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Mervyn bends - and how!

Robert Peston | 22:39 UK time, Sunday, 20 April 2008

The Bank of England will on Monday morning perform what some will see as one of the greatest u-turns in its 300 year history.

mking.jpgHaving been far more conservative than the Federal Reserve and the European Central Bank in the way that it provides financial support to banks, it will announce what may be the world's most ambitious and generous plan to pump money into the banking system.

The Bank of England will offer banks the opportunity to swap their mortgages for rock-solid government securities or, more specifically, nine-month Treasury bills.

It will offer to do so in the form of a standing facility that will remain in place for up to three years. And banks will be able to draw on it on a daily basis, as needed.

The Bank will say that it expects around £50bn of these securities to be issued to banks in the first instance, but that it would be prepared to provide more help if required.

And the scheme will remove any stigma from banks' requests for such financial support, because the fee for the funds will be set at a commercial, risk-based level: there won't be the penal rates or charges that the Bank of England has traditionally demanded for emergency help.

When the dust settles, the proposal will spark controversy - though not because the Bank of England will become directly exposed to the downturn currently afflicting the housing market.

In this kind of long-term collateral swap, the credit-risk on the mortgages being handed over to the Bank of England will remain with the banks and building societies that provided the original mortgages. So if there were a sudden rise in mortgage defaults and the value of the swapped mortgages fell, well then the banks would have to provide new, unimpaired collateral to the Bank of England.

Which is not to say there is no risk for the Bank of England or by extension for the taxpayer. The Bank of England and taxpayers would emerge as losers if there were a collapse of a bank to which it had lent - but, to be clear, a bank collapse would be much more likely in the absence of this kind of liquidity injection.

The real controversy will be over whether the Bank of England is being too forgiving of the sins of our banks.

The Bank of England is, in effect, replacing much of the vital finance banks have raised over the past few years by selling mortgage-backed bonds to international investors.

Since last August, those investors have no longer wanted to buy those mortgage-backed bonds. So British banks have found themselves short of tens of billions of pounds for lending to all of us. Which is one of the reasons why it has become harder and more expensive for many of us to borrow money to buy a home.

But international investors' decision to boycott those mortgage-backed bonds is partly the banks' fault. Arguably many of them lent recklessly and stoked up a housing-market bubble. And it is the pricking of that bubble which has scared off the erstwhile purchasers of mortgage debt.

Now it was only a few weeks ago that Mervyn King was arguing passionately that banks should pay for their mistakes. He now needs to explain why he thinks they have paid enough and have learned their lesson.

Which brings me on to the second reason why the Bank of England should be bracing itself for a storm of protest.

Many bankers are convinced that if this scheme had been in place last August or in early September, Northern Rock would have been able to raise enough money to avoid the humiliating financial crisis that took it from run to nationalisation during an autumn and winter of very public mayhem.

The City watchdog, the Financial Services Authority, desperately wanted such a generous mortgages-for-loans swap scheme to be established months ago. So again Mervyn King needs to say why it was inappropriate in the early weeks of the credit crunch but is highly appropriate now.

Finally there is the fairly important question of whether pumping all this money into the system will do the trick.

Well, the banks are cock-a-hoop, which tells you something. But only the biggest banks will have direct access to the standing facility, so the Financial Services Authority is gearing up to put pressure on those gorillas to pass on some of the new money to the smaller banks and building societies - which are the ones currently experiencing the most acute shortage of liquid funds.

On the other hand, the Bank of England's largesse won't miraculously lead to a great gush of loans to all of us from the credit tap. Mortgages have become less cheap and easy to obtain in part because banks - like many others - fear that house prices rose too high and will now fall for an indeterminate period.

Just because they will have access to new money from the Bank of England doesn't mean they will splash it around in the form of new cheap mortgages, as though the euphoric madness in credit markets of the past few years had never ended.

There's a new climate of caution and prudence in the banking system. That change to grey in the financial weather will endure for months and possibly years.

Comments

  • Comment number 1.

