Mervyn moves (a bit)
The chief executives of Britain's biggest banks emerged from a meeting this afternoon with the Governor of the Bank of England optimistic that it will radically reform the way it provides them with emergency financial help.
Although the Governor of the Bank, Mervyn King, asked them not to divulge what they discussed, I have learned he signalled - for the first time - that he was sympathetic to their request that in an emergency they should be able to swap a wider range of assets, including their mortgages, for loans from the Bank of England.
The chief executives of the UK banks believe that they would be much less vulnerable to damaging speculation about their financial health if the Bank of England announced it was prepared to make good any hole in their finances stemming from the current crisis in banking markets.
It is understood that the Bank is examining whether it can provide support similar to the what the US Federal Reserve provides to banks through its so-called discount window.
The Fed's recently reformed discount arrangements allow US banks and security houses to exchange their mortgages for emergency funds.
Bankers believe it will take the Bank of England a few weeks to finalise the details of new support arrangements.
Until very recently, Mervyn King was reluctant to provide the kind of financial support demanded by banks, for fear he would be seen to be bailing them out for their own foolish lending and borrowing practices.
But it is understood he was alarmed by Wednesday's raid on HBOS shares, when its shares fell 20 per cent at one stage because of malicious and erroneous rumours that the leading mortgage bank was in financial difficulties.
Bankers believe that if there were an emergeny facility at the Bank of England that HBOS or any bank could tap in the event they suffer short-term funding difficulties, their share prices would be much less vulnerable to the impact of damaging lies propagated by speculators.
I'm 
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Surely any permanent scheme that would swap taxpayers guaranteed funds for dodgy bank assets is giving the banks licence to continue with the dubious business models that got us here in the first place? Where is the moral hazard?
I wonder if some research information on who owns runs and accounts for the actions of the following institutions could be published by a respected authority such as Robert Peston.
US Federal Reserve, The Bank of England, The International Monetary Fund, The World Bank and the Bank for International Settlements.
Almost all commentators present these institutions as if they are branches of and under the control of democratic governments.
In contrast I find they are among the most opaque non-democratic, non-accountable institutions in the world.
Perhaps it would be timely to publish an authoritative description of who and what they are and how they operate; to our collective advantage?
Is it only me and Mr. McFall who find this bail out of banks strangely one sided? The top bankers are suggesting that if their dealings go well then they should pocket the large bonuses and their bank pockets the profits--however if it goes badly then the Bank of England will use tax payers money to make sure that the bank does not suffer a loss.
Surely any Bank of England bail out should be accompanied by instantaneous and non-compensated dismissal of the bank officials responsible--any action less is just encouraging irresponsible lending!
Anyone want to buy a wheelbarrow?
How about a calculator with extra decimal places?
Begging bowl?
Soup bowl and spoon?
No?
Don't worry, you will. These will be boom markets shortly. Bailing out the bankers by massive inflation has been decided (by bankers).
Bankers, WE KNOW. Joe Public knows what inflation is and where it comes from. YOU. Do the decent thing and go bankrupt, it will be better for you in the long run and everyone else too.
I'm not sure I fully understand the substance of this new arrangement, but why would this not make the banks even more reckless in how they lend money to customers? If they know the BoE is going to back them up in additional ways, surely that leads us onto more of the same? Or am I missing something crucial?
In effect the banks have told the BoE that they cannot keep their profits up if they have to borrow on the open market.
So the BoE is going to lend them the money so that they can keep their profits up.
Nice work if you can get it.
Free market while it suits you.
Bail out when you need it.
All cleverly disguised as a foil against the hedgies.
And the Moral Hazard?
Robert
The simple fact is the fiat currency (debt bonds) generated by the global banks has evaporated when somebody gave the assets a tap and found them to be hollow.
There is not enough money to bail them out. Not even in the BoE at the moment.
So the BoE are dancing with the banks to avoid printing too much money too quickly, which will see the demise of Sterling and an impetus to inflation. The banks, no doubt sensing this discomfort, will take us all for another roll.
By the by, talking about confidence and hollow things check out the 拢35k deposit guarantee scheme.
It's a good time buffer to slow down claimants but not exactly 'on demand' safe for the consumer. You may have to wait for bankrupcy proceedings, litigation etc. It could take years to get one's money back.
This is what the ECB have been doing all along.
If it had been done from the start, Northern Rock may well not have been the disaster it was.
Also, one bank run just makes another more likely.
Now we have a situation where it's logical to take money out of any bank and put it in Northern Rock for the guarantee if you have any doubt at all.
And this added vulnerability makes circulating a false rumour even more effective for a trader.
Its better late than never but a good deal of the damage has been done.
Proclaiming moral hazard does not work. Your bluff will be called. Markets are prone to excess and that's it.
If you want to stop excesses then what is needed is action before the crisis. Maybe an insurance scheme paid for by banks according to their risk.
It means tighter and more costly regulation. But the light regulatory touch is discredited too.
All in all, not much of a performance from the authorities.
In effect the banks have told the BoE that they cannot keep their profits up if they have to borrow on the open market.
So the BoE is going to lend them the money so that they can keep their profits up.
Nice work if you can get it.
Free market while it suits you.
Bail out when you need it.
All cleverly disguised as a foil against the hedgies.
And the Moral Hazard?
Perhaps all banks should be taken into temporary state ownership. No compensation of course. That should focus the minds of the present freeloaders.
Banks benefited from increased share prices caused by them off loading ever increasing amounts of debt on over value property.
Why not let them suffer the consequences when the house of cards fail? It is the essence of regulators to ensure that no player is bigger than the entire market.
If HMG offerred a blank cheque in return for a lion share of the banks profit, this could be a way to fill the spending gap?
Well that sounds fine in the current climate, but I hope it comes with more regulation to stop those stupid 'bankers' squandering our pension funds.
In effect the banks have told the BoE that they cannot keep their profits up if they have to borrow on the open market.
So the BoE is going to lend them the money so that they can keep their profits up.
Nice work if you can get it.
Free market while it suits you.
Bail out when you need it.
All cleverly disguised as a foil against the hedgies.
And the Moral Hazard?
Perhaps all banks should be taken into temporary state ownership. No compensation of course. That should focus the minds of the present freeloaders.
Well that sounds fine in the current climate, but I hope it comes with more regulation to stop those stupid 'bankers' squandering our pension funds.
Banks benefited from increased share prices caused by them off loading ever increasing amounts of debt on over value property.
Why not let them suffer the consequences when the house of cards fail? It is the essence of regulators to ensure that no player is bigger than the entire market.
