Why did the banks fail? An explanation here.

opinions4u

mic200202 wrote: »

Pewter, you were going well there to start with then about halfway it all went a bit off the rails.If you would care to read my posts above then you will clearly see that your 'level of defaults...' lines are untrue. I agree this was a trigger for events in the US, but does not explain the UK banks position. If you can show me the arrears stats for the UK (which you wont be able to) I would take on board what you are saying.The UK DOES NOT have an arrears situation with mortgage lending anything like what happened in the US. That applies to 100% ,self cert ,and ordinary residential lending. It just has not happened. Yes they took on risk, but with other areas of business - investment strategies in the US and asset management.Nothing to do with ordinary primary lending in the UK.

This is true. While there is a deteriorating position on arrears and repossessions in an environment of falling house prices, we are nowhere near USA standards.

While nearly all the banks have their hands on 'toxic' US assets, these are small fry by comparison.

If the wholesale funding had continued, there wouldn't have been panic and the British banks would still look secure to all savers. The simple act of moving large sums from one bank to another massively destabilises the whole system.

Until it hit the fan with Lehman brothers, I'd suggest all 5 major UK banks would be declaring profits for the year 2008 after write-offs and write-downs.

Regretably uncertainty created panic which created massive movements of capital within the system leaving some organisations crumbling, not necessarily as a result of their own actions.

Once the confidence goes in a bank, you have big trouble, regardless of whether the lack of confidence has any significant substance.

Tom_Kelly

mic200202 wrote: »

To tell you where I am getting my information from yesterday I was at a meeting which was attended by the chief economist of Abbey,Chief Operating Officer of HBOS, Head of Sales for Nationwide, Snr Corporate A/c Manager for C&G and Head Of Sale for Nank of Ireland. The clear message is that the money supply is /has caused the problems for UK Banks.

I presume that this was some sort of mortgage adviser meeting. Trust me when I say that I am most definately not impressed by the credentials of the sales people you mentioned above.

My original post outlined the effect of the money supply drying up. It dried up because the suppliers of the money lost confidence in the lenders. This was because they chased profits rather than keep to sensible lending. The decision makers were paid bonus based upon the banks profits. It is no wonder they wanted more and more profit each year.

simonleblank

At Last! Sub-Prime Crisis Clearly Explained

Once upon a time, in a village, a man appeared and announced to the
villagers that he would buy monkeys for $10 each.

The villagers, seeing that there were many monkeys around, went out to
the forest and started catching them. The man bought thousands at $10
and, as supply started to diminish, the villagers stopped their effort.
He further announced that he would now buy at $20 for a monkey.

This renewed the efforts of the villagers and they started catching
monkeys again. Soon the supply diminished even further and people
started going back to their farms. The offer increased to $25 each, and
the supply of monkeys became so small that it was an effort to even find
a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50! However, since
he had to go to the city on some business, his assistant would now buy
on behalf of him.

In the absence of the man, the assistant told the villagers. "Look at
all these monkeys in the big cage that the man has collected.
I will sell them to you at $35, and when the man returns from the
city, you can sell them to him for $50 each."

The villagers rounded up
all their savings and bought all the monkeys.

[and thus was born the credit default swap market!]

They never saw the man nor his assistant again, only monkeys everywhere!


Now you have a better understanding of how Wall Street works.

mic200202

Tom_Kelly wrote: »

I presume that this was some sort of mortgage adviser meeting. Trust me when I say that I am most definately not impressed by the credentials of the sales people you mentioned above.

My original post outlined the effect of the money supply drying up. It dried up because the suppliers of the money lost confidence in the lenders. This was because they chased profits rather than keep to sensible lending. The decision makers were paid bonus based upon the banks profits. It is no wonder they wanted more and more profit each year.

Since when did the Chief Economist of the Abbey become salesman? You may not be impressed, but it is still 10 times more impressive than any FACTS you have produced in this post. I again maintain that your assertion the money supply dried up for UK Banks was directly linked to their lending policy is simply untrue.Your introduction of 'UK overlending' into the argument is a distortion which has not a shred of evidence to back it up. The money suppliers lost confidence in US lenders because of their reckless lending policy.That is not was has happened in the UK.

Tom_Kelly

mic200202 wrote: »

Since when did the Chief Economist of the Abbey become salesman? You may not be impressed, but it is still 10 times more impressive than any FACTS you have produced in this post. I again maintain that your assertion the money supply dried up for UK Banks was directly linked to their lending policy is simply untrue.Your introduction of 'UK overlending' into the argument is a distortion which has not a shred of evidence to back it up. The money suppliers lost confidence in US lenders because of their reckless lending policy.That is not was has happened in the UK.

I give up. Sorry to have wasted your time.

michaels

Thanks mic200202, finally someone who gets it - at heart a liquidity crisis, the banks obviously borrowed short and lent long - that's what banks do - without imagining that the cost of short money could move by an order of magnitude away from any historical precedent.

Once this had happened they were potentially losing money at an incredible rate (it costs much more per annum to pay 7% for funds that you are lending out at 5% than to have 1% of your mortgages go bad and losing maybe 15% on each of those when you repossess)

Should the banks have anticipated the sudden loss of liquidity? Debatable; obviously most of us ignore the very very long odds outcomes in everyday life (for example we still fly even though there is a small chance of a crash) but may be the banks should have run some scenarios, or even if they hadn't may be the regulator the FSA, should have been doing the what-ifs but I suspect they did not have the talent or imagination. I guess a good parallel would be 9-11, since then many more scenarios have been considered but before then the danger was out of scope of the intelligence agencies.

Tom_Kelly

mic200202 wrote: »

Since when did the Chief Economist of the Abbey become salesman? You may not be impressed, but it is still 10 times more impressive than any FACTS you have produced in this post. I again maintain that your assertion the money supply dried up for UK Banks was directly linked to their lending policy is simply untrue.Your introduction of 'UK overlending' into the argument is a distortion which has not a shred of evidence to back it up. The money suppliers lost confidence in US lenders because of their reckless lending policy.That is not was has happened in the UK.

Hopefully the mists have begun to lift for you now and you can see these people who spread the propoganda for what they are. It was greed amongst the bonus chasers at the top that led to the reckless lending. £8 billion loss from RBS last year!

Posthinking

To The Manager
HBOS HSBC Lloyds RBS Etc

I'm not sure enough people say this, so let me start by thanking you for all for your great work over the last few years. You invested in whatever your mates were selling without researching anything. And at a time where everything was going up in value, miraculously, the rubbish you invested my pension in went up in value too.

As they say: what goes up must come down. That's gravity for you. Nothing to do with you making bad decisions.

I am very sorry to learn that the £500 Billion that has been given to you so far is not enough. I really feel like a cheap-skate being a citizen of a Country that has offered you so little.

Also, it is terrible that the Government wants to see a return on this money. How dare they? I am ashamed. Of course we converted the money given to you to no strings attached so that you don't have to pay for it.

I am so pleased that the Government is now giving you an extra £200 Billion. You deserve at least this for all your hard work. Please feel free to ask for more when you run out.

Finally, I am very sorry that I asked you if I could borrow an extra £10,000 on my mortgage to help me through. I was very wrong to say that 5.5% is unreasonable when interest rates are an astronomical 1.5%. Also, a £4,250 set up fee is totally justifiable. Why would I even think it should be less.

Yours humbly.........

PS Guy Fawkes where are you? Your country needs you

socrates

Interesting post but should this not be in the:

House Prices , the Economy, & Recession Section