Bank of Britain Starts Bailing Out Money Markets

The Bank of Britain took the high road on bailing out the money market – until yesterday.

Mark Gilbert explains:

“The Bank of England, by contrast, has been adamant that it won’t rescue the money markets by accepting low-grade collateral, or by offering three-month cash. Indeed, the Fed and the ECB were rebuked yesterday, albeit obliquely, by UK central bank Governor Mervyn King for bailing out commercial banks.

“‘The provision of such liquidity support undermines the efficient pricing of risk by providing ex post insurance for risky behavior,’ King said in a copy of testimony he plans to deliver to the UK Parliament’s Treasury Committee on Sept. 20. ‘That encourages excessive risk-taking, and sows the seeds of a future financial crisis.’
 
“Victoria Mortgage Funding Ltd., a UK company that lent about 300 million pounds (US$609 million) in subprime mortgages to British borrowers, was placed into administration earlier this week, the UK equivalent of Chapter 11. Victoria couldn’t secure enough funding to stay in business.”

But then came the news that house prices in Britain fell in August – for the first time in two years.

Practically in the same flurry of news reports we found the BOE offering to prop up Northern Rock, a major source of funds for UK property speculators.

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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