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Governor Issues 'toxic' Debt Warning

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Telegraph

The Bank of England Governor has warned the City that an explosive rise in lax loans and complex debt instruments now represents a major threat to global financial stability.

Mervyn King; the Bank of England Governor has warned the City that an explosive rise in lax loans and complex debt instruments now represents a major threat to global financial stability

Caution: Mervyn King at the Mansion House last night

In a remarkable speech at the Mansion House last night, Mervyn King issued a caution to the corporate debt market, where banks have dramatically loosened their lending conditions and devised ever more advanced means of extending cash to customers.

He singled out collateralised debt obligations (CDOs) as a specific threat, warning those trading in these complex products that they may be dicing with risks "which we do not understand with any great precision".

He said: "The risk of the entire return being wiped out can be much greater than on simpler instruments. Higher returns come at the expense of higher risk."

It is the first time Mr King has spoken out publicly about the growing risks faced by lenders, though his warning echoes those from the Bank's own Financial Stability Report, as well as a host of other City figures.

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I can't think of anything to write, the posts on this forum for years have been predicting and been correct about each stage of the process although at least a year out in timing.

Just as progress is getting slower and slower the Bank of England Governor seems a bit worried about the ignorance being shown and the hard crash coming up. So what if CCJs have grown to a 10 year high, before slowing down the problem with IRs ,the end result looks nastier than anyone here has predicted.

The BOE runnning to the press after being voted down and it being published after the minutes, is the same as running naked and screaming for people to take notice. We can't do anything about it,.

The MPC meeting is the place for him to convince people , not the press, because we do not get a vote on it.

Edited by maxwell

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File under 'No S**t Sherlock'.

So basically Merv many financial institutions are holding CDOs which neither the BOE or anyone else in the City has a clue about their real worth. One wonders how many of these 'assets' have been used to underwrite other borrowings. This is not going to be pretty when it unwinds.

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File under 'No S**t Sherlock'.

So basically Merv many financial institutions are holding CDOs which neither the BOE or anyone else in the City has a clue about their real worth. One wonders how many of these 'assets' have been used to underwrite other borrowings. This is not going to be pretty when it unwinds.

It''s all here!!!!

http://www.telegraph.co.uk/money/main.jhtm...21/cnboe121.xml

WOW! WOW! It's taken this guy ALL THIS TIME to say something he should have said YEARS ago.

For me - THIS - http://news.bbc.co.uk/1/hi/business/3222053.stm --- AND THIS - - http://www.bbc.co.uk/pressoffice/pressrele..._mortgage.shtml

- told us EVERYTHING YOU NEED TO KNOW. FRAUD FRAUD FRAUD FRAUD.

FRAUD...

http://www.housepricecrash.co.uk/forum/ind...mp;#entry659961

Edited by eric pebble

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"Be cautious about how much you borrow is not a bad maxim for each and every one of us here tonight."

It's a bit late for the BoE to start saying this having kept rates artificially low through the biggest British credit explosion ever and so bearing much of the responsibility for teh inevitable collapse.

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I can't think of anything to write, the posts on this forum for years have been predicting and been correct about each stage of the process although at least a year out in timing.

Just as progress is getting slower and slower the Bank of England Governor seems a bit worried about the ignorance being shown and the hard crash coming up. So what if CCJs have grown to a 10 year high, before slowing down the problem with IRs ,the end result looks nastier than anyone here has predicted.

The BOE runnning to the press after being voted down and it being published after the minutes, is the same as running naked and screaming for people to take notice. We can't do anything about it,.

The MPC meeting is the place for him to convince people , not the press, because we do not get a vote on it.

I have a feeling that as the crash unfolds, HPC.co.uk will be quoted in the press with increased frequency, this site could become very famous.

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The word global is the key word. The Boe have kept rates artifically low since 2003 but higher rates would not have neccessarily prevented this type of trade as it is more than likely to have been funded by yen - higher rates may have made the carry trade more profitable.

F

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King is an idiot. This is so transparent. The City, to be fair, have been creative in the way they hedge for inflation. Now King wants to use them as his scapegoat.

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When things go pear shaped, King will be directly to blame. The MPC committee has consistently done too little to late on interest rates. It is also the responsibility of the BOE to ensure that rational lending rules are adhered to in the markets.

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When things go pear shaped, King will be directly to blame. The MPC committee has consistently done too little to late on interest rates. It is also the responsibility of the BOE to ensure that rational lending rules are adhered to in the markets.

Spot on. It's now obvious that those 4 members [that's what they are] who voted for no change are just thinking about themselves and their friends' best interests...

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"Be cautious about how much you borrow is not a bad maxim for each and every one of us here tonight."

It's a bit late for the BoE to start saying this having kept rates artificially low through the biggest British credit explosion ever and so bearing much of the responsibility for teh inevitable collapse.

