Wednesday, Sep 19, 2007
Under the big Brown thumb?
FT.com: Bank of England in money market about turn
British banks will be able to borrow from the Bank of England for three months using mortgages as collateral, the central bank announced in an extraordinary U-turn.
Up to now, Mr King has insisted that such action would be tantamount to bailing out banks that had made risky lending decisions and would sow “the seeds of a future financial crisis” because it provides after the event insurance for risky behaviour.
Bye bye economy, hello to the latest addition in tha long, proud line of polical book-cookers.
Posted by dohousescrashinthewoods @ 01:16 PM (1813 views) Add Comment
30 Comments
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1. sara said...
Why now? The article is right if they'd done it eariler NR might not be in the situation it is now. I'm not so sure it's Brown behind it, but perhaps more bank issues that haven't truely come to light yet. Just moved the rest of my money out of A&L today.
2. speculatorone said...
Can anyone explain what is going on at present?
We have FED BoE at our illustrious government all trying to bolt their stable doors, and masses of experts in the media all saying different things?
On Monday we all thought we were up for the start of a HPC, now today I feel like when will it ever happen? Plus the greedy estate agents will be sighing relief.
This website is becoming somewhat frustrating.......................
3. inbreda said...
"The pound jumped and interest rate futures soared after the announcement at the prospect of extra liquidity. Sterling pushed back up through the key $2 level as confidence in the UK economy improved"
Sorry - this makes no sense to meet. When you turn on the printing presses it makes your currency worth less, not more.
Has the world gone mad or is the journalist an idiot?
Or have I missed something?
4. cyril said...
Poor Merv, you are humiliated even though most people think you tried to do the right thing. What can a man of principle do in this situation...?
5. dohousescrashinthewoods said...
3. inbreda: Could it be that it's not the pound strengthening but the dollar weakening faster than us?
6. waitingfor hpc said...
I think it is time to leave. I think Canada is calling. I can not stand any more of this rubbish in the UK. Why should my taxes be used to help out bankers. I work in manufacturing and no oned saved Rover or any other company. Why should we save the banks?
7. planning4acrash said...
So, what happens to the government if house prices crash and banks go under and their lending is based on worthless mortgages. My tax money for this? I am sickened, this is the equivalent of bailing out buy to letters.
8. mrmickey said...
Merv was right it's not the job of the BOE to bail out failing banks and for his troubles he got shafted by politicians who acted to save their worthless skins.
9. paul said...
So the Bank of England has this strategy of not bailing banks out but now they've changed their minds completely and decided to ...
PANIC
10. whiteknight said...
Mr King. will turn out to have been completely and utterly correct in the very near future.
11. whiteknight said...
The presumption by a large majority (and entirely incorrect) is that its just a little grease to keep the system going, keep confidence etc and that things are generally sound.
Let me repeat this again: The system is a bust. Things are not "sound" in the economy. When we arrive at this point again, because "we" had a little panic the first time out .. there will be nothing to do.
12. rich said...
@inbreda said... "Sorry - this makes no sense to meet. When you turn on the printing presses it makes your currency worth less, not more."
Where in the press coverage does it say that currency is being created rather than moved, or is this an assumption?
13. d'oh said...
Inbreda - I haven't noticed an increase in the pound today - if anything it has weakened against the currencies I am interested in - therefore I suspect, as you do, the journalist is an idiot.
Recall, Merv didn't vote for the rate cut in 2005, and given what he said in the middle of last week concerning moral hazards, I believe that what HE personally would like to do, and what the BoE is doing are two rather different things i.e. I suspect huge political pressure is being placed on him/the BoE. Given that NR had been in contact with the BoE before Merv made his statement last week, I reckon he was all for letting them hang out to dry - I don't believe that he didn't predict a NR run in that case, hence I don't believe he is reacting to something he didn't foresee. I predicted an eventual run on NR to some of my work colleagues, claiming that there would be queues in the street after the first wobbles in August - they all thought I was mad/paranoid, but it was as clear as day. If I can see this, then so can the governor of the BoE! Gordon is behind all of this in some way or another, and I think the mixed messages we get from the BoE indicate disagreements behind the scene.
14. wage slave said...
