When you hear people talking about ‘A Billion’ be it a Bank talking about a billion in write-downs, or a politician talking about a billion in tax spending, it’s important to put the number of one billion in perspective.

One Billion seconds ago it was 1959, one billion minutes ago Jesus was alive, a billion hours ago our ancestors were in the stone age eating raw meat and dying of common colds. A billion days ago there we were not walking on two feet. However in monetary terms a billion dollars ago was 8 hours and 20 minutes ago at the rate it is being spent by the US Government, it’s 5 days ago at the rate the ECB has been printing it in order to avoid the credit crunch and it is also almost as much as Sierra Leone’s GDP (at the official exchange rate), that’s for the whole country for a whole year.

So when UBS came out and said that it has ‘written down’ $37 Billion Dollars it was time for Marcel Ospel (the UBS chairman) to step down, today has been a big day for ‘step downs’ as our own Taoiseach has also announced his plan to leave office. The credit crunch is still nowhere near finishing as today’s 3 month Euribor rate is at 4.736%.

First Direct who are part of the HSBC group has stopped offering mortgages totally, which begs the question, what does a lender do when they can’t lend? First Direct are claiming it’s due to unprecedented demand but is it perhaps a Bear Stearns response to an awkward question? Nationwide in the UK raised its interest rates last week and due to the ongoing credit crunch I think many banks will start to follow suit, however when the credit crunch ends what will happen? Will the margins on those loans revert to a lower amount? Certainly the answer there is no.

In fact today’s prediction is that we are going to see interest rate margins increase pretty soon to help absorb the unusually high Euribor rates, the banks are in the business of making money, and they are expert at it for the most part but nobody could have forecast what would be happening right now with the Mortgage Market and at some point mortgage interest rates in Ireland will have to respond.

The Central Bankers bank the BIS (Bank for International Settlements) has said in an article in the FT that they believe that mortgage derivatives will become a thing of the past, prior to last year CDO’s had only five mentions in the press, ever since they have been getting more than five a day, some days its more like fifty five or five hundred and fifty five (depending on what you equate to ‘press’).

The ‘broader market for bonds backed by mortgages will survive’ but remain weak for a while. That’s because of confidence not because of actual value, some people are heralding the ‘death of securitization’ however I do not think that this is really possible as there will always be a buyer for a product that makes enough money and the way that this will happen is that lender margins will increase to the point at where it becomes attractive.

For those of you old enough to remember (or who like me are economics geeks) there is a period in time similar in many ways to right now and that was the 1974 crisis which was different but many of the same economic factors abound. Does this in turn mean we can look forward to a future of higher rates over the medium to long term? It’s impossible to say for certain however for money to keep moving we need to get credit markets moving and to get them moving there needs to be some attractive and secure propositions on the table and to make a mortgage backed bond attractive the only solution is to have a damn good margin.

Hence the belief that all lenders will raise their margins and that the race to the bottom of the rate table that we witnessed over the last five years will soon be a thing of the past, we’ll talk about them in the same sentences as ‘dodo’s’. Or maybe not but what reason is there for rates to stay low? The only reason Irish interest rates are not jumping up is perhaps that prudent lending means banks here have better reserves to lend on and they can charge more than they pay out hence the wheels keep turning, however, at some point this will cease because liquid cash doesn’t last forever and at that point rates will rise.

Rabo Bank are likely going to enter the market and they have several billion on deposit, they could perhaps get a disproportionate segment of the market by only lending after everybody else has exasperated their resources. Imagine being the only person with food on a desert island – then you will start to get the analogy, they could either lend directly (which has its own costs) or to other banks (which could also be likely).

So considering that rates are likely to rise should you look to fix into a good rate now? that’s hard to say, because nobody can really peg an end date on the credit crunch and the movement in rates is certainly not coming from the ECB as we are still in an inflationary environment in 2008, if I was to make a call on it I would say that in the current environment a damn good three year fixed rate may be worth its weight in gold.