Bank of England must use QE to buy 'bad mortgages'

Aberdeenangarse

In a paper published on Tuesday,Fathom Consultinghas urged the Treasury and the Bank of England to join forces and create a new "bad bank" to buy lenders' worst mortgages in a bid to "unblock" the credit supply.


Outlining unprecedented policy measures, Fathom said the purchases should be done through a second round of quantitative easing (QE).

http://www.telegraph.co.uk/finance/economics/8102785/Bank-of-England-must-use-QE-to-buy-bad-mortgages-warns-Fathom-Consulting.html

That'll help boost House prices

purch

Apparantly they are buying the lending book of Wonga.com first :eek:

HAMISH_MCTAVISH

Aberdeenangarse wrote: »

That'll help boost House prices

Buying £70 Billion of existing mortgage books would indeed unblock the system.

Of more interest is this......

Banks currently have a capital shortfall of about £20bn if assets were marked to market, Fathom added, but the shortfall would rise to £180bn if house prices were to fall by 20pc by 2012 – triggering another credit crunch.

If anyone was still in any doubt as to the motivation of the powers that be to avoid another crash.....

gagahouse

HAMISH_MCTAVISH wrote: »

Buying £70 Billion of existing mortgage books would indeed unblock the system.

Of more interest is this......



If anyone was still in any doubt as to the motivation of the powers that be to avoid another crash.....

Would it? What's to say they won't hoard it again and stick it in excess reserves at the BOE? Maybe the bank will care more about using the money to rebuild its capital ratios (which are getting tighter as we approach Basle III implementation) than taking on further risky lending.

That's the trouble with QE, you can't be sure where the money will end up or if it will do what you want it to do - the last round and anticipation of the next is feeding a commodity and bond bubble now squeezing real disposable incomes as food and energy inflation take hold.

You're right that the powers that be will do everything they can to counter the deleveraging of debt but there's no guarantee they will succeed in an utopian way.

My guess is that the QE will take the path of least resistance and feed further asset bubbles, just look at commodities like cotton, grains and industrial metals going parabolic in last few weeks in anticipation of the FED's QE this week.

ILW

Hamish
I thought you said that virtually nobody was having trouble paying there mortgages and lending should be loosened. Doesn't quite tie in with the above.

DervProf

I ask the question, is this a healthy situation (banks being so reliant on maintaining house prices) ?

I predict that more QE to save the property market will be welcomed by the majority, and that most people will not see house price falls, so will assume that everything is good again.

No doubt there will be replies to this post, explaining that it`s what needs to be done, and it`s all the American`s fault.

I still say that this country has put too emphasis on property prices (by allowing them to absorb so much of the public`s wealth/debt). To many eggs ........ ?

DervProf

HAMISH_MCTAVISH wrote: »

Buying £70 Billion of existing mortgage books would indeed unblock the system.

Laxative lending would also unblock the system.

StevieJ

DervProf wrote: »

I ask the question, is this a healthy situation (banks being so reliant on maintaining house prices) ?

I predict that more QE to save the property market will be welcomed by the majority, and that most people will not see house price falls, so will assume that everything is good again.

No doubt there will be replies to this post, explaining that it`s what needs to be done, and it`s all the American`s fault.

I still say that this country has put too emphasis on property prices (by allowing them to absorb so much of the public`s wealth/debt). To many eggs ........ ?

Do you understand why people say that?

ILW

StevieJ wrote: »

Do you understand why people say that?

No really, seems an excuse rather than a reason.

1984ReturnsForReal_2

HAMISH_MCTAVISH wrote: »

Buying £70 Billion of existing mortgage books would indeed unblock the system.

Of more interest is this......



If anyone was still in any doubt as to the motivation of the powers that be to avoid another crash.....

Hamish, your economic knowledge & solutions are the worst on the board.

Just in case you still didn't know.

Radiantsoul

DervProf wrote: »

I ask the question, is this a healthy situation (banks being so reliant on maintaining house prices) ?

What other assets would you have banks take as security though? Shares?