Thursday, Apr 17, 2008
George Osbourne congratulates GB on his stupidity, but says he'd have done it quicker
BBC News: George Osbourne supports mortgage plan
I didn't quite see all of this this morning, but the basic crux of it was George Osbourne's only criticism of GB/AD's idiotic plan to bail out poor lending and borrowing with taxpayers' money was that he didn't do it sooner. You don't expect in-depth questioning on BBC breakfast TV, but the banality of the interviewing, without the slightest suggestion that there might be anything wrong with swapping junk mortgages for (effectively) cash was unbelievable. Shows how biased the BBC still is towards the property market, and how little difference there is between Labour and the Conservatives. Vince Cable is the only MP I can think of who has any kind of understanding of economics, but I have a feeling that Nick Clegg might be doing his best to undermine that.
22 Comments
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1. mark wadsworth said...
George Osborne is a likeable young fellow, but having read what he has to say very closely got the past few years, I have come to the conclusion that he is a complete air-head. And that's putting it mildly.
2. uncle tom said...
It is actually quite easy for the BOE to provide help without jeopardising the taxpayer, provided the assistance is limited to 20% of the mortgage book, and they have the most senior debt pledged. In return the debt management office could issue a special 5yr gilt to fund the advance.
The mortgage company should be required to pay 1% over and above the gilt yield, partly to serve as an indemnity, and partly as a penalty for having to go cap in hand to the BOE.
The taxpayer would only lose if house prices fell more than 80% and stayed there - which even I think is highly unlikely.
3. matt_the_hat said...
So whats to stop the wiz kids buying up the CDO's (whatever) from US banks for nothing, offloading this onto the tax payer, making a quick buck/nice bonus then retiring before the s$it hits the you know what??
4. Orcusmaximus said...
UT - that would be enough to resolve the liquidity issue, but it wouldn't stop the bank going bankrupt in the event of a wave of foreclosures. Only the tax payer taking on the bad debt would do that.
5. hpwatcher said...
@eye of the weasel ''Shows how biased the BBC still is towards the property market''
I don't necessarily think it's the fault of the BBC, it's just indicative of this country's obsession with the property market. This obsession has become a governmental one, which will have dire consequences for the country.
6. last_days_of_disco said...
After watching George Osborne, I want to vomit.
He is completely delusional. Instead of telling it like it is and informing people that the system is utterly stuffed.
Bring in David Davis, some heavy hitters, not these wet behind the ears boys.
He is saying, "Lets put a plaster on that open wound of yours". This is not helping the conservatives. They look
like mini tony Blairs. The image dress down Dave and Georgie porgie seem to be striving for is the Eton
school boy look.
I do not want a bunch of school prefects in charge of the fifth largest economy on the planet.
Jolly good boys, lets try helping first time buyers. Hohoho.
We need a quick nasty deep, deflation. The more painful the better, followed by sensible policies
to prevent bubbles in future. The conservatives are playing the short game because their strategists
are telling them they can't loose. Well I have news for them, I have good mind to vote labour.
7. eyeoftheweasel said...
Uncle Tom, what you've said makes sense. However, unless it's the junk that's backed by government bonds then I don't see how it would make the banks happier to lend to each other again.
8. mark wadsworth said...
Uncle Tom - eyeoftheweasel has spotted the fatal flaw in your plan.
9. cornishman said...
matt-the-hat, I think you could have missed your vocation. There are people who will pay for tips like that!
10. japanese uncle said...
The Daily Telegraph dated 15/Apr/2008 reported an interesting piece about Nick Clegg
----------------
Three line whip by Jonathan Isaby
‘Tory Mystery’ in Clegg’s Past
Other than adding all those notches to his bedpost, has Lib Dem leader Nick Clegg been harboring another secret about his university years?
Tory MP Greg Hands – who was a year above Clegg at Robinson College, Cambridge – has unearthed his old copy of the 1986-87 membership list of Cambridge University Conservative Association.
And what name should appear on the list of freshers to have paid their subs to CUCA but one “N. Clegg”.
“He’s listed as having paid the annual subscription rather than joined for life”, reveals Hands. “There is no doubt, it’s him. Records show only one N. Clegg going up in 1986”.
But Clegg’s spokesman denies it. “Nick is 100% adamant that this isn’t true.” How curious.
------------------------------------------
This episode says it all.
I believe this is not a matter of curiosity but the integrity of the leader of the third largest political party in this nation. What’s even more serious is he still tries to deny his past. This is the saddest reality of the Lib Dem after Charles Kennedy was subjected to the most reptile political backstabbing in our living memory. Crash G/G. Osbourne/N.Clegg on the same boat, never to be trusted.
I simply would not care to listen to VC earnestly, unless he can explain to the public why he was happily working for Shell International and RIIA (any informed person is aware this has been the GHQ of the British Empire since the days of Cecil Rhodes), as chief economists in both institutions, how he can reconcile this fact with his current senior position in a political party, generally and apparently believed to represent the interest of the grass roots, not mega multinationals’.
11. it_is_going_with_a_bang said...
I guess it also relies on the Banks accepting the offer that is made for their crap.
Whats a good figure? Is it flexible? Who decides? Who gets to find out?
Do we all get to 'find out' who has swapped their crap for Bonds? Or will it be another case of no we can't tell you it's not in the public interest - even though it is essentially billions of £ of public money.
I can't see how they can put a value on them. So they must have to take the worst case scenario of maybe 50%. Is that enough for Banks to accept or use it?
They talk about 'rushing' this through but it really sounds like something that needs some careful thought and above all - Total protection for the taxpayer. I.e. No risk of loss.
Otherwise the Banks can keep their toilet paper.