If HMG offerred a blank cheque in return for a lion share of the banks profit, this could be a way to fill the spending gap?
Shame about the 2000+ people out of a job at (HM) NR... or is NR taboo and un newsworthy now??
Profits privatised, losses socialised.
I am amused by the illogical proposition that any rumour can be regarded as malicious in a trading system whose whole reason for being is hearsay and--yes, you guessed it--rumour. If you want to stop so-called malicious rumour, start peeling back some of the licence that has been accorded to the UK's banking system--indeed, the whole world's banking system--since well before Big Bang. But it's not going to happen--it can't happen--because the greed element of the greed-and-fear equation of present-day capitalism is totally out of control, and the genie can't be stuffed back into the bottle.
We've started paying for this now--all of us, except possibly the vastly over-rewarded mega-bankers whose inept manipulations have got us into this mess, and the financial (so-called) watchdogs whose matching ineptitude has allowed it to happen. What this whole fiasco of sub-prime, leverage, hedges and carry trading has shown is that, when it comes to keeping a check on the workings of this country's, and indeed every country's, financial system, a boy and his dog probably could have done a better job, and at infinitely less cost.
In effect the banks have told the BoE that they cannot keep their profits up if they have to borrow on the open market.
So the BoE is going to lend them the money so that they can keep their profits up.
Nice work if you can get it.
Free market while it suits you.
Bail out when you need it.
All cleverly disguised as a foil against the hedgies.
And the Moral Hazard?
Perhaps all banks should be taken into temporary state ownership. No compensation of course. That should focus the minds of the present freeloaders.
Not sure what the difference is between this and Northern Rock situation and why should Mervyn King be sympathetic when he wasn't 6 months ago and more importantly why does he want to keep everything secret. Obviously something major going on which isn't confined to NR! Why do they need to change the way in which money is provided to banks when the government and BoE have said that it was NR business model that was at fault not the system. Looks like it may have been the system after all!!
Should we be taking our money out of HBOS?
What were the FSA and the BOE doing to advise the Rock and others of the system's vulnerability? It's not just the banks who are to blame. It's also the foolish or greedy borrowers who take on commitments they can't guarantee to sustain, the traders in complex derivatives who are tweaking markets such that the ultimate outcomes can't be foreseen, the raiders who prey on rumour, and the emotional investors who panic at a passing bumblebee and bail out or in, or both.
The real solution is to control and slow the markets more, internationally. Who decreed that we human beings are capable of handling this degree of complexity? I don't think we are. Boom and bust, bubble and burst, is how it will continue to be until more and tighter regulation ensues.
What were the FSA and the BOE doing to advise the Rock and others of the system's vulnerability? It's not just the banks who are to blame. It's also the foolish or greedy borrowers who take on commitments they can't guarantee to sustain, the traders in complex derivatives who are tweaking markets such that the ultimate outcomes can't be foreseen, the raiders who prey on rumour, and the emotional investors who panic at a passing bumblebee and bail out or in, or both.
The real solution is to control and slow the markets more, internationally. Who decreed that we human beings are capable of handling this degree of complexity? I don't think we are. Boom and bust, bubble and burst, is how it will continue to be until more and tighter regulation ensues.
Banks show enough profit year after year to make most people hurt just reading the current 'issues' of banks especially when that they have been warned on over lending for so long now its almost surreal that it should come as any kind of shock, dont get me started on share values either especially as again it has been said for some time that a correction to the market was well overdue especially when in hand with predictions of credit starting to get reigned in.
To add to that, lets face it, most ordinary people dont get anything but penalities if they miss payments on their debts by banks, secured or not and regardless of the reasons why, politically its very hard to be anything but VERY unsympathetic towards banks as a result.
WHY CAN NOT BANKS US THERE PROFITS ?IT APPEARS TO ME THAT THE LAWS OF PROFIT AND LOSS HAVE A DIFFERENT MEANING TO BANKS. SOME I UNDERSTAND HAVE NOT PAST ON THE LAST DECREASE IN THE BANK RATE. YET THEY RUN TO THE BANK OF ENGLAND
It must be right that major UK-based banks should not be disadvantaged versus their brethern elsewhere.
Let's not forget Moral Hazard, but that would not be the main theme for this phase of the work-out when the broader economy needs protected.
Your earlier point on Credit Suisse, that Q1 was not profitable, is crucial and worth understanding, as the awful truth is that we do still need banks to make money. Around 15 years ago I think it became evident that plain vanilla banking wasn't very remunerative despite its volatility.
- Vanilla returns, Welcome back ?
Fee-based activities provided apparently better quality returns - for a good while, as the game expanded. Now we see the true quality of returns from piling up more and more derivatives and layers of leverage.
Fees, staff bonuses etc. earned by creating the pyramids, along with the dud underlying exposures like subprime, all contributed to the negative sum game, the resulting value of the heap of instruments, that everyone is now desperate to quantify.
It could get quantified soon enough, but the bigger story is going to be the rate of return that banks can legitimately make going forward.
If I were the Guv of the BOE, I would have told the heads of the big 5 banks that they had got themselves into this mess and they would have to get themselves out of it.
It was their lax lending practices that have pumped up house prices to high levels and that they needed a healthy dose of recession/depression.
All the emergency loans will do is keep the inevitable crash/recession/depression away for a little longer, but it will come because you cannot buck the market and the market is saying that banks loan books are full of debt that is unlikely to be paid back and we are going to mark you down until you return to prudence in lending practices.
This will cause house prices to fall MASSIVELY, by up to 50% maybe more, putting many people in negative equity and being forced to either sell at a loss or stay until the market picks up.
Well, I'd say that a loss of that magnitude tends to concentrate the mind and will make many people swear an oath that they will NEVER take on debt that they cannot afford to pay back.
This will be a good thing has house prices will become more affordable and perhaps we can concentrate on manufacturing and becoming a world leader in energy saving and renewable energy technologies instead of speculating and spending UNEARNED money.
If such a move were to be made by the BoE shouldn't all bank boards agree to suspend all bonuses for staff and freeze salary and expenses for the board and senior staff until they no longer require such a facility and ask for the BoE to withdraw access to it if it is made avaliable.
Bank bosses mustn't be allowed to try and force through a stop gap to protect the banks share price and the rich bonuses which they recieve based on various factors, such bonuses should be suspended for the people at the top , it would give them a good enough reason not to induldge in such risky behaviour in the future.
What i don't understand is if HSBC makes a profit of 拢12.2bn, why it alone with other banks needs additional funds from the central bank? It seems they want it both ways! Make huge profits and let somebody else take the risk. I'm afraid if HSBC break even next year because of the credit crunch then so be it. I didn't see the government step in when rover needed financial support to keep it open!