    Many bankers are convinced that if this scheme had been in place last August or in early September, Northern Rock would have been able to raise enough money to avoid the humiliating financial crisis that took it from run to nationalisation during an autumn and winter of very public mayhem.

    Indeed, the Government just keep on providing ammunition for the legal case against the nationalisation of Northern Rock (which was just yet another example of Gordon Brown's incompetence as a politician highlighting his incompetence as a financier...)

  • Comment number 2.

    Taking £50 bn of unsaleable bonds from the banks' balance sheets and giving gilts in return won't reinflate the housing bubble, and the cost of mortgages won't fall by much, if at all. However the bankers' bonuses should now be secure for another year or two. How Mervyn King has the gall to stay in his job after this comprehensive U-turn is beyond me.

  • Comment number 3.

    Seems reasonable now to offer this fund. Sure they could have saved Northern Rock if they had offered it earlier but then the reckless lending and trading of dodgy debt would have continued. With the sacrifice of Northern Rock, banks realised they had to mend their ways.

    We can't afford another Northern Rock, so we need to bail out the now reformed (we hope) banks.

    Same happened in the US. Maybe Bear Sterns thought the Fed would come to their rescue their recklessness had to be punished. Now the American banks have learned learned the same lesson.

    Am I deluded to think we are progressing through this thing?

  • Comment number 4.

    The banks and the whole of the financale sector have had it there own way for more the twenty years, and have not shown any care of the victims of the disasters they have caused. They have taken their commission knowing that when it goes wrong for their customer, they suffer no penalty and move on to the next victim. Think back to the hundreds of thousands of families who have lost their homes due to defaulting on their mortage. It took the catastrophy in John Major’s time to give any relif to the struggling mortagees, and that was only to save the mortage lenders, a bitter pill for the conservative of Britain. Those in the Banking and Finacial severces were strident critics of any form of handout to those in need, and succeeded in having their taxes lowered so they didn’t have to contribute their fair share for the running of the UK. All I can say to the Banks and the Finacale sector is “Welcome to Social Welfare”. And to the British people, beware things are worse than they are letting on. On a final note, it is not just the US and the UK that are suffering; in Australia over a decade of taxpayer funded speculation which has caused a similar catastophy of rising house prices, that to pay off a mortage now requires both partners to work, and the renting of a house is so high that the only growth in Australia is the homeless sleeping on the streets, and cars.

  • Comment number 5.

    While there is an obvious need for action to rectify this situation I am sure there are many, who like me, find this all rather distasteful.


    I run my own business. If I take reckless and frankly poor business decisions I risk going bust. No one will come and help me pick up the pieces and the banks will pursue me for any money owed to them ad infinitum.

    Having run small businesses for many years I am already aware that the banks have very few members of staff who know anything at all about running a business!

    Now here are the self same banks being bailed out after years of greed and stupidity.

    So please excuse me if my frank hatred for, and total lack of respect of, the greedy and incompetent banks is merely reinforced by this debacle.

  • Comment number 6.

    I have an idea.

    We are rewarding these banks for their mess up by giving them loads of money in the vain hope that they actually give it back to us, the tax payers.


    The reason, we are told, is that this money is badly needed to revive the economy.

    So why not instead lend it all the to the Northern Rock. Then that bank, which we all own, could lend it back to us both in private and commercial loans, on decent terms, to help re-stoke the economy and protect the housing bubble from bursting. Maybe that amount of money could even help blow the bubble up a little more!

    The Bank Of England could then be sure that the money actually would get as far down the food chain as they, rather optimistically I fear, hope it will.

    Instead many of us feel it will just be going on bonuses to reward the greedy and incompetent bankers to fill their already over-stuffed offshore tax haven bank accounts.

  • Comment number 7.

    "There's a new climate of caution and prudence in the banking system."

    I hope that is true and that it does last for years, which is maybe why
    "it was inappropriate in the early weeks of the credit crunch but is highly appropriate now."

    Message 5, I agree...

  • Comment number 8.

