Friday, June 15, 2012

The £100bn bank loan

Our wonderful chancellor has a new wheeze to boost the British economy by handing out money to banks. Wait haven't they already tried this? Well yes but this is a completely new and different approach.

What will happen is that a bank can 'swap' its mortgage assets with the Bank of England for actual cash that can in turn be loaned out again.

This is of course completely different to what happened before when those banks 'swapped' their mortgage assets between themselves for cash in the sub-prime mortgage fiasco in that this time it'll be the Bank of England who will be directly left with all the toxic debt.



Orphi said...

How do you remain sane?

Seriously, just reading this feels like it's tipping me over the edge.

FlipC said...

I use this blog. I can just spill it and if you want to read it you can and if you don't you don't have to.

Otherwise I'd be grabbing people down the pub and spouting it all to them ;-)

What does surprise me is that I've not seen anyone else pick up on how similar this arrangement is to the sub-prime stuff that all out politicians have vowed not to let happen again.

Seriously not this exists there's nothing stopping a bank from giving a mortgage to someone who can't pay it back; swapping that 'asset' for cash and loaning it out to someone else who can't pay it back.

If (when) it fails the bank will have to pay the BoE back the money it took, but it won't be able to and the BoE won't push for it because that could cause the collapse of the system. So they'll probably end up wiping out the bank's debt; but not the mortgage holder's of course they still owe the money.

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