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The truths they don't want you to read....

Friday, October 10, 2008

Banking crisis

The Treasury plans to save the British economy are announced, and frankly I think that the Chancellor has made a fairly good job of trying to remedy the position, were it not for the delay in doing something.

I have some reservations over the guarantee of the inter-bank lending (or more particularly over the guarantee for 'qualifying' lending after the announcement date) as I think this gives banks the opportunity to offload risk to the Treasury ie you and me, without any compensating reward.

However, the attempt to improve liquidity in the market is essential, but as I write LIBOR has increased yet again.

LIBOR is the rate at which banks lend to each other, and is above based. That it has increased indicates the sheer nervousness of the banks in dealing with each other. Which raises the fundamental question: if they won't deal with each other except at a risk premium, then why would they expect us to do so?

The political impact of all of this are amazing – in every sense – and the economic impact is going to be felt for many, many months and years yet.

Frankly, I find the events of the past month almost unbelievable, were it not for the simpl fact that the public have been encouraged to borrow much more than they could afford, without consideration of the repayment, and that he whole edifice was destined to collapse in on itself sooner or later. Not even the deepest cynic in me expected a collapse of such magnitude and such severity.

1 comment:

Anonymous said...

A blind man could have seen this coming years ago.'Three years interest free credit', 'Buy now, pay later', credit cards pouring through letterboxes with 0% interest deals. Generally, if it looks too good to be true, it usually is. The hard facts are that the buck stops with us, literally. Stop buying what you can't afford, stop wasting money on trivialities. It doesn't matter what the Jones' of this world have, what matters is that you look after what YOU have. Even if you only save £10 a month, better in your pocket than someone elses.