Exactly! Horse, stable door, bolt, Merv!!!!

I used to be quite angry about this state of affairs but now that the chickens are all coming home to roost it makes me :lol::lol::lol:

As for those responsible - **** 'em.

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I used to be quite angry about this state of affairs but now that the chickens are all coming home to roost it makes me :lol::lol::lol:

I would laugh too, if it weren't for the very real prospect that the whole country is about to end up covered from head to toe in chicken-shít as a result.

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All the poisons that have been lying in the mud are about to hatch out!

How's your spider doing RB? Did he ever escape the firey financial cauldron of death?

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As a footnote to this story heres another from todays telegraph.

Bank rates 'certain' to rise next month

Interest rates are almost certain to go up as soon as next month.

Experts have warned that they may soar to six per cent, following news that Mervyn King, the Bank of England governor, supports higher borrowing costs.

It came after documents released by the Bank revealed a sharp divide on the committee that sets interest rates.

Mr King wanted to follow last month's increase with another rise, but was outvoted by the rest of the committee.

It is only the second time that the governor has been in the minority since the Bank gained independence from the Treasury 10 years ago.

City experts said this was a sign that the rest of the nine-member group would relent and increase rates to 5.75 per cent early next month.

I find it interesting the way the consensus for the peak in IR is creeping up, seemingly month by month. This time last year 4.75% was as high as they would be allowed and now 6% is grudgingly accepted as what will happen.

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Do you think he means CDO's like these ??. .....

FT Subprime Article

Subprime sector hit by $1bn assets sale

By Saskia Scholtes and Ben White in New York

Published: June 20 2007 18:22 | Last updated: June 21 2007 00:33

The giant market for securities backed by US subprime mortgages was thrown into turmoil on Wednesday as lenders struggled to sell more than $1bn of assets seized from two Bear Stearns hedge funds that suffered heavy losses on subprime bets.

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Do you think he means CDO's like these ??. .....

FT Subprime Article

Subprime sector hit by $1bn assets sale

By Saskia Scholtes and Ben White in New York

Published: June 20 2007 18:22 | Last updated: June 21 2007 00:33

The giant market for securities backed by US subprime mortgages was thrown into turmoil on Wednesday as lenders struggled to sell more than $1bn of assets seized from two Bear Stearns hedge funds that suffered heavy losses on subprime bets.

Merve's had bad dreams over last few days --- he's realised the game's up! ....

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Merve's had bad dreams over last few days --- he's realised the game's up! ....

He was probably hoping he could do a Greenspan and get out before the blame landed in his lap.

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Guest mattsta1964
All the poisons that have been lying in the mud are about to hatch out!

OH NO!!!!!!!!!!

RB has wheeled out his favourite line!!!!!!!!!!!!!!!!!!! AGAIN!!!!!!!!!!!!

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"Be cautious about how much you borrow is not a bad maxim for each and every one of us here tonight."

It's a bit late for the BoE to start saying this having kept rates artificially low through the biggest British credit explosion ever and so bearing much of the responsibility for teh inevitable collapse.

Too right! It's beginning to look very ugly now...

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He was probably hoping he could do a Greenspan and get out before the blame landed in his lap.

I think Eddie George took that opportunity.

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http://news.bbc.co.uk/1/hi/business/6224556.stm

"Be cautious about how much you borrow," Mr King warned, particularly in cases where one lender knows little of the activities of the borrower.

"It may say champagne - AAA - on the label of an increasing number of structured credit instruments.

"But by the time investors get to what's left in the bottle, it could taste rather flat."

:(

Edited by Ash4781

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Don't you just love the hypocrisy of the modern global financial industry. When it suits them the traders ignore the central tenets of capitalism and just make up the numbers like the bureaucrats in the old Soviet Union.

One would have though that 'Mark To Market' would govern all traded financial instruments but apparently many prefer to let the credit agencies make up the valuation of their CDOs for them.

http://www.minyanville.com/articles/index.php?a=13172

http://www.minyanville.com/articles/CDO-Cr...s/index/a/12869

It seems market forces only apply to the 'little people'.

Edited by up2nogood

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Don't you just love the hypocrisy of the modern global financial industry. When it suits them the traders ignore the central tenets of capitalism and just make up the numbers like the bureaucrats in the old Soviet Union.

One would have though that 'Mark To Market' would govern all traded financial instruments but apparently many prefer to let the credit agencies make up the valuation of their CDOs for them.

http://www.minyanville.com/articles/index.php?a=13172

http://www.minyanville.com/articles/CDO-Cr...s/index/a/12869

It seems market forces only apply to the 'little people'.

By the same token - did anyone notice that Mervyn King's statement as per this thread was arely reported: The BBC just reported a little bit of his speech abut the shortage of £5 notes!!! Just incredile.....

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