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Today's London Times is reporting that

[Chancellor of the Exchequer] Alistair Darling is preparing to announce an unprecedented £50bn bailout [about $100 billion USD] of Britain's banking system in an effort to save the housing market from collapse.

The Chancellor will tomorrow tell the Commons that the Bank of England is to allow lenders to swap their assets for Government backed bonds in a move intended to restore confidence.

from the article:

“We believe that this will be an essential step in trying to get the financial market stabilised. That in turn will help the mortgage market too,” the Chancellor told BBC 1’s Andrew Marr show.

He warned, however, that in return he expected that “banks begin now to disclose the extent of their losses and explain how they are going to rebuild their capital”.

He denied that the arraignment will expose tax-payers, already saddled with Northern Rock, to yet more financial risk.

As one of the commenters on the article says:

"A £50 billion for a load of crocked loans.  I've got some rubbish in my shed, wonder how much Darling will offer for that."

Originally posted to gnat on Sun Apr 20, 2008 at 11:14 AM PDT.

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Comment Preferences

  •  tips (17+ / 0-)

    for keeping an eye on the global unravelling of the banking system and the housing market.

  •  Competitive currency debasement the new (7+ / 0-)

    Olympic sport?

    "And in lane 1 we have the United States, challenging all comers, in lane 2 we have the United Kingdom, a johnny come lately but one to watch, while in lane 3 we have the euro, saddled by those obstinate Germans ..."

  •  which will be the brick that brings down the wall (9+ / 0-)

    Bonddad had posited it might be a bank in Iceland, where all 3 majors have exposure many times the nation's GDP.  Given the size of the GDP in Britain, this is not quite so severe.  But like the Fed's intervention here, the margin of safety that governments can provide is rapidly being eroded.

    Those who can, do. Those who can do more, TEACH! If impeachment is off the table, so is democracy

    by teacherken on Sun Apr 20, 2008 at 11:18:58 AM PDT

  •  Monopoly time (10+ / 0-)

    think about this.
    tycoons making ridiculous loans and then selling them to banks.  Government bails banks out to save us little people.  Tycoons take over governments because they are not able to provide services to us little people.  The modern age of Jesse James.  Robbing banks as we speak and getting away with it.

    Republicans are not a national party anymore.

    by jalapeno on Sun Apr 20, 2008 at 11:20:38 AM PDT

  •  Economic quid pro quo... (4+ / 0-)
    Recommended by:
    gnat, 3goldens, irate, Horsefeathers
    Sigh

    It's like watching a domino contest where the winner is the one who to knocks down the highest number of their opponent's constructs.

    Dear ABC - Two words, let me spell them for you:
    EFF U SEE KAY.     WHY OH U.

    Me? I'm not so classy.

    by RhymesWithUrple on Sun Apr 20, 2008 at 11:22:00 AM PDT

  •  Deja vu. n/t (5+ / 0-)

    Got a problem with my posts? Email me, and let's resolve it.

    by drbloodaxe on Sun Apr 20, 2008 at 11:23:25 AM PDT

  •  I Have One Question That I Can't Seem To Get (3+ / 0-)
    Recommended by:
    ask, irate, Horsefeathers

    addressed. If all these banks are holding loans where people could default, the solution to me seems simple. You don't provide aid directly to the banks. You provide it indirectly by giving it to the individuals by helping them pay their loans. Won't that solve two problems at the same time?

    Let us not forget New Orleans. Visit Project Katrina.

    by webranding on Sun Apr 20, 2008 at 11:24:39 AM PDT

    •  Bravo! (2+ / 0-)
      Recommended by:
      irate, webranding

      But that's not the way robber barrons think.

      •  essentially that's whats happening, (2+ / 0-)
        Recommended by:
        webranding, Gator1980

        The central bank is buying the people's bank loans for government binds. Thus in essence the government takes over the role of creditor from the bank.

        ow where the problem lies is that so many of these loans are so badly structured an meanly secured that the risk of default is unacceptable high, in which case it is the government and in turn the tax payer which will suffer the loss.

        Our doubts are traitors, and make us lose the good we oft might win by fearing to attempt. William Shakespeare

        by notquitedelilah on Sun Apr 20, 2008 at 11:38:23 AM PDT

        [ Parent ]

        •  Taking over the role of creditor (0+ / 0-)

          falls short of what webranding proposes. It bails out the bank, but not the person facing foreclosure.

          •  Essentially yes. But when banks fail the whole (0+ / 0-)

            economy suffers. Whats needed is a system of  regulations over these bailout. and interest rates corresponding to the risk. As well as collateral which extends to the major shareholders and directors' personal assets.

            Our doubts are traitors, and make us lose the good we oft might win by fearing to attempt. William Shakespeare

            by notquitedelilah on Sun Apr 20, 2008 at 01:18:42 PM PDT

            [ Parent ]

    •  Heaven forbid people be given the capacity to (0+ / 0-)

      control their own lives financially. Besides, there's no guarantee that individuals will vote the way you want them to vote in the next election. Easier for the bankers and politicians to strike deals on tax policy, etc. than rely on the judgment of the rabble.

