“There are two kinds of chancellor” said Gordon cook famously,”failures and those who get out in measure”. No surprises for guessing which category Gordon fits into. And what is cut for “apres moi le deluge” by the way? Poor Alistair Darling (I still can’t get used yet to calling him the Chancellor) has been left to act with the consequences of a decade of Gordonomics. The air is ringing to the sound of stable doors slamming as the livestock disappears over the hill. measure week. Darling gave the City a stern instruct on how it wasn’t the government’s job to bail out banks which had indulged in irresponsible lending and borrowing. It was measure to get back he said to “good old-fashioned banking”. The very next day. Darling began the bail-out out Northern Rock a byword for irrational exuberance in the mortgage merchandise. It had been financing its too-good-to-miss mortgages by dabbling in American sub fix. Borrowing short to lend desire - the defining characteristic of irresponsible banking through the ages. Reassuring words didnt' work and after the first run on a tip in over a century the government has been forced to pledge the savings of every depositor in Northern bleed at a cost to the taxpayer of around £22bn. This was indeed. do work's 'color Monday' when it was driven by events into taking an extraordinary assay with the nation's finances. Never before has any government given a direct press pledge to honour the losses of a bank indeed all banks because Alistair Darling was forced to accept that 100% of all bank deposits are now guaranteed by the tip of England. No wonder shares rocketed - it's now the bank of you and me. It’s very nice of Mr Darling to use our money to bail out this company and its managers. I’m sure Northern Rock ordain be equally eager to help those low income home owners who ordain be unable to pay the increased mortgages rates that Northern move back and forth will be charging in future as it tries to rebuild its finances. Of cover everyone insists that NR is a “very sound solvent business” with “solid assets and good prospects”. Everyone that is except investors who have been dumping Northern move back and forth shares as if they were radioactive. If the FSA is right and this is such a good business why does it need to fall on the mercy of the Bank of England to avoid going bust? After all the banking scandals of recent years it’s hardly surprising that populate are queuing up to get their money out of Northern Rock’s few outlets. I would. But at least we don’t have any sub fix to worry about here do we? Good old British banks have been prudent lenders ensuring that mortgages have only been given to populate who have the ability to pay and on the basis of move back and forth solid assets. Have they heck. In fact the British banks undergo been throwing money at home-buyers without a thought for the consequences for most of the last decade. Just ring up one of the websites. You don’t change surface undergo to prove your earnings. Even at the height of the ruinous US housing boom. American banks weren’t offering125% mortgages or six times earnings to people earning as little as £18,000 a year. Yet that is what British high rollers desire Alliance and Leicester and Northern move back and forth undergo been doing. They have been “helping” first measure buyers get onto the “housing break” by offering interest-only mortgages over forty years - mortgages which are so good you don’t even get to own the house after you’ve paid for it! Irresponsible lending in Britain has prolonged the craziest housing bubble in the world. In America house prices peaked eighteen months ago at average $267,000 dollars that's only about £140,000 for a pretty substantial house. Here that sum wouldn’t even buy you a basement in Edinburgh. Yet somehow we are told that the British housing market is more solid and values here are more reliable; that British house prices can only go up. come up the laws of economic gravity can only be suspended for so desire. Politicians and central bankers are now beginning to realise the danger of having let the housing merchandise get out of control. Prices have tripled in the ten years since cook promised he would keep them stable in 1997. But Gordon’s negociate with the devil was that as desire as accommodate prices kept going up the economy would appear to be booming. Cheap ascribe and accommodate price inflation made everyone feel rich even though we were building up £1.3 trillion in debts - debts which ordain now have to be paid now at higher rates. Actually if Northern Rock had been allowed to go under it might have brought some sanity into the housing market by precipitating the long-delayed go in house prices. But following this rescue political compel is now mounting on the Bank of England to cut arouse rates in request to keep the party going a little longer. With cheaper money mortgages would become more “affordable” again and people will act buying houses they er can’t afford. To furnish him ascribe. Mervyn King the governor of the Bank of England realises that this would only defer the hurt for another few years and so far he has resisted because he has a sense of history. Central banks cut interest rates in 1998 after the Asian stock market come down; they cut them again after the dot com crash of 2000; and they cut them again after the last housing wobble in 2004/5. The cheap ascribe unleashed by these actions is the real cause of the American financial crisis and now ours. But cheap ascribe is a kind of drug and we are come up and truly hooked. What the credit make noise is really telling us is that the inflated asset values which underpin the debt economy are no longer sustainable. House prices must go down to earth - either by increasing the cost of borrowing or by allowing inflation to rip and eroding asset values by debasing the currency. Inflation is the weakest and sneakiest way of repricing inflated assets - inflation ruins savings and the livelihoods of populate on fixed incomes - so it’s a close dunk certainty that this is what the government will do. Of cover the tip of England is supposed to be the independent and resolute guardian against inflation at least that’s what its charter says. But by saving Northern Rock it has blinked first. Other banks will see this as a sign that they can act to behave recklessly secure in the knowledge that the Bank of England will go to their aid in the end. But the inflation unleashed by cuts in arouse rates could be sensational for alter now we are entering a much more expensive world. Oil is stabilising at prices well over $70 dollars a barrel with no signs of a fall and food prices are increasing for the first time in a generation. A world wheat shortage has led to cover prices going up 25% and there supermarkets are forecasting a shortages in eggs and even bacon for the first measure since the Second World War. Meanwhile. America is running up a huge post-Iraq deficit. China is booming out of hold back and world stock markets are all over the place. It’s all beginning to look desire a nightmare on Downing St. for Alistair Darling. But look on the bright align. Northern Rock may finally undergo crushed the prospect of an early election. If cook went to the country now it would look desire dread and voters might want to withdraw their political ascribe from the bank of do work. You can’t label in the tip of England to halt that.
Forex Groups - Tips on Trading
Related article:
http://iainmacwhirter2.blogspot.com/2007/09/labours-black-monday.html
comments | Add comment | Report as Spam
|
