Are we on the edge of a Solvency crisis?

Here's a hat tip to a lovely piece by Anatole Kaletsky in today's London Times.

Solvency is different from liquidity. If central banks thought that the present problem in Anglo-American housing and property markets was a lack of easy cash, they could do what they have done. They could offer loans to those institutions that lent money to homeowners at rates that were effectively lower than market rates, thus creating money, and disguise it by calling the loans 'auctions' until the economy picked up again when they could lower lending and withdraw cash.

That isn't what they are scared of now. They are scared of panic, housing and equity collapses and a crash. They are thinking 'bankruptcies', and their actions in pumping in what seemed to me at the time at far too little credit last week into western economies have clearly not worked. The banks have become worried about something else. They're worried about a slump, and they are backing slowly away.

What if the banks end up asking western governments to take over mortgage debt? Then we could be back in a situation where many houses were owned by governments. Rent-buy schemes could become more common but, critically, a key part of the political agenda of the past quarter century--the attempt to create nations of homeowners rather than European-style renters--would be in deep trouble.


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