Tuesday, November 2, 2010

More great ideas about buying out negligence

Bank of England must use QE to buy 'bad mortgages', warns Fathom Consulting

Can't help feeling outrage at this. Here we have a think tank basically saying let's use government money to buy out negligent financial decisions so we can sweep that lot under the carpet and start again.

Posted by growler @ 07:15 AM (1622 views)
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12 thoughts on “More great ideas about buying out negligence

  • Yup – then we can all start spending again like there’s no tomorrow.

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  • Well its doubtful this will happen in any great degree here. However things are in place for them to expand the QE from 1.1.11 to other bad assets. SO LONG AS THE GOVERNMENT APPROVES.

    Hudson is for Debt forgiveness so is Keen – both on the basis that it takes less time for the economy to recover than the indirect distribution (or lack of it) via the banks. As i posted earlier Rick thinks the US banks are hoarding because they will need a cushion when / if they do have to go down that road. IF it happens – and i dont think its a done deal by any stretch (particularly with the Tories at the helm) then it would be sold using “The needs of the many outweigh the needs of the one” argument. Clearly if the fed / boe think we are over the worst then this wont happen.

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  • I think I would far rather see the money go to helping businesses.

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  • If the unexpressed post script to this story is the borrowers who are not able to pay hang onto the asset notwithstanding that incapacity then the idea offends me and on that basis alone I’d be against it – and that absolutely irrespective as to whether it might be best for the economy as a whole. Now I just need to find a way to rationalise my position objectively !

    I’m also sceptical that this would work on 2 levels.

    First of the problem with the extension of credit is not merely that banks don’t have enough capital. Is there not afterall an implicit guarantee by government to take whatever steps are needed to ensure the “solvency of the banking system”. Rather the problem, if it is a problem (in my view its not), is a return to more prudent lending standards, standards that mean creditors cannot borrow enough to pay the inflated prices currently baked into the system. So what let prices fall.

    Secondly at an more philispohical level I sense that our idea that everything can be fixed and nothing has to be endured as a form of misplaced omnisiencence, as if we always know what the problem is and how best to solve it. The dogma is that recessions and depressions should and can be avoided, indeed must be avoided at all costs in some sort of pursuit ofl perpetual growth. How can we possibly know that? How do we know that depressions and recessions are not merely some sort of cyclical process necessary for our long term welfare. Is it not a bit like wishing for immortality because the thought of death is horrible, without thinking about what immortality might involve and how that might be worse.

    I also think it would be a bad thing because by attempting to seperate actions from consequences is the suree Money loses all value if it can be borrowed without being paid back, which is one of the things

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  • ontheotherhand says:

    It’s not like there is nobody out there offering to buy these mortgages already. The problem is the banks don’t want to sell at the price they can get because they don’t want to feel like idiots if the price recovers because the defaults are less than expected. So if they can hold it as an asset on their books at 70 today, but believe if they just sit and hold they will get repayments worth 95, they will sit and hold. In this they are a bit like home sellers who are sitting waiting for a high price, and they can wait because of low interest rates.

    So the problem for the QE buy back scheme in the article is what price does the BofE offer? Higher than the market is already offering and it’s the same thing as handing the banks free money for nothing, same or lower than the market is already offering and the banks won’t sell.

    Of course, the other way to get the banks (and homeowners) to sell and to clear up the market quickly is to let interest rates rise to a level that actually fights inflation…

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  • Brian Williams says:

    4. bellwether:

    I believe that Recesssions and Depressions are not only a cyclical process, but are probably a mathematical certainty.

    If you look at a graph of the compound interest formula (say around 5%), then after around 50 years it exhibits exponential growth. Simplistically, that means that GDP growth rates must exceed the interest growth rate.

    It’s also probably why the ancients had a debt jubilee after 50 years!

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  • general congreve says:

    OK, so this is a method of helping the banks out of trouble, and kicking the can further down the road. But it isn’t going to solve the bigger debt issue of govt. debt that is lurking like a monster in the shadows.

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  • Now then let’s just see how this works:

    When there is a big PROFIT then everyone can take the money and run.

    When there is a big LOSS then the taxpayers can pick up the tab.

    Well Mr Fathom Consulting, I can tell you where you can stick your plan.

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  • greenshootsandleaves says:

    Right, I’m hanging on to all my betting slips from now on. You never know…

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  • There is no real debt issue with government, as I have pointed out before. Even if you were to treat a country as the equivalent of a household a great deal of its liabilties are by way of future commitments which can always be broken.

    There is on the other hand a real debt issue with consumers, too much “wealth” tied up in houses and not enough investment towards competitive and productive endeavour

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  • 11th commandment – thou shalt not let house prices fall

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  • general congreve says:

    @9 – See your point. But if you’re going to mug off private investors in govt. debt, what then? Goodbye credit rating, interest rates spiral upwards and no one wants to lend to you. It will then be apparent how poor we really as a nation and how worthless our currency is.

    Not to mention that a great deal of the nations debt is held by private pension funds, what happens to them when the govt. refuses to cough up?

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