£50Bn to the Banks!!!!

Discussion in 'Current Affairs, News and Analysis' started by LordVonHarley, Apr 21, 2008.

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  1. Gob smacked!

    By Sky News SkyNews - 2 hours 15 minutes ago

    Alistair Darling is giving Britain's banks a £50bn cash injection to help cushion the impact of the global credit crunch.

    The Chancellor is taking the unprecedented step as fears grow of a slump in the housing market.

    Lenders have not been passing on recent rate interest cuts and the cost of mortgages has been rising sharply.

    Under his proposals banks will be allowed to swap potentially risky mortgage debts for Government-backed bonds.

    Mr Darling told MPs the scheme would "help businesses, individuals and in particular the mortgage market."

    He also repeated his call for banks to disclose their losses from the sub-prime crisis "as soon as possible".

    Earlier he told Sky News: "Banks matter to all of us because if banks don't lend to business or to individuals, then you can see the results.

    "We can see the difficulties in mortgages just now - where there are less products, terms are tougher."

    Mr Darling insisted there would be safeguards for taxpayers, adding: "I believe this the right thing to do to help stabilise the present situation."

    The British Bankers' Association have welcome the asset-swapping deal as "an innovative and unique policy response".

    A spokesman said: "The banks expect it to make a significant contribution to alleviating the pressures in the UK money markets.

    "Restoring confidence in the wholesale funding market will strengthen the financial system and the stability of our economy."

    Banks all around the world have been hit by the sub-prime mortgage crisis in the United States.

    This has made money tighter and restricted their ability to borrow cash for home loans in particular.

  2. He has the infernal gall to claim that there will be no risk to the taxpayer. If that actually is the case, why are the banks so keen to get shot of the mortgage securities and get government bonds instead? They prefer the colour, perhaps?

    Here's a radical thought. Why don't they plough some of the profits they gained in the high times back into their own businesses now that things ain't so rosy. Or are 'market forces' only the main driver when it's somebody else's livelihood going to the wall?

    Edited to add: Why was it so utterly impossible to bail out pension schemes that were struggling, at considerably less cost than £50bn plus Northern Rock?
  3. Oh good - so this must means that the ordinary taxpayer now get to share when the banks get massive profits?
  4. Oooh look, a flying pig :roll:
  5. Will the Banks be swapping them back when the lean times are over? I doubt it!
  6. It would seem that at least in terms of the domestic market, the banks are in a form of self-perpetuating panic that isn't reflected in the wider economic picture.

    Funny you should make those two points in the same post. Exactly where do you think the cash for pension funds comes from? Answer: to a great extent, dividens (profits) from shares in banks! Join the dots! Quite apart from that, bailing out pension funds would have required handing over cash, not lending.

    They have to, that's what a 'bond' is. And they will be paying:

  7. I understand that the way these 'Loans' have been worded is such that they do not appear on the Government's Debt burden.
    By some cleaver means the Debt which can exist for three years does not appear as a yearly Government Debt.
  8. This does not inspire confidence, and where the economy is concerned confidence is crucial, it just looks like a panicky knee jerk reaction.

    The chickens are coming home to roost with labours mismanagement of the economy.
  9. Not quite Jon, the UN of all places is pushing, and is close to getting, a requirement though that all Govt's have to have everything on the balance sheets. It was actually aimed at second tier and developing Countries but the UK will get stung massively as all the stuff brown as put on the never never; like the PPI (£200 + billion?) Northern Rock (£100 billion ) and the public sector pensions (£ 1.2 + TRILLION!) will have to be out in the open on the books. Like any good business or sensible household, resulting in the UK redlining by about £900 billion or so.

    Which sould kick the pound down a fair bit and make UK Govt bonds rather less attractive.

    Mind you we could always join Russia and Argentina and default :D
  10. The 'loans' are secured by AAA rated assets (according to the bloomberg link).

    Given the way the banking system works, this will increase the amount of lending that UK banks can do, and has been broadly welcomed by the financial community.
  11. I seem to recall this whole mess started because toxic subprime 'assets' had been rated AAA.
  12. Fair point - I don't know how these assets are rated, however lack of liquidity is a bigger issue at the moment than further asset writedowns.

  13. Ord_Sgt

    Ord_Sgt RIP

    The financial sector cannot be allowed to collapse, at almost any cost, the consequences of that are just unthinkable. However, this is going to cost. At some point the money the government is borrowing, on top of the 600 billion its already in hock for, has to be repaid. And just to put a number on it for you, thats 24,000 pounds per household that needs to be repayed.

    And this lot are running a deficit of about 50 billion a year (thats what they spend over and above what they get in revenues), excluding the current cockups, which will add another 2000 pounds per household per year until they get the boot in 2010.

    It's all coming home to roost. They have always been, and will always be, the party of tax and spend.
  14. Apart from casting doubts on the banks’ suitability as recipients of our cash, that doesn’t address the main issue: why are private enterprises being bailed out yet again with taxpayers’ money when they repeatedly declared record profits in the last decade? Isn’t the acceptance of ‘risk’ the great argument trotted out in defence of said profits?

    I don’t find it the slightest bit funny. I know exactly where the cash for pension funds comes from and it’s not just banks. The difference being that when pension funds hit rocky roads as a result of poor decisions by management or just plain old-fashioned bad luck/timing, they were left to sink, incidentally taking people’s retirement plans with them. Whenever a bank hits hard times, it seems the government rides to their rescue – with our cash! So much for ‘the market’.

    Quite apart from that, what exactly is the government going to do if they don’t stump up the repayments? Foreclose on the mortgages and kick people out of their homes? Let the banks go down the plughole? What, seriously, are the options if banks decide they’d really rather not pay their debts since that’d eat into their quarterly statement? Don’t forget, the reason banks are so keen on this plan is that it’d swap assets with uncertain value (dependant on the state of an unstable housing market) for assets with pretty certain value.

    Northern Rock started the trend, this just confirms it: there is no longer any appreciable risk in the UK banking sector, so fill your boots, boys! Take all the dodgy decisions you want, someone else will pay the bill!
  15. We were sent this yesterday: http://www.bankofengland.co.uk/publications/news/2008/029.htm

    The final paragraph of the Special Liquidity Scheme: Information doc states:

    (iii) The assets banks can swap
    The assets held by financial institutions that can be used in the Scheme are largely the same as those accepted for the Bank of England’s recent special three-month lending operations.

    The main category of assets will be securities backed by residential mortgages. Securities backed by credit card debt will also be eligible. These assets will be high quality – rated as AAA. If the assets were to be down-rated, banks would need to replace them with AAA assets. The facility will not accept raw mortgages and none of the underlying assets can be derivative products. The Bank of England routinely accepts assets denominated in currencies other than sterling. It will not accept securities backed by US mortgages.

    My red: no shit, Sherlock! :roll:

    Interestingly the BoE has obviously made a punt that there won't be wide-spread default on credit cards as they have deemed that debt swappable.