Can Alistair Darling save the housing market?
Alistair Darling is set to announce a £50bn plan to help unblock the mortgage markets. But the markets are gummed up for a good reason - and extra funding will not re-inflate the housing bubble…
It's the moment we've all been waiting for.
Alistair Darling has stepped forward to take charge of the credit crisis. No dithering for this Chancellor. Later today he's going to announce full details of a £50bn (or more) scheme to help unblock the mortgage markets.
Mr Darling, who clearly missed his true calling as a plumber, wants to "unbung" the British banking system. This £50bn or so is the equivalent of sticking a load of baking soda down your sink in the hope of shifting a particularly nasty lump of grease further down the pipe.
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I suppose you could call it money down the drain
So what's the idea behind the £50bn plan?
The full details of the Government's scheme to unclog the mortgage markets aren't out yet, but here's the broad idea.
The Bank of England allows the banking sector to swap short-term Government debt for high-quality mortgage assets and credit-card debt. The banks meanwhile will also be raising more money from investors. Royal Bank of Scotlandis planning to be the first, but it looks like plenty of others are set to follow suit once RBS has broken the ice.
"The idea," Mr Darling told the BBC, "is that it will open up the market and begin the process of opening up the mortgage market, which will help householders." He also said he wanted banks to "pass on the benefits of three interest rate cuts."
In other words, "please re-inflate the housing bubble otherwise we'll lose the next election."
So will it work? Well, that depends on what you mean. Are we likely to see any more runs on UKbanks? It seems highly unlikely the Government just couldn't let it happen. And it will probably help with the whole stigma issue. Banks have been unwilling to admit to any weakness for fear of being seen as the next Northern Rock. But now that RBS has come clean on the rights issue, and the Bank of England is opening the floodgates, the banks will no longer feel too worried about seeing queues form outside their branches if they have to admit to a bit of a problem with their balance sheets.
But is it time to buy shares in the banking sector? No, because while savers can probably rest easy now, shareholders are still looking at ongoing dilution. This might be the beginning, but it won't be the end.
The trouble is and the authorities aren't really admitting this yet that the mortgage markets are gummed up for a good reason. There's too much crud in the pipes. The Bank of England will take some of the highest-quality mortgage debt and swap it for good stuff, but the banks are still left with the dodgiest loans. There's every chance that they'll just horde this £50bn, the way they've been hording any other cash they can get their hands on.
Extra funding will not re-inflate the housing bubble
And with the situation in the UKhousing market looking grimmer by the day, even the decent mortgages that the banks have on their books will see defaults creep higher. So if Mr Darling hopes that this £50bn might result in a huge re-flation of the housing bubble, he'll be disappointed.
As Robert Peston points out in his blog on the BBC website: "Mortgages have become less cheap and easy to obtain in part because banks like many others fear the house prices rose too high and will now fall for an indeterminate period.
"Just because they will have access to new money from the Bank of England doesn't mean they will splash it around in the form of new cheap mortgages, as though the euphoric madness in credit markets of the past few years had never ended."
As Simon Nixon points out on Breakingviews.com, "the Treasury can't force the banks to use the extra funding to support new mortgage lending there will rightly be no return to the cheap introductory deals, 100%-plus loans and self-certified liar loans' available during the boom."
And with all those little beauties still set to detonate here in the UKas house prices fall further, banks are right to stay cautious. The housing crash will still unfold just as expected the only difference the £50bn bail-out makes is that it increases the danger that taxpayers will end up taking some of the pain as well.
Update: read Darling unveils latest government subprime crisis 'solution' for the latest on the Chancellor's plan.
Turning to the wider markets
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On Friday, the FTSE 100 climbed 76 points to close at 6,056. The banking sector ended higher amid hopes that RBS's decision to go with a rights issue would start to clear the air around the sector.
Across the Channel, the Paris CAC-40 rose 99 points to end the day at 4,961. And in Frankfurt, the DAX-30 gained 161 points to 6,843.
On Wall Street, US stocks took off as banking giant Citigroup wrote off less than feared in its first quarter (though it's saying something when $12bn can come as a relief), while decent results from search engine group Google and industrial giants Caterpillar and Honeywell also fed investor optimism. The Dow Jones rose 228 points to end at 12,849. The broader S&P 500 rose 24 points, to 1,390, while the tech-heavy Nasdaq gained 61 points to close at 2,402.
In Asiathis morning, Japanese stocks headed higher for the fifth session in a row, with the Nikkei 225 closing 220 points higher at 13,696.
Crude oil was trading at around $116.68 this morning, after hitting a record aof $117.05 at one point, as Opec said it wouldn't boost output. Meanwhile Brent spot was trading at $113.45.
Spot gold was trading at around $923 an ounce this morning. Platinum traded at around $2,045, while silver was trading at $17.92.
Turning to forex, sterling was trading at 1.9895 against the dollar, and at 1.2526 against the euro. The dollar was last trading at 0.6298 against the euro and 103.4 against the Japanese yen.