      "You can bet more stinkin' from thinkin' than drinkin', but when you feel, you know it's real." Joe Miller

      by emacd on Sun Apr 20, 2008 at 11:34:00 AM PDT

      [ Parent ]

    •  The problem there is that the people (1+ / 0-)
      Recommended by:
      webranding

      who acted prudently (like me) and did not gamble on real estate get really ticked off.

      Mind you, providing aid to the banks is even worse, but in both cases they are bad.

      •  No I Hear Yeah (1+ / 0-)
        Recommended by:
        Gator1980

        I bought the house I could afford, not exactly the house I would have wanted in a "perfect" world. Now if the money is giving to the banks I have another question. When people default on their loans I can only assume the banks will take over and resell them. Isn't that kind of double-dipping (I know that isn't exactly a financial term).

        Let us not forget New Orleans. Visit Project Katrina.

        by webranding on Sun Apr 20, 2008 at 11:37:21 AM PDT

        [ Parent ]

        •  Very hard for a bank to make money on REO (2+ / 0-)
          Recommended by:
          gnat, webranding

          (that is industry-speak for real estate owned), they are not set up to manage property, so they try to unload it as quick as they can, almost always take a loss.

          Though I am putting the cart before the horse, if the government buys the bad paper, it is the government that will take over and resell the homes, not the bank.

          The gov is giving them money by buying bad paper for which there is no market.  It is not quite the same as giving them money, but it is close.

          In any case the taxpayer gets used by large corporations no matter how you look at it, the opportunities for abuse are huge.

          •  bad mortgages -> single-family REITs (0+ / 0-)

            Dear Mortgagor:

                You appear to be late on your payments.

                If you wish to convert your position to a 10-year lease with a $1,000 initially monthly rent subject to increases in line with your local property tax, just sign the attached document.

                              Your Banker

    •  capital reflexively moves (4+ / 0-)

      to protect itself.

      The way the state responds to the speculative bubble of a banking crisis is similar to the way it reponds to a crisis in the streets: all efforts are made to restore order and to ignore the will or needs of the people; no efforts are made to reform the system in such a way as to address the root problems.

      The global banking system and the financial industry is a bit like the Wizard of Oz, and no one is allowed to peak behind the curtain--everyone must do their bit to maintain the illusion of a "free" and non-predatory market.

      I think the real estate bubble is just one part of the equation here, and the hedge funds and related markets are connected to this as well.

      •  Perzactly! (1+ / 0-)
        Recommended by:
        gnat
        If the regulations were functioning optimally these ballooning term loans wouldn't have been written in the first place and corporations with abusive credit policies wouldn't have the oxygen they need to survive.  

        Instead of fixing the actual problem, the government keeps putting a band-aid over an axe wound.

        Dear ABC - Two words, let me spell them for you:
        EFF U SEE KAY.     WHY OH U.

        Me? I'm not so classy.

        by RhymesWithUrple on Sun Apr 20, 2008 at 11:46:52 AM PDT

        [ Parent ]

    •  as I understand part of it (2+ / 0-)
      Recommended by:
      gnat, webranding

      and the part I understand I probably only partly understand, is that the underlying debt instruments never represented returns equal to the leveraged prices of the bundled loans.

      To simplify, if you have 100 loans of $100 dollars with floating interest rates,for one year terms, you really don't know what they will ultimately return.  But you could assume they would go to maximum rate at the earliest date allowed by the loan terms, say 24% after the first 30 days that was at 12%, assume simple interest. The first month is 1% of 100 dollars or $1 interest, the next 11 months, 2% each month or $2 a month for $23 interest and total repayment of $123 on each loan.  That's acutally fairly concrete, but lets assume you buy thinking you are actually buying $123 times 100 or $12,300.  Since time is money, you have to then calculate in a discount, maybe fudge the number again because some loans won't pay out at all, default rate, and some will pay early, depriving you of interest.  And then remember the rate of return was a guess to start with.  What is the bundled package really worth?  At best if you traded dollar for dollar $12300.  But really something significantly less.  Well the debt instruments actually sold were generally more complicated, with more guesses, few of which were explained or understood by the investors, so they bid them up many times over the real value of the debt instruments, and many times over the real value of the physical collateral that secured those debt instruments.  So even if people make the required payments, the security bundles are still not worth much.  I don't think anyone is grappling with that fully yet.

      •  People buy stocks where the true (0+ / 0-)

        value is unknown.

        You simply offer rich individuals chunks.

        Dear Dr. Moneybags:

            We have on offer 10% of ten loans whose terms and payment history are enclosed. These have a face value of $1,247,195. We are offering a 10% chunk for $110,000. If you want to buy this chunk, please send a certified check for $110,000 payable to Big Bank to:

        Mortgage Offer
        Big Bank
        656 Park Avenue
        New York, NY 10007

           Your check must be received by May 1, 2008.

