The underlying solvency problem has not only not gone away, but will gradually get worse as people actually begin to default.
This measure won't stop property prices falling, or prevent an accompanying increase in the number of people with low or no equity.
It won't make 800,000 Northern Rock mortgage holders any more capable of affording their loans as they reset upwards, and it won't lead to anyone else refinancing them either.
Northern Rock will be a political disaster in the run up to the next election.
We are at the End of the Beginning in fact, the end of the Phoney War. The next step, which is a full blown Recession, if not a Depression, is just beginning.
Apart from that, it's quite a nice day, really... "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Yes, but the bonds effectively indemnify the banks against the defaults.
So the UK government holds onto the toxic paper, while the banks get to keep the profits - until the paper stops being profitable, at which point it's dumped on the Treasury. with anguished cries of 'Oh what a terrible shame' and 'Who could have expected...?'
This is much nastier than NR, and - unsurprisingly - it's also more or less the same bail out as the Fed engineered for Wall St.
So only banks are bond investors are protected, not stock holders... In the long run, we're all dead. John Maynard Keynes