And this morning, estate agency Rightmove has said that asking prices for UKhomes rose just 1.3% year-on-year in April, with prices falling 0.1% on the month, the first April fall recorded since the index began in 2002.
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In Asiathis morning, Japanese stocks headed higher for the fifth session in a row, with the Nikkei 225 closing 220 points higher at 13,696.
Crude oil was trading at around $116.68 this morning, after hitting a record aof $117.05 at one point, as Opec said it wouldn't boost output. Meanwhile Brent spot was trading at $113.45.
Spot gold was trading at around $923 an ounce this morning. Platinum traded at around $2,045, while silver was trading at $17.92.
Turning to forex, sterling was trading at 1.9895 against the dollar, and at 1.2526 against the euro. The dollar was last trading at 0.6298 against the euro and 103.4 against the Japanese yen.
And this morning, estate agency Rightmove has said that asking prices for UKhomes rose just 1.3% year-on-year in April, with prices falling 0.1% on the month, the first April fall recorded since the index began in 2002.
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In Asiathis morning, Japanese stocks headed higher for the fifth session in a row, with the Nikkei 225 closing 220 points higher at 13,696.
Crude oil was trading at around $116.68 this morning, after hitting a record aof $117.05 at one point, as Opec said it wouldn't boost output. Meanwhile Brent spot was trading at $113.45.
Spot gold was trading at around $923 an ounce this morning. Platinum traded at around $2,045, while silver was trading at $17.92.
Turning to forex, sterling was trading at 1.9895 against the dollar, and at 1.2526 against the euro. The dollar was last trading at 0.6298 against the euro and 103.4 against the Japanese yen.
And this morning, estate agency Rightmove has said that asking prices for UKhomes rose just 1.3% year-on-year in April, with prices falling 0.1% on the month, the first April fall recorded since the index began in 2002.
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Turning to the wider markets
Enjoying this article? Why not sign up to receive Money Morning FREE every weekday? Just click here: FREE daily Money Morning email
On Friday, the FTSE 100 climbed 76 points to close at 6,056. The banking sector ended higher amid hopes that RBS's decision to go with a rights issue would start to clear the air around the sector.
Across the Channel, the Paris CAC-40 rose 99 points to end the day at 4,961. And in Frankfurt, the DAX-30 gained 161 points to 6,843.
On Wall Street, US stocks took off as banking giant Citigroup wrote off less than feared in its first quarter (though it's saying something when $12bn can come as a relief), while decent results from search engine group Google and industrial giants Caterpillar and Honeywell also fed investor optimism. The Dow Jones rose 228 points to end at 12,849. The broader S&P 500 rose 24 points, to 1,390, while the tech-heavy Nasdaq gained 61 points to close at 2,402.
In Asiathis morning, Japanese stocks headed higher for the fifth session in a row, with the Nikkei 225 closing 220 points higher at 13,696.
Crude oil was trading at around $116.68 this morning, after hitting a record aof $117.05 at one point, as Opec said it wouldn't boost output. Meanwhile Brent spot was trading at $113.45.
Spot gold was trading at around $923 an ounce this morning. Platinum traded at around $2,045, while silver was trading at $17.92.
Turning to forex, sterling was trading at 1.9895 against the dollar, and at 1.2526 against the euro. The dollar was last trading at 0.6298 against the euro and 103.4 against the Japanese yen.
And this morning, estate agency Rightmove has said that asking prices for UKhomes rose just 1.3% year-on-year in April, with prices falling 0.1% on the month, the first April fall recorded since the index began in 2002.
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What's next for the car industry?
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In Asiathis morning, Japanese stocks headed higher for the fifth session in a row, with the Nikkei 225 closing 220 points higher at 13,696.
Crude oil was trading at around $116.68 this morning, after hitting a record aof $117.05 at one point, as Opec said it wouldn't boost output. Meanwhile Brent spot was trading at $113.45.
Spot gold was trading at around $923 an ounce this morning. Platinum traded at around $2,045, while silver was trading at $17.92.
Turning to forex, sterling was trading at 1.9895 against the dollar, and at 1.2526 against the euro. The dollar was last trading at 0.6298 against the euro and 103.4 against the Japanese yen.
And this morning, estate agency Rightmove has said that asking prices for UKhomes rose just 1.3% year-on-year in April, with prices falling 0.1% on the month, the first April fall recorded since the index began in 2002.
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What's next for the car industry?
- The world has changed: resources have decreased and energy consumption has increased. The current trend for fuel usage by automobiles simply cannot continue for much longer. The automobile industry is responding by developing more fuel-flexible, efficient models. But will this be enough? To find out what's in store for the industry, read: What's next for the car industry?
In Asiathis morning, Japanese stocks headed higher for the fifth session in a row, with the Nikkei 225 closing 220 points higher at 13,696.
Crude oil was trading at around $116.68 this morning, after hitting a record aof $117.05 at one point, as Opec said it wouldn't boost output. Meanwhile Brent spot was trading at $113.45.