    Wasn't the BoE founded to protect banks from their own excesses anyway?

    So its just doing its job, transferring risk from the banks to the taxpayer and forget about moral hazard.

  • Comment number 9.

    This is Insane!

    Capitalism cannot work unless the greedy and stupid can go bust, the corrupt go to jail and "we" are rewarding those same people with more money!!

    Effectively the BoE becomes the ultimate buyer of unwanted piles of polished turd that the banks themselves created in the hope of fobbing it off on investors.

    So, what will induce the banks to not produce even MORE of it? The BoE will on request change real crap into real Gold!

    The BoE is effectively allowing the banks to create new money which of course will be spent buying things, pushing up prices and creating Inflation.

    So society at large has to pay to allow bankers to continue to screw up!?

    That is Socialism for Rich People: Socialise the risks, privatize the profits!

    I dearly hope the banks do their usual best and game the rescue attempt into failure!

  • Comment number 10.

    Let's see now...what are the chances that these banks will be announcing record profits *again* when they report their results next year.

    This whole deal stinks. The government is so desperate to avoid a recession on the High Street *at any cost* that will affect its chances at the general election due sometime over the next couple of years.

  • Comment number 11.

    Of course nobody wants the UK banking system to melt-down, but we are letting them off far too lightly here.

    The tax-payer deserves his pound of flesh. the current deal will just see huge amounts of public money ending up in a black hole, after the bankers have still paid themselves their exorbitant salaries and bonuses.

    I feel we need to make a distinction here between the banks and the bankers. While the banks should stay in business the bankers, and their shareholders, should be expected to suffer punitive personal losses.

    I have a suspicion that before this crisis has ended we will see at least one major high street bank go to the wall.

  • Comment number 12.

    I used to have my own business but am retired now. All I've got to say on the matter is if my experiences are anything to go by, then we've just thrown £50Bn in the bin.

    The amount of times I had to explain to so-called 'small business teams' the diffference between gross profits and net profits is legendary, yet these were the so-called 'experts'.

    The banks need all this money because of gross incompetence - nothing more, nothing less. For them to also claim they never saw it coming also speaks volumes.

    They will screw this up, only this time it won't be their customers money, it will be ours.

  • Comment number 13.

    It makes my blood boil! I've been priced out of the property market due to the reckless lending by the banks. Now the government is trying to keep me and thousands like me priced out by supporting the banks - with my money!!!

    This Labour government has been responsible for watching over a massive housing boom and they did nothing about it. The market should be allowed to correct without intervention by the government because the banks need to learn a lesson about risk and more importantly people need access to more affordable housing. The banks are about to be effectively nationalised but with no constraints on how they behave which is wrong, if they want my money then I want to see tighter mortgage lending regulation.

  • Comment number 14.

    Gross mortgage lending in the UK in March was 26 billion pounds alone. That puts into perspective the chances of this only slightly higher cash injection reinvigorating the housing market.

  • Comment number 15.

    This is yet another deeply depressing obscenity perpetrated by the bloated and eternally greedy financial sector. Another cheeky V sign to the plebs as they slip the bonus into their pockets and ride off to rob another day.
    This whole shabby affair arose through breathtaking incompetence and greed. These are the people who never tire of telling us they are worth their stratospheric salaries because they possess rare knowledge and skills.
    Rosie Mallard interviewed a Non Dom last week who said he was worth his priveleged tax status because there was "a global shortage of talent" - Yeah Right!

  • Comment number 16.

    It is a sorry day for the Bank of England, and a demonstration of just how politicized its agenda has become - independence be damned, Gordon Brown's reputation takes precedence over long term financial stability, prudence, moral hazard and fiscal accounting rules. A Prime Minister's reputation now has a price - £50bn bailout + £100bn in Northern Rock.

    Enough to build nearly 200 Millenium Domes!!

    Long after Gordon Brown and Alistair Darling are comfortably retired on fat RPI-linked pensions, we will all be paying for their largesse if this plan gets the green light. I am aghast at this legal precedent.

