This blog asked yesterday morning whether Gordon Brown really meant what he said when he demanded that banks should quantify all of their toxic loans.
A research note put out on Friday by analysts – at RBS, ironically – points out that “the domestic UK banks are technically insolvent on a full marked-to-market basis” (although it adds that this is not unusual at this stage in the economic cycle). Is the prime minister sure that he wants them all to come clean?
Meanwhile here is the reaction from Capital Economics to this morning’s package:
“It will now be hard to criticise the UK Government for lacking the initiative seen so far in the US. The
Government has also tackled criticisms of its so far piecemeal approach. However, as we have argued
before, there is no magic solution to this crisis and even these measures may not be enough to get
banks lending at reasonable levels again, at least for some time.
“We continue to think that state-decreed lending controls, perhaps via widespread nationalisation, may ultimately be required. While we are not there yet, today’s measures are a crucial step in the right direction. But we still think that a contraction, or at least sharp slowdown, in bank lending will lead to a prolonged period of economic weakness.”
Yesterday I didn’t bother to comment on Margaret Beckett’s daft* comments in the Sunday Times that the government needed to brace itself for the next housing boom and that first-time-buyers “shouldn’t delay” (“when the upturn comes, there will probably be a mad rush”).
Beckett sympathises with the view that renting is money down the drain: “Why is it that people in places like France or Germany or the Netherlands, or wherever, don’t want to, don’t care, about owning their own homes? Maybe it’s they who are the people whose attitudes are a bit surprising.”
The obvious answer lies deep in the RBS report.
“Debt servicing affordability is the best measure to predict property price levels, if not theoretical ‘fair value’…..It is currently cheaper to rent than buy UK residential property. To generate a rental yield 1 per cent higher than the average mortgage rate would require a further 20 per cent drop in house prices.”
* William Hague described the housing minister as “divorced from reality”.