Saturday, August 18, 2007
can’t even hide the poisons in the mud
"No bids for UK sub-prime mortgage securitised paper" - Victoria Mortgages
Victoria Mortgages has repriced its entire mortgage product range, with near-prime products rising by 1.25% and sub-prime products going up by 2.5%...The lender cites the global liquidity 'crunch' of the last few weeks has now created a position, "where there is effectively no bid for UK sub-prime mortgage securitised paper".
Posted by converted lurker @ 10:41 AM (927 views)
3 thoughts on “can’t even hide the poisons in the mud”
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bidin'matime says:
Great news and hopefully the start of many. This is the inevitable result of the crunch – the BoE can set any figure they like for IRs, but as the supply of money gets tight, the price has to rise.
whiteknight says:
bidin’matime:
Yes correct. This is the market deciding for the bank what rates are really appropriate for lending now. This was inevitable, but it highlights the impotence of the central bank ultimately (particularly if the central bank has an MPC that doesn’t understand realities).
The “underlying” strong economy that we are relying on to keep us steady does not actually exist either. It is activity that has been built up on easy money and therefore will not be productive enough. Lots of profit is inflation.
This “collapse” is very different from financial crisis of recent years (30 years) ; we are looking at a collapse within the capital markets and and also the steady failure on “main street”, which will accelerate as the cheap supply of money is removed.
There is a final myth awaiting explosion:
This is the power of another “central bank” or the US private bank of the Federal Reserve. For a long time this bust of a financial system has looked overly to the Federal Reserve almost in awe. On Friday we saw again the “power” of the Federal Reserve.
However, be wary. A lot of what the Fed does is Psychological Operations. They cannot reduce rates indefinately because they have the contraint of the value of the dollar to consider. If the dollar came under significant pressure, the game would be up very quickly. By reducing interest rates they will persuade people not to hold dollars (smart people who want to preserve their capital that is). Then it becomes time to get into other resource backed currencies.
They can bounce out short seller speculators easily enough – but we have not seen contagion effects really kick in yet. People who have to sell have to sell. And when they sell into and through the FED, it will get very scary indeed.
The quieter the institution, the more “fine” they say it is , the more i worry.
converted lurker says:
That’s an excellent post whiteknight.