  • Comment number 17.

    Just what proportion of the UK banks, who will benefit from the BoE device, are owned by UK companies? In an age of global liabilities, will the UK taxpayer be propping up a Spanish concern that just happens to have a UK 'outlet' (or in the case of banks, an 'inlet').
    The largesse of the UK authorities, financed with tax take gained from UK payers, will spread very thinly across this globalised market floor.

  • Comment number 18.

    "It makes my blood boil! I've been priced out of the property market due to the reckless lending by the banks. Now the government is trying to keep me and thousands like me priced out by supporting the banks - with my money!!!"

    The above, written by message 13, is spot on. I am 35 and also in a relatively good and well paid job but I am a first time buyer and I cannot buy anything with my wife but (extremely) over inflated 2 bedroom flats...why is this government propping up the market, it must fall and correct otherwsie how can I start a family except move 50 mils outside of the south east.
    I hate this current situation...and may just take upo the option to leave for somewhere far more sensible about house prices. Thanks Gordon...I really hope it works out!!

    Yours, the Disgruntled 1st time buyer!

  • Comment number 19.

    "... the banks are cock-a-hoop" - that says it all really. They will soon be asking for more, more! They won't even bother to say please next time!

    Gordon and Mervyn are on a slippery-slope now. We could be looking at a real disaster in the making.

  • Comment number 20.

    The taxpayers money should be used to buy repossessed homes as new social housing so that the former owners don't become homeless.

    A roof over your head is a basic need - home ownership is a luxury.

    Let the mortgage lenders go bust, let a few bank execs lose their jobs and let sanity return with lower house prices.

    This government has shown absolutely no financial savvy so we may be throwing good money after bad.





  • Comment number 21.

    So does this mean that the BoE is offering this to all banks that trade in England?
    We will then be supporting foreign banks that may collapse at the expense of tax payers.

  • Comment number 22.

    When the moneys coming in the rallying cry is "Free markets for free people"

    When their gambling doesn't pay off (and they are just gamblers) it's "Help us, or your economy will suffer"

    As another poster said, this is Socialism for the rich. Shared the risks, private profits.

  • Comment number 23.

    I am disgusted!

    What happened to being accountable for our actions?

    Banking heads should roll, at board level, and they should be forced to pay for their ridiculous mistakes, and be made to go around to every single homeowner who loses their house and explain how their own unfathomable greed drove them to ruin other peoples' lives.

    And then we have to listen to the head of the Bankers Association (would like to use a touch of literary cockney rhyming slang here, but fear that the post would be banned!) tell us that 'it isn't the banks fault"...

    We are all being patronised into oblivion!

    How dare Merv the Swerve stand so passionately opposed to this and then so disgracefully go against his own word without any explanation.

    The Banks are currently crying tears of laughter at our country's inability to force powerful people to be held accountable...

    They haven't learned from their mistakes, which means next time this happens, and it will, it will be even worse!

    FURIOUS!

  • Comment number 24.

    most commentators here appreciate the need for swift action - thats sensible for the UK economy and its citizens.

    I am still amased by how many people still think the banks ought to be left to sink - do these people (banging on about socialism etc.,) not realise the consequences of that on THEM too?

    How on earth can 'do nothing and let them go bust' be the right answer? In any case, I would have thought it would be right up their street - after all wasn't nationalisation and state control part of the great socialist master plan?

    Capitalism has proved it can generate and distribute weath around the globe like nothing else - can we stop harping on about the 'good old days of socialism'? They were complete rubbish! (to use a pun from the late 1970's)

  • Comment number 25.

    I agree with post 6. We need a bit of people power to make clear to the banks and financiers that their days as ‘masters of the universe’ are finally coming to a close.

    If the BoE lends its £50bn to the major banks, then this can be a way forward provided that the terms are strict and the banks pay a price to have their dubious mortgage books underwritten in this way.

