UK Government to enter securitisation market?

One of the most popular articles I’ve ever written on this blog has been What is Mortgage Securitisation, and Why Does it Matter?

If you don’t have time to read it, here’s the 30-second summary:

• Some lenders lend their own money to people who want mortgages
• Other lenders do, but rather than being owed those loans themselves, or passing individual loans over to other banks, set up special-purpose “companies” whose only role in life is to “own the debt” and then sell shares in those companies…
• … they then use the money raised from those shares to fund the next round of loans / mortgages they make.

These shares are called “mortgage-backed securities” (MBSs)… because “security” is a technical term (used more in the US than here) for “share”, and mortgage-backed is, well, obvious.
Anyway, what the BBC have just announced is that the Bank of England are going to, effectively, buy up a bunch of these mortgage backed securities, by issuing bonds (promises by the Government to pay interest, which are generally held a lot less likely to default than similar promises by individual home-owners or property investors.)

The details haven’t been announced – it’s possible the government will sell off these bonds, and then use the cash to buy up mortgage-backed securities… but more likely is that the Bank of England will simply offer to either swap the bonds for the securities (at some discounted rate), or offer a limited-period swap, where the banks have to take the securities back in X months/years time.

The problem is, of course, that while Base Rates are low, a lot of lenders simply haven’t got the cash to lend… because they have mortgage backed securities to sell, and no-one’s buying

Expect two things:

1. A lot of people calling to “protect the taxpayer”
2. A lot of press speculation about this, and no agreement as to whether it’s too little, too late, or too much and a big risk to all of us.

The over-riding issue, as ever, is that the government will figure out that most people don’t care about the national debt… but do care about whether they can get the mortgage they need to move house. The national debt (what the government will, one day, have to pay out) is something that our children can inherit

Of course, it’s possible that this may turn out to be a really good move – and the government, by doing this, may end up buying a lot of MBSs that go up fast in value if a slump can be avoided. And make no mistake, the key driver for the current slump is lack of lenders… not a lack of people who’d like to be buyers.

Nothern Rock Nationalisation – and the winner is, well, no-one

The Government is finally going to nationalise Northern Rock.

It’s “the right move at the right time for the right reasons”, according to Prime Minister Brown.

This might be a true statement, if you constrain yourself to looking at this morning’s decision in isolation.

Of course, the courts might yet decide that it was a really bad decision, and the Government have to pay a lot more than they’re assuming.

However, if you look at the overall way the crisis has been handled, it’s an object lesson in how to bungle government big-time, and back the country into a corner where  nationalisation is the only option.

Quick summary:

• Northern Rock’s board embarked on a fast-growth strategy that used securitisation to help fuel a massive expansion.
• The strategy misfired, and the bank had to run to first the Bank of England, and then the treasury for help.
• The treasury came up with a clever plan where they promised to help the bank in a way that meant that you and I (the taxpayers) would carry the losses if the rescue failed, but that the shareholders would take the bulk of the gain if it worked.

In today’s announcement, the Government are basically saying that they’ve worked out the flaw in the plan

However, it may be too late. A general principle of UK law (and for that matter, European law) is that you can’t enter into a contract and then change your mind without penalty.

The current shareholders of NR (trading has been suspended) now have to wait for a public sector panel to “value” the shares… and the panel is going to value them as if the guarantees never existed.

The legal challenge that will, inevitably, be made is that the guarantees DID exist.

Very few people seem, to me, to have covered themselves in glory on this.

• The Chancellor appears out of his depth [see below.]
• The Prime Minister, who seems to refuse to accept that his government has done anything wrong, and consistently tries to spin the discussion into how a few jobs (in marginal constituencies) have been saved at the expense of enough money to employ 100 times as many people elsewhere.
• The Conservatives appear to be trying to get the Chancellor out, rather than concentrating on anything that might benefit the country as a whole.
•  The original board of NR who have, at least, in the main resigned.

So who has earned my respect:

•  Ron Sandler, the man brought in as the new exec chairman to try to sort out the problem. He seems to be telling the truth, and refusing to make glowing spin, but instead concentrating on making things work again as quickly as possible.
• The Liberal Democrats. Vince Cable, their treasury spokesman has been recommending nationalisation for a while, and signs are he might have done so immediately it was sensible, rather than creating the murky legal waters that Darling has done so.

I do admit, however, to feeling sorry for Mr. Darling – he is caught in a government that believes in managerialism – the idea that all problems can be solved if you work hard enough at them. Sadly, the right answer for a few labour MPs with low majorities isn’t the right answer for the good governance of the country.

Sadly, there’s enough evidence around to suggest that creating a level playing field, where sadly some companies DO fail, overall provides a better result for everyone – because new companies feel that the big incumbents aren’t given an unfair advantage, they are more likely to enter a market, creating more customer choice and more jobs!

Economies can cope with companies going under. They can’t cope so well with governments that tinker and U-turn, and put politics first.

Free loft and wall insulation for UK residents over the age of 70

Just a quick note.

If you, or someone living with you, are over the age of 70, then under a Government Scheme, you should be able to receive free loft and wall insulation, reducing heating bills, and keeping the homes warmer.