Or damaging 'bad' news propagated by publically funded media organisations. Whilst the funding model of Northern Rock was certainly flawed, the run was not inevitable until the 91热爆 poured petrol on a smouldering institution.
Here we go - bail out time. Can they define short-term funding difficulties? What sort of period is that - indefinite? 10 years? 20 yearas? Have the Japanese banks paid back all the tax payer loans from the early 90s?
If the banks are insolvent why should they get help? I run my own business and if I decide to make decisions based on eternal sunshine, will they come and help me when the totally predictable downturn comes? And in case anyone isn't aware, this was absolutely predictable and myself and many others have been discussing this all happening for the last 2 years - it could only end this way given how irresponsible the banks have been.
I do hope that the people who have received huge bonuses on the back of this massive fraud are prosecuted as they have vandalised our entire economic system and now they want our tax money.
Is this the same Mervyn King who said, last September, that providing backstops to banks that have got themselves into trouble "penalises those institutions that sat out the dance, encourages herd behaviour and increases the intensity of the future crises."?
He should have resigned then when he made a U-turn on Northern Rock immediately after his speech, and he should resign now. Now the US Fed and the Bank of England have adopted the worst policy of all - bailing out the bankers by accepting dodgy debt on which noone else is prepared to bid, while imposing absolutely no constraints on their future behaviour.
The rich have their losses underwritten while the rest of us get to pay for it through taxes and higher inflation. This is the type of policy that has led to revolutions elsewhere. In eighteenth century France the burden of taxation fell on the peasantry, while the nobility was exempt. Substitute the UK public and the non-dom bankers 250 years later and you're in the same situation.
Let the bankers lose their firms and their jobs!
The banks are a cartel of avaricious, bullying thieves who have been allowed to get away with too much for too long. The current situation is nothing more than their deserved reward for the breathtakingly greedy and socially irresponsible way they have exploited their position. The public does not have confidence in the banks and the collapse of one or two would be no more than their just desserts. Galbraith and Keynes argued against capitalism without social responsibility a long time ago. Unless there is proper regulation and a tough line taken, rather than the toothless pandering to the predatory institutions by regulators and the central banks nothing will change. The public will once again be forced to pay for the errors and naked greed of big corporations who have no notion of, or worse blatantly disregard, fair play or responsibility. The banks have extorted enough from ordinary hard working people and now that they have overextended themselves they should be forced to face up to the consequences of their actions. Absolutely no further money whatsoever should be offered and they should face the music. There should be no special treatment for an immoral bunch of brigands who are finally confronting the results of their own folly. Any other company damaged by rumour or speculation would be their first target so it seems entirely inappropriate that they should receive protection under the same circumstances. Those who live by the sword should be allowed to die by it too.
Well money goes to money as they say. The BoE Instead of helping out mortgage holders directly, who will be unable to meet their payments, will just keep giving billions to the banks. If Mr King as so much free money floating about why not give to the needy and not the greedy.
We taxpayers need to be very business like with this request. We must ensure that Mr King values the collateral aggressively to ensure that, for bailing out any bank, we get a fair return for our risk, cutting our tax bills.
After all, it the owners of banks who got us into this pickle by lending on poor collateral, and we mustn't fall into the same trap ourselves.
Mervyn King has one overriding responsibility and that is to do everything in his power to contain the current crisis and to stop it trashing the real economy. This means being pre-emptive rather than reactive, creative rather than predictable - he needs to take the lead and - if he has it in his being - use the power of 'showmanship' to change sentiment.
We're waiting, Mervyn!
I am surprised it will take the BoE a few weeks to get organised; they should have already been working on plans like this.
Its vital the BoE come out loud and clear to support our banks; who are by all account far stronger and must less vulnerable than the US banks.
To trash a major UK bank because its well run, not exposed but caught up in a global tidal wave was a stupid policy.
Things have moved on a lot (especially with the HBOS horror last week) and I am glad - and frankly, fully expected, the BoE to take a complete u-turn.
This is a sensible decision for the Banks, the UK banking industry and the UK in general. If even ONE of our banks had imploded; decades of success would have unravelled - much to the delight of our near neighbours/competitors!
This is what I call ''the bigger picture!'' Only fools are actually suggesting the banks should be ''allowed to fail'' - they clearly think they will be completely immune!
Mervyn King has one overriding responsibility and that is to do everything in his power to contain the current crisis and to stop it trashing the real economy. This means being pre-emptive rather than reactive, creative rather than predictable - he needs to take the lead and - if he has it in his being - use the power of 'showmanship' to change sentiment.
We're waiting, Mervyn!
My local corner shop owner wonders if he could give the bank of england out of date bread and receive money in return...
Some of Robert Peston's reporting and balance in particular on the 91热爆 TV news has in my view been less than wise and balanced. Given that in market conditions such as we are currently experiencing, fear and panic unfortunately rule the day, has he been responsible and fair?
In my opinion, Robert Peston's reporting balance and language has been little more than alarmist and cheap scaremongering. For example on one occasion earlier this week he said that 'some economists are even saying that ....'citing extreeme alarmist pesimistic views rather than quoting more balanced considered opinion.
Some say that he single handedly brought Northern Rock down, is he now trying to bring down the rest of the British Banking system as well?
Why don't the Banks cut their very expensive dividends?
Quid pro quo!
No - these bankers aren't getting what they deserve which is of course their P45s. Mervyn has a great opportunity here to change the face of banking... He could agree to their demands provided they all fall on their swords.
In any event it is not the job of the BoE - with our money - to support the share price of banks.
Thus we see the UK following the same path to rack and ruin as the US. Sell your GBPs they're going to be worthless in a year's time.
I keep wondering why the BoE is doing this and the shareholders of these PRIVATE companies are not
Wait six months and you will see the very same banks themselves pulling loans from cash strapped businesses. If Mr King insisted the banks treat their clients in the same way as they are asking to be treated by the B of E, I would support the move. If not, and we all know its a 'NOT' then the banks should have to pay a huge remuneration to the B of E for this change, through increased taxation on them, otherwise they will be just as foolish once this crisis is over. Their pay scales alone show you how foolish the sector has been and they will want to get back to their huge earnings ASAP. Don't let them Mervyn!
Please help.
Ummm. How I wish I had listened during my Economics classes.
Please. Could someone help me....
How much money has the Bank of England got ? and where does it all come from ?
I believe that each bank has to lodge a fraction of the amount that it loans out to its customers, but is that all the central bank has to play with ?
Or, is the central bank, the Bank of England in this case, simply 'creating' new money ??