    At the same time, why shouldn’t the UK public make ‘National Rock’ the one and only trusted body with which we save, denying other banks access to our hard-earned capital? And why not National Rock as the our primary popular issuer of remortgages and new mortgages, at fully transparent rates and with no small print? What’s the point of having a nationalised bank if we don’t use it to full effect in dealing with the failures of the private sector?

    In the process, we could arrange some concerted pressure on each high street bank and lender in turn, exercised through mass savings withdrawals orchestrated through the popular money websites. This might make them move a bit faster in declaring their write-downs and confessing to their past excesses.

  • Comment number 26.

    Mr Peston. You wouldn't think that whoever tipped you the NR story might have had this in mind ? We wouldn't want another embarassment like that, would we ?

  • Comment number 27.

    I'm utterly appalled by this news particularly because there appears to be no plan to use this situation to lever considerable concessions out of the banks on how they operate.

  • Comment number 28.

    Be under no illusion - this directive has come from Gordon Brown and it makes a mockery of an 'independent' Bank of England.

    Gordon is now using our money to buy our support for the next election. The government should not be allowed to use our money to intervene in the markets this way. It's no wonder that the gap between rich and poor has widened under this Labour government. The support of the banks in this way and the scrapping of the 10p tax band make the Labour government more conservative than the Conservatives.

    And Vince Cable of the Lib Dems seems to be the only oppostion voice over this matter. Labour and Tory governments have now completely merged. I turned away from the Conservative party forever when I saw Kirsty Allsopp as the new Conservative 'housing expert' on Question Time. After 10 years of Blair spin I'm not prepared for the same under Mr Cameron

  • Comment number 29.

    Mervyn finally got it right.
    Ironic really, he studied this field all his life, yet when the 'real thing' came along, he mistook it for a normal correction.
    His reappointment was likely to avoid causing further unease in the markets.
    Of course he has understood, as have all central bankers, for some long time now, the gravity of the situation, and his latest answer to it is absolutely correct.
    The posters that gripe about the unfairness of saving the banks miss the point. These actions are necessary to save the economy, to avoid meltdown, to prevent a chaotic firesale of assets, to provide the capital required for businesses both small and large.
    Think the great depression, and now think of avoiding it, because that is what we are doing.
    We will pay a price, of course, but the price will be modest by comparison with the achievement.
    The banks will also be saved, and the senior bankers who made foolish decisions will retire with great pensions; but who ever said life was fair anyway.
    And the banks, thus saved, will go forward and make more mistakes, though different mistakes next time.
    Just the nature of the beast, human beings, that run all institutions, banks included.
    Anyway, Mervyn is now in top form, after a shaky start, and we will all be much the better for it.

  • Comment number 30.

    Quote Tellsa:

    "it must fall and correct otherwsie how can I start a family except move 50 mils outside of the south east."


    Tellsa, you say you can't get on the housing market because of prices in the South and yet you, and millions like you, refuse to move to a place where house prices are more reasonable.

    Here in Lincoln you can still buy a 20 room Victorian town house for under 300K and a 3 bed terrace for 90K.

    The employment market is buoyant, in fact it's tough for employers up here to find decent staff.

    What's more people here are generally very friendly, they still know how to say 'please', 'thank you' and 'hello' - even to people they haven't met before.

    I moved to Lincoln from Surrey 15 years ago just so I could afford to buy a proper house, instead of a rabbit hutch. I can't ever see myself moving back to the South which I have come to loath.

    So why do you all stay put in the over-crowded, rude and unfriendly South when the answer to your problems probably lies further North?

    Maybe this mess isn't all the bank's fault? Perhaps some of us are complicit because of our own actions, or inactions.

    If a few more people, and especially businesses and Government departments, were to loosen their obsession with being in London and the South East, then perhaps the housing market would equal out a little, if not a lot?

  • Comment number 31.

    In the USA, the increasingly desperate measures taken by the authorities have done nothing but further shake confidence, fuelling the crisis.

    This breathtakingly desperate measure by the UK government will doubtless buoy the banking stocks, but everyone else will revise their expectations downwards, and so take fewer risks. This will push the economy relentlessly into recession.

