Bank of England offers $100 billion bailout

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Bank of England offers $100 billion bailout

Monday, 21 April 2008

Quick Market Headlines for April 21, 2008

Plan "fixes" bank profits & liquidity, allows house prices to fall

Taking a cue from the Federal Reserve, the Bank of England has proposed a massive bank bailout. The current plan would have the central bank swap about $100 billion of government-backed bonds for "$100 billion" worth of mortgage-backed securities - effectively putting the banks back in the black and shifting the financial burdens created of declining home values on to tax-payers.

Bank governors suggested there might be no limit to the central bank's generosity, and that the Bank of England might take on any securities created prior to the end of 2007. Of course, home owning tax payers in England would effectively be paying twice, but the important thing is that the banks are OK, right?

Well, maybe.

With banks struggling to meet reserve limits, very few loans are available for potential new home buyers. Better liquidity in the banks could, theoretically, help nurture existing demand and help home prices indirectly. This could put some downward pressure on the pound as well, possibly increasing foreign demand in local assets like real estate.

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Oil Still Making New Records

Oil spiked overnight at over $117 a barrel and is currently hovering near that price. The most recent surge began as news hit that a Japanese tanker was attacked by rocket-fire near the shores of Yemen. Fears of increased regional instability quickly translated into higher oil prices.

The dollar is trending down a bit against the Euro, yet slightly up against the yen so the oil play today may not be fully based on a weakning dollar.

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