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Monday, July 28, 2008

The Price of Dithering

The FT reports that Chancellor of the Exchequer, Alistair Darling, is considering a new plan to help resuscitate the housing market by allowing banks to swap new mortgage assets for government bonds.

The Treasury is formulating a plan to extend the Bank of England scheme, where high quality outstanding mortgage backed securities are exchanged for gilts to incorporate new mortgage lending.

Sir James Crosby, the former chairman of HBOS, is expected to propose the idea tomorrow when he delivers his interim report on the mortgage market.

It is a pity that it takes Labour's meltdown in the polls and the disastrous Glasgow bye election to motivate them to tackle this open sore. Had they moved with alacrity, in the final quarter of 2007 and at the beginning of 2008, the liquidity crisis could have been better contained.

Regrettably the government dithered, the result being that Deloittes are now warning that the economy is heading into recession, and may face a slump on the scale of the early 1990s.

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