Petem95

World banks in £50bn credit-crunch fight | This is Money

This just shows how bad things have got/could get.

Seems the end of cheap credit really could cripple the global financial system, so the banks are going to try and solve the problem by... pumping money into the system so we get more cheap credit to keep things going a bit longer..

Central banks interest rates appear to be having less effect which is obviously a serious issue for them!

"Despite cuts from the Bank of England and the Fed, these so-called interbank rates have continued to rise, leading to more expensive mortgages for millions of households."

UK market hasnt looked overly impressed with this measure...

"London shares remained more muted, as some traders said the measure looked increasingly desperate"

Shark Man

It's starting. I said at the start of the boom of property prices that this growth could not be sustained. However I did not envisage that the banks would suffer so much - they'd just call in their debts, but it seems they have fallen foul of their own actions - something that strikes me a quite incompetent considering the sheer amount of money involved.

Giving people loans and credit is great - so long as the investors and equities invested can sustain the time lapse between giving out the loans and recieving income from investments and repayments.

Vicious circle. It's a good time to be in the repo business. It's not long now where lenders will become much less negotiable with resolution of bad debts. Foreclosing and re-liquifying assets being a much more common occurance in the near future. Bad debts are already being sold on to third parties to handle in aid to stave off repossession.

TopBanana

A trickle of cheaper credit is only going to delay the inevitable. The cat's well and truly out of the bag.

zs_phil

iTrader: (1)

what does this all mean then .
i dont know alot about this sort of thing what could/ will happen

Prasius

iTrader: (1)

I don't own a home at the moment; but at least my credit rating is tip-top

*sharpening his vultures talons.. *

TopBanana

Noone wants to lend money out, so loans are more expensive. Mortgages go up, so less cash to spend at Dixons. Also companies can't grow so easily, so cut back on staff in order to maintain profits. Now even less people can afford to go out buying suff. Basically because people stop spending money, other people stop earning money.

Shark Man

Aye, economic Doooooom



Doooomed I tells ye.

Luminous

iTrader: (3)

I cannot but feel that a lot of this is just scare mongering. The main reason that credit is so expensive is that banks are simply unwilling to lend to one another. The reason for this is fears of losses in sub prime markets.

The irony is that this perceived fear could actually cause a lot more of those losses to be realised. It is a tough call in my opinion to see how this will turn out. If all the banks manage to go public with their sub prime exposure before things get worse then this may all blow over.

If they take their time, then they will force themselves into a position whereby losses are much more likely. Of course, some of the banks may want this. If they feel they have more liquidity than their competitors they may believe this is a good opportunity to kneecap a competitor.

Suresh

Pete95, with all due respect you haven't got a clue about house prices, macro economics or financial markets, so why keep on posting on these topics?


Lum has hit the nail on the head.

Banks have got liquidity problems as a result of the accounting industry and regulatory bodies inability to get any transparency about what positions and losses their peers have run up. As a result of this lack of confidence, interbank lending has all but dried up. That after all is what killed Norther Rock and not NRs credit exposures.

Btw, UBS shares look very cheap at the moment

fast bloke

Pete - Whatever you are reading is mostly bollox


You are claiming that 50 billion from central banks to fight the global credit crunch is a lot of money. So that will be 30 billion to one small bank in the north of England and 20 billion to the rest of the world? Baclays did 9 billion in new lending in November, their quietest month for some time. I appreciate that to you, 50 billion is a fair bit of money, but on a global credit scale it is nothing more than pocket change

Terminator X

iTrader: (7)

Did you sell up 5yrs ago when the Harbingers of Doom were predicting a house price crash?

TX.

Klaatu

The problem with the banking system, worldwide, is that's it's based on a 300 year old system of interest bearing debt, which started in England. There is no real wealth created.

StickyMicky

i am glad that i am schedulded for a debt free enviroment in march next year!

PeteBrant

The tricky part about that is that most, if not all of them, have no clue what thier exposure actually is.

THis extra cash, and the fact that borrowing from the Federal reserve/BoE is probably not going to have much of an effect. All it will do is defer the borrow between banks for a little while - At some point they are going to have to start borrow and loaning to each other again.

Deep Singh

Well I'm going to add some liquidity to the economy today by going Christmas shopping!

lozgti

Is it because the banks lent us a trillion quid and we won't pay them back

On a serious note,I reckon 2008 is going to be a tricky time.Those that keep saying it will be fine probably did dip into their equity to buy the whole of dixons and a couple of cars.

Best of luck

David Lock

I don't understand the practicalities of all this. So the idea is to throw some cash into the mix so that banks can borrow at something close to base rates and not the extra 1% over base that other banks are offering because they are nervous?

But £50bn woud be gone in minutes if this was the case surely? Or are Central Banks imposing strict conditions on who can use this facility which, in some ways, would defeat the object of offering this pocket money in the first place? dl

PeteBrant

The central banks are removing some conditions on the terms under which banks borrow money from them, in order to remove the stiga associated with it, in order to avoid a NR situation.