                Yours Truly,
                            Big Banker  

        •  true (0+ / 0-)

          and there are frequently articles warning of bubbles when stocks trade at many times earnings and more than the assets of the companies.

          People think money makes money without regard to any rational method of making money these days.  Don't build anything, own anything, it multiplies itself just by existing.  And the dr. moneybags do seem to be common targets that don't check behind the great money making opportunities.  But its not just the moneybags who can find more money easily, I had a school teacher friend who had a broker trying to get her to invest some of her money in these securities.  I tried to tell her the loans were crap and it was going to be a debacle.  I've not had the nerve to ask her if she bought.

  •  What amazes me (5+ / 0-)

    is that the property behind most of these loans is severely overvalued as compared to what people in the UK actually make. Housing costs here are in the stratosphere, despite the fact that most major cities have lots of empty (not very nice) properties and smaller towns all have lots of empty properties (many rather decent). I have assumed that these are being held for speculation, now I see that they may have been "speculating" on a govt bailout when the stuff hit the fan.
    But when a 2-bedroom terraced house in the NE is going for over £150,000, when local wages hover around £15,000, these loans are garbage, based on inflated prices driven up by a steady diet of "you can't lose by investing in property" rubbish in the media, and the pensions misselling scandal that followed "Labour"'s caving in to big business instead of undoing some of the Conservative damage to the safety net.
    With prices of darn near everything going up noticeably, that makes me very nervous.
    But then, I had been hoping for a house price crash... my only hope.

    Political Compass says: -8.88, -8.67 "America is the only country that went from barbarism to decadence without civilization in between." -- Oscar Wilde

    by expatyank on Sun Apr 20, 2008 at 11:30:27 AM PDT

    •  Also, the UK is notorious for boom-bust (1+ / 0-)
      Recommended by:
      xynz

      The UK for generations has had boom-bust housing cycles due to the lack of government-backed stability in the housing market.  So you have an inherently volatile market, combined with a bunch of junk securities they've never had to deal with before, on top of the decimation of their pension system that has been waiting to happen ever since the Tories shredded SERPS (State Earnings Related Pension Scheme) in the 1980s -- it adds up to a real fire storm.  Basically, for the UK, it's a re-run of the early 1990s, except with probably more foreclosures even that that debacle.  And this time with the embarrassment and shame for the Labour Party faithful of their NuLabor® leaders' fingerprints all over it.

      The ForEx traders know this, which the pound has been sliding even faster than the US dollar over the past six months.  But the pound really was grossly overvalued as it was and finally looks like it's going to be down toward something reality based.  That will at least help exporters -- NuLabor® has been horrible for manufacturers because of buying the mortgage industry's tropes about the total awesomeness of housing inflation, hook, link and sinker.

      I don't see much of a silver lining for the US though.  We don't have any manufacturers left that can benefit from a firesale exchange rate.

  •  I was in the UK last year (1+ / 0-)
    Recommended by:
    gnat

    and I was stunned by the prices of houses. The gap between the haves and have nots is definitely widening..but the ruling class remain as privileged as ever they were.

    Education and health care has suffered in the UK..likely from a hybrid Labour party that has no idea what it believes in any more.

    Think Tank. "A place where people are paid to think by the makers of tanks" Naomi Klein.

    by ohcanada on Sun Apr 20, 2008 at 11:52:52 AM PDT

    •  I Have A Good Friend That Is In Commerical Real (1+ / 0-)
      Recommended by:
      ohcanada

      estate. We went on a few trips and he got me in the habit of picking up a local paper and checking out the real estate prices. I really don't know how people can live in Northern Virginia, LA, San Fran, or any number of other places. And heck, I make a fair amount of money.

      Let us not forget New Orleans. Visit Project Katrina.

      by webranding on Sun Apr 20, 2008 at 11:56:19 AM PDT

      [ Parent ]

  •  Why bail out anyone? (0+ / 0-)

    If you bail out the banks, this is just transferring wealth the the wealthy.

    If you bail out homeowners, this also just transfers wealth to the almost wealthy.  Further bailing out homeowners contributes to suburban sprawl.

  •  They're going to devalue outstanding debt. (0+ / 0-)

    They're going to drown the unsustainable debt in a sea of new money.

    The Fed (and now the Exchequer) will take bad paper from banks and exchange it for new money that the banks can actually use. This will end the liquidity crisis.  But it will greatly increase the money supply and boost inflation (which will lower the value of the unsustainable debt to levels that can be sustained).

    When equilibrium is reestablished, everything will be more expensive, because the relative value of the debts had to be reduced.  

    If wages don't keep up with this new inflation, then who most benefits from a round of global inflation that "appreciates" almost everything else? ;)

    Multinational corporations, whose profits aren't completely tied to the US dollar, are doing very well (thank you very much). The fall in the US dollar is fattening their bottom line.

    -5.75 -4.72 3.14159 2.71828

    by xynz on Sun Apr 20, 2008 at 02:07:25 PM PDT

  •  Sounds just like what Bush's man (0+ / 0-)

    is doing.

    Care to indulge in a surge too?

    We probably are going to need more firepower.

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