As I understand it, money is no more than an acknowledgement of 'debt'.
i.e. I go into a bank, ask to borrow 拢250,000, offering my house as security, the bank then simply creates 拢250,000 which it gives me, adding 拢250,000 to the total amount of money that exists in the system.
Sure, there are some rules to do with having a fraction of that total amount on their balance sheet, but I understand that amount can be as little as 3-4% of the total of the new money they have just created - maybe even less I've heard...
So, is it really possible that the Bank of England is doing the same thing - i.e. 'creating' even more money (from nowhere), in exchange for the dodgy mortgages that the banks are using as collateral.
Or have I got it all wrong ????
One cannot get away from the thought that whilst the banks are "copping a plea", "fessing up" or whatever folks do when they have to admit they are losing control of events and asking for support, it is, cetainly in the case of normal folks, usually accompied by a willing acceptance of strictures on future behaviour, accmpanied by assurances of more openness, less arrogance and certainly less self indulgence, mindful of the causes of the now admitted unontrollable circumstances leading to the admittance of losing control of events etc.
In the circumstances you describe one can see the first part of this, the admittance of problems and the asking for help, but not the second the assurances about future behaviour.
One can only imagine the said bankers doing heel kicks on the way to their waiting limos in their relief at having offloaded their guilt and rather than any strictures on their future behaviour received assurances removing any uncomfortable downside risk in the future.
They have swum the channel, they have achieved the impossible, they have found the holy grail, the have entered an era of risk free operation.
Its trebles all round for them and we the tax payer, humbly underwriting all of this, can only marvel at their cleverness
Forgive me if I'm looking at this overly-simplistic.
Does this mean then that effectively the BoE is underwriting every mortgage in the possession of a UK bank?
Does it also mean that as and when the banks need this money they can quite simply hand over their over-valued sub-prime assets for BoE cash?
If the answer to these is yes, then surely that means the BoE is going to end up as a caustic debt dump under-written in turn by the government, underwritten in turn by us the taxpayers.
What an absolute monstrous con.
I believe the rumours were part of a cunning strategy by the banks to force the BoE hand and bring about such "reforms". No need for the banks to manage risk anymore as it will be passed on to the state. A very sad day indeed.
Ahhh. Answered my own question about who 'owns' the BoE
This is an interesting article for anyone who's interested in who owns the BoE, or should I have really said, who controls the money supply.
Am still sticking to my guns though, about tax that is, that a great deal of our tax goes nowhere other than to pay interest on loans made by the banks to the government.
Money lent for example, to finance wars...
That's a strange situation isn't it. You could almost imagine it might be in certain people's interests for wars to happen...
Had Mervyn King adopted this policy back in Oct 2007, we would not have had the Northern Rock crisis.
Northern Rock would still be in the private sector and the now threatened 2000job losses would not be necessary.
Is it too much to ask that a little foresight is shown by those in authority?
"damaging lies propagated by speculators"
Huh?
Hilarious Robert, I usually defend you to the hilt on this blogsite but this turn of phrase is worrying. Have you become a soviet general by any chance?
Of course, i can see clearly now, all HBOS' problems are down to a shadowy manipulative cabal of speculators and not basketcase lending policies.
After all Boris Yeltsin's handling of the Russian economy was so good that when the rouble collapsed in 1998 I'm sure you would agree with the lunatic Zhirinovsky and his KGB friends that then too it was all down to an evil plan by western speculators and spies.
Grow up Robert, HBOS share price has been ebbing away since September, stop parroting Gordon Brown's bunker paranoia blaming non existent conspiracies, basically New Labour have wrecked our economy and now the banks aren't safe.
Or have it your way, perhaps all those sub-prime punters who've been maxing out their balance-transferred credit cards to pay for student fees or for their pseudo-celebrity cocaine lifestyles and equity withdrawing on their Right-to-buy council flats to bankrupt the gambling-mad economy for the last ten years have all been victims of 'damaging lies propagated by speculators' too! How convenient.
Isn't this the point when someone starts blaming it on the jews?
Those damaging lies Robert were in the Labour manifestos of bubble-economics, false celebrity and wasteful wars for the period 1997 - 2008!
Toodle pip
Your article discusses the way in which the Bank of England can offer further support to the banking sector without questioning the Bank's financial resourses. Surely banks the size of Barclays, Royal Bank of Scotland or HSBC are now too big for the Bank of England to support in a worst case scenario. I suggest that this was a factor in its failure to act over Northern Rock. I would welcome your comments on this.
Rumour swapping and shared ideas is what the stock market has thrived on for a century. If someone hears that a banks in trouble, then they'd trade it in the way they trade a bid rumour or some news affecting oil prices etc. It's not the fault of traders if our greedy banks are so overgeared that they can't handle fluctuations and liquidity of the market. Maybe its a form of Karma for the way that these banks have no mercy on customers with funding problems and will crush them.
This is a prudent move by the BoE to restore some stability into the banking system.
There is a growing debate whether the accounting rules which require assets (such as the banks' mortgage backed securities),to be valued at their current daily market value, which is causing a downward spiral in banking and infecting the wider economy. Banks used to value their assets till maturity taking a prudent view on how much they needed to write off for losses, which led to much more mature and stable valuation of their books.
The current mark to market rules makes every day a shifting sand based on the sentiment of the market - but what makes the market right?
The market itself is being credited for being rational in achieving these valuations, which plainly for the past 12 months it hasn't, and to everyone's cost. Starting with banks who do not have the confidence in each others balance sheets to lend on the inter-bank market, leading to a drying up of credit and competition and a general lack of confidence pressing down on valuations - the perfect self sustaining prophesy.
So the BoE's move to take these 'volatile mortgage assets' as collateral and replace them with cash or Govt bonds, which are more stable in this mark to market madness, is exactly what is required to bring some sanity back.
This is not the first time in which Accountants standards have robbed wealth out of the economy and from individuals. The Companies final pension schemes, and the future wealth of millions of hard working people were effectively wrecked by the adoption of new actuarial valuation rules, from expected long term averaged stock market returns, to 'marked to market' yields on commercial company bonds.
The result was that in the low yielding, cheap money era of this decade the yield on commercial bonds was just awful and the valuations plumeted(and at a time when stock markets soared), most company schemes went into deficit and closed.
The result was that everyone lost - no-one gained. All due to Accountancy rules, and I believe we are watching the same thing happening all over again.
