Do you ever wonder if Gordon Brown has too much money?

[AtheneNoctua]

WTF, as if Norther Rock wasn't bad enough... let's just sell out the taxpayer to whole banking industry.

Banking industry bail out

Would it not have been a better idea to let the housing market calm down a little bit?? It is seriously over inflated. I am a homeowner and even I can see that this is madness and it really is turning this country into a them and us society.

Brown is as thick as mince and is about as Socialist as John Major.

The more I have thought about this the crosser I become .

What makes me so cross is that actually Gordon Brown should not be intervening. This is, supposedly, a free market economy and so we should be letting the market do its thing.

So what happens if a bank can't for whatever reason, of which there will be several, can't take back the debt. If there were to be, say, a war, what would happen to the government bonds then? Would they then become worth less than the mortgage debt and hence the government would be in negative equity effectively.

Is Gordon Brown gradually trying to take control of the financial institutions?

'Well, I'm going to pack in this whole work and tax thing if they think I am going to pay for other people's houses when I can't afford one of my own. '

We may have different political approaches, but I'm with you on this!

Good article in today's timesby Alice Miles.

"...Nothing could be more immoral, then, in the current climate, than using government efforts and taxpayers' money to encourage first-time buyers to enter the housing market in order to stabilise the dodgy situation that banks and incautious borrowers have got themselves into through overlending and overstretching themselves: row, row harder, keep us all afloat! Yet that appears to be what the Government's strategy is. ?Here's a nice deal for you, love?: Gordon Brown has turned into Del Boy, and I suppose that would make Alistair Darling his Rodney. They are trying to tempt the banks into continuing to offer cheap mortgage deals on properties that are simply not worth the astonishingly high amounts they have been flogged at in recent years. And trying to encourage you to sign up for them. The IMF says property prices are 27 per cent too high. Why would anyone with the interests of a first-time buyer at heart encourage him, or anybody else for that matter, to purchase at the top end of the market, with a long-overdue correction imminent? They will tumble into negative equity before they've finished clearing up the Valpolicella stains from the housewarming party. It isn't as if, to most of the rest of us, a fall in house prices is such a big deal anyway. To most of us, for whom a house is a home, not part of an investment portfolio, tumbling values make sense... "

"...you don't need to be an economist to understand that swapping debts for government bonds means the taxpayer is ultimately taking on the risk that should stay with the banks. How dare a man who has lectured us all ad nauseam about prudence, year after year after year, now use our money to bail out the profligate? Times are tough, yes, but for most people they are tough in the day-to-day expenditure; in the purse, not the property portfolio. The pinch, for ordinary people, comes not from little falls in the nominal value of people's homes, but from day-to-day living costs: the food, the petrol, the gas and the council tax bills. It is in this context that the scrapping of the 10p rate has been so poisonous, a mean little kick at a time when people are already feeling hamstrung in their everyday spending. Globetrotting ministers wagging their fingers at the international gods of high finance are not going to fix that..."

I think you'll find the US have done exactly the same. And it's the right thing to do if we are on the verge of a major banking crisis which could precipitate a recession or worse.

If we use public funds to lend to banks (and it's lend, not give) we might be able to get liquidity moving again and keep the economy going.

As for the sale of gold, anyone here like to hazard a guess on gold prices this time next year? No? Thought not.

Also, should point out that we lend to banks all the time. That's whta the Bank of England is for. We've just decided that we will, for this period of time, take different sorts of securities as collateral.

Banking is basically all about confidence - if this can restore confidence and get the processes moving again by themselves then it will be a cost-free solution.

Banking is clearly about a con-trick. The banks and financial services industry have been way too greedy, have forgotten that there is such a thing as risk, thought they could borrow on the never-never by setting up complex series of transactions where debts were rolled up and sold on endlessly. They paid themselves multi-million pound bonuses out of OUR money - our pension funds, for instance. And now they are demanding that the taxpayer bails them out. And we'll have to.

Bastards should have to pay back all their bonuses, for a start.

Agree with Edam that the bonuses are a disgrace. But we don't really have much of a choice about the solution and blaming politicians for the solutions they have identified is a bit ridiculous.

Interest rates have been too low and there has been an asset price boom but are any of you going to vote for a party that retakes control of interest rates and doubles them to prevent that? Don't think so.

Just because the elite in the US think it right that the poor should bail out the rich does not mean it is. And if we are on the verge of a recession it is because nothing was done to prevent an unsustainable boom and our housing market being turned into a giant pyramid scheme. If Gordon Brown had been true to his word we would not be where we are now.

This solution involves the taxpayer taking on the banks risks - that can not be "a cost-free solution". If it were nobody would ever pay for insurance! Banks' mortgage-based assets are being exchanged for safer government debt - a brilliant way of allowing the banks to privatise their profits and socialise their losses. Cheers New Labour.

it's cost free if it moves liquidity on without the collateral ever having to be called in, and the chances are that this will be the case. Once the banks have had a chance to recover their balance sheets they can start lending again, borrowing from each other as before, and these agreements can be unwound.

If this doesn't happen, we've all got a lot to worry about.

The issue is that no other entity has the scale to do this, which is why govts, central banks do it. And it's not about protecting the rich. It's about trying to ensure that the banks don't call in their loans to everyone - businesses, individuals, etc, resulting in bankruptcy, unemployment, recession.

