Wednesday, Apr 23, 2008
Current LIBOR rates are underpricing default risk
The Market Oracle: LIBOR Interbank Market Stays Frozen Despite Bank of England £50 Billion Bailout
Whatever spin the government puts on the conditions attached to the swaps, the fact is that bad debt that cannot be priced by the market IS being put up as collateral against as good as cash bonds. Therefore the banks can literally walk away from the bad debts, leaving them on the governments balance sheet.
Posted by inthedelhi @ 02:54 AM (1947 views) Add Comment
49 Comments
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2. hpwatcher said...
What a great success....offer 50 billion and achieve absolutely nothing. I guess it shows the severity of the following:-
i. Initial fallout from America subprime
ii. Developing UK subprime and credit card defaulters
iii. American subprime second wave
What about offering 50 trillion next time?
3. techieman said...
"Whatever spin the government puts on the conditions attached to the swaps, the fact is that bad debt that cannot be priced by the market IS being put up as collateral against as good as cash bonds. Therefore the banks can literally walk away from the bad debts, leaving them on the governments balance sheet." Yea but only for three years?!?!?! We should wait and see what happens after. The cycle is clearly over so the lenders will merely restrict lending, thats been clear for a while now and unless you want to nationalise the lenders there is no direct package that will support the market, until the prices reflect a more senseible and supportable LTV at the margins. If you were a banker wouldnt you merely say right we are going to reduce exposure in that area and maybe increase exposure in other areas that are / look set to perform better? BTLrs take note, the banks in particular can easily diversify .....can you?
4. 51ck-6-51x said...
I don't think that the fact that the swap deal has hardly budged LIBOR tells us anything about the state of things. Why would bank A now lend to bank B when they perceived to much risk before the swap - if the value of the MBSs and similar securities plunge the swap terms will take preference over any money market debt, as "the risk still lie with the banks", therefore the perceived risked from before still exists.
Basically in this game it's usually simple - quid pro quo, but every so often a government does an Ace of Spades - quid pro nihilo ( ...and your kicks for free!) I agree with Nadeem's observation that the bankers are blackmailing the treasury (actually, it's less sophisticated, it's more like bullying).
5. tyrellcorporation said...
The bankers know GB is desperate for a mandate and will do anything - literally anything to further his own career - they are calling the shots. Sneaky the way this swap facility is only open for 3 years so presumably it merely pushes the problem onto the next government, whoever they are.
6. sold 2 rent 1 said...
QUOTE
"Earlier today, Alistair Darling, the Chancellor of the Exchequer had another meeting with the big mortgage banks, basically stating that the ransom has been paid so please release the mortgage interest rate hostages so as UK economy does not tip into recession during 2009 as the New Labour's clock ticks towards an election deadline."
This is a good article except for one thing. Crash Gordon and his mates don't care about the next general election.
Why would they?
1. If they get booted out of office they then land a job at JP Morgan or some other big bank for megabucks.
2. The Treaty of Lisbon is handing over our democracy to an unelected EU government. So GB could get a job here instead - this is where the real power will be.
Read this for the truth about the EU
http://eutruth.org.uk/
7. Ijjhall said...
@sold 2 rent
Of course John Major and the rest of the 1990s Tory cabinet - Patton, Mellor et al - didn't take lucrative public/private sector appointments after leaving power. Also even if we left the European Union altogether we will still be a hamstrung democracy. Two third of the Beitsih constitution - monarchy, house of Lords are unelected and even in the Commons no votes are needed to take Britain to war, appoint Bishops, Ministers and Commissioners etc which can be and have (the Falklands) pushed through with the use of the crown powers dating back to Charles 1. Ironically those most opposed to the EU on democratic grounds tend to be fervant royalists/flag wavers
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