This is the derivatives situation on the day the Twin Towers were blown up five years ago…courtesy of Adam Hamilton’s 7th September 2001 analysis of figures reported to the US Office of the Comptroller of Currency. You can update the numbers from the OCC website but may assume that any changes over the past five years have made matters worse. See that red line on the right? This tracks the rise of OCC reported derivatives. See that pie chart on the left? Add Goldman Sachs and Deutsche Bank to the list and you have a pretty good picture of the Rogue Traders.

Financial illiteracy is normal. But to be mistaught is worse than to be untaught. All financial and monetary experts are mistaught. The number of exceptions can be counted on the fingers of two hands. It was always thus. A little knowledge is a dangerous thing. And theirs may severely damage your financial health. Electoral reality is the note Bill Clinton pinned up on his White House office wall…it’s the economy stupid!

English politicians are learning to interpret this admonition by way of three easy-to-remember rules of thumb. If you manage the economy badly voters hate you. If you claim to be a tax-cutting party and then raise taxes they mistrust you. If you send mortgages through the roof they will swear never to vote for you again. The Cameron-Osborne mantra from the New Tories on economic stability is code for low mortgage rates. Gordon Brown is widely mistrusted now people have become aware of his Stealth Tax approach to increasing the tax burden.

Economically England has become two nations divided by Homes that are no longer the Englishman’s Castle. Homeowners and Tenants are two distinct economic tribes. Tenants pay their rent with money received from the private purse…wages and pensions…or from the public purse…benefits and pensions. The Rent Trail follows its own food chain…to very rich people at the top. Housing Benefit puts a roof over poor people’s heads…a Good Thing as it gets them off the streets…but channels rents into the bank accounts of the rich…a Bad Thing because banks hand out most of the money in circulation; and access and cost of credit depend upon the size of a bank balance. The rich get richer and the poor have no money.

In a cleft stick between the wealth-accumulating rich and the money-less poor are the Middle Classes. For political calculation Home Ownership is a good proxy for the Middle Class. The upper class and the very rich may own their homes but are numerically swamped by the Middle Class. Moreover as election turn-out declines towards United States 50% levels from the high 80% of the post-war generation so the propensity to vote becomes an increasingly important part of the political calculation and getting out the right voters wins elections…if they vote for you.

Home Ownership wreaks havoc with Middle Class Attitudes. Never a Borrower or a Lender Be only works by discriminating between debts…a Bad Thing…and mortgages…a Good Thing. Equity Release runs a coach and horses through this distinction. A Good Day’s Pay for A Good Day’s Work works with a Just Price regime where an Honest Living can be distinguished from Unearned…or unfairly earned…Income. The Entitlement Culture of a Benefit Regime…and some Pension Policies…make a mockery of this idea. Less talked about in the tabloids is the ethical clash between an entitlement philosophy and rocketing house prices. Homeowner mortgage debt declines and unearned income is doled out via the banking system while no equivalent benefit is available to the English Tenancy.

Only dimly sensed by most Middle Class Families is the fact that they are the biggest gamblers since the Peasant Farmer. Their whole life is one never-ending bet on Property Prices and Interest Rates. The happiness of their family is mortgaged to forces over which they have no control. Only inheritance…and inflation…improve the odds. To the Home Owner Tribe, mortgage rates matter as much as income tax. But these change quickly and unexpectedly and are paid from disposable income…unlike income tax and national insurance…which makes them more painful.

England may seem a special case with high levels of home ownership. But liens and mortgages play havoc with Real Legal Title. The English Homes Fiasco is indicative of a poverty of political imagination. The Gladstone-Disraeli Generation would have gone for radical root and branch reform. Five Acres and a Cow; A Home for Seven Hundred Days Work. These are the slogans they would bring to the Public Political Domain to unite the two English Nations.