The BBC /Richard Werner interview reported on this blog on 22nd September brought a comment from Robin Smith:
'He [RW] said the biggest asset on banks balance sheets it govt debt. This is untrue. It is mortgage debt by a long long way.'
Werner has clarified this and says that the thrust of the BBC World Service interview was about the possibility of counterparty/borrower default and the impact on banks. He was thus referring to:
'the 'biggest asset' defined as 'claim on the same counterparty' or, explained in terms of default risk, the single biggest asset with identical default risk. In the context of worrying about debtor default, it is clear that the biggest asset item with the identical counterparty/default risk is government bonds, since loans to the same individual or single company are of course never as large as loans to the same government in the form of bond holding. Mortgages to different individuals or companies all carry different default risks (even in a synchronised housing market downturn; e.g. some borrowers are wealthy enough to repay from their other liquid assets if they have to).'
Werner points out the perils of submitting to such an interview. Cuts were made to his careful defining of terms and his explanations. Important points ruthlessly deleted and punchlines entirely omitted - as was obvious. Not that he is surprised.
posted by Charles Bazlinton