It's not often that anybody looks into the subterranean depths of how banks finance their own borrowing. It's been mostly left to the geeky souls who 'roll over' their bank's debts on a monthly or three monthly timetable. It is normally a fairly mundane process – just swapping one chunk of debt for another, probably with a rival bank and provided everyone's happy there's no problem.
But now isn't normal and because of all the problems in the American mortgage market, which has spread into the debt packages that your bank has used to balance its books. And, beginning today, those loans begin to expire and need renewing. This is what they are calling London's £70bn rollover week. But there will be no lucky winner. The lottery is who's got the bad loans and for how much will they be hit.
The trouble is the banks are now worrying that they will have to refinance their debt with real money – money from their own coffers. This fear stalled the process of lending between banks as they hoard their cash.
The danger is a lending freeze. That will hit us all, especially small businesses who depend on their local bank for cashflow – being able to borrow at a reasonable rate, when their bills aren't paid on time. It sounds like a tiny worry, but any small business will tell you that cashflow is their greatest concern. Employer or employee, this is going to be a worrying week.
Why, you ask, does not the Bank of England step in, in the same way that the European and U.S. central banks have?
Well,the Governor of the Bank of England, Mervyn King did make a move late last week to pledge £4.4bn to help the interbank lending system if required, but the markets thought it was too little, too late. No bail out, no interest rate cut.
Mervyn King is very much his own man and has been under considerable pressure to do something to ease this credit crunch. His dilemma is this – if he bails out the banks, they will know they've got a safety net, and could be just as careless with their lending in the future. If he does nothing, there's the risk of serious contraction in financial services, never mind businesses themselves, upon which a lot of this island's continuing prosperity and tax take depends.
And then there's the real crunch – Gordon Brown couldn't go for an election with a poor economy. The strength of the UK PLC has underpinned his success. He needs this crisis to be resolved as soon as possible. Ironically it was Mervyn King's lobbying before Labour came to power and then Brown's first significant act to grant the Old Lady of Threadneedle Street her independence from politicians. So if it all gets worse, will Brown the politician lean on King the independent central banker?
Posted by Michael Wilson, Business News Editor
Good Morning Sir, I hope the roof didn’t cave in and that your insurance policy is up to date.
Whilst many a business or natural person has to rely very much upon the divine giving’s of those whom are “Born Slippy” whether or not the Bank of England is perceived as a wholly independent body, the “Underworld” of banking has a lot to be desired if the economy as well as GB citizens are to experience prosperity. By way of current legislation, Banks are free to charge interest rates in excess of 20% pa, so no wonder that they will trade between themselves in order to get the maximum return when they dispose of their loot.
So, Mervyn King has offered the Banks a sweetener, yet, life and social prosperity is destroyed by these insane monsters of society, in the knowledge that our divine judiciary will not allow jo blogs to get the upper hand, let alone an impartial judgment. The problem as I view it is not the underhand tactics of the banks, but the unprecedented injustice legitimate citizens experience when they rely upon the judiciary to be independent and above all beyond fault.
Insofar as to the latter, I would advise GB/UK PLC to get the respective houses in order and perhaps it is high time the independence of judges is more open to public scrutiny, as we don’t want to experience any further edited transcripts, or do we need to rollover? SO, let be avin you clear those unlawful bad debts, and see how the economy recovers by close of play! (Today)
Posted by: Khalid 11 Sep 2007 08:36:05