The Bank of England scheme this morning seems to me to involve about the right haircuts not to constitute a material bailout. The haircuts are really quite tough – up to 35%. However, as I wrote the other day, my guess is that the banks won’t do it – instead they’ll hang on, gambling that under political pressure the government will insist on the Bank of England’s sweetening the deal with lesser haircuts. And if that happens, the government will buckle like a soft copper joint…
P.S. You can see more details on my reaction here.
UPDATE 6pm
Here's what Osborne had to say (from http://www.politicshome.com/Blogs.aspx?Blog=536#536)
George Osborne's response to Alistair Darling's statement
15:55 | 21/04/2008
Can I thank the Chancellor for prior sight of his Statement. And can I take the opportunity to thank the Governor of the Bank of England, who phoned me yesterday to explain in advance what he was proposing to do.
It is nine months since the credit crunch began, and we know from the recent IMF Report that Britain has been left more exposed than any other European country – with the highest government borrowing in the developed world and the highest personal debt on record.
We welcome any international moves to improve stability – and that should include reforms to the Basel Accords.
Surely the time has come now to look at counter-cyclical capital rules so that we try to avoid this boom and bust in debt and asset prices?
Next time, let us fix the roof when the sun is shining.
In the meantime, the Bank of England has to pick up the pieces.
I broadly welcome their liquidity scheme announced this morning. Indeed, we were recently calling for it.
The difference between a well judged intervention and a bail out lies in the details – and in the protection offered to taxpayers.
Will the Chancellor give us his personal promise today that as the man entrusted with the nation’s finances, he believes the guarantees are such that there will be no loss to the taxpayer?
Wouldn’t the risk to the taxpayer be reduced still further if the Government had not agreed to underwrite securities backed by credit card debt as well as those backed by mortgages?
Why has he done that? Perhaps he could explain that to the House.
We are trying to keep people in their houses, not prop up credit card lending.
Indeed according to the Market Notice issued by the Bank this morning, the taxpayer is underwriting securities based on US credit card debt – has the Chancellor calculated the extent to which this will expose the taxpayer to developments in the US economy?
He is calling on the banks to be more transparent about their liabilities – something I agree with him on – but can he confirm that the Treasury has insisted that the scheme is designed to keep the taxpayer exposure off balance sheet?
Is it true that the swaps are for 364 days because if they were for a day longer then £50 billion would be added to the national debt?
And crucially what steps is he taking to ensure that the main lending banks will use the facility to pass through lower rates to borrowers? Has he had any commitment from the banks that they will do this?
We have seen the share prices of the banks go up since word of this scheme was leaked by the Prime Minister on his American trip. What we haven’t seen is the mortgage costs come down.
The last time he called for the banks to pass through a rate cut they all ignored him completely, even the one he owns. Several actually raised their rates.
Let’s hope he’s more successful when he meets the Council of Mortgage Lenders tomorrow.
Finally, doesn’t the last nine months reveal the folly of a Prime Minister who failed to use the global good times to prepare for the difficult times?
A competent government would be in a position to help people with the rising cost of living.
Instead this incompetent government’s 10p tax rise will add to the misery of some of the lowest paid families already struggling with a rising cost of living – and cancel out any support those people might get from the Bank’s new scheme.
It is not too late for him to back down and stop the tax raid on the poorest.
We know from the climb-downs on capital gains and non-domiciles, that this Chancellor is for turning.
And we know from his comments yesterday that he thinks that the Budget was such a mess that it needs to be returned to.
If he has a concession to announce, or a timetable for a concession, shouldn’t he announce it himself instead of leaving it to his deputy?
The Bank of England is now playing its part to help families hit by the credit crunch. It’s time for the Government to do the same.
It is time for a Government that is on people’s side not on their backs.
