Sunday, Apr 20, 2008
Insolvency is the real problem
Observer: A warning to the banks
A significant article, highlighting the arrogance of the banks and the Govt's fear of falling house prices. Two revealing quotes:
Re US: "It has certainly helped to bring down the spreads between Treasuries and riskier mortgage loans, and begun to calm down the markets, but house prices are still plunging.
" 'I think the problem here is that we're still emphasising liquidity problems and are moving to a solvency crisis. You can give banks extra money, but they may still not want to lend.' "
Posted by letthemfall @ 12:13 PM (361 views) Add Comment
3 Comments
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1. Icarus said...
If the Treasury and the BoE are getting into this game why don't they simply become mortgage lenders and cut out the middleman? Or use the middleman as their agent? And if the lenders are lodging TOP-QUALITY (i.e. liquid) MBSs with the BoE why do these securities need to be swapped for liquid govt bonds? Surely it's only the lenders' cr@p that needs to be swapped?
2. gone-to-colombia said...
What has happened to the lending strategies of banks is more a matter of a psychological shift, the creation of a new paradigm.
The arguments in favour of any new way of thinking will always be found.
This is now the age or period of limited lending.
3. paul said...
'The banks will talk about liquidity, because it suits them, but it seems to me that they are building a war chest against losses from falling house prices,' says Turner. 'I think the problem here is that we're still emphasising liquidity problems and are moving to a solvency crisis. You can give banks extra money, but they may still not want to lend.'
That is dynamite.