Monday, 13 October 2008
The value of property
Buenos Aires - To hear a brilliant talk by the great Peruvian economist and intellectual Hernando de Soto at the opening of the International Bar Association conference here last night (my wife, Sarah, is the lawyer). De Soto explained the current financial crisis in terms of property law: when we knew what a bank effectively owned, we knew that there was a legal truth in its assets. With the reselling of sub-prime mortgages, we have no such guarantee. For much of the world, where property ownership remains unclear - it is, apparently, true of 60% of Peruvian land - there is a permanent sub-prime crisis, and economic development is hard to measure accurately. Only when countries have clear property rights can they become developed nations: yet the developed nations have squandered that strength in recent years. De Soto was clear that it is only when we know that banks really own the assets that they say they own can we move beyond our current predicament. It was the most lucid insight into the current situation I have yet heard.