Remeber initially, NR borrowed a couple of billion, and that would have done them nicely - It was the run on the bank that made the £25billion necessary.

David Lock

OK but we are talking about banks around the world here and a paltry total of £50bn. It's like my daughter giving me threepence to help me pay the mortgage

MattN

well turns out it's had an immediate positive effect and the Libor rate has come down already.

Panic over.

lozgti

And the FTSE has gone down about 140 points

Prasius

iTrader: (1)

It seems to me that at the moment the Government and the Bank of England are working to entirely different scripts.

The Government are apparently so concerned about inflation that they are willing to risk Police striking rather than give them their agreed pay-rise; while the Bank of England cut interest rates 0.5%, and lend out £20bn (I believe.. ) in order to make the Commercial banks feel a bit more comfy.

From where I'm sitting - this can only go bad.

Chris L

The whole issue over the police pay is just bizarre - we're talking about £30M - that isn't enough to make even a small dent in inflation, so I have no idea what the government is playing at on that front.

The currency markets trade hundreds of billions, if not trillions every day, so £50billion is a very small sum in the grand scheme of things. It may help in the very short term (hence the very small drop in LIBOR rates seen), but it won't stop or solve the wider issues that are in the market at the moment. LIBOR rates are still well above the BoE rate and show no sign in moving that much which shows that there is still a huge lack of confidence in the whole market.

2008 could be a very tough year once the full extent of the US sub prime debt becomes apparant (way more than the $80 to $90billion that has already been acknowledged) and our own down turn in the property markets (UK house prices dropped for the 4th month in a row today) has been realised.

Prasius

iTrader: (1)

I was wondering if I was the only person thinking that

PeteBrant

I really don't know what the thinking is there. one can only assume that deffered pay rises is a long term strategy for the Government with public sector workers, and they dont want to seen to be treating different section favourably. So that when a really big wage bill comes in, they can defer it and say "well everyone gets hte same deal"

The trouble is, they really have backed themselves into a corner with this -Especially hthe police agreed unequivocally to the arbitration figure.

Also, is it me, or does Tony McNulty sound like a complete prat when he talks?

David Lock

One almost (I did say almost) feels sorry for Jacqui Smith. Clearly she is being told EXACTLY what to do by Brown with Darling muttering in the background "Sir is quite right about this you know".........

Mind you if she had any ***** (sic) she would get to grips with the whole police mess - halve paperwork for example. dl

Petem95

It's fallen slightly, but hardly by much - "fell to 6.514% from 6.627%"

BBC NEWS | Business | Cash rescue plan helps rates fall

Maybe it will continue to fall, but then again maybe it won't! I guess as FB points out, £50billion is hardly a significant amount in the grand scheme of things.

Not really sure what will happen if the LIBOR rate remains stubbornly high. These market conditions certainly aren't helping the firm I work for! We've been expanding rapidly through acquisition, yet just today it's been announced that our financial targets have been missed, 6 directors are leaving and further acquisitions have been put on hold! Seeing as we are funded by private equity the high borrowing rates are really having an effect!

Prasius

iTrader: (1)

Who's to blame for all this?

While I think I have a reasonable grasp of basic economic principles, I'm most certainly no expert - but I struggle to understand how these companies, who employ, I would imagine, some people with serious economic qualifications, screw it up so badly.

If you lend money at a low rate, that rate has to be high enough to ensure you get enough money back so that you can keep lending out money with a bit on top as profit - otherwise you end up running out of money to lend - hence your kinda buggered. It doesn't strike me as being the logic of a genius. So how have these people on salaries far larger than mine so massively cocked up?

Chris L

In some respects it just shows up these guys to be normal people who can get it wrong just as much as the rest of us! Living in a capitalist economy which is driven by shareholders and profits inevitably means that people will always chase profits at the expense of financial prudence. Many bankers have simply become greedy. And so much of this is just simple confidence (or lack of) - which is why the £50B injected into the markets will make bugger all difference. The banks will still not lend to each other as they are running scared and want to keep their money to cover potential losses. When a hihgly respected institution such as UBS screws up to such an extent that it has to go cap in hand to the Asian 'tiger' economies to dig itself out of the crap, you know things are bad.

To be honest, how many considered this when they got their nice windfalls when the building societies in the UK turned into banks (myself included)? The more prudent organisations like the Nationwide and Lloyds TSB, which are often seen as a little 'boring' are now being held up as beacons on financial restraint!

The Labour government has talked for years about ending the boom bust economy and Brown has basked many times in the glow of the 'growth' we've enjoyed, when in effect what his polices have helped to create is a large bubble that will inevitably burst at some point. So instead of having peaks and troughs we are now sitting near the top of a very steep rollercoaster with only one way to go. We still have boom bust - just spread over a longer period!

MattN

0.1% on billons of pounds is a lot.