awesome.

I am collecting dog turds and spray painting them gold to take to the bank for collateral on my pork belly trades.

I hope the BoE charges a sufficient interest rate to compensate for the default risk it is assuming but the article says nothing about a loan - only a swap of mortgages for bonds to be used as collateral. Why didn't the BoE make the loan itself using the mortgages as collateral (discount window like)? Why the extra step? Is the BoE offering a free CDS?

Inquiring (weak) minds are confused.

Jim

doom I wanted to go to Japan before I saw that... I cant imagine many westerners taking to kindly to being shoved like that... It would be a hoot to see in nyc....

So if just about any idiot with bad debt in his portfolio can pawn it for government bonds, then doesn't that dilute the value of government bonds?

Bill Gross is right to be short this stuff. So if bonds is not the place to be, then should we buy stocks? Anyone care to opine?

Also, would the BoE act alone? Didn't they just have some talks a few weeks ago with the Fed about this matter? Hmmm... I wonder what the story on the other side of the pond will be.

Pass the popcorn, this is interesting.

Ehhhh. What could go wrong?

Ministry of Truth writes:
"I am collecting dog turds and spray painting them gold to take to the bank for collateral on my pork belly trades."

LOLOLOLOLOLOLOLOLOL

Tulips!

April 15 (Bloomberg) -- The credit-default swap market has become a lesson in being careful what you wish for now that Wall Street has taken $245 billion of losses partly tied to such exotica....

``The indices are just trading on their own account with no relationship whatsoever to an underlying cash market that's ceased to exist,'' Jacques Aigrain, chief executive officer of Zurich-based Swiss Reinsurance Co

So stop worrying and start figuring out how you can profit from what's going on too, instead of being contrarian. Ten years from now, the history books will be printing the cases for how all of this averted a great credit collapse.
ipodius | 04.16.08 - 9:10 pm | #

Or the exact opposite but hey its only money.

I am getting a little tired of the pontifications of ipodius.

The fact is that quite a few very knowledgeable people, IMO much more knowledgeable AND respected than ipodius, are calling these things bailouts and any haveway intelligent and objective person would have to concur.

The fact is that these Central Bank actions are assuming risk for free or at a very low price. Providing essentially riskfree money in any scenario and especially to risky borrowers is a bailout in my book.

Any real business without liquid assets with a cash flow problem, simply goes under. Bad business model!

Here banks and IBs are simply pledging non-liquid and mostly severely tarnished assets at a significant premium to their market value and receive for all practical purposes cash. And you don't call this a bailout, give me a break!

ipodius,

I think you are unfair to many of the posters here, particularly the long-time posters. While there are certainly irrational doom-and-gloomers, there are also well reasoned bearish posts and reasonable discussion of ways that the economic concensus has failed us. Certainly I think it is reasonable to question the Greenspan strategy of post-bubble bail outs given what we've seen over the last five years.

And it is frustrating to me, someone who certainly is not "plugged in," to see the people in charge of my currency and taxes continue to avoid discussing the failure of previous policies and to continue to create moral hazard. I don't think that is irrational on my part. I view it as the proper response to the situation.

Appealing to expertise is an increasingly thin argument. I've seen "experts" in my field, computer science, make an absolute hash of programming languages, operating systems and application programming. I don't have enough specialized knowledge to criticize the economic consensus on its own terms (although I consider myself an reasonably informed layman) but from observing it externally, I think I'm in a reasonable position to question the expertise of that consensus. Similarly the mortgage arena, etc. When anyone with an excel spreadsheet and a PMT function can derive that the housing market is unsustainably, gob-smackingly overpriced, and yet vanishingly few policy makers and economists speak out on the issue, "expertise" becomes an almost quaint term.

I don't think you should let the admittedly shrill critics here lend credit to the ideas they criticize.

Also, I appreciate the balance you lend to the site, and I hope it doesn't devolve into internet name-calling.

Cheers,
prat

ipodius

What does plugged in mean you have access to bloomberg? They had plenty of data in August and apparently they didn't interpret it correctly. Average Joe knew two years ago we were in the midst of a massive housing bubble but the data didn't prove it out. The data suggested a new paradigm famously known as the saving glut stroke yield curve conundrum. Food prices are now doubling but there is no inflation according to the data. Oil at $150, but nothing to see here. Inflation in Japan - not a problem. Get serious with they have more data. The problem is that they are looking at the same data as everyone else and repeatedly drawing the wrong conclusions to preserve the rotting corpse that is the US economy. What happen to the famous meme of the Internet boom: creative destruction. So 1990s. The pretender are apparently back en vogue. Today we have the service economy lead by the finance economy- more for less strike that nothing. Fed officials have peered into the abyss of the banks and know exactly what the problem is: insolvency. That data is available quarterly on the SEC website.

Further your averting a collapse of the system meme is a red herring that is unless you have some data we are not aware of. But regurgitating a systemic collapse line from the NY Fed chief who obstructed elected officials doesn't lend an iota of credence to the argument. Nor does they know better defense. Bush thought Iraq was the right policy prescription turns out he was wrong. What makes you so confident BB, a disciple of AG, has the right answer.IS it because he spent his life studying the great depression, whose cause is it agreed is similar to the current situation (credit) and whose prolonging is an as yet unresolved enigma - despite BB protestations to have unlocked the mystery.

