A report in The Guardian today states that "As much as £200bn has been borrowed under the [special liquidity] scheme, and there are strong fears in the market that funding could evaporate again once it closes to new lending on October 20."
And yet
1. the SLS was sold to us as a way to save the housing crisis because the banks promised us they would use it to keep families in their homes,
2. but instead repossessions are rising drastically and house prices are falling drastically because the banks will not issue mortgages.
Can you explain where the £200 billion has gone? It's certainly not been used for its initial purpose!
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From http://www.guardian.co.uk/business/2008/sep/11/creditcrunch.bankofenglandgovernor
Bank of England promises new credit crunch helpGraeme Wearden guardian.co.uk, Thursday September 11 2008 10:54 BST Article historyThe Bank of England revealed today that it is putting together a new lending scheme for banks in an attempt to avoid a collapse in the mortgage market.
Speaking to MPs today, governor Mervyn King outlined a new plan to help Britain's banks to survive the ongoing credit crunch.
He said the UK central bank would continue to provide affordable funding to the banking sector when the current emergency rescue plan – the Special Liquidity Scheme – closes its doors to new lending next month.
This scheme has helped banks and mortgage firms to keep lending through the crunch.
But King also warned the Treasury select committee that the Bank of England could not revitalise the mortgage market on its own.
And in a stark assessment of the problems facing the UK economy, he predicted that inflation in September will still be significantly higher than the official target, forcing him to write another letter to Darling.
King revealed few details of the Bank's plan to create a "permanent liquidity insurance scheme" today. John McFall, chairman of the committee, dubbed it the "Son of the Special Liquidity Scheme".
More will be disclosed next week, when a consultation paper is released.
The current Special Liquidity Scheme was created in April, after the credit crunch led to a sudden drying-up of funding, forcing mortgage lenders to pull deals and hike their rates.
It lets banks and mortgage lenders borrow from the Bank of England, using their mortgage-backed assets as security.
As much as £200bn has been borrowed under the scheme, and there are strong fears in the market that funding could evaporate again once it closes to new lending on October 20.
King said the new scheme could accept new mortgage assets, as well as housing debts which they have had on their books for a while, but insisted that it would not provide long-term insurance.
"We will not be able to provide finance for the lifetime of a mortgage. We will only provide liquidity for a shortish period," explained King, insisting that the taxpayer would not take on the commercial risk of issuing mortgages.
Chancellor Alistair Darling is reportedly close to announcing a government plan to kick-start the UK housing market, which has suffered a sharp plunge in sales as prices have fallen steadily - partly because potential buyers have struggled to get a mortgage.
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