Central banks in both Europe and the USA are actively engaged in discussions about the feasibility purchasing mortgage-backed securities on a mass style as a possible solution to the credit crunch crisis.

Such a move would involve the use of more public funds to shore up the financial market place to restore confidence by ending the current vicious circle of forced sales, falling prices and weakening balance sheets.

These conversations, part of a wider exchange on possible steps in battling the financial turmoil, are at a very early stage, however, the fact that such discussions are taking place at all indicates the depth of concern that exists over the health of the worlds banking system.

The Bank of England is reported to be most enthusiastic to explore the idea, whilst the Federal Reserve is open in principle, to the possibility that intervention might be justified in certain scenarios, but only as a last resort. Of all, the European Central Bank appears the least enthusiastic.

Any move to buy such mortgage backed securities would require government involvement because in all cases taxpayers would be assuming the credit risk. At the moment, there is no indication the US administration are in favour of such a move. To make matters more complex, in the eurozone it will require agreement from 15 separate governments.

If the public authorities were to buy and hold sufficient mortgage backed securities, rather than simply lend against them as they have until now, and at prices well below their face value but above current prices, a "floor" would be created in the market that should stabilize the situation.

However, the Federal Bank does not believe that the point when such drastic action is required has been reacted and considers the discussions it has had with its counterparts as “blue-sky thinking” rather than the formulation of definitive policies.

The UK government has already become heavily involved in buying mortgages since they nationalised Northern Rock, the mortgage lender. Michael Coogan, the director-general of the UK’s Council of Mortgage Lenders, said this week: “Demand for mortgages remains strong but cannot be fully met from existing funding sources.” He also predicted higher prices and reduced lending, which means in essence that it will be harder to get a mortgage and you'll pay more for one when you do.