12. str 2007 said...
@ UT No.2
Our figures agree
I've copied this from one of my posts yeaterday on the same subject.
If this paper is impossible to value then I think 20% of supposed value or 80% off is more realistic. This would allow some funds to be released into the system to allow some trading.
If the banks then behave responsibly (sensible lending etc.) Perhaps the B of E in another couple of years issue another 20% of the value. By this point and allowing for inflation if house prices we 40% down from where they are now us the tax payer would still be holding bonds with a hyperthetical 20% of margin value left.
Given that literally no-one will buy these Security Backed Investments the opportunity to drive an extremely hard bargain is huge.
The only problem Gordon Brown has is in saying he's trying to get first time buyers onto the ladder at present. This is fool hardy advise for them and makes it look as though he's taking advantage of vulnerable people to prop up the housing market.
If he came clean and showed the electorate the hard bargain he'd driven with the banks and confessed it would be likely to make house prices fall 30% due to more stringent lending criteria that would now be imposed by the banks - I think the majority of the electorate would be accepting of the fact. (Most baby boomers have kids that need a home so they'd be ok with it, anyone is their last house wouldn't be effected, anyone moving onto or up the ladder would gain) (Only loosers are BTL - Ahh, and then only if they sell))
The only people that would then need help would be those purchasing after 2004 who want to move up the ladder - providing some package was put together to allow them to move their negative equity with them then we could all get on with our lives.
13. Btl Rules said...
property will become a rich man's commodity to trade in, and the masses will have to sign tenancy agreements every six months -forever. Get used to it, and stop dreaming that one day you too may be privileged enough to own a house.
14. 51ck-6-51x said...
The reason banks are not lending to each other is because of the risk they perceive. Therefore, any plan for the taxpayer to take assets off the hands of banks in order to increase liquidity must take away risk in order for it to achieve it's aim, and that in turn puts the taxpayer at risk.
The best option for the taxpayer is actually for the treasury to allow inflation, and to slow down the falls - this could be achieved by increasing the target inflation rate for the BoE to attempt to stick to.
15. mark wadsworth said...
STR2007, that's a very good solution - why don't you post it over at ConHome? If I understand correctly, BoE takes the whole sorry mortgage book off the banks' hands for 20% of face value in cash. Banks then have cash to work with, and, to be fair, if they ever dig themselves out of this hole, I suppose we could let them buy the crap back for the same price.
16. Tezza said...
The Tories have nothing to lose by backing this plan. The chance of this plan working :: materially helping free up the credit markets :: is better than zero. If this plan works, the Tories get to be on the winning side. If it fails, then they can say both:
We wanted to help too
We would have done it properly.
matt_the_hat :: The Treasury will specify who they will accept swaps from [big players], and then how long those players have to have held that debt [say 2 years]. This stops anyone frontrunning this offer.
So Cornishman, you should be a bit more careful with who you pay tips to.
17. str 2007 said...
Almost Mark
When and if the Banks dig themselves out of the mess, the value of the Mortgage Backed Securities would have increased from the 20% (80% off) we the Tax Payer had bought them for.
In 5-10 years time when things are on the mend I would estimate the value would be 100% more than we (The Tax Payer) had bought them off the Banks for.
18. mark wadsworth said...
You mean sell them back for their future market value? That seems perfectly reasonable. This is our golden opportunity to get the banks by the short and curlies once and for all.
19. uncle tom said...
At the end of the day, the mortgage lenders are going to have some pretty horrendous losses to bear, and some will be worse hit than others. Collectively they have underpriced mortgage risk, and the eventual losses could reach £200bn - some lenders taking a much bigger hit than others, and failing to survive as a result
Ultimately someone has to pay for this, and there is no way of making the eventual settlement perfectly equitable. Mortgage borrowers will end up paying a higher margin over and above inflation, inflation will probably be allowed to rise, reducing the value of long gilts in pension funds, and government debt will rise, fuelled mainly by Northern Rock losses and payouts on savings guarantee claims.
The BOE can ease the immediate problem, particularly for those lenders who have limited exposure to money market funding - but they can't provide a magic cure for everything.
20. indiablue19 said...
JU, I suppose Vince Cable can explain away his mixed loyalties the same way all the elected government officials who moonlight as Bilderbergers seem to do. Oil rules. By the bye, while I've got you on the horn here JU, what was your thinking in saying that the ongoing stability of the Euro is questionable a few articles back? It doesn't seem stable, but it does seem to be skyrocketing. Have heard that Spain is thinking of seceding from the euro union due to falling exports? Does that have anything to do with your thinking?
21. mark wadsworth said...
Uncle Tom, £200 bn seems a bit on the high side.
Total household borrowing approx. £1,500 bn.
Bank only suffers a loss
IF
a) Borrower can't pay, which even in worst case 'unemployment rises by 2 million' scenario only affect about 1 million borrowers.
AND
b) Borrower's assets are worth less than loan. Again, worst-case, assuming average loan £100,000 and average shortfall £50,000, 1 million x £50,000 = £50 bn.
ENDIF
Let's assume it's twice as bad = £100 bn
In turn, under Basel rules, banks have Tier One/Two capital ratios of about 10 per cent, ten per cent x £1,500 bn = £150 bn.
So some of the weaker ones will go *pop* but in the grander scheme of things the banks (collectively) will just about survive.
22. uncle tom said...
Mark,
I'm reckoning that about 500k BTL's will go bad and about 2 million regular mortgages will do likewise.
The BTL losses will be ramped by the fraudulent valuations, and of the regular mortgages, the average loss will be ramped by a disproportionate number of big loans going bad.
Overall average loss, after legal and procedural fees - £80k each = £200bn