The confidence game
Greenspan Says He Failed to See Mortgage Danger, according to the AP. And Felix Salmon comments "There's a lot of Greenspan revisionism going on right now, with people changing their minds and deciding that the Maestro wasn't nearly as good as they thought he was. They're right, and not only because no one could have been as good as they thought he was..." and goes on to discuss the importance of confidence (rather than ability) in the central banking business.
On the same theme - Northern Rock, one of Britain's largest mortgage lenders, is the subject of a real old-fashioned panic. Its shares are down 25% after it revealed it had borrowed from the Bank of England (at penal rates) and today its online banking website crashed from the traffic overload. Safe to say all those browsers weren't converging in order to make deposits.
Most puzzling comment, about US subprime: "We don't know where the poison went from all these bad loans and you have to look at all these bad loans as a bit like a blancmange that's been hit very heavily by a spade and it's gone everywhere.They turn up in all sorts of strange funds and therefore we don't know who's got the losses." Blancmange notwithstanding, I would have thought it was fairly safe to say that a large UK lender is unlikely to be dabbling in CDOs based on US subprime. SIVs, apparently, yes...
Salmon (again) reckons that the lender overstretched earlier this year, taking advantage of the fact that everyone else was becoming more wary of low-quality loans.


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