Saturday, December 6, 2008
Interest rate cut mean more capital erosion at the banks.
The rate cut and anti-repossession measures are a huge gift to people who took on large loans during the boom, and to those who can no longer afford them. Banks are making huge losses from their past lending errors. To function properly, they now need to make a margin. Yet they are saddled with tracker mortgages giving them 1.5%-3% interest, while having to pay out more than that to savers. Result: misery. The banks are supposed to be lending more, this move may, perversely, result in them lending less.