I’m afraid I haven’t been able to find out whether this applies to tenants, but assuming your tenants pay the heating bills, it would well be worth them phoning up to see!

To arrange this, which is funded by the UK Government, you should phone British Gas on 0845 605 2535. (Calls cost typically 4p per minute plus a 3p set up fee from BT residential lines… but less at weekends or evenings.)

The lines are open from 0800-2000 Monday to Friday, and 0800-1300 on Saturdays. I’m told that the “quiet period” for them is about 7pm.

You do not need to be a British Gas customer to arrange this.

If you’re doing this on behalf of a relative or friend,  you may well need to go down to them – British Gas will need to talk to the person in question first, and get their permission to have YOU discuss their personal details. The young lady at British Gas I spoke to was most helpful on this.

Spoof “estate agents” video

Want to know what those estate agency terms really mean. Courtesy of YouTube, a lovely (American) example.

(If you are viewing this post in a reader rather than on my website, you may need to go here).

It’s Frozen Pea Friday (Breast Cancer Awareness)

You may have heard of a Social Network called Twitter. I use it to keep in touch with a whole bunch of conversations about Internet Marketing, Social Networking and (to a lesser extent admittedly) Property Investment.

However, over the last few weeks, several of the conversations have been on the subject of Frozen Peas, and this is because of a lady called Susan Reynolds.

For reasons she best explains herself, (but to do with a sudden diagnosis of Breast Cancer) she ended up with a bag of frozen peas tucked into her bra for a while (it’s lighter and moulds better than an traditional ice-pac). As she writes:

“That bag of peas added a touch of lightness to what could have been a sad and serious tale.

• A bag of peas was something everybody could relate to.
• Some people love them, some hate them, some use them for their own injuries.
• A bag of frozen peas was a vehicle for conversation and let people tease me instead of having to cry.
• It let people share instead of bemoaning.”

As a result of this, a whole bunch of people on Twitter got photos of ourselves taken prominently featuring frozen peas, and have agreed to blog about the subject on the day Susan is due to go in for surgery – today is therefore Frozen Pea Friday.

You can see photos of (at time of writing) 165 of us on the Frozen Pea group on Flickr.

You can make a donation to the American Cancer Society (all proceeds to research) through the Frozen Pea Fund.

US Reader: 16 year old girl missing, can you help?

This post is particularly aimed at my US readers. I’ve been contacted by a couple of friends in the States and asked to help “spread the word”, using my Internet contacts.

Approximately 24 hours ago, 16-year old Manessa Therese Donovan disappeared from her mother’s home in Florida.

It is believed that she may have been going to see her 38 year old “boyfriend” Kevin.

Her family and friends are frantic, and are trying to locate her.

If you are in the US, particularly in Florida or Conneticut, please could you have a look at the blog they have urgently created, and be on the lookout. (Please don’t leave comments here – if you know anything that may be able to help, please contact the family directly via their blog.)

Click here to see the blog they created last night

[UPDATE: My mistake - Manessa actually  went missing on the 17th November - the "last 24 hours" was the creation of the blog, not the disappearance. Apologies for the confusion.]

We will remember them

They shall grow not old,
as we who are left grow old.

Age shall not weary them,
nor the years condemn.

At the going down of the sun, and in the morning
we shall remember them.

We shall remember them.

http://www.poppy.org.uk/

Bye Bye Standby wins an award…

Ooh, we’ve won an award.

ByeBye Standby (in whose parent company I’m a shareholder, and of which I used to be a Director) won the Energy Efficiency Initiative of the Year award and the Electrical Industry Awards ceremony last week.

Having been part of the team that developed and launched the product, it gave me a warm glow, if you’ll pardon the pun.

Numberjacks – educational TV and web awareness for the under 5s!

In a comment on my (five-year-old) daughter’s Blog late last night, Chris Ellis, writer of Numberjacks, wrote:

For Pippy, her Dad and others who have said kind words – you might like to know that Numberjacks won the Royal Television Society’s Award for best pre-school educational programme, which of course we are delighted about.

The Royal Television Society have the following to say about it:

This winning programme is an innovative combination of live action and animation of great appeal for its audience, made with a thorough understanding of how young children learn and rehearse basic mathematical concepts.

Congratulations to all at OpenMind from a raving fan (and his daughter!)

Also, well done to OpenMind and Chris in particular for taking the time to post on fan’s blogs. If a television company aimed at the under 5s can do this, how come so many companies aimed at adult audiences find engaging with their customers so hard?

Regards,

Mark

Have you said “Thank You” in time?

This evening, I’ve been correcting the final draft of my new book.

In chapter 3, I make reference to an old teacher of mine (A P Tatt, my physics teacher at school), who taught me not only about physics, but about how to actually think.

Considering I left the school in 1989, it’s an impressive tribute to his teaching skill that I can remember him, and many of the things he taught me, some 18 years later.

Anyway, in recognition of this, I was searching the Internet for him this evening, because I’d intended to send him a copy of the book in question. What I actually found on Google was a reference to the school website, listing the date in 2005 on which he had died – not even an obituary.

So, in honour of  Mr. Tatt, today is “have you said thank you?” day.