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While today’s decision by the Bank of England MPC was literally a no brainer it does not help the thousands of home owners who are struggling to make ends meet. As we read another report from the...
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Friday 11th July 2008
As the money markets ground to a halt earlier this year, the Bank of England was forced to step in with a £50 billion asset swap scheme designed to get the money market wheels moving again. Despite this initially being suggested as a short term strategy only due to last a couple of months, the pressure on the Bank of England is growing to extend the scheme.
However there is some controversy as to why the commercial banks are so keen to have the scheme extended with insiders claiming that they are simply using it as a cheap way to refinance their business, while reducing the number of financial products on offer. The scheme was devised so that the mortgage market in particular would not grind to halt, but this is exactly what has happened. This put the government in a very tricky situation, do they back an extension to the scheme and risk the wrath of the public or do they end the scheme and risk seeing the money market contract even further?
There is no doubt that some banking institutions have been abusing the scheme for their own ends, but whether the authorities are willing to risk another Northern Rock scenario remains to be seen. |
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