One cannot get away from the thought that whilst the banks are "copping a plea", "fessing up" or whatever folks do when they have to admit they are losing control of events and asking for support, it is, cetainly in the case of normal folks, usually accompied by a willing acceptance of strictures on future behaviour, accmpanied by assurances of more openness, less arrogance and certainly less self indulgence, mindful of the causes of the now admitted unontrollable circumstances leading to the admittance of losing control of events etc.
In the circumstances you describe one can see the first part of this, the admittance of problems and the asking for help, but not the second the assurances about future behaviour.
One can only imagine the said bankers doing heel kicks on the way to their waiting limos in their relief at having offloaded their guilt and rather than any strictures on their future behaviour received assurances removing any uncomfortable downside risk in the future.
They have swum the channel, they have achieved the impossible, they have found the holy grail, the have entered an era of risk free operation.
Its trebles all round for them and we the tax payer, humbly underwriting all of this, can only marvel at their cleverness
If I want to borrow money a bank attaches strings - so should the BOE with the banks that want to borrow money.
Let say: a ban on huge senior staff and executive salaries and bonuses for a start! It is only fair.
Understandably the spectre of the demise of a healthy bank through malicious gossip-mongering is concerning.
But surely the root of this problem is the current uncertainty surrounding the quality of some mortgages as investments. Swapping uncertain investments for BofE loans hands the risk over to the BofE, and therefore the taxpayer, doesn't it?
We have seen that individual greed at the expense of investors remains a real problem in London's financial sector (witness Credit Suisse). Until this is properly controlled, any move that allows the banks to feel that they will be protected if they continue to explore dangerous investment strategies must surely be inappropriate.
Confidence in the banks is important, Yes, but not this way. We need to see what the Banks can offer in the way of clearing up their own ordure, first, rather than letting them hold out their grubby little fingers for bail outs...
I have the impression that the media are portraying the current banking and housing issues as bad news; but all the people I know think of it as a long-overdue, welcome correction to decades of 'bubble'economics based, quite falsely, on an acceptance of inflation as inevitable. Market forces are bound to burst such bubbles, and we think that that is very good news for everyone. Perhaps one day people will buy what they can afford: borrowed money is expensive money.
Why Bank of England ( indirectly us the taxpayers) should pay for unscrupulous bankers. Is it not enough that we have already forked 拢100 billion for Northern Rock from public purse. What good did we achieve? Nothing!!! We all know that when an individual with low credit rating approaches Banks, they make a commercial decision and charge accordingly ( 20% pa nowadays is common when interest rates are 5%). Fair enough, it鈥檚 a commercial decision. Employing these tactics, these banks have made billions in last few years. Isn鈥檛 about time they get taste of their own medicine !!!
Why Bank of England ( indirectly us the taxpayers) should pay for unscrupulous bankers. Is it not enough that we have already forked 拢100 billion for Northern Rock from public purse. What good did we achieve? Nothing!!! We all know that when an individual with low credit rating approaches Banks, they make a commercial decision and charge accordingly ( 20% pa nowadays is common when interest rates are 5%). Fair enough, it鈥檚 a commercial decision. Employing these tactics, these banks have made billions in last few years. Isn鈥檛 about time they get taste of their own medicine !!!
Robert - This of course only tackles liquidity - not solvency and losses on the underlying collateral.
If the BOE suffered a loss on any of the collateral by way of the loan, the bank would have to make up the difference to the BOE from its capital.
As the underlying issue is solvency, not liquidity, this will not stop fears over the banks.
Because the problem is one of solvency - the assets are not worth the price on the banks books, and the BOE will force the banks to cough up for losses on the collateral, share prices will still get attacked IMO
If I want a loan, the bank imposes conditions.
The BOE should also impose conditions on the banks - for example, an end to huge salaries and disproportionate bonuses!
If banks need our money then they should probably be made to behave in a more responsible manner. As their banker I would seek such conditions. We cannot simple give them money to be directly converted into profits and bonuses - that would be a betrayal of the British people.
Robert,
Thanks again. Good stuff.
Isn't it ironic?
The Bank is busy thinking about helping listed banks to the tune of billions...
Meanwhile, small depositors like me are shuffling deposits, to try to get below the 拢30,000-ish per "banking licence" protection limit.
It would be helpful for all, if deposit protection was improved, methinks.
There is an article on FT today that "Central banks on both sides of the Atlantic are actively engaged in discussions about the feasibility of mass purchases of mortgage-backed securities as a possible solution to the credit crisis." The article goes on to say: "The Bank of England appears most enthusiastic to explore the idea." Hmm, and I thought that the banks didn't have any problems. LOL
What about harnessing the people power of internet banking, in unspoken alliance with Mervyn and the BoE, to force banks and mortgage lenders to come clean on the real strength of their balance sheets?
Supposing one of the many money advice websites was to replace its 鈥榖est deal鈥 tables with an alternative table on 鈥榟ighest risk of going bust鈥. (This will probably happen soon anyway, by popular demand -- we are all taking a growing interest in which banks and savings bodies are safer than others).
Known data on balance sheets could be backed up with a online poll on 鈥榳ho may be next, to follow Northern Rock and Bear Stearns?鈥 Loan customers, en masse, have a shrewd idea of where the defaults will surface.
Then we might see some orchestrated stress testing. The website would tell us which institution headed the table as 鈥榬isk of the week鈥.
The many careful savers who now have savings spread across several internet accounts would all shift their money out of this week鈥檚 bank in the spotlight, and move it elsewhere. Such transfers are the work of a moment for those who bank online (as Northern Rock became grimly aware).
An unfair bank run? Or a concerted 鈥榩rudence warning鈥, generated by long suffering customers of a sector that has displayed much greed and irresponsibility in recent years.
If the institution concerned is not as robust as it claims, and suffers liquidity problems, Mervyn will be waiting at the new BoE discount window to relieve it of some of its dubious collateral in return for Treasury cash.
Not a bail-out, since the collateral would be valued 鈥榓ggressively鈥 and in the public interest 鈥 with the institution in question not in a position to argue as its capital shrank by the day. People power, through the medium of online self-banking and share-dealing, would force each bank to take their turn in the queue.
Bank profits and bonus payments would take a hit. Sub-prime debt would be flushed out of the system sooner rather than later, and the BoE (and the rest of us) would get a better picture of the depth of a solvency (as opposed to liquidity) crisis. Someone would need to find a way to stop short sellers in the stock market from making a fortune, as each bank takes its restorative cold bath. But otherwise worth a go?
Why should the bank of England bail out banks that have behaved irresponsibly. now they are even thinking of using over valued mortgages as collateral. it obviously looks like the tax payer is going to bear the brunt of this irresponsible behaviour while the banks pay themselves inflated bonuses.
i wonder which of their mortgages they will be using as collateral. sub-prime?
