March 23, 2008 12:53 PM by Robert Blumen
On Friday, the Financial Times reported Central Banks Float Rescue Ideas. The article states that central banks are considering plans involving the purchase of worthless or nearly worthless mortgage-backed securities from banks. Shortly afterwards, Reuters reported Bank of England denies mortgage purchase plan.
The FT writes,
Such a move would involve the use of public funds to shore up the market in a key financial instrument and restore confidence by ending the current vicious circle of forced sales, falling prices, and weakening balance sheets.
The conversations, part of a broader exchange as to possible future steps in battling financial turmoil, are at an early stage. However, that such a move is being discussed at all indicates the depth of concern that exists over the health of the banking system.
It shows how far the policy debate has shifted in recent weeks as the crisis has spread to prime mortgage assets in the US and engulfed Bear Stearns, the investment bank.
Sun 5pm PST, this just in:
Economist Forecasts Central Bank Action
Central banks and governments in advanced economies will be forced to buy mortgage-backed securities within the next few months to stop the credit crisis, according to a former chief economist of the European Bank for Reconstruction and Development.
"Central banks will be managers for years to come of rather interesting portfolios..."
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