Sunday, April 19, 2009

Moar bailouts plz, KTHXBYE

Building societies in Bank of England talks after downgrade

Crunch negotiations are due to take place this week between the Bank of England and a group of building societies in an attempt to prop up their levels of mortgage lending. The societies - including the Chelsea and the Skipton - were hit last week by credit ratings downgrades, affecting their participation in the BoE's £185 billion Special Liquidity Scheme. The downgrades are based on the scenario of house prices falling 40%, thus affecting the value of assets put up by the building societies as collateral for funding from the liquidity scheme. Societies may be forced to either put up additional collateral or hand back the Treasury bills unless a deal can be reached with the BoE.

Posted by little professor @ 10:43 PM (894 views)
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5 thoughts on “Moar bailouts plz, KTHXBYE

  • Remind me again, what’s the point of having ratings agencies?
    Even worse why does the BoE or indeed any government agency rely on ratings agencies?

    The whole thing smacks of cover-your-back attitudes. Pension funds can tell their customers “Dear Mrs Marple, We’re sorry the value of your pension fund has halved. It’s not our fault – we invested in triple-A rated bonds.” Nobody seems to question the logic of this long-established behaviour.

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  • The author of this piece totally misses the point. The BOE is not the problem here, it’s the overseas lenders that the mortgage providers are so dependant on.

    If they walk away, the BOE has three choices – raise interest rates, put the money printing presses into overdrive, or let the mortgage lenders go bust.

    The first option is the proper course of action, but politically very difficult with an election a year away. Option two is the Zimbabwe solution, leading to hyper inflation; and option three would see millions of savers wiped out.

    Opting for the second option might seem politically easy in the short term, but would not be forgotton – GB would probably be reviled as the worst prime minister of all time, and the Labour party might never get re-elected.

    Interest rates WILL have to be raised. If the government tries to postpone this until after the election, there is a very good chance that they will fail and be be forced to act; leading to political anihilation at the polls.

    If they can avoid raising interest rates before the election, the Tories will do so immediately after, in that 100 day window when the media accepts that the new incumbents in Downing St have to make some difficult decisions to correct the errors of their predecessors.

    Fact: This recession cannot be fixed with cheap money. Period.

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  • PS..

    If the govt raises interest rates in a manner that is well presented, showing them to be in control, and making a difficult decision for the good of the nation; then they will get some respect come the election – although they will still lose, if not so badly..

    Unfortunately, good statesmanship and GB seem to be like oil and water…

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  • general congreve says:

    Well put Uncle Tom. I think what many people fail to realise is there is no easy way out of this. Gordon, Darling and the BoE all know this, but they aren’t letting on to the public and are doing their damned best to save their reputations, not that it’ll work. Fact is the UK has got one hell of a record-debt-binge-hangover coming, one way or the other. Unless Gordon Brown morphs into some sort of economical Derren Brown and hypnotises the UK’s creditors to bail us out with free cash, the pain will be apparent to us all very soon.

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  • I thinks amazing that this article quotes Rightmove as proof that property prices are rising. Rightmoves stats are based on new on the market asking prices, Rightmoves Director confirms selling prices are much lower and has been saying all year property prices need to come down 25- 30% below peak. People seem to forget the “falling” bit don’t they. Even the CEBR report that said best case scenario if mortgage approvals doubled would be 35% falls, that is a £300000 propety valued at £195000, everyone says the report said “Prices Are Rising”. Moody’s tested because the “assumption was 40% falls “. So how could anyone think in todays climate that Moody’s was wrong to test for 40%, because that was the “assumption” now and stress test for 60% because that could be the “assumption” by next week

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