Spot gold was trading at around $923 an ounce this morning. Platinum traded at around $2,045, while silver was trading at $17.92.
Turning to forex, sterling was trading at 1.9895 against the dollar, and at 1.2526 against the euro. The dollar was last trading at 0.6298 against the euro and 103.4 against the Japanese yen.
And this morning, estate agency Rightmove has said that asking prices for UKhomes rose just 1.3% year-on-year in April, with prices falling 0.1% on the month, the first April fall recorded since the index began in 2002.
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What's next for the car industry?
- The world has changed: resources have decreased and energy consumption has increased. The current trend for fuel usage by automobiles simply cannot continue for much longer. The automobile industry is responding by developing more fuel-flexible, efficient models. But will this be enough? To find out what's in store for the industry, read: What's next for the car industry?
Turning to the wider markets
Enjoying this article? Why not sign up to receive Money Morning FREE every weekday? Just click here: FREE daily Money Morning email
On Friday, the FTSE 100 climbed 76 points to close at 6,056. The banking sector ended higher amid hopes that RBS's decision to go with a rights issue would start to clear the air around the sector.
Across the Channel, the Paris CAC-40 rose 99 points to end the day at 4,961. And in Frankfurt, the DAX-30 gained 161 points to 6,843.
On Wall Street, US stocks took off as banking giant Citigroup wrote off less than feared in its first quarter (though it's saying something when $12bn can come as a relief), while decent results from search engine group Google and industrial giants Caterpillar and Honeywell also fed investor optimism. The Dow Jones rose 228 points to end at 12,849. The broader S&P 500 rose 24 points, to 1,390, while the tech-heavy Nasdaq gained 61 points to close at 2,402.
In Asiathis morning, Japanese stocks headed higher for the fifth session in a row, with the Nikkei 225 closing 220 points higher at 13,696.
Crude oil was trading at around $116.68 this morning, after hitting a record aof $117.05 at one point, as Opec said it wouldn't boost output. Meanwhile Brent spot was trading at $113.45.
Spot gold was trading at around $923 an ounce this morning. Platinum traded at around $2,045, while silver was trading at $17.92.
Turning to forex, sterling was trading at 1.9895 against the dollar, and at 1.2526 against the euro. The dollar was last trading at 0.6298 against the euro and 103.4 against the Japanese yen.
And this morning, estate agency Rightmove has said that asking prices for UKhomes rose just 1.3% year-on-year in April, with prices falling 0.1% on the month, the first April fall recorded since the index began in 2002.
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What's next for the car industry?
- The world has changed: resources have decreased and energy consumption has increased. The current trend for fuel usage by automobiles simply cannot continue for much longer. The automobile industry is responding by developing more fuel-flexible, efficient models. But will this be enough? To find out what's in store for the industry, read: What's next for the car industry?
In Asiathis morning, Japanese stocks headed higher for the fifth session in a row, with the Nikkei 225 closing 220 points higher at 13,696.
Crude oil was trading at around $116.68 this morning, after hitting a record aof $117.05 at one point, as Opec said it wouldn't boost output. Meanwhile Brent spot was trading at $113.45.
Spot gold was trading at around $923 an ounce this morning. Platinum traded at around $2,045, while silver was trading at $17.92.
Turning to forex, sterling was trading at 1.9895 against the dollar, and at 1.2526 against the euro. The dollar was last trading at 0.6298 against the euro and 103.4 against the Japanese yen.
And this morning, estate agency Rightmove has said that asking prices for UKhomes rose just 1.3% year-on-year in April, with prices falling 0.1% on the month, the first April fall recorded since the index began in 2002.
Our recommended article for today...
What's next for the car industry?
- The world has changed: resources have decreased and energy consumption has increased. The current trend for fuel usage by automobiles simply cannot continue for much longer. The automobile industry is responding by developing more fuel-flexible, efficient models. But will this be enough? To find out what's in store for the industry, read: What's next for the car industry?
In Asiathis morning, Japanese stocks headed higher for the fifth session in a row, with the Nikkei 225 closing 220 points higher at 13,696.
Crude oil was trading at around $116.68 this morning, after hitting a record aof $117.05 at one point, as Opec said it wouldn't boost output. Meanwhile Brent spot was trading at $113.45.
Spot gold was trading at around $923 an ounce this morning. Platinum traded at around $2,045, while silver was trading at $17.92.
Turning to forex, sterling was trading at 1.9895 against the dollar, and at 1.2526 against the euro. The dollar was last trading at 0.6298 against the euro and 103.4 against the Japanese yen.
And this morning, estate agency Rightmove has said that asking prices for UKhomes rose just 1.3% year-on-year in April, with prices falling 0.1% on the month, the first April fall recorded since the index began in 2002.
Our recommended article for today...
What's next for the car industry?
- The world has changed: resources have decreased and energy consumption has increased. The current trend for fuel usage by automobiles simply cannot continue for much longer. The automobile industry is responding by developing more fuel-flexible, efficient models. But will this be enough? To find out what's in store for the industry, read: What's next for the car industry?
Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
