Who wants to get hit?

Recently Financial Times reported that central banks in US and Europe were in talks about the prospects of buying mortgage-backed securities (MBS) with public funds in order to alleviate the recent turmoil in financial markets. It said the BoE was the most upbeat about the idea, Fed was positive for the method, “but only as a last resort”, and ECB was the least interested.

BoE and Fed came to deny any such talks and said that they were looking for other measures to pacify the crisis. BoE cited that they would not propose any schemes which require the taxpayer rather than the banks to assume the credit risk.

Till now central banks were prepared to lend against MBS, the very same contracts which put the banks in problem. In any case the money central banks use to pump in the markets is taxpayers’ or correct me here if I am wrong. A better solution, rather than buying these securities, would be to lend this money to consumers, the people who are in default. But maybe this is easier said than done in a democratic setup, monarchy will be helpful here.

But in my view, taxpayer should not suffer for the negligence of hot-shot masters of the Street.