Bank Bailout, is this how it works if it goes wrong?

Paul_N_4

I know many don't like the site but I must admit I'm finding it a much better source for everything 'economy' at the moment:

http://www.housepricecrash.co.uk/forum/index.php?showtopic=74916

They pretty much explain the whole thing here.

ianmr65

Paul_N wrote: »

I know many don't like the site but I must admit I'm finding it a much better source for everything 'economy' at the moment:

http://www.housepricecrash.co.uk/forum/index.php?showtopic=74916

They pretty much explain the whole thing here.

I agree. it's the only place where people are rationally explaining the rise in m5 or refering to k-waves. The problem is that it gets a bit technical (good), and biased in favour of the HPC (bad)

ianmr65

Benefits_Blagger wrote: »

Ok, think I'm getting the jist of what's happening now, so is it like a bank goes and gets a £10 billion bond off the BoE, which instead of being a dividend paying traditonal gilt is essentially a £10 billion banknote. which the bank then uses as collateral, so if the bank fails, whoever has lent it money then gets the £10 billion note which it then takes back to the BoE and then cashes in ?

Prtyy much Bang on

Benefits_Blagger

ianmr65 wrote: »

The problem is that it gets a bit technical (good), and biased in favour of the HPC (bad)

thats why i started this separtate thread on the topic, even the other thread here has got to technical. one can't follow the arguments and discussions unless they know what is happening in simple terms.

ianmr65

danm wrote: »

a couple of things to pick up on here.

the haircuts the BOE are enforcing are upto 22%.

Essentially this means that.....

The BoE are expecting house prices to fall by 22%

abaxas

It cant go wrong, simple as.

Becasue if it does, we'll all have alot more to worry about, eg food, fresh water etc.

Benefits_Blagger

ianmr65 wrote: »

The BoE are expecting house prices to fall by 22%

and if it's beyond 22% we pick up the tab ?

Benefits_Blagger

just going slightly OT for a minute, but anyone else find it hypocritical that in a system that espouses the free market that we are resorting to goverment interference ? isn't always the argument from the captalists that goverment interfence is counterproductive ? or are things different when it's the banks & ruling elites money at stake and not just the ordinary people.

anyway back on top topic, but slightly related to the above, is this what gordon brown meant about "underpinning houseprices" ? i.e. it's not for the good of the people he is doing this, but for the banks because their securities (and now the BoE) is so dependant on them ?

ianmr65

Benefits_Blagger wrote: »

and if it's beyond 22% we pick up the tab ?

No mate, taxpayers pick up the tab if the bank in question goes t!ts up. They have priced at 22% as that is the level they expect the mortgage backed assets to fall. So they are asking the banks to absorb that 22% themselves, or from there shareholders.
However if they fall below 22% the BoE has a right to ask for more dosh from the bank.

Generali

As I understand it, the bank has to fail, the value of the MBS fall by 22% and the underlying mortgages default at a rate that prevents the MBS paying out for the taxpayer to lose out.