My personal view is that you can't buck the market, so the BOE should leave well alone.

Question:
Should the Bank of England take on the banks bad debt mortgages in an effort to keep house prices as they are and stop the country sliding in to a recession.

Choices:
Yes
No

 

I voted yes. The question is a leading one. The main problem isn't recession from bad debts which make up a small part of any balance sheet but banking confidence. Banks make money by lending, if the money supply dries up due to suspicion the national bank has to make a call on whether that's based on a real fear or monkey market jitters.
All the Bank of England are doing is soothing nerves and mopping brows and saying banking is still a sensible way of managing money. The alternative is a run on a bank, a domino effect and everyone screwed - savers, mortgage holders, lenders. One the mega rich will come out of that smelling of roses.

quote:

Originally posted by cakehead:

All the Bank of England are doing is soothing nerves and mopping brows and saying banking is still a sensible way of managing money.

I read somewhere that the BOE are doing a bit more than mopping brows, its poised to take revolutionary action to find a "resolution" to the problems faced by British banks unable to sell or refinance portfolios of mortgage-backed debt.
In other words, to buy the bad debts.

Problem is that performance is measured by growth. growth requires ever higher interest rates or greater volume. Stuffed now or stuffed in the future - either way we are stuffed. greatly simplified, I know, but I think it captures the essence. Off loading debt onto the taxpayer (who I believe is over burdened anyway) for the benefit of shareholders is not the answer.

quote:

Originally posted by SpampMan:
- either way we are stuffed.

lol I agree with you stampman, also part of the problem is that growth (like house prices) is unsustainable even without bad debts.

House price 'growth' is a different matter. The best for all but the house futures gambler, HPCers, etc, would be a gradual levelling off, slight drops or any of the other likely outcomes.

Pulling the carpet away without intervention smacks of Thatcherite policies on mining communities - don't worry, it'll hurt now but it's for your own good - i.e. survival of the fittest. I'm an interventionist leftie anyway, lessons should be learnt for future govt housing policy.

quote:

i.e. survival of the fittest.

Survival of the sensible-ist.
People are bailed out all over the place. Bankruptcy, IVAs, debt written off, big remortgages...
It pains me to watch programmes where some twenty something woman has racked up £30,000 in debt purely on sh*te that she has nothing to show for. They help her out, wring her neck till she actually wakes up and grows up then give her advice and ooh look they'll wipe your debt in half if you do this little plan

Bring on the recession for all financially stupid and greedy people. However, such a shame it has to affect us all - so I'm voting yes they should step in. Only for my own benefit. If they could single out people and give them a personal recession I'd be all for that.

House prices should never drop. Wages as a rule don't. Child benefit as a rule doesn't. They should grow slowly and if there's looking to be a big boom it should be nipped in the bud looooong before it has got to this point.
Far too little too late.
Pointless shouting "shut the gate!!!" after all your sheep have legged it. There's a quick fix (like this bad debt er thingy) of sending a big sheepdog after them sharpish.

I still don't understand why some bright spark said 125% mortgages - now there's an idea!!

quote:

House prices should never drop. Wages as a rule don't.

Hmm, not sure about that. Wages in some industries are very volatile, or you're offered the choice of your P45! My house went up 5 fold in eight years, I could have held out for six fold but it seemed churlish. If it had dropped to four fold I couldn't have felt robbed with a straight face.

As I said before, in our local market it seems anything cheap or very nice is being snapped up credit crunch or not.

that's why I included 'as a rule' because things like minimum wage rise, (has it ever actually dropped?)
Of course they'll always be cases of wages dropping etc. but you get my gist?

I agree about local markets, if you put tat on at an inflated price it won't move. I'm going for smartened with a realistic but still beggaring fair price. I'm not giving my house away, I'd rather stay than feel robbed.

Bring back Debtors Prison. That will shove it up 'em. Dont borrow what you cant promise to pay back.

Oh cakehead, if you think the majority of loans on some mid sized UK banks is "safe" I would urge you to do some research. Some lenders were lending rediculous self-cert mortages and many have over 50% exposure to loans taken on in 2006/07, a timeframe that could be considered the most risky.

Well then the country will go bust, either way I'm not going to worry about it. I've been prudent in the extreme, as Gordon used to say.

Is suggest the Banks cut their Dividend share to 0p before they rely on getting out of a mess THEY have generated. They need to cut back significantly on their staff, no bonuses.

Part of the deal NEEDS to be no more loans over 80% LTV, to protect the banks against any significant price falls. If this means house prices crash and we get a nasty recession, so be it. Thats what I have been warning would happen for ages, as did others, they didnt listen.

The other option is a broken currency, astronomical inflation and numerous runs on the banks. If the BOE bail out these institutions what message does that send out to the overextended? And what happens if this so-called safe debt doesnt turn out to be so safe after all, as is happening in the USA? It seems to me there is a LOT of wishful thinking going on (as per usual) without serious consideration of the "worst case".

