Brown's spend, spend, spend during his Chancellor's days has brought us into the current economy we are facing today. His appeal at a Downing Street meeting for the lenders to pass on cuts appeared to fall on deaf ears with HBOS, which owns the Halifax, increasing its rate on some mortgages from 6.09 to 6.59 per cent. Borrowers taking out this type of deal will now pay 46 more a month. On a two-year tracker, the rate will increase from 1.49 points above base rate to 1.99 points, giving a current rate of 6.99 per cent.

Other lenders are expected to follow Halifaxs lead.

If the Government wants the banks to lower mortgage rates to home owners - why not just offer them through Northern Rock? Everyone would rush to the Rock to get the loans forcing banks to match the rates or lose the business? Or maybe the government would then run into bigger credit crunch?

Fred, it is not only me who is blaming Gordon. All these financial crises is the spawn of his policies when he was the Chancellor of the Exchequer - SPEND, SPEND SPEND. Of course, it is not his money. Also with UK being the blind poodle joining the US making war in Afghanistan and Iraq. Does that not cost the taxpayers' money? And also lives!!!

And just few weeks ago, Darling came out warning that the economy is in bad shape. Later, he was warned by Brown that this is not the case. This is all just a big cover-up by Gordon. Please admit failure.

Fred, you are just one of the blind Gordon's supporters!

Don't forget the damage Gordon did to all of our pensions when he cut tax relief on pension funds.

Well said, Haystack. If he stays in power, he will probably make us work until we are 80!

Slave Labour!

Paulson cannot be allowed a blank cheque
By George Soros

September 24 2008 20:28

Hank Paulsons $700bn rescue package has run into difficulty on Capitol Hill. Rightly so: it was ill-conceived. Congress would be abdicating its responsibility if it gave the Treasury secretary a blank cheque. The bill submitted to Congress even had language in it that would exempt the secretarys decisions from review by any court or administrative agency the ultimate fulfillment of the Bush administrations dream of a unitary executive.

Mr Paulsons record does not inspire the confidence necessary to give him discretion over $700bn. His actions last week brought on the crisis that makes rescue necessary. On Monday he allowed Lehman Brothers to fail and refused to make government funds available to save AIG. By Tuesday he had to reverse himself and provide an $85bn loan to AIG on punitive terms. The demise of Lehman disrupted the commercial paper market. A large money market fund broke the buck and investment banks that relied on the commercial paper market had difficulty financing their operations. By Thursday a run on money market funds was in full swing and we came as close to a meltdown as at any time since the 1930s. Mr Paulson reversed again and proposed a systemic rescue.

Mr Paulson had got a blank cheque from Congress once before. That was to deal with Fannie Mae and Freddie Mac. His solution landed the housing market in the worst of all worlds: their managements knew that if the blank cheques were filled out they would lose their jobs, so they retrenched and made mortgages more expensive and less available. Within a few weeks the market forced Mr Paulsons hand and he had to take them over.

Mr Paulsons proposal to purchase distressed mortgage-related securities poses a classic problem of asymmetric information. The securities are hard to value but the sellers know more about them than the buyer: in any auction process the Treasury would end up with the dregs. The proposal is also rife with latent conflict of interest issues. Unless the Treasury overpays for the securities, the scheme would not bring relief. But if the scheme is used to bail out insolvent banks, what will the taxpayers get in return?

Barack Obama has outlined four conditions that ought to be imposed: an upside for the taxpayers as well as a downside; a bipartisan board to oversee the process; help for the homeowners as well as the holders of the mortgages; and some limits on the compensation of those who benefit from taxpayers money. These are the right principles. They could be applied more effectively by capitalising the institutions that are burdened by distressed securities directly rather than by relieving them of the distressed securities.

The injection of government funds would be much less problematic if it were applied to the equity rather than the balance sheet. $700bn in preferred stock with warrants may be sufficient to make up the hole created by the bursting of the housing bubble. By contrast, the addition of $700bn on the demand side of an $11,000bn market may not be sufficient to arrest the decline of housing prices.

Something also needs to be done on the supply side. To prevent housing prices from overshooting on the downside, the number of foreclosures has to be kept to a minimum. The terms of mortgages need to be adjusted to the homeowners ability to pay.

The rescue package leaves this task undone. Making the necessary modifications is a delicate task rendered more difficult by the fact that many mortgages have been sliced up and repackaged in the form of collateralised debt obligations. The holders of the various slices have conflicting interests. It would take too long to work out the conflicts to include a mortgage modification scheme in the rescue package. The package can, however, prepare the ground by modifying bankruptcy law as it relates to principal residences.

Now that the crisis has been unleashed a large-scale rescue package is probably indispensable to bring it under control. Rebuilding the depleted balance sheets of the banking system is the right way to go. Not every bank deserves to be saved, but the experts at the Federal Reserve, with proper supervision, can be counted on to make the right judgments. Managements that are reluctant to accept the consequences of past mistakes could be penalised by depriving them of the Feds credit facilities. Making government funds available should also encourage the private sector to participate in recapitalising the banking sector and bringing the financial crisis to a close.

I have to admit I have a respect for Gordon, but the pundit who has made most economic sense over the last

MP,
Respect your views, but I am yet to hear a convincing argument why a lender who is prepared to lend huge amounts of money with little or no checks on a persons fitness and ability to repay, and a client who is prepared to accept very high rates, should be banned from doing a business deal!!!
Should we all be prevented from making any agreement with anyone unless nanny says its in our best interests?
The risk was calculated by both sides (wrongly) and I have no truck either with the investors who have lost their shirts, or the client who has lost his house.
What next? Bailing out the guy who lost his shirt at the casino because they should not have let him lose, or a compensation fund for Ladbrokes should Elvis really turn out to be living with Aliens in Putney?

H6, Ban the casino because that is gambling!

It's out now...the American taxpayers will have to put out $700 billion to start bailing out the America's banking system of bad debts.

This will means only more bad news - taxes will go up further, inflation rising and this would not mean recession will not be coming soon.

Would you like to phrase that ln English?

Alan--I think I should be compensated royally for all the duff shares I've chucked money at over the years!! I take your point and if it wasn't for the all the innocent millions caught up in the fall out from this mess--I would fully agree with you. The repercussions will last for years anyway but without a toxic pot which I assume will not be written off and therefore repaid eventually---as Bush has said tonight the financial institutions will fall like a pack of dominoes. We are all heading for such tight belts we'll hardly be able to breathe!!

The favourite shop of Messers Brown & Bush

lol!

Well done Hewittalan6, a picture tells a thousand words. PTH would understand it now.

Yep, nice pic Al :)

This was the sentence I was having problems with:

'would not mean recession will not be coming soon'

If you mean we're heading towards a recession, you're too late, we're already there!

Thanks for the pic Alan!

I thought pth was struggling with the double-negative, as I was, but you're right: recession is apparently already upon us and I would like to think that that means we could see an improvement soon, but I realise that is more the optimist within me than the realist.

These few days have been so exciting. Looks like the US deal is still not confirmed and may fail.

They really can't decide. :-)

mr.brown was on radio 4 the other day saying that there isnt a housing bubble.........

The sooner Brown goes back to haggisland the better he is a looser.

u r quite a racist person arent u mitzy

pity you didnt go to school mitzy as you cant spell.