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Mervyn King Is Our Best Hope


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#31 OnlyMe

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Posted 06 May 2012 - 11:55 AM

The road from subprime lending to outright fraud is paved with low interest rates. Subprime has two necessary conditions - mortgage introductions from naive borrowers, and excess demand for apparently low risk high yielding assets. Low base rates are essential to facilitate both.

The idea that the whole saga of subprime mortgage securitisation was a phenomenon independent of interest rates is fanciful.


Exactly, that was the purpose of low interst rates, riggind the gilt/treasury yields, and that of QE.

TO HERD INVESTMENT INTO RISKIER ASSSETS.

Even if they didn;t pass the smeell test insurance comapnies, pensions, investmonet co's bought CDO's, MBS and the other trash because they had no other choice to have any chance of funds keeping up with inflation or providing an actul investment return.
"Asians make things and sell them to Americans, who borrow money from their suppliers (on the inflated value of their houses) in order to continue living beyond their means. Asians take their profits and either relend them to Americans...or use them to buy more productive capacity, in America and elsewhere.

For those who wonder where this trend will lead, we offer a guess: The average American will be left with a shoeshine kit and instructions on how to say 'please' and 'thank you' in Chinese...."

Bill Bonner.

Socialists want socialism for everyone else, but capitalism for themselves, while capitalists want capitalism for everyone else, but socialism for themselves.
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#32 inflating

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Posted 06 May 2012 - 12:08 PM

Absolute BS. It was the discovery of massive fraud in the 2006 vintage subprime CDO's that popped the credit bubble. The idea that central banks raising interest rates by 0.5% here or there is the real cause of it is just bankers smoke and mirrors.

Central banks were liable only in the sense that they didn't regulate the banks enough. More importantly the criminal justice system is at fault because it's effectively decriminalised fraud as long as you're a big bank.... (in the US at least)


Apart from the fact the 0.50bp cut in '05 sent all the wrong signals, the cut from there down to the half percent we're at now for three years says it all, no matter which direction you approach it from - bank insolvency risk/savers'plight/inflation. Any apologists for King could be said to belong in a bag marked KP

#33 gadget

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Posted 06 May 2012 - 12:27 PM

The road from subprime lending to outright fraud is paved with low interest rates. Subprime has two necessary conditions - mortgage introductions from naive borrowers, and excess demand for apparently low risk high yielding assets. Low base rates are essential to facilitate both.

The idea that the whole saga of subprime mortgage securitisation was a phenomenon independent of interest rates is fanciful.


Yeah i'll agree with some of that... the search for yield was a big driver of the fraud.

But the thing that the pile-on on King is trying to achieve is "don't regulate and split up the banks, the only reason we stuffed our pockets with loot was because the evil Bank of England dropped rates 0.5%"

#34 hotairmail

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Posted 06 May 2012 - 12:31 PM

Exactly, that was the purpose of low interst rates, riggind the gilt/treasury yields, and that of QE.

TO HERD INVESTMENT INTO RISKIER ASSSETS.

Even if they didn;t pass the smeell test insurance comapnies, pensions, investmonet co's bought CDO's, MBS and the other trash because they had no other choice to have any chance of funds keeping up with inflation or providing an actul investment return.




I think the process is slightly different.

If entities (countries, people etc.) fail to trade in balance, and without fiscal means to redress such a balance, the remaining tool to avoid mass default is interest rates to keep the credit engine pumped...but the indebted simply become more and more indebted.

QE is a continuation of this policy, but the 'rich' are almost universally able to gain even more by getting into assets of various kinds as QE and low rates make them even richer. Meanwhile predominantly currency holders are the ones stuffed, ie. those with savings but not so much they feel they can 'risk it' on assets - they are the ones that bear the brunt of the mathematical need to bring the money system back into balance and stop it blowing up.

"The chicken is radiating disorder out into the wider universe."


#35 porca misèria

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Posted 06 May 2012 - 01:37 PM

Output is still below 2008.

Remind me. What exactly are you measuring?

Oh, right. Consumer credit is down on 2008.

#36 gf3

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Posted 06 May 2012 - 03:56 PM

It was the fact he stated "there was no chance of foreseeing a bust because there was no discernible boom" has really destroyed his reputation as far as I am concerned.

In fact he still can't see it....which is why he has to go with his reputation in complete tatters.


EDIT: He has plainly over estimated the productive capacity of the economy both in managing growth but also by the fact he always foresees well above target inflation falling back below target 2 years out because of the "output gap".

So if you had been the governor you would have said houses are in a bubble and need to drop by 20% and undone all the work the low rates have achieved over the last three years?

I wonder how many people read his lecture and amended it before it went out.

#37 billybong

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Posted 06 May 2012 - 05:06 PM

King's words of June 2007 were truly extraordinary. What more could a Bank of England Governor have said, without being accused of spreading panic? And when it comes to his "lack of market knowledge", King didn't have detailed break-downs of each banks' balance sheet because the bank supervision had been transferred to the (Treasury-controlled) Financial Services Authority back in 1997.


I find that difficult to understand (along with quite a few other things in the article).

According to the Bank Act 1998

[2A Financial Stability Objective

(1) An objective of the Bank shall be to contribute to protecting and enhancing the
stability of the financial systems of the United Kingdom (the “Financial Stability Objective”).

(2) In pursuing the Financial Stability Objective the Bank shall aim to work with other
relevant bodies (including the Treasury and the Financial Services Authority).

(3) The court of directors shall, consulting the Treasury, determine and review the Bank's
strategy in relation to the Financial Stability Objective.


So they're supposed to work together so I'm sure they could have had any information they needed or wanted. If the FSA had refused the information the BoE could have insisted on it or insisted on a change in the rules. The BoE could have gone to banks directly to get the information.

The 1998 Bank Act gives the BoE authority to obtain relevant information.

The BoE has responsibility for protecting the UK's financial stability and can't get hold of a detailed break-down of each banks' balance sheet??? - oh do come off it.

Edited by billybong, 06 May 2012 - 09:52 PM.





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