    Nice move, Gordon. In one fell swoop you have announced your desperate fear of recession, and shattered into pieces any notion that the BoE is independent!

  • Comment number 32.

    A bigger question is exactly where the Bank of England (a private banking concern) can get £50Billion to finance the Gilts in the first place....Peter or Paul?

  • Comment number 33.

    So Mr Peston, when are you going to publish your 'scoop' and name and shame the banks who are getting our money, after going 'cap in hand' to the BoE to be 'bailed out' - all terms you used when someone leaked the Northern Rock information to you last year?

    It seems to me that someone decided that Northern Rock should be turned over to the wolves as a sacrifice to pave the way for the bigger southern-based institutions to get even more help, because their loan books are not in as good a position as NR's.


    I hear the initial problems at NR were due to incompetence and greed of their directors, ah, but, isn't that the same story with all of the banks currently in trouble.

    Is the rate being charged on these new loans as high as NR are paying?

    And yes, before anyone asks I do live in the North East - but I'd hardly say we get any great benefit out of having had a Labour government for the past 11 years, even less considering the former PM was based up here and so were a lot of his ministers.

  • Comment number 34.

    Surely if the Bank loans are only 1 year + option to extend to 3 years then the banks will only be able to obtain this term from the interbank markets?

    Reason being no-one would give a bank 5 year loan backed by UK gilts if they knew the collateral had to be given back before the end of the loan.

    So how does this really help the mortgage market?

    Secondly, i would say the chance of banks extending to 3 years is almost 100%. I cannot believe the guidelines as to whether this should be counted as public debt don't consider likelihood of repayment/extension.

  • Comment number 35.


    Well it was bad....now it is really bad.

    This just means when the fall comes it will be all the harder and more painful.

  • Comment number 36.

    I have a couple of questions: I understand that this move has suppressed bond prices and raised yeilds on gilts. Does this mean that future government borrowing will be more expensive? Therefore, is it the case that this move is costing future tax payers money, and if so, how much? Could this money be recouped by a windfall tax on the profits of banks that participate in this bond issuance?

  • Comment number 37.

    #24

    Swift action, yes, but this is not swift action, and worse still, it is not sensible!

    The government cannot force banks, even the Northern Rock to pass on interest rate cuts to customers, what chance do they have at forcing banks to lend to each other when they have no idea of the level of liabilities 'off balance sheet' held at the other banks.

    It is a case of distrust, and the perfect illustration of the 'boy who cried, WOLF!'. Due to the lies circulated previously, none of the banks trust each other, and it is entirely their own fault.

    Throwing this money at them will be used to drive up their liquidity to liability ratio, and will not be passed on to smaller banks and customers.

    Ultimately, the write-downs occuring in the market now will re-balance in the future, and the 'worthless' mortgage backed assets causing these write downs will bounce and be worth a hell of a lot more when the market realigns in an effort to find an equilibrium. Granted, this may be 3 - 5 years at least, but the banks should be made to feel the sharp edge of the market sword that they have perpetuated until that time. And they will all again be posting record profits. Why should my hard paid taxes by used to buy time to facilitate this?

    Without suffering consequences, there will be no lessons learned!

    This is throwing good money, TAXPAYERS MONEY! after bad.

    In a free economy, there is cause and effect. If you are the cause, and the effect is negative, you should be held accountable for the negative impact, and the losses that ensue. Offering safe haven and protecting a chosen few undermines the entire principle of what our markets are based on.

  • Comment number 38.

    When the banks created a massive inflationary bubble in 1929 and tried to trap millions in high interest debt when they raised borrowing rates, the whole system collapsed.

    The chairmain of the federal reserve, Mr Bernanke is apparently obsessed with the fed's 'mistake' then and has pumped more money into the system by reducing rates.

    Rather than risking collapse from which the now highly structured world economy might well not recover, the new solution is to have taxpayers provide security for their own debt slavery. In effect, NR and Bear Stearns were nationalised and now the much of the other mortgage risk is going the same way.