I'm all for protecting taxpayers money but what do you really think would have happened if Northern Rock had been allowed to go bust? Massive crisis of confidence in the banking system generally, savers take out all their cash, banks forced to recall loans, individuals forced into bankruptcy...

This is actually about protecting ordinary people. If it wasn't, Northern Rock would have been allowed to go bust because nobody in politics would care about a few investment bankers losing their jobs.

But these nortgages are not all going to bring a profit and what happens with teh ones that default?Apparently any that do will revert back to the banks debt but I can't see it.This is all v dodgy.And it hasn't worked in the US.

Noddy it was introduced in the US a couple of weeks ago. This will all take months to shift and we won't know how it's working until much later in the year.

Yes - and a decision not to have car insurance is free until it all goes wrong and damages have to be paid for. The taxpayer is looking at taking on enormous risk without much in the way of reward. It stinks.

I could possibly be persuaded that it is the best action to take now, if more information were available. But blaming politicians is entirely appropriate since they allowed this mess to develop, it is not like they did not have enough warning of trouble brewing. Gordon Brown made it very clear in his 1997 budget statment that he knew the risks of out of control lending and hyper inflation of house prices.

But it's not our asset price bubble that has caused the problem. It's US subprime - our subprime mortgage industry has not (yet) had these problems.

What's happened is that the US mortgages have been repackaged and sold all round the world and the banks now holding those debts are panicking. So it's about what the banks bought, not actually really about the asset price bubble in the UK>

But it is the bubble in property values in the UK that makes us particularly badly exposed to the credit crunch. And it means that millions of ordinary people are likely to be trapped by negative equity. It is an utter disgrace.

And sorry to labour the point (!) but taxpayers do take on risk without reward.

In the final analysis, even the most minimalistic interpretations of what govts should do is that they should correct for market failure. A successful market is one where risk and reward can be matched adequately. In those markets, ordinary people can participate.

Where the risks are signficant but the reward cannot be quantified or captured by the people willing to put up the cash, the govt intervenes. Hence schooling. Establishing the NHS. War. Construction projects like the channel tunnel or endeavours like space exploration. A lot of scientific endeavour is the same. Govt has to put in backing for rewards that might never materialise.

"it's cost free if it moves liquidity on without the collateral ever having to be called in".

Afraid I suspect that's the sort of 'we can borrow on the never-never' circular logic that got us into this mess in the first place.

We all use that sort of logic every day. It's how liquidity works and without liquidity you can be as wealthy as you like but you'll never have a penny to spend.

Liquidity is not an obvious concept to grasp but unless you have liquidity you don't have a functioning economy. This, unusually, is a liquidity problem. We are more used to unemployment problems or inflation or deflation.

And you don't think that the banks in the UK have indulged in their own form of subprime? 125%/self cert mortgages - a whole industry has built up around self cert.

www.cheapestpayslipsp60.co.uk/

The government is running scared, IMHO. Where was the panic for people priced out of the housing market when houses were on their way up?

This is too little too late - there has been a lack of regulation by the FSA - self cert has been around for years, but they turned a blind eye because it made everyone feel rich. I am sorry but I am tired of this government, with their PFIs - essentially spending taxpayers money well into the future.

The country is already in a poor financial situation because of uncontrolled government spending which means that Brown is limited in what he can do anyway - unfunded state pensions, etc. Now they want to spend more to prop up an overheated housing market, whilst taking extra tax off the very poorest with the abolition of the 10p tax rate.

The worst of it is that I voted Labour in 1997!!

providing public services is completely different from saving fat cat bankers from the consequences of their decisions. Saving people from losing their homes is obviously a good thing, but you can't equate the money markets with the NHS or the roads system.

The City has made enough bloody money out of chasing their own tails for the past few years. Now the results of their reckless behaviour are coming back to bite all of us. And they are demanding taxpayer subsidies. These are the people who have been denigrating public services and charging the public sector millions of pounds in fees as management consultants 'because the private sector is soooo efficient'. Bollocks to the lot of them.

Oh and I would definitely vote for a party that doubled the interest rate (on a purely personal level, of course!).

OF course they have lent to subprime but at the moment because we have low unemployment and low interest rates, these loans are being serviced and are categorically not a problem. Even if they defaulted, it wouldn't amount to the same sort of financial problem we have now - it would be a problem for the individual and the bank concerned but not for the wider community.

The problem we have now is that debts like this (though not UK ones) have been sold on around the world and no one now knows how to value them. So banks have no idea what they have on their balance sheets. Therefore they can't do any new lending. Therefore they are finding new ways to borrow to allow them to carry on lending so we can ease the liquidity crisis.

If the US economy remains relatively unscathed, these subprime debts will eventually be valued at close to their original value, banks' balance sheets will not be damaged and lending will continue.

At the moment, US unemployment is not taking off so the real crunch has not yet materialised.

Sorry, but I don't buy it that the banks have been "terribly responsible in this country and it is only those Americans . . ."

The banks have indulged in their own sub prime - 20% of NR mortgages were "Together" mortgages. That is an awfully large number of mortgages. Interest only is a scandal waiting to happen.

Are you Gordon's wife?

Only joking - sorry!!

Edam, I agree with your "bollocks to the lot of them" sentiment but there is no real way to protect the individuals whilst letting the current crop of spoilt bankers go hang.

Believe me, the govt wouldn't be stepping in to save investment bankers. In fact those invested in Bear Stearns recently lost about 90% of their investment - but the Fed pushed the sale through to ensure that the bank did not recall loans to individuals.