If The BoE gets the title deems to banks mortgages and assets, they should not be duff mortgages on risky venture like sub prime, BP properties in Siberia etc; more like the City Mile and Belgravia stock, even gold in the basement (ie really secure stuff)
Perhaps the banks will then give their customers a similar " escape route" when they get into difficulties through their own trading decsions ( good or bad )
It seems to banks wish to chastise and punish their customers but dont accept the same consequencies. Mervyn King should tell them to get their act together before capitulating to bully boy tactics and political cowardice
Grumpy BoB
Bolton
"they should be able to swap a wider range of assets, including their mortgages, for loans from the Bank of England"
Isn't this the same as securitisation which got us into this unholy mess in the first place? There must be something fundamentally wrong with purchasing debt with debt! When I read more and more comparisons with our situation with the great depression I think actions like this will lead us directly to one. The problem is the present politicians are spineless and are just putting it off so it doesn't occur on their watch. I think Mr. Brown has alot to answer for and I hope the 91热爆 will one day ask the questions rather than saturating their channel with property cheerleading programmes. Does this make them liable to mis-selling?
The devil is in the level of pricing. I doubt the BoE will accept the MBS at 100% of their face value. The difference between the face vlue and that accepted as a security for a loan may determine by how much house prices will fall.
Robert
Do you think anyone really cares about your name or what you look like? Or whether you 'broke' the Northern Rock story 10 seconds before anyone else?
Just provide the news thanks - less of the self promotion.
Marcos
PS Did you go to the Michael Bourke school of speech therapy?
Just another example of privatising the profit while socialising the costs. The rich and greedy will get away with it once again, at the cost of the majority of taxpayers.
When I go to the bank to for a loan they impose restrictions.
The BOE should impose restrictions on the banks - an end to huge salaries and gigantic unearned bonuses for a start!
Any less is a betrayal of the hard working British people.
Robert,
Criticisms of 'Merv the Swerve' being slow on the ball go back to your blogs in October 2007.
Was he taking instruction from the Brown-Darling Dream Team or was the BoE still independent ?
Would this action then have made a difference to NR and others, I believe it would.
This kind of help (loans on MBS)doesn't seem to have helped much in the US.
The root problem is lack of trust, how will that be fixed?
I'm not convinced that the BoE is being treated as the "lender of last resort" here.
At the same time that the banks are squealing for help, most of them are still offering 0% credit cards, and indeed I was given an unsolicited increase in my credit limit last week. Several of the banks also recently increased their dividend payments and while forecast profits may be down, for most of the banks they are still healthy.
So there is still much that the banks could do to improve their balance sheets without emergency funding from the BoE.
The HBOS rumours were certainly alarming, and anyone profiting from circulating them should be punished. But the banks have only themselves to blame in creating the very environment in which such rumours were likely to be seen as credible. They are supposed to be the experts in financial risk management, and yet the possibility that one of their main sources of income, the wholesale money markets, might dry up seems to have completely passed them by.
HSBC and Barclays are huge international banks. If the Bank of England bails them out we are taking bad debt from all around the world and allocating the debt solely to the UK taxpayer. If we just let their profits or shareprice fall to a market level the loss will be distributed thoughout the world instead. Is this correct? As I do not have a degree in economics.
Forgive me if I'm looking at this overly-simplistic.
Does this mean then that effectively the BoE is underwriting every mortgage in the possession of a UK bank?
Does it also mean that as and when the banks need this money they can quite simply hand over their over-valued sub-prime assets for BoE cash?
If the answer to these is yes, then surely that means the BoE is going to end up as a caustic debt dump under-written in turn by the government, underwritten in turn by us the taxpayers.
This is a win-win for the banks and a lose-lose for the taxpayer. They'll just cary on as before because there's no reason not to.
If the BoE loans money to the banks on the banks' valuations of their collateral then the banks are laughing all the way... well to the bank actually. It will increase the size of the bubble and ultimately lead to a bigger crash.
If the BoE on the other hand demands that the collateral value be marked-to-market or even that they only use their gold-plated debts as collateral, this will devalue the banks and in turn depress their values and the values of any other assets they hold. It will also filter through to the general economy leading to higher interest rates to the customer as the banks try (desperately) to restore their profit levels and make up the difference between stated value and actual value.
Either way, the banks win, the taxpayer is looking at higher inflation, the consumer at higher credit interest rates and the home owner at a dramatic devaluation in their house prices.
There will be no joy in this even for first time buyers. They'll need bigger deposits, the interest rate will be higher and they'll be buying something that's going down in price whilst at the same time inflation runs away and devalues their lifestyle. As for pensions investments - don't even go there.
What an absolutely ourageous piece of blatant fraud. The BoE and the government are either more incompetent than the banks or in cahoots with them. What's worse, it probably won't even work. It will only take some 'stalker' like Soros to pull the plug and all will be calamity.
"The powers of financial capitalism have another far reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system is to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements, arrived at in frequent private meetings and conferences. The apex of the system is the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the worlds' central banks which are themselves private corporations. The growth of financial capitalism has made possible a centralization of world economic control and use of this power for the direct benefit of financiers and the indirect injury of all other economic groups." Professor Carroll Quigley, economics & finance mentor of Bill & Hillary Clinton (And who will probably be next US President?)
There are three points I want to make here relating to banking. 1. When will people begin to realise Banking is a business like any other business, they are in it to make profits. Despite this though there is a general feeling that whenever they do make a profit people condemn them..why? Banking is not a national institution it's public limited company (plc) just like any other business on the high street. 2. Bank's don't make monetary policy it's the Government don't confuse the two 3. Increasingly there are a large number of people in the UK who are happy to pass on their responsibility for their actions when things go wrong this also applies to managing their own finances i.e. borrow more than they can afford and then blame the Banks when it all goes wrong. It's not difficult, income needs to match expenditure don't spend what you can't afford take responsibility for your actions.
Much has been written in the FT and weekend press - suggesting the BOE is willing to subsidise banks by taking on the banks' poor credit risks.
This creates a situation where:
Heads (i.e. profits) - shareholders win
Tails (i.e. losses) - the taxpayer bails out the bank
Surely the right answer is that the banks should raise more capital through rights issues to their shareholders?
Why does the Labour party and the press choose not to see this?????
Could someone explain why these dodgy mortgages are not picked up and reported on by the auditors when they check the accounts of the financial institutions?
Why hasn't the FSA laid down the acceptable rules of cash versus lending?
Any economist knows the basics, which worked well for many years before the Banks were able change the ratios, apparently on a whim.