    That roughly the opinion of Guardian economics editor Larry Elliott in recent articles anda radio interview.



  • Comment number 39.

    29 I agree with your comments however I would point out that the main difference between Northern Rock and other banks was that the other banks have been able to borrow from the Fed and the ECB.

    Northern Rock as a UK only bank was left at the mercy of the Bank of England and Mervyn King who misunderstood the effect of the wholesale markets drying up which led to the run that blew a hole in the finances.

    I now think that Mervyn King and the government can stand accused of hypocrisy between the treatment of Northern Rock and the other banks.

    I would also add that 50 billion is only the start and most analysts believe that it will take at least 100 billion to make a difference to libor.

    If the wholesale markets do not reopen I would estimate that about 500 billion will need to be provided by the BOE to match wholesale funding due to mature over the next year.

  • Comment number 40.

    Does BOE lending have to be bcaked up by gold reserves? Sorry to sound so ignorant among so many informed readers!

    If yes is there some point where the reserves are insufficient and they just start printing paper money? That causes inflation, right?

  • Comment number 41.

    Oilorgas is exactly right. Those who wish for a banking failure simply so they can buy a house should be careful what they wish for. They could be wishing themselves and thousands of others out of jobs and will kiss goodbye to the prospect of home ownership for many years.

    This is the right action in the circumstances. Even Mr. Peston seems grudgingly to admit that.

    The owners of RBS will be making their own £10bn contribution to the problem on top of seeing the value of their shares decline by 40%. (In hard cash, not a "swap" of assets). Up to them whether Sir Fred gets one more chance or not.

  • Comment number 42.

    These are 3-yr loans disguised as 1-yr loans to keep the loans out of the public debt figures. This massive Labour government fiddle should be exposed for what it is - a big lie. We are all paying for this, it amounts to something like £2000 for each person of working age in the UK. On top of the outstanding NR loans and with further loans to banks likely it won't be long before we are all supporting banks with the equivalent of an average annual wage.

  • Comment number 43.

    #29
    Are you a banker by any chance?

    And no the banks will not go forward and make 'different' mistakes next time, they will go forward and make exactly the same mistakes but 10 times worse, because they have not learned any lessons this time around. This is a license to make enormous mistakes freely and force others to suffer the consequences, namely taxpayers... This is a frightening precedent!

    This BoE initiative is nothing more than Gordon Brown making a desperate bid to avoid a market correcting recession in time before the next general election. Those of you who believe that the economy will go into meltdown are either bankers making the same threats being used to drive the BoE to do this, or politicians trying to hold onto power for longer than you should have it.

    Can't you see that the longer this defers, the harsher it will become?

  • Comment number 44.

    ...and another thought. Are banks really likely to use this money to fund more mortgages at low rates now that house prices have started to slide? Aren't they more likely to chase the commodity bubbles as they seek gains rather than losses.

    This could exacerbate a downturn in the economy as further rising costs of commodities puts a further squeeze on consumers.

    I can't see how the government can force the banks to use the money for mortgages. Most banks are happy that the likes of NR have gone and profitability has returned to the mortgage market. Lloyds TSB announced exactly this recently - they said they were returning to the mortgage market as profitability had returned. I just don't see a return to the relaxed and stupid lending of last few years.

    Is it just possible that this BoE intervention will actually make things worse!?

  • Comment number 45.

    Robert. I have worked in Finance for a while, so should be able to understand what the deal is here but am a bit confused as to how it works. If the banks swap their mortgages assets for glits then how does the risk of losses stay with the banks? If the risk does stay with the banks, how will this deal help them to raise new finance from the market, since they will still be exposed to losses from the mortgage assets? Maybe you could explain the mechanics of the deal in more detail..?

  • Comment number 46.

    Entirely agree with Post 17. This is also a planned-economy style approach. We either have capitalism or we don't. Allowing cherry picking of the nice bits i.e. the profits will lead to bigger problems in the long (or possibly medium) run.

