Bank Of England Must Do More To Prevent A Recession

[doh]

http://www.telegraph.co.uk/money/main.jhtm...cndenham126.xml

...It was also good to see that Citigroup and Barclays Capital are bringing into question the Bank of England's handling of its role over the past months.

The squeeze on liquidity is getting worse, not better, and yesterday's three-month Libor fixing was at 6pc, showing that even the small little rate cut that we have seen from the central bank has had little or no effect.

People complain loudly that their variable mortgage rates are actually going up not down, accusing the 'banks' of everything under the sun, but the plain fact is that if the mortgage lender himself cannot borrow at less than 6pc (and often much more than this), he is hardly likely to lend it to you for less.

Some of the smaller building societies cannot get funds at anything less than Libor plus 150bps (nearly 7.5pc), and it is this issue that will cause the greater long-term harm, in my opinion, than a short-lived blip in inflation.

Economies thrive through confidence and one of the pillars of confidence in the UK is the value of property. If the whole market grinds to a halt through lack of liquidity, then there would be only one direction for it to go - down!

In a market bereft of buyers' prices must fall and with fewer people able to 'gear up' to pay the current prices, then I fear this will be the scenario towards which we are heading.

A major problem is that once a trend gets set, it is very difficult to halt its momentum (witness the property situation in the US) and buyers shrink from putting themselves in hock when they fear that next week/month/year the house they have, so painfully paid for, will have dropped in value.

And so stagnation follows, if the housing market locks up, then many retailers who thrive on sales to 'new owners' will also fail and so on down a long line that ends with recession.

At the moment growth is just enough to keep the tills turning over but, without some aid from our central bank, I fear that this will not be the case for long.

This is not a plea to help our 'poor old' banks out of the hole they have dug for themselves. It is a plea for everyone whose job is at risk because of the seizing up of the money markets.

The Bank of England should be adding far greater sums into the markets and should also be willing to take a much wider basket of assets as collateral.

It seems to be under the impression that if it sits doing nothing for long enough then, the problem will sort itself out. Well, six months down the line does this look to be happening?

"This is not a plea to help our 'poor old' banks out of the hole they have dug for themselves"

Yes it is.

Seems more and more people are commenting that if the BoE doesn't intervene then the HPC will come. The BoE seem content to do nothing. Excellent news.

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

The squeeze on liquidity is getting worse, not better, and yesterday's three-month Libor fixing was at 6pc, showing that even the small little rate cut that we have seen from the central bank has had little or no effect.

DURRRRRRRRRRR - hasn't libor gone up in the US as well - so the Fed have made a small rate cut have they. Orwellian or what. Simon Denham should be sent to an asylum for the criminally retarded!

Edited March 26, 2008 by gruffydd

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

Simon Denham - one of those big-brained City boys?

[bobthe~]

Just more VI spin.

Please save the share prices of the companies I want to make money out of Boo Hoo Boo Hoo.

Suck it up MoFo, suck it all up.

As stated, lowering IRs doesn't work, all it does is give a temporary boost to SM, which then sinks back.

And of course it gives banks the excuse to penalise the prudent by reducing saver rates, while keeping or increasing rates to borrowers, thus re-capitalising at my expense.

If the CBs want to maintain their mirage of control over IRs, they need to follow the market upwards.

Edited March 26, 2008 by bobthe~

[Leonard Hatred]

On that basis, big banks should do more to give* me piles of cash so I can afford a home.

Yes, give, not lend!