And a lot of froth would disappear if shares had to be held for at least one month. But that may of course put a lot of people out of a job - no bad thing in that market.
But my main point is that the FSA have totally failed the UK, and we the taxpayers are made to bale them out.
Don't worry, in the near future we'll all be made homeless while we are told that its good to continue spending to boulster our "Strong" economy.
Its simple the rich will continue to get richer at the expense of the poorer classes.
Isn't it time for a revolution or are we too busy moaning about the cost of petrol in that British kind of way.
Stand up and tolerate this no more!!!!!
The situation in the UK is not the same that in the USA. The housing market has certainly slowed down , but they have not fallen to the extent where the homeowners find themselves under negative equity. The unemployment rate is all time low. So the BOE should not cut interest rate, as they would be inflationary. What the FED is doing may not be correct, and there is no reason why the BOE should follow the FED. I think the ECB is correct in their decision to keep the rate on hold. The BOE should do the sensible thing i.e either raise interest rate or keep rate on hold.
We are all doomed
Blaming speculators for the mess the banks are in is the last resort of the desperate. For years the banks have profited from financial speculation thought up to maximize profits and now its being shown for the house of cards it is. Economies grow strong because they produce things, not by re-allocating assets. The Government has always been foolish to be seduced by the financial sector.
When some of these institutions were building societies, they had to behave in a highly constrained manner. Their greedy members and even greedier executives voted to demutualise. Now they are in open markets with higher risk, from which they and their former members, now shareholders, have made a lot of money, these companies want their downside risk guaranteed by taxpayers. Witness Northern Rock's shareholders squealing for compensation when their profiteering luck has run out and their company has been exposed as a risky business that can't raise any more cash. Reality check: thousands of infinitely worthier businesses that are actually seeking to create wealth go bust every year as their cash runs out. Let a bank or banks fail. Unlike King's banker's view of the world, it is not a disaster that a bank should fail any more than it is for any other company. It will self-regulate. Vultures will pick up the pieces at knock-down prices and some prudence might be injected into the most avaricious and least worthy community in the UK, the financial companies. They wreck our pensions, rob us over endowments (any one who thinks differently should look at the compensation scheme and the way the insurance companies more than take their compensation money back over the remaining term) and rip us off over bank charges. Sometimes capitalism bites back and governments should not stand in the way.
If a bank requires this sort of support it should come in exchange for the resignation of the CEO who oversaw the poor investment decisions (without a severance package) and a 5 year freeze in dividends while the banks sorts out its liquidity. This should take care of the moral hazard dimension,
Philip
It seems to me and a lot of other people that I talk to, that Robert Peston and the 91热爆 were not going to be satisfied until all their reporting last September actually resulted in a story, and boy was he allowed to go on until he got one!! Not satisfied with that it seems, he has now set his sights on an even more dramatic one which will be at a huge cost to us all.
How hypocritical can he be when he accuses others of rumor mongering when he and the 91热爆 have had their teeth into this developing situation like a terrier, banging on and refusing to let go until they were proved right.
I like a lot of other people have now switched off and am finding more responsible media to watch because I just can鈥檛 bear his negativity anymore. Don鈥檛 get me wrong I get and understand the seriousness of whats happening but his daily, sometimes hourly negative swipes at everyone and everything, criticizing and finding fault in their every move as if he was the world authority on everything financial and scaremongering to a point of almost panic is doing untold damage in the fragile confidence if any that exists. If anything he is now singlehandedly making things a whole lot worse no doubt in a bid to be able to say that he reported that story first too.
Scum scum my bank rbs charged me for going over my limit and the trading standards and fsa said it was an illegal charge and know these robbing greedy bas'''' want more f//// help f off and die
If a bank requires this sort of support it should come in exchange for the resignation of the CEO who oversaw the poor investment decisions (without a severance package) and a 5 year freeze in dividends while the banks sorts out its liquidity. This should take care of the moral hazard dimension,
Philip
The banks are a cartel of avaricious, bullying thieves who have been allowed to get away with too much for too long. The current situation is nothing more than their deserved reward for the breathtakingly greedy and socially irresponsible manner in which they have exploited their position. The public does not have confidence in the banks and the collapse of one or two would be no more than their just desserts. Galbraith and Keynes argued against capitalism without social responsibility a long time ago. Unless there is proper regulation and a tough line taken, rather than the toothless pandering to the predatory institutions by regulators and the central banks nothing will change. The public will once again be forced to pay for the errors and naked greed of big corporations who have no notion of, or worse blatantly disregard, fair play or responsibility. The banks have extorted enough from ordinary hard working people and now that they have overextended themselves they should be forced to face up to the consequences of their actions. Absolutely no further money whatsoever should be offered and they should face the music. There should be no special treatment for an immoral bunch of brigands who are finally confronting the results of their own folly. Any other company damaged by rumour or speculation would be their first target so it seems entirely inappropriate that they should receive protection under the same circumstances. Those who live by the sword should be allowed to die by it too.
Funny how the govt supports their mates in the banking industry when they are in trouble - remember the 1990's when manufacturing industry was in a deeper crisis??
What government help then??
Yup - none
More like "we are going to make a killing now that the BoE is guaranteeing to protect us against anxiety over our own stupid decisions".
The answer is easy. We need some new banks. The old ones are an ethically busted flush. They are unpatriotic, industrially treacherous, greedy and self centred.
AUSTRALIAN GOVERNMENT, APRA and DERIVATIVE SECURITIES
Over the last two decades, there has been rapid expansion in the use of various derivative instruments i.e. Collaterised debt obligations (CDO鈥檚) and Credit default swaps (CDS鈥檚) and others, used in the Australian marketplace by banks and other private investment houses, under the auspices of APRA and with its approval and authority.
These products were initially designed to protect "risk-in-lending" factors, but have instead, become instruments of manipulated market greed to bolster 鈥渂ottom line profits鈥. As securities, they have little or NO transparency, are hidden from investors and regulatory bodies, and, don鈥檛 trade openly in any formal public exchanges.
This also begs another question - what are the major multi-national and Australian audit houses doing? - "The so-called protectors of investor funds鈥.
Time for democratic western governments and their generally "under-resourced and seemingly powerless" regulatory bodies, to critically review international and national governance trading, and, flawed internal corporate laws that effectively allows the self-regulation of:
1 International BIS operations and BASEL 1 and 2 monetary system models.
2 The unhealthy and incestuous relationships existing between international and national banks and open market industry corporations.
