Wednesday, April 16, 2008

Brown waffles on – but will it make any difference

Bank of England set to act on mortgage crisis

Some interesting points here. Libor remains steady at about 1% above base. Latest 15bn auction of 3 month funds undersubscribed; reason believed to be that banks short of AAA mortgage paper as collateral and want to hold on to their good stuff because they hope the Bank will accept the rubbish later. Will any of this dodgy business work? In these situations the antics of govts and banks are often futile. We shall see.

Posted by letthemfall @ 11:03 AM (534 views)
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3 thoughts on “Brown waffles on – but will it make any difference

  • sold 2 rent 1 says:

    Once all the rubbish mortgage debt has been bought by the BofE watch GBP fall through the floor (against gold; as the USD and EUR should cease to be benchmarks beacuse they too are fiat rubbish backed by coruption and spin).

    GB is setting up the UK for euro entry once our currency is destroyed.
    Unfortunately the euro is in a bubble and will implode before GB gets a chance.

    Last chance to buy gold before super spike is soon.

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  • tyrellcorporation says:

    mmm, this does worry me though. It’s now imminent that the big bailout of banks will start in earnest. GB will mortgage the next generation’s future to save his skin today.

    It still, even now, staggers me that high house prices are so desirable (to the establishment) and that they should always been seen as a one way bet. If they pull this off and the market stagnates and then starts to rise again…Please someone tell me this won’t work.

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  • tyrellcorporation:

    Yes, it worries me too. I think it is difficult to argue definitively why it won’t work. But if there is one reliable law of economics, it is that (real) prices revert to the mean, because if they didn’t a permanent distortion in the distribution of wealth would be set, and markets do not allow this over time. If a given bubble never burst, eventually all wealth would be concentrated in that particular asset.

    A big bail out of debt, in which, say, all a bank’s bad debts were compensated by the govt would obviously have disastrous consequences for any economy, a bit like throwing money into the fire. What Brown seems to be proposing is the exchange of dodgy “money” (CDOs) for good cash (govt bonds), so that banks can feel comfortable with each other. The question is whether banks will begin to feel comfortable. Despite access to more funds from the BoE, they’re still not happy.

    In the end, house prices must fall because they have eaten up a disproportionate share of the country’s wealth. But Brown could conceivably delay this with all his interfering; the question is for how long. Of course in one sense we do not want to see an almighty crash in quick time, despite the grim satisfaction we may feel as all the prating VIs are forced to face reality, because it may precipitate such economic chaos that everyone is badly affected – job losses, etc. So maybe the BoE will manage to prevent this, while house prices are restored in a relatively orderly manner over a period of 4 to 6 years, as in the 90s.

    Just my rather vague thoughts.

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