Thursday, Sep 20, 2007
Independent - until we think we need to intervene to keep a boom going. Pathetic!
Telegraph: Government forces King U-turn
The Government has forced the Bank of England to relax lending standards in a dramatic U-turn, effectively stripping the institution of its independence for the first time since the new monetary regime was created in 1997.
In a bizarre move, the Bank shifted tack abruptly yesterday by agreeing to flood the capital markets with £10bn of three-month money and widen the asset classes it will accept as collateral against the loans.
Posted by tyrellcorporation @ 09:19 AM (721 views) Add Comment
14 Comments
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1. Seanb303 said...
GREAT NOW THE BOE IS FORCED TO BUY 10 BILLION WORTH OF CDO'S AND MORGAGE BACKED SECURITIES
THE TOXIC WASTE THAT CAUSED THE PROBLEM IN THE FIRST PLACE
2. dohousescrashinthewoods said...
Brilliantly put in the headline. Yes it's a Conservative cheerleader, but I think this is closer to the truth than "bank changes mind".
3. harold said...
Merv should have the balls to resign and state explicitly why. He and the BoE have been made to look like idiots, despite the fact that it was Merv who has been pushing for fiscal restraint for some time. The people who should of course resign are GB and AD. Merv must be absolutely hopping mad. IMHO, what he should have done was resign BEFORE being forced to do a u-turn. Still, despite 'moral hazard' there is one's pension to think about...
What's so ridiculous about all this is that the 'medicine' being used to treat the illness, i.e., more credit, is actually the pathogen which caused the symptoms in the first place. Now, I'm not a doctor, but if I were that is not the treatment I would recommend. Instead what we have is a junkie, i.e., the UK debt-laden economy, being given more drugs in the hope that he is going to get better. It's a slam-dunk loosing situation that will only make the coming recession/depression far worse. It may, however, just give GB enough time to get through the next election before his pants catch fire!
4. tyrellcorporation said...
There is some serious hay to be made here - Where are the Tories? They seem to be inept in opposition. This is mana from heaven for an opposition and yet they are eerily quiet - ho hum, Labour walks another general election, I despair.
5. wage slave said...
Harold - I think you've hit the nail on the head. This is all about GB's early election. Now highly-geared (over-stretched) banks can borrow from the BOE without the public knowing.
Regarding Merv - his position must be so un-tenable now. He's been taking a tough line but the politicians have bottled it to buy themselves a few more months and have gone over his head. Anyhow the MPC have always been GBs puppets. Let's hope Merv grows some balls and stitches GB up at the select comittee today.
6. tyrellcorporation said...
What a bombshell if he resigns at the select committee meeting!
7. also sold to rent said...
This is just media paper selling. King Merv is da man and is the best central banker out there. No U turn, just doing exactly what he said he'd do, which is to be the LOLR when required, at a cost.
8. cornishman said...
King can do more to influence things (to a certain extent) by staying in his post. If he resigns, imagine what sort of person would take over.
9. tyrellcorporation said...
Hang on a minute - this guy has just effectively underwritten all those dodgy mortgage loans with Treasury money - our money! He's actually done the complete opposite of what he said he'd do just a few days ago. He's the Stooge Of Last Resort! He should resign if he had any honour.
10. tyrellcorporation said...
Cornish, that's possibly true but the fallout would be a big deal and hurt the meddling politicians. Plus, MK would get out with his credibility intact - he acted on principle.
11. also sold to rent said...
He always said the bank would act as LOLR at a penalty rate, unlike the ECB which does it for free. Moral hazard about future problems goes out the window when you face a crisis today. By lending such small amounts, and they are small compared to the ECB injections, he makes the banks feel the pain, something which the banks have largely avoided in the US and on the continent.
So we have a crisis, the banks are made to look risky, which makes them reduce risk going forward, they loose money using the BOE funds, but the stability of the system is retained. At least, that's probably the plan.
12. dbnazz1 said...
Looks like Merv king is to be made the scapegoat. He has been one of the few that have been arguing for tighter Monetary Control. if he resigns and says what i suspect he feels deep down, he will have the ability to finnish Brown once and for all.
13. tyrellcorporation said...
dbnazz1...we can only dream!
14. Dr K said...
The banks are playing hardball and trying to blackmail the BoE into underwriting their bad debt and kick starting the credit cycle again. The Government is supporting the banks position because they know the repercussions; now you see pressure on BoE to pour money into the credit markets. Soon you will also see pressure to cut IR because inflation is "falling and under control" (similar position to Zimbabwe!!!) This will keep the plates spinning for a few months longer, long enough to go to the polls and also send a signal (indirectly) to the populus that the economy (read house prices) will always be supported. However, the price we all pay is a low value pound and creeping inflation. I still believe the housing market will shrink because banks will not push their luck again with lax lending (not for the next 2-3 years anyway) and from now on, most mortgages will be max 4x salary max together with a 10+% deposit. The days of 1st time buyers and BTLers buying properties with 90-100% mortgages based on self certification at 6x + salary have gone (unless they want to pay punitive rates that is.)