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Tuesday, 2 September 2008

Like farting in a gale

OK, there's not much comment about yet on Brown's announcement of a £1bn package to help 'rescue' the housing market, and I could be wrong, but I'm dubious it will have any real effect.

The 'Standard' comments that:
The new mortgage market by some measures has shrunk by more than two thirds since last summer. Possibly as much as £80 billion of lending that was previously available for house purchase has disappeared thanks to the credit crunch. So this limited package will achieve little.
Edmund Conway writes in the Telegraph that the banks have already issued £45bn of mortgage-backed bonds in the quarter to June - and that it's likely the £50bn Special Liquidity Scheme launched by the Bank of England is probably already exhausted. RBS, Barclays and HBOS have also already raised £20bn of new equity capital. Brown's £1bn package is therefore not much more than a fart in a gale.

I still think there are still too many banks and too little money. Hindsight is a wonderful thing, but I wonder if we wouldn't now be mush better off if the government had allowed Rock to collapse? Some commentators reckon at least one of the big four - HBOS, Barclays, RBS, HSBC - will have to go before things start to get better.

Just picked this story up. At 4.15 Monday before last, 5 minutes before the 4.20 deadline for inter-bank loans, Barclays asked HSBC for £314m. It takes 3m to do the transfer, leaving HSBC only 2m to make the loan decision. It was seconds late. Barclays immediately went to the Bank for the £314m. Cock-up or Barclays playing silly buggers? You decide.


Blue Eyes said...

The stamp duty and shared ownership policies won't correct the problems, either. The problem is that the economy was based on a credit bubble and you can't just go on printing new money forever.

In this situation what happens when a bank properly goes bust? Let's say HSBC goes under, will I have to wait months to get my money back?

Raedwald said...

I think HSBC may be safe - see from Cityunslicker

I forgot Lloyds.

I'd imagine the deposit guarantee scheme or whatever it's called would take quite a while to settle up. Anyway, I don't trust Barclays so I converted most of my balances to Krugerrands a few weeks ago. And very heavy and comforting they are too ...

Blue Eyes said...

Re update: didn't they do that before around the Rock fiasco?

Patrat said...

From the website announcing the Barclays news:

Market Scan
U.K. Banks Seem Thirsty For Liquidity
Lionel Laurent, 08.23.07, 1:35 PM ET

Nick Drew said...

they did do it last summer - blamed it on system errors etc, not particularly convincing but the moment seemed to pass. We covered it here