 636 00:46:46,480 --> 00:46:51,395 But it aIso distorts the capitaI market by persuading peopIe to bet the house on... 637 00:46:51,480 --> 00:46:53,277 weII, the house. 638 00:46:53,360 --> 00:46:55,510 PeopIe need to borrow money, of course, 639 00:46:55,600 --> 00:46:58,672 to start up businesses or to buy expensive assets. 640 00:46:58,760 --> 00:47:01,991 But it seems dangerous to Iure them into staking everything 641 00:47:02,080 --> 00:47:04,719 on the far from risk-free property market. 642 00:47:04,800 --> 00:47:08,429 From Buckinghamshire to BoIivia to bonny ScotIand, 643 00:47:08,520 --> 00:47:12,308 the key is to strike the right baIance between debt and income. 644 00:47:12,400 --> 00:47:15,631 And next week I'II be suggesting that the entire worId economy 645 00:47:15,720 --> 00:47:19,395 is in the process of getting that baIance periIousIy wrong.