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Wednesday, September 26, 2007

The UK

BofE has had to loosen considerably since Mervyn King's earnest statements about moral hazards in bailing out banks that took risks. The linked article goes through some of the latest measures. The three month auction got no takers, even though the loans could be secured by mortgage collateral, but the rate offered was 6.75% (the penalty rate to which King referred). One wonders how any bank or building society could be saved by such a rate? In any case, the primary loosening involved was really insuring deposits for Northern Rock and making a statement which implied that the same protections would be available for other banks if lines formed outside their doors.

This is the passage that struck me:
According to the Bank's survey of lenders, the proportion planning to cut the supply of credit to companies shot up from 20% in mid June to 49% by the middle of September.

They also said that while defaults on corporate loans had remained steady so far, they were expecting them to rise in the coming months, particularly among medium-sized companies.

Alan Castle, economist at Lehman Brothers, said: 'This raises questions about the health of the corporate sector which had been assumed to be in quite a strong position.'
That's a sharp turn indeed, and most certainly should have effects on the UK expansion. This is of course more current than the latest US lending survey, and I truly wonder where we are? Credit has certainly tightened.

It is amazing to see the number of experts who are now saying that their previous expert opinions are now very wrong. Not just a little wrong but wrong at some basic level.

It's not so much the economic or financial damage that this opinions represent, but the psychological one. Because if a large number of people have invested based on their faith in these experts and based their economic decisions likewise, then they will lose that faith and panic.

Like a panic in a gathering of people or a rout on the battle field, the greater damage is from the panic itself, and not from the event causing the panic.
LOL about the experts. Anyone one can be fooled when looking at the derivative rather than the real numbers.

But was it a panic? From my perspective, this has not been a panic at all. It has been a relatively orderly progression based on declining results. See my latest.
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