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City turmoil over bail-out
Joe Murphy, Political Editor08.10.08
Interest rates were slashed by half a point this afternoon as world leaders launched a historic economic rescue mission.
The Bank of England's cut to 4.5 per cent was mirrored by similar action at central banks in the US, Europe and Canada in a desperate effort to pull the global economy out of a nosedive.
It came after the Prime Minister said £500 billion of taxpayers' money is being put on the line to save the UK banking system. The package includes part-nationalisation worth up to £50 billion.
The City gave the rate cut and the bail-out a rough reception. After rallying briefly at lunchtime, the FTSE-100 fell 226 points to 4378 this afternoon.
Wall Street shares also fell. One City trader said the rescue deal was "too little, too late."
The dramatic day followed a night of frantic negotiations at the Treasury, where the Chancellor's top officials were kept awake by black coffee and sent out for takeaway curry.
Prime Minsister Gordon Brown warned it would be "a long haul", while Alistair Darling admitted that the rescue package may not be enough.
The Institute of Directors said Britain was out of the "deep freeze" but still in the "fridge".
Oil prices fell to their lowest in almost a year.
Reader views (15)
If I understand it right the UK is already running at a deficit and owes more than it has available to pay. It already has multi-million interest payments to find to service the national debt and yet it now seeks to fund multi-billion pound bail-outs. At this rate not only your grnadchildren will be paying this off but your great-grandchildren as well. Remember Mr Micawber's exhortation about income and expenditure.
- Len, Perth, Australia
This £50bn aid package which is in fact ten times larger at £500bn and the rates cut by 0.5% is all well and good, but I guess I am an economic moron, because I fail to understand how it is going to work in the real world.
Many people have mortgages tied to LIBOR (London Interbank Offered Rate)and they are lowering, yes, but they are still volatile, and Banks will remain cautious leading money to each other and especially across borders, the "World bank" should require all banks to keep 2.5% of their capital fluid, and deposited with them, and this fund be used to create the worlds greatest syndicated loans to banks requiring finance.
Also, Banks and Building Societies should be forced to offer a deal to any home owner facing repossession, to convert to a part own, part rent - a simple example being a house with a value of £100,000, and a £70,000 outstanding mortgage. The householder would pay rent at 75% of the market rent, made up of rent on 70% plus a 5% premium for the facility. the House value would be set now, and upon sale in the future, the financial institution would benefit from the increase in value of the 70% it owns, this means people get stability, the financial institution get an asset with a true value, and the Taxpayers money, will be used to support the market and the individual.
We can not have Banks buying their way out of trouble with Taxpayers money, yet still evicting people affected by the crisis.
Lets see fairness in action
- John Kirby, Crouch End, Islington
Well, It is supposed that 'Something is better than nothing!" No doubt Gordon Brown, his economic advisors etc will be like Pontius Pilate - washing their hands over any, repeat, any responsibility for the time he, Mr Brown was Chancellor of the Exchequer when they set UK economic policy and allowed credit to rip here.
I can foresee taxe hikes in the years to come, 2009 onwards. Council Tax will rise because some stupid local authorities have been bunging Council Tax Payers cash into foreign banks (Iceland), along with Council Pension Funds. Crazy! Has nothing been learned from the BCCI scandal of the 1980s. Apparently not!
There will be much economic pain over the next 2 or so years as unemploment rises, homes are repossed, bankruptcies and businesses go bust. So 'Prudence' Brown - where are your proud boasts now? The UK will fare badly according to the OECD and IMF. I'd rather beleive them than the bull-droppings that Mr Brown and Friends spout!!
- B Clarke, Chelmsford England
Useless incompetents. They could have acted earlier and Brown has been fiddling while Rome burned. Now that we as taxpayers own part of the banks can we please move to paying sensible bonuses for real achievements only? And can those staff whose jobs have been saved by this bail out be asked to contribute something out of their bonuses last year? Only a thought, but it is wrong that for so long they have been paying themselves too much out of what is in the end often our money, paid over in fees and commissions and now we have to bail them out and save them from their own incompetence.
- David, London
Never mind cutting interest rates, I would like to see them put up. My meagre savings are getting eaten away by rampant inflation and now I am being told to bail out the profligate wastrels who have gotten us into this mess with my taxes and less returns on my money in deposit accounts. What a way to run an economy !
- Ray, London, England
Why are we always so much more expensive than our main partners?
I can't understand why the UK rate is not linked to the European one..
Can anyone explain why we are (and have been for years) half a percent higher than the rest of Europe?
- Mark, st albans
Its unlikely that many banks will pass the cut on to borrowers on anything except tracker rates. We have seen many lenders hike the margins on tracker rates by over 0.75%, not change their variable rate at all and some have even increased their variable rates. After the first recent cuts so that the make more money from borrowers. If you are on a tracker rate - celebrate, there are less available and the availibility of mortgage products is down over 70% from this time last year.
- Mortgage Broker N3, London, England
Marianne
London will lose its savers- they cannot allow their savings to fund borrowers at risk
Funny, I thought London was an International banking centre yet money is clearly safer elsewhere- this is noted in Moscow
- Philip, Moscow
I'm not so sure all banks will follow. The Virgin One Account did not drop their rate .25% last time the bank rate dropped, and then later put it UP .25%! At present they are .50% over the odds, and with this latest drop will continue raking it in from us mugs to pay for their greed and profligacy.
- Peter, Essex, Essex
Philip, I hate to disappoint you, but the Government isn't even interested in the housing market. The banks won't be passing this saving on to borrowers, it's all about saving the banks.
- Marianne, S W France
This means absolutely nothing unless the banks pass on the rate cut and they have been steadily increasing their rates even though BoE have not been changing the base rate.
It also proves that the Bank of England were never independent.
- Dereck, London, England
This cut is too little too late. Our hardworking business in the UK are having their hands tied behind the back as they fight for orders and jobs becuase Gordon (sorry I meant Mervyn) refuses to level the playing field. EU rates are 3.75 and US will be down to 1.25 shortly whilst our rates are at 4.5. In addition a third of people in the UK can't remortgage and are stuck on SVR of around 7% having just bailed banks out. Call the BoE meeting tomorrow and announce that with effect from noon tomorrow the UK interest rates will match US rates and there will be another further immediate interest rate cut. If you can't or are unwilling politically to this do this to protect people homes, jobs and businesses get out of the way and let me take your place and I will do it for you.
- Rupert, London
Thank goodness for that! An immediate reaction at last. Mr Darling might like to take note, with all his hypothesising and promises, what the markets need is ACTIONS. Well done BoE.
- Marianne, S W France
But the really important question is: 'What colour tie will Robert Peston have to wear when he reports this news on the BBC?'! It could set fashion trends for decades to come!
- John, London
This government is ONLY concerned with the housing market- they think the rest of the economy will follow
No 100% guarantee on savings- but 100% guarantee on mortgaged homes. Compare to Germany, Spain etc.
A short term fix with inflationary consequences INCLUDING the cost of homes
- Philip, Moscow