3 Stock exchange trading systems and governance of transparency in operations.
4 Transparency of derivatives trading requiring new governance in trading laws.
5 Restrict multiple directorships at National and International level.
The Australian and International banking industry is charged with utilising these products extensively to bolster "revenue greed", and NOT, in the protection of investors鈥 funds against "shoddy and ill advised" lending practices.
Today鈥檚 open market and International banking system has a very bad usurious stench about it! Key bank players and Australian and external regulators, seemingly lack cohesive business acumen and governance skills.
Result 鈥 billions of dollars down the sink, and, guess whose paying for any Australian bank losses in both the short and long term? - "Australian families with mortgages".
Currently, Australian interest rates on mortgage loans are equal to the highest in the world.
Some bank derivative securities held by banks were in-turn on-sold to; local hedge funds, superannuation fund managers', local government authorities and institutional investors in Australia. Once sold, derivative securities are off the banks鈥 balance sheet, with the banks earning mega-revenues.
If bank investor interests fail to be protected by derivative products, they simply recoup bank losses, when, morally and ethically, bank shareholders should wear such losses, and inept directors and CEOs' sacked.
Lewis Louthean
North Fremantle 6159
Western Australia
Australia
OPEN INTERNATIONAL MARKETS AND THE PRIVATISATION OF GOVERNMENTAL INSTRUMENTALITIES AROUND THE WORLD, HAVE BEEN DESIGNED SPECIFICALLY BY ECONOMISTS TO PROTECT LARGE MONIED INTERESTS WORLDWIDE - THROUGH "BIS" AND GOOD OLD WALL STREET IN THE USA...!!!
TO THE LONG TERM DETRIMENT OF SMALL BUSINESSES AND THE GENUINE PUBLIC INTERESTS OF MOST NATIONS...!!!
THE WORLD BANK AND WALL STREET BANKS HAVE MUCH TO ANSWER FOR, "OH AND THE OIL CARTELS" - (HALLIBURTON i.e. DICK CHENEY AND THE BUSH FAMILY- IRAQ WAR = EXAMPLE)
Common sense would dictate that certain basic conditions must be met by any bank or financial institution seeking taxpayer-funded bail-out liquidity. They must fully disclose their level of real or suspected bad debts; the top tiers of management responsible for the current crop of disastrous investment strategies and decisions must resign; the banks must agree to be subject in future to strong and effective regulation and oversight, without complaint.
Never was so many screwed by so few (bankers and inept and corrupt politicians).
With apologies to Winston Churchill and The Few.
Perhaps a nationalised bank for people and honest businesses to keep their money in securely and what's left is categorised as sharks ans gamblers.
As the labour lead diminishes in the polls, merv is suddenly persuaded to be more generous to the city. who said the bank of england was independent ?
but what a lovely easter egg of a present for all those city banker bunnies. they will be enjoying their return to work tomorrow.
when we make money in banking, and lots of it, we pay a little bit of tax. when we lose money, and lots of it, we go running to merv to ask for a bail out. what a way to run a business.
if i am a bank's customer, i can't see the point of paying my debts. i will just tell the bank to ring merv. he has got lots of monopoly money to dish out.
In so many of the comments, and I think probably from RP himself, there seems to be a consensus that B of E support should be available only on terms that provide a deterrent to bank shareholders and managers against reckless lending and trading. Funding at penal interest rates and higher collateral margins for a start. If the bank requiring support can't manage this then the next level down will require the suspension of all dividends until the B of E is repaid and all management bonuses to be in deferred shares salable only when the B of E has been repaid. Banks that have been so badly managed that they can't survive with those conditions will just have to be put up for sale or into liquidation.
Banking is a profitable business, and the real economic assets are not destroyed by being sold to a new owner. There are plenty of new entrants waiting to take over from the current shower, although they may not be UK based. Losses from silly risk taking should be borne by the stupid financier.
Robert - so what we have now capitalism or socialism ? free market screwed the economy and state is forwarding helping hand now... perhaps time to bring something in between.
Robert, Could you explain why we were given the impression that Bear Stearns had been bought for $2 a share, but now it seems that they are still negotiating the price?
Presumably, all the banks he met assured Mervyn that they themselves have adequate liquidity and are solvent.
That being the case, they can lend money to each other and there is no need for BofE to be the lender of last resort.
Unless, of course one or more of them were telling porkies. It seems that neither Mervyn nor any of the CEOs' of the major banks trust each others word.......hmmm
Accepting we need to protect the financial system from melt down the "requirement" to support sloppy and in many cases excessively greedy banking activity is worrying! To paraphrase Thomas Jefferson 'the tree of financial greed and incompetence sometimes requires watering with the blood of bankers!? As a comparison it is disgusting that the thrift of the farepak investors was rewarded with nothing but the odd penny based on charity! Yet the greed of bankers is supported by cheap taxpayers money! Go figure!!!
I am due to exchange on the sale of my house this Friday. At this time, I am not committed to buying another house.
Looking at the BOE and Fed proposals being disected here, what would other learned bloggers do?
Bank the money, lock down and rent - or buy another house?
Simple question needs simple answer - maybe Mervyn King could respond.......
Do you think it is rather a coincidence that the senior managers at HBOS just happened to have lots of spare cash just waiting for the price to drop ? Is that where the FSA should look first? Diagraceful profiteering !
Nobody seems to be asking the question: "Why did a mere rumour knock 20% off HBOS share price?". If a rumour could take that % off a share price, then the implication is that the quarterly statements of HBOS are not necessarily trusted by the markets. This means that share traders are concerned that banks dealings are not sufficiently transparent. Could it be that the Norther Rock saga has damaged confidence in UK accounting practices? Could it be that Northern Rock's habit of sending its best assets to an off-shore account called "Granite" is causing traders to wonder what other "off-balance sheet" liabilities are hanging around bank's necks?
The best way to scotch a rumour is to be completely open about a company's trading position. HBOS has so far failed to do this. Can we be sure the rumour was unfounded until they do open their books?
If any bank want to borrow money on the cheap from the BoE then they should suspend all dividend payments until the load is repaid.
Why should the taxpayer bail out the greedy banks and their shareholders.
Perhaps the banks shouldn't have increased their dividends as they did recently? Might that cash have been better employed shoring up their balance sheets? At the end of the day they deserve to lose money for recklessly lending and not appreciating the risk of CDOs etc. If the BOE take this stuff as collateral lets hope they figure out a fair value for it. Doubtful though/
Our (US, UK, Europe) central banks, under pressure from large private financial institutions, are now well on the way to becoming 'toxic waste dumps' for dodgy assets and bonds of little real value. How much of this stuff they can take before their own credibility crashes is difficult to forecast, but the results of this process could be truly catastrophic for the western economies.