£50Bn to the Banks!!!!

#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.
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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.


http://uk.news.yahoo.com/skynews/20080421/tuk-darling-s-shot-in-the-arm-for-uk-ban-45dbed5.html
 
#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?
 
#5
smartascarrots said:
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?
Will the Banks be swapping them back when the lean times are over? I doubt it!
 
#6
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?
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.

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?
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.

Will the Banks be swapping them back when the lean times are over? I doubt it!
They have to, that's what a 'bond' is. And they will be paying:

Assistance will come at a price. Banks will have to pay a borrowing fee to participate in the plan and the value of the securities they receive will be less than that of the mortgage- backed bonds they hand over to the Bank of England.
http://www.bloomberg.com/apps/news?pid=20601068&sid=awBuTGV2B3yo&refer=home
 
#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.
john
 
#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
jonwilly said:
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.
john
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
PassingBells said:
The 'loans' are secured by AAA rated assets (according to the bloomberg link).
I seem to recall this whole mess started because toxic subprime 'assets' had been rated AAA.
 
#12
armchair_jihad said:
PassingBells said:
The 'loans' are secured by AAA rated assets (according to the bloomberg link).
I seem to recall this whole mess started because toxic subprime 'assets' had been rated AAA.
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.

The bank said the public is exposed to a loss only if a lender participating in the program defaults and the assets they have placed with the central bank are insufficient to cover the value of the Treasury bills in the swap. That's why the bank is asking for collateral of greater value than the bills it lends.
 
#13
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
parapauk said:
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.
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?

parapauk said:
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.
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.
 
#16
Banks are privately owned and privately run. Governments do not own banks neither do Governments own the money supply. Governments do not own money of their own. They borrow money from banks and the interest repayable on the loan is met by raising taxes. You, the taxpayer meet the interest on government borrowing at a rate of interest set by the banks.

As was pointed out recently in a Commons exchange during Prime Minister's Questions, Britain pays the highest rate of taxation per head of population than any other country in Europe. The response to that observ ation from the Government front benches by David Milliband was: "so what!?

When the state intervenes to provide aid to privately run concerns then it is in breach of EU law relating to the prohibition against state aids at articles 87 to 89 (formerly Articles 92 to 94) of the Treaty of Rome. It contravened these provisions the moment it decided to bail out Northern Rock. It will be interesting to see what the the European Commission have to say on this.

If the government are intervening to bail out the banks. I wonder how soon it will be before history repeats itself and the IMF are called in for the second time in our history to bail out us!?

The government are in deep trouble and they know it!
 
#17
As usual people in the city are gambling with the general publics money, and when they lose we lose, when they win, they win.

Pension funds have been used by city high flyers to make their millions for years and in 99% of the cases what they give back is nowhere near what it should have been, they gamble other peoples money so that they can get their £1 million bonus and it's the same thing again with the banks. The subprime market was dangerous at best, but they repackaged it and made it sound attractive and the people chasing their bonuses fell for it, same thing with the futures market and the derivitives market, the guys make a quick win, get their bonus and hide the losses beforehand.

This government needs to get a backbone, as stated above PFI/PPP have cost us and will cost us billions every year, the selling off of railways and so on again cost us billions every year yet we hand over £100s of millions to make sure these companies turn a profit for a reduced service, the selling off of government agencies like DERA, ABRO/DARA, etc again cost us millions yet it barely gets a mention in the papers or the house of commons, yet that is government money being given away to private financiers.

As for the deficit, the government bend over backwards to allow big companies the chance to dodge tax, there is well over £50 billion of tax that disappears due to tax avoidance by the FTSE 100 companies yet we rarely hear about it, all we hear about is the 10p tax disappearing which will bring in a billion from low earners, yet no push for the corporate tax dodgers or non domicile tax dodgers.

New Labour, a friend to the rich.
 
#18
A few points:

Regardless of the moral issues at stake, confidence in the banking system cannot be allowed to be severely damaged. It underpins all of our lives and if banks start falling over we are, in those immortal words from Fraser "all doomed". £50 Bn ain't a lot and if it helps restore confidence then it is worth it - now is not the time to extract 'revenge' - that can come later in the form of retrospective taxes etc.

As an aside I believe the BoE should have cut a deal with the banks that forced them to conduct a rights issue to match every pound that the BoE swapped for debt. At least then the shareholders of the bank would be sharing in the risk, instead of the current situation where the banks have effectively nationalised their losses and privatised their gains.

Finally, I don't give a monkey's about confidence in the housing market. It needs to take a severe hit, and will regardless of this injection of funding, just to reinforce that long-forgotten lesson that house price inflation is just as corrosive as any other type of inflation. I am more concerned about lack of liquidity in the business sector as a whole (excluding the domestic construction industry) and this is where the funds should be targeted, not propping up mortgages.
 
#19
Argee2007 said:
The subprime market was dangerous at best, but they repackaged it and made it sound attractive...
True, but the Risk teams were the ones who have really come out of this badly - they're meant to be immune to the 'attractiveness' of a product and price it realistically. With the subprime market, the Risk analysts somehow lost view of the underlying security (or lack thereof) and priced the product way above its intrinsic value. New financial products are not inherently bad, but initial pricing must be spot-on otherwise the business is just a house of cards.
 
#20
Before Broon went off to America on his unfortunate little jaunt into the shadow cast by the Pope, he met with the great and the not so good of the banking community to tell them , or so the story went, to shape up in general and pass on reductions in interest rates to their customers.

They actually told him how deep in the sh1t they were and how strong action was required by Government to enhance inter bank liquidity and restore confidence.

Hence the £50bn asset swap.

Sounds a lot but consider that this very day RBS alone has confirmed it is going to raise £12bn from selling new shares. RBS shareholders will be tapped up for a Rights issue (11 new shares for every 18 they already own) at £2 each. Also intend to flog their insurances businesses and a lot of the cr@p they got by the stupid purchase of ABN Amro, hoping to raise another £5bn.

Comes down to choosing the lesser of available evils I am afraid.
 

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