"To defend the action he will point to some of the conditions underlying the new loans the Bank is now offering. The interest rate on the loans will be higher than the 6.75 per cent rate banks can always borrow from the Bank in exchange for high-grade collateral and they will not receive £100 in cash for every £100 of mortgage assets they deposit at the Bank."
So is this the BOE openly admitting that house prices are over-inflated ?
15. wage slave said...
Just out of interest, does anyone know what the total value of the Bank of England's assets are ?
£10bn doesn't seem that much to me.
16. tyrellcorporation said...
And to think, probably none of this mayhem would have been necessary if they included HPI in the CPI. Idiots.
17. inbreda said...
rich - I suspect you are right - it is not new money, though I still would not want to invest in an economy that funded idiotic risk taking, so it amounts to the same.
wage-slave has a good point as well. The terms of the finance still means that borrowing for mortgage holders will become more expensive. HPC is still on track - the bankss have been bailed, not the borrowers.
18. The Baldman said...
Things must be a lot worse than anyone imagined for the bank to be forced into this u turn
19. mrmickey said...
All these loans being made by the BOE I assume are going to have to be paid back at a later date unless they are giving money away, where are the banks going to get the money from to repay the loans won't they have to raise their lending rates to their borrowers to get the cash to repay the BOE or am I looking at this wrong.
20. dugmug said...
MrMickey...you're dead right. If they're borrowing from the BoE at a punative rate, they'll have to reflect that in the cost of their own lending. HPC isn't about whether banks go bust or not, it's about whether people will be able to "afford" to pay crazy prices for houses by borrowing sums they can't really afford (lax critieria) cheaply (low mortgage rates); fact of the matter is that these things have changed, they will not be able to anymore, which kicks the legs right out from under the market and then it's a race to the bottom.
21. Drewster said...
There is a fundamental problem with the classical banking model. Everyone assumes that they can earn ~5% a year interest (maybe 2%+inflation), but clearly that requires the money supply to increase at 5% a year too. Without the money supply increase, the average bank account would pay 0% interest. This is why every few decades we have a big clearout, whether it's a crash or a war or runaway inflation. Right now might just be one of those moments....
22. Khaled said...
£10 billion to avert a recession and a house price crash is a small price to pay when you think of the £100 billion spent on bombing foreign countries. However, if the bankers knew how to do their job then that money could have been spent elsewhere for the greater good of the nation.
23. su said...
So house prices should continue to fall, right?
They're still falling in Scotland: more fixed prices & reduced prices. I expect the prices to continue falling at least a bit more.
24. Downwave said...
IMF may well be running the UK by Christmas.
25. su said...
Have I got this right?
Houses are over-valued because the "dumb sheeple" kept upping the price. They kept upping the price because (apart from easy borrowing) they expected prices to rise.
But now, the people are expecting house prices to fall. If enough people refuse to pay the recent high prices, then the sellers will have to adjust to a lower level if they want to sell their property.
In USA one house builder was recently celebrating a successful "sale" although the reductions on the properties were up to 25% and the highest priced properties were reduced by six figure sums. It was noted, however, that some customers still refused to buy because they were holding out for even lower prices.
My point being that if the general population realises that property is over-valued and is starting to fall, then they are going to be less keen to buy even if they do have access to the required credit. People like a bargain, and hate being "done".
26. denzil said...
Probably due to another lender being in trouble. If this action did not occur there would be another run on a bank and the public would start to ask "what the f is going on". By doing it this way it can be more secretive.
If King had any balls he would resign as this is little more than confirmation that the BoE is not independent but is dictated to by the government.
27. deepak said...
INDEPENDENT MPC set up by Gordorn Brown.
28. uncle chris said...
I wonder how long they will continue with this charade that the BoE is independent? That inflation is 1.8%? That there is no subprime in the UK? That Crash Gordon has presided over a miracle economy? I could go on, but you'll be glad to hear that I won't.
29. Robert Mugabe said...
Well I gave some lessons to Prime Minister (Crash Gordon) Brown only a little while ago.........
30. magnifico said...
Yes Su. Booms are fed by greed whilst slump are driven by fear.Fear of "being done" is just part of it, together with the fear on the seller's part of loosing out if, by not accepting a lower offer now, he/ she will find him/herself having to drop the price even further in a month's time.