The long-awaited report on finance in mortgage markets – by Sir James Crosby – was published today alongside the PBR. This is a big deal. Ministers have been talking for months about how Crosby could hold the key to reviving becalmed mortgage markets.
According to Alistair Darling’s speech, Crosby (pictured) is recommending government guarantees for new mortgage-backed securities. For a temporary period.
I haven’t had time to read the full report yet. But I did read Crosby’s interim report earlier this year. Interestingly, it said the following things about government guarantees.
“I should stress that I may yet recommend that the Government should not intervene in the market, on the grounds that such intervention would create more problems than it would solve.”
“In the specific case of a guarantee, and alongside the potential benefits, the Government would also need to consider the fiscal, debt management and legal implications, and the extent to which a transfer of risk to the Government might distort incentives and create moral hazard, rather than help investors and issuers price that risk more accurately.”
UPDATE
Sir James is now convinced. The former HBOS chief executive wants guarantees of £100bn to be attached to new issuance of mortgage-backed securities.
“Only the government can assess the case for any such intervention in the context of the many competing demands for its financial resources,” he says.
But he adds:
“My strong recommendation is that the most effective form of intervention would involve the government auctioning its own guarantees in a form that could be attached by lenders to AAA tranches of mortgage-backed securities issued to fund their new lending.”
Jim Pickard
Kiran Stacey