  • Comment number 47.

    Very interesting days we live in. It is clear that Gordon Brown now realises that the mortgage and interbank market is in such a flux that something or anything needs to be done and it needs to be done now and it has to be big.

    Otherwise he will join those Prime Ministers damned by having never won an election. Let us be in no doubt here the first aim of this move it to shore up the property market and save his job and enough marginal labour MP's to get Gordon re elected as PM.

    His hope has to be that this money will allow a degree of support to the property market and if it doesn't keep up prices it will at least in the words of Buzz Lightyear allow them to "fall with style".

    A gentle decline in house prices of maybe 2 or 3% this year with maybe a stand still next year may well help keep Gordon in power in no more than 24 months. Remember the last election was on the 5th May 2005.

    A collapse in the housing market, followed by a recession and many thousands bankrupted and many more made redundant will mean only one thing David Cameron moving into Number 10 in two years time.

    The stakes couldn't be higher!. Gordon has played his joker via Mervyn King and this bank bail out. Will it be enough?

  • Comment number 48.

    The dodgy mortgages will be swapped for top quality gilts, the banks will sell the gilts for cash, the cash will be given to first time buyers and the price of starter homes will shoot through the roof again.

    The winners are the bankers with their bonuses and the buyers of the cut-price gilts.

    The losers are the first time buyers who will need a bigger mortgage and the small savers who will get a lower interest rate.

    We may (or may not) have alleviated the present credit problems but we have definitely stored up problems for the future.

    This is the most incredible confidence trick perpetrated on Gordon Brown/Alistair Darling by the Bankers.

  • Comment number 49.

    Read the sub-text here guys and girls...

    This smells like an act of desperation, one or more of the remaining banks could be in so much trouble that if the BoE does not pump in £50B they will fail...

  • Comment number 50.

    Brown and Darling have got a get out of free jail card.

    This gives them the ideal opportunity to ensure further monies are pumped in to the economy to ensure there is no recession.

    When contending the election in 2 years time they will take "credit" for avoiding a recession by taking this action to sort out the banking crisis.

    They will attempt to dupe the electorate that they were in safe hands at the time which ensured we survived the worst credit crisis in history and the economy had now turned the corner.

    My concern is that they are attempting to prop up an over-inflated house market and are still actively encouraging people to borrow.

    This is reckless and they need to promote a re-education of saving. It is not sufficient for people to think their pension is a buy to let property. Moreover, a property should not be seen as a bank account to fund a material lifestyle without consequences.

    We have to rebalance our own balance sheets to reduce borrowing.

    Property is over inflated in relation to incomes and house prices need to drop without this govt propping them up for their own survival.

    I hope the Bank of England and Vince Cable will take up the mantle to prevent this govt from manipulating this situation.

  • Comment number 51.

    As a disgruntled priced out first time buyer I am wary of any 'deals' which appears to protect those who have created the financial carnage we are in up to our necks .
    It would seem that at the next general election we can dispense with the pretence of voting for a politic party and instead cast votes for who we want as CEO's of the major banking institutions.
    It appears that they are effectively who run the country anyhow.
    After casting my choice I would like to be put on the shareholders groups for all the banks as well.
    Win , win.

  • Comment number 52.

    The banks tendering paper to the BoE are 100 % liable for this paper, and the banks' assets are, in total, on the line as guarantee.
    There will be no cost to the taxpayer.
    Property prices will still go down, though less than had the BoE not moved.
    Mortgages will be renewed and companies with operating loans will not have those loans called.
    The alternative was banks scrambling for liquidity, calling in good loans, putting good firms out of business, and not renewing good mortgages, forcing responsible home owners to sell, at any price.


    No, # 43, i'm not a banker. Your statement " Can't you see that the longer this defers, the harsher it will become " is exactly 100 % wrong, as is # 46 with " We either have capitalism or we don't ".
    # 41 is exactly right " those who wish for a banking failure simply so they can buy a house should be careful of what they wish for ".

 

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