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.
The Daily Reckoning Australia