The banks need to guarantee any writedowns will still be THEIR problem, and not the taxpayers or the BOEs. The fact that this bailout is going to highly inflationary is my biggest concern.

OTOH house price rises have enabled me to put down an 85% deposit on a house I want. Every cloud...

It goes against the grain to bail them out when they've been irresponsible to the extreme especially Northern Rock,we had been saying for 10 years they couldn't sustain 95% mortgages with 25% unsecued loans.They were still giving them out after the Gvt.had bailed them out BUT....We eally don't want another recession because then we all suffer whether we've been prudent or not so I voted yes. What we do need are tighter controls and an FSA with teeth not sloppy gums!!

quote:

se price rises have enabled me to put down an 85% deposit on a house I want. Every cloud...

Cakehead, I take it you are sizing down?

Because if you are sizing up all house prices do is increase the distances between the rungs. You have to pay more for the next step.

LawyerLAdy, recessions may be painful, but generally they are short and are good for the market (they kill off useless and excess businesses, leaving the more streamlined to survive). The other option, inflation, is doubly painful, lasts much longer and is damaging in the long term for the economy (imagine petrol at over £2, and the price of a loaf of bread doubling every 24 months). It doesnt just damage one sector, it affects them all. THe bailing out of the banks serves ONE purpose, to artificially prop up the housing market. That is one (Albeit important sector) What the government are proposing is grabbing the dice and throwing risk to the wind. If it doesnt work out well, they are risking the whole economy. Either way, going off this governments track record with the economy, I say sod the banks and leave them to it. They are doing this for, i stress, political reasons, and NOT for the benefit of us all. The rationalization in the mortgage market is long overdue and would favour the less risky business models. That is how a free market economy is supposed to work. The FSA report directly to the government, and in my view purposefully overlooked what we all knew was going on, which was suporting UK consumption by pumping debt into the economy.

You all know me about being bearish on the UK housing market, I have got bad juju on this one. I seriously think we are going down the path of either a more severe 1970's inflation scenario, or one AS BIG as the 1920's crash.

quote:

You all know me about being bearish on the UK housing market

little timid you?!

How about we go halves? A medium type recession, just enough to teach the worst/greediest/stupidest a lesson, not impacting toooo much on the rest of us as we are so sensible, petrol not so high but indeed higher, bread not so high,
but... as a compromise you can have your lowered house prices but NOT a crash, just a slowdown to let everything else begin to catch up. They will not prop the house market up but won't let it fall over completely. It will be allowed to wobble a little.
The banks will be slightly "helped" along not bailed out entirely. Say take some of the debt each?
Oh and I want profits capped big utility companies to help the sensible people through our mini-recession.

See politics, economics - easy
Sorted, we can all buy bread and cheaper houses.

Just let me move house first

quote:

Originally posted by Pflusk:

Cakehead, I take it you are sizing down?

Because if you are sizing up all house prices do is increase the distances between the rungs. You have to pay more for the next step.

I thought you said house prices were falling? If that's the case surely the correct thing to do is dispose of your assets at the top of the market and buy when they've dropped?

Correct!

I wasnt sure if you were upsizing. If you were, continued house price climbs is the last thing you want.

This from the Torygraph this morning

quote:

Taxpayers' money could be put at risk under Bank of England plans to take on credit card debts from high street banks struggling to raise money because of the global credit crisis.

The Bank of England is expected to provide billions of pounds in Government loans to high street banks and building societies in exchange for credit card debts or mortgages, under controversial proposals that are being considered.

It is hoped that the money will help the mortgage market to return to normal and that lenders will be able to offer more competitive deals to consumers.

However, it was previously thought that the taxpayer-backed loans - which could total more than £50 billion - would only be offered in exchange for high-quality mortgages.
The disclosure that unsecured credit card debt may also be involved has led to calls for Alistair Darling, the Chancellor, to make an emergency statement to Parliament on the proposal.

This is a disgrace, and demonstrates how much do-do the banks are in. I commented earlier last month that we would see another one or two Northern rock style bailouts, well it looks as if it was all of them. This is extremenly serious, Labour will be taking YOUR taxpayers money to maintain the share value for investors in UK banks, its sick. The banks should be left to rot, there are plenty of european banks that could plug the gap, and perhaps not lend so recklessly.

I honestly can see this not going through, the European competition commision is certainly going to have something to say about governments shoring up banks balance sheets...

Other point, if house prices do crash (they will) who will pay for the losses incurred as the banks will not have the cash to pay back the bonds? This could be saving up significant trouble for the future, and could spell serious trouble to the stability of the whole UK economy and Currency system...

Kewl, a return to bartering. I'll have a slice of that.

said on radio earlier that government are swapping £50bn of bonds for bank debt.