I'm sure Ipodius is right, the upper ups know better than we do and they're taking it all into consideration and doing the best they can.

Then again, some of us are due more consideration than others. Come to think of it, some of us are more equal than others too. Hmmm.

But honestly, this constant "they're spending my tax money on bailouts" is getting thin. nothing has been bailed out, nothing has been spent yet. save the idignation for it does, how much, and what the alternatives were. I agree that this is all sorts of f*ed up, but rational approaches to making it better are what's called for, and there's lots of great debate to be had about that based in reality.

But surely you can see how that argument falls on unsympathetic ears if the listener has been predicting a disaster in the housing market and general economy for the last five years. Again, I don't think you give the critics of the credit bubble enough credit. They have had to endure ridicule for the last five (or fifteen, if you count the dot-com bubble) years and now, when it appears that the credit binge is coming home to roost, it appears that they will be on the hook along with everyone else. Life, of course, isn't fair, but that is no reason to abandon a sense of justice and, if that overplays itself as some overly bearish commentary, I think some sympathy is in order.

Keep in mind: it was the non-experts that saw this coming. Non-experts started sites like TheHousingBubbleBlog and patrick.net. It's been the non-experts that were right, and the experts that were wrong, be it maliciously or no. There is a quote from Thomas Sowell that I love: "All of us are ignorant, if not misinformed, on vast numbers of things. What makes experts different is that they dare not admit it. That is also what makes experts dangerous."

Cheers,
prat

Taking securities at the window poses several risks namely perverting the nation's balance sheet with credit risk. You seem to think there are no alternatives.

Since you have the data tell us why it is in the national interest to keep an investment bank leveraged at 32x afloat that employs 28K employees of a total 134M non farms who enjoy a 50% comp ratio? Please refrain from if it failed then ...as we don't have the data for that and anecdotal comments by bank heads themselves suggest otherwise. Jamie Dimon told us today who has the data the CDS / derivatives exposures are matched book. Maybe he is lying? I don't know. I do know that advocating bailout because letting the market work is too risky is what got us here. More of the same isn;t a creative idea it is stupidity.

ipodius,
”… Well here you prove my point exactly RE because, since this is the internet, you have absolutely NO idea who I really am, do you? …”

Exactly, I therefore have no idea who you are and how well you are plugged in despite your claims. As a result, I have to take your comments at face value (and ignore the plugged in part) and in that vein I consider them, compared with other inputs and my own conclusions, rather flawed or at the very least extremely biased. It looks to me that your attachment to the financial industry colors your views quite severely. In fact, as there is obviously self interest involved in opposing the term bailout, I discount your views on the matter.

The bad business model relates to the banks that are in need of TAF, TSLF and PDCF. Several if not most of the institutions taking advantage of these facilities have maneuvered themselves into a business model that could not be sustained under normal Fed procedures and rules. Without these facilities some of them would have gone under or otherwise there business would have been severely curtailed.

I agree that there was significant systemic risk associated with these potential failures. However, if that was the case, then any institution at risk of failure should have been immediately nationalized. With such an action shareholders would have been punished but it would also have made it abundantly clear to the country that these institutions acted irresponsibly and that the situation in the financial system is very dire and that the status quo HAS to change!

By nationalizing, no shareholder or acquirer can benefit from the situation and the counterparty risk could have been alleviated at the same time.

As a nice summation of my concerns, I’ll quote here from interfluidity:

Interfluidity :: The size of the Fed's balance sheet limits the scale of the public's losses

Now here's some creative thinking! These so called "reverse MBS swaps", under which the Fed would refill their stock of Treasuries by swapping back iffy securities wrapped with a Fed guarantee, would have no direct balance-sheet impact whatsoever, and if repeated would provide the Fed with a potentially infinite supply of Treasury securities to swap! Of course, the proposal is simply a scheme to create off-balance-sheet liabilities in order to evade what might be on-balance-sheet limits. Wow.
I frequently marvel about how, in order to respond to the credit crisis, the Fed as well FHLB, Fannie, and Freddie, are doing precisely what got private actors into their messes in the first place. Off-balance-sheet liabilities are a logical next step.

No jokes about Toasters and fiat currencies?

Stupid Europeans, imagine taking that un-pricible rubbish onto their Central Bank's books. We could teach 'em a thing or two (or three as in level III.) No wonder they're all starving over there.

"hope that the banks will cut mortgage rates and prevent a UK housing crash..."
Can it work, you ask? No, and for this reason: just as in the US, the fundamental problem is price. When people can't buy housing, there is no market. When there is no market, the price must fall. Think it through and you'll see there is no way, for any amount of money or bailout, that the government or central bank can change that. The only bailout big enough would be if everybody paid in all their money to bail everybody out... a comic notion.

Why can't the average citizen take his mortgage to the central bank window and borrow up to the appraised value at 3%?

Why do we need the banks as middlemen to take a cut and bump the interest rate up to 6% or so?