“Deep pockets” Darling expected to announce yet another bank bailout in his budget speech today

Unbelievable though it may sound, Chancellor of the Exchequer Alistair Darling is expected to announce a further set of bank guarantees, this time for mortgage backed bonds. The strategy behind Alisdair’s thinking appears to be that the guarantees will allow banks to sell their securities without the risk of making a loss, in the hope of reviving lending in the mortgage sector.

It is expected that Chancellor Darling will announce in his eagerly awaited budget speech today, that the treasury will be offering guarantees for up to 50 billion pounds of the bonds through a new mechanism, to be established.

Treasury officials expect that banks will be slow to take up the offer and instead prefer and instead to more make use of some of easier to operate lending options already available.

While as yet there is no official confirmation available that the plan will go ahead, it is anticipated that the Treasury intend to provide as many options to attract investors back to the property market, and Darling has chosen his budget speech to confirm this. In the recent past, investors have steered clear of mortgage backed bonds and other hard-to-value assets in the wake of bitter experience after the international money markets went belly up in 2007.

Currently sales of mortgage backed securities have hit rock bottom in 2009, where in 2007 they had reached around 80 billion pounds worldwide. The reason for Darling’s generous offer may well stem from the fact that investors are demanding rates as higher than three percent above bank rates to take on mortgage backed bonds, and hopefully the fact that the loans will be guaranteed will reduce these rates.

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Tags: Alastair Darling, Budget, Credit Crunch, Economics, Economy, Financial News, Gordon Brown, Recession, UK Recession