Hopeless and Helpless

Gordon Brown met with the chief executives of Barclays, HBOS, HSBC and Royal Bank of Scotland, as well as leading investment bankers from the City of London today. This meeting comes against a backdrop of dismal news that equates the dire situation in today's housing market to the grim days of 1978.

Brown called the meeting to urge banks to reduce the costs of loans and to pass on interest rate cuts.

Ironically the Royal Institution of Chartered Surveyors (RICS) released figures today that show that the downturn is worsening.

Approximately 78% more of surveyors said that house prices fell in March than reported increases, its highest level since the the poll began in 1978.

The banks will not have heeded his lecture, as they know that it is not the Bank of England interest rate that matters but the availability of liquidity.

Until banks are able to lend to each other at a rate that equates to the Bank of England rate, the situation will not ease. The government and Bank of England need to open their eyes to the fact that monetary policy alone will not address this problem, and is akin to "pushing a piece of string".

The Bank of England needs to follow the paths mapped out by other central banks, eg the US Federal Reserve, and accept mortgage backed securities as collateral in exchange for government backed bonds.

Until Brown and the Bank of England start to act in a proactive manner, they will appear nothing more than hopeless and helpless observers wringing their hands as the British economy and banking system collapses around them.