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The Return Of Sub-Prime Lending.
Comments
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There's a world of difference between different sorts of "Sub Prime".
1. Impeccable Salary. Impeccable Credit History. Lend 95% of value = Disaster
2. Dodgy Salary. Dodgy Credit History. Lend 40% of value = 100% security for lender.0 -
Graham_Devon wrote: »Talking about misquoting. No one has ever said to you that the UK sub prime mortgages CAUSED the global financial crisis. It DID cause significant problems in the UK...Northern Rock.
No, what caused Northern Rock to go down was the credit crunch, they borrowed short and lent long, once the credit markets froze they couldn't borrow the money to repay the last lot of 3 month loans they'd taken out on the money markets.
As far as I am aware NRs credit rating was no different from any other high street lender, they wouldn't have given you a mortgage if you were credit impaired (sub prime).0 -
These people who blame it on the Americans, it`s like the reciever of stolen goods blaming the thief. It was OK to recieve the stolen goods and profit from them, but when the thief gets arrested, the reciever blames his loss of income on the thief.
Run that one over me again
'Just think for a moment what a prospect that is. A single market without barriers visible or invisible giving you direct and unhindered access to the purchasing power of over 300 million of the worlds wealthiest and most prosperous people' Margaret Thatcher0 -
No, what caused Northern Rock to go down was the credit crunch, they borrowed short and lent long, once the credit markets froze they couldn't borrow the money to repay the last lot of 3 month loans they'd taken out on the money markets.
So, it was a bit like keeping more and more plates spinning on poles ?
I might be wrong, but did it work like this.......
NR borrow £xMillion on the money markets, but have to pay it back after 3 months.
They lend out most, if not all of the money they just borrowed.
At the end of the 3 months, they have to pay back the money they borrowed. They do this with a combination of a) money that was not lent out b) money they have recieved from load repayments c) if a & b don`t cover the amount, they borrow more on the money markets. (A bit like shifting credit card balances to new cards, you`re OK until offers of new cards run out).
Of course, as the property boom gathers pace in the UK, and NR are offering more tempting deals, their need for ever larger amounts from the money markets increases. The speed at which NR went from a minor to a major player in the mortgage lending market did suprise me, and I`m not involved in the business. I was asking questions about NR`s rapid expansion, way before it was rumoured that they might be in trouble. If I was asking questions, why weren`t the FSA ?30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
Run that one over me again
OK.
The Americans had a property/mortgage boom.
We had a property/mortgage boom at around the same time.
Hamish & co blame our troubles on the Americans.
I`m suggesting that our mortgage market was "assisted" by what was happening in America before the crunch.
It went badly wrong in America, and our banks suffered. Hamish & co often suggest that we`d have been OK if the Americans hadn`t been so badly behaved. I`m asking if the Americans had run their banks responsibly, would our banks have been able to lend like they did (and therefore inflate our property prices to the levels they reached).30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
So, it was a bit like keeping more and more plates spinning on poles ?
I might be wrong, but did it work like this.......
NR borrow £xMillion on the money markets, but have to pay it back after 3 months.
They lend out most, if not all of the money they just borrowed.
At the end of the 3 months, they have to pay back the money they borrowed. They do this with a combination of a) money that was not lent out b) money they have recieved from load repayments c) if a & b don`t cover the amount, they borrow more on the money markets. (A bit like shifting credit card balances to new cards, you`re OK until offers of new cards run out).
Of course, as the property boom gathers pace in the UK, and NR are offering more tempting deals, their need for ever larger amounts from the money markets increases. The speed at which NR went from a minor to a major player in the mortgage lending market did suprise me, and I`m not involved in the business. I was asking questions about NR`s rapid expansion, way before it was rumoured that they might be in trouble. If I was asking questions, why weren`t the FSA ?
No No....
NR collapsed when there ceased to be money available from the interbank money markets because the banks that would have lent to that market were afraid of what had happened to the packaged US sub prime mortgages.
If they lent to another bank which went bust because of it holding large amounts of worthless US mortgages they would lose the money they had lent.
So as people have said the key problem was caused by the US. There was nothing particularly wrong with NR's lending, the problem was its dependency on the interbank money market (rather than say "borrowing" from depositers) which no-one had the remotest idea could possibly freeze up globally.0 -
OK.
The Americans had a property/mortgage boom.
We had a property/mortgage boom at around the same time.
Hamish & co blame our troubles on the Americans.
I`m suggesting that our mortgage market was "assisted" by what was happening in America before the crunch.
It went badly wrong in America, and our banks suffered. Hamish & co often suggest that we`d have been OK if the Americans hadn`t been so badly behaved. I`m asking if the Americans had run their banks responsibly, would our banks have been able to lend like they did (and therefore inflate our property prices to the levels they reached).
You are confusing two separate issues. The first issue which did for the banks was the American sub-prime mortgages which were sold on a far wider and less controlled basis than in this country. Because of the nature of the modern banking system the effect was global.
In this country we did not have a real problem with sub-prime mortgages - look at NRs fairly low default rate. Our HPI problem is primarily caused by a lack of houses. It was exacerbated by the amount of credit available which increased demand. Increased demand with constrained supply means increase in prices.
This credit was not mainly lent on an irresponsible basis in terms of defaults, but can be seen as undesirable from its wider social impact.0 -
No No....
NR collapsed when there ceased to be money available from the interbank money markets because the banks that would have lent to that market were afraid of what had happened to the packaged US sub prime mortgages.
If they lent to another bank which went bust because of it holding large amounts of worthless US mortgages they would lose the money they had lent.
So as people have said the key problem was caused by the US. There was nothing particularly wrong with NR's lending, the problem was its dependency on the interbank money market (rather than say "borrowing" from depositers) which no-one had the remotest idea could possibly freeze up globally.
So, NR were borrowing from Peter to pay Paul (more than most other banks) ?30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
That's not quite how they worked. They'd borrow money for three months and lend it all out, then, after 3 months borrow it again and some more. And so on. It helped finance expansion rather than relying on repayments to pay off in the short term.So, it was a bit like keeping more and more plates spinning on poles ?
I might be wrong, but did it work like this.......
NR borrow £xMillion on the money markets, but have to pay it back after 3 months.
They lend out most, if not all of the money they just borrowed.
At the end of the 3 months, they have to pay back the money they borrowed. They do this with a combination of a) money that was not lent out b) money they have recieved from load repayments c) if a & b don`t cover the amount, they borrow more on the money markets. (A bit like shifting credit card balances to new cards, you`re OK until offers of new cards run out).
Of course, as the property boom gathers pace in the UK, and NR are offering more tempting deals, their need for ever larger amounts from the money markets increases. The speed at which NR went from a minor to a major player in the mortgage lending market did suprise me, and I`m not involved in the business. I was asking questions about NR`s rapid expansion, way before it was rumoured that they might be in trouble. If I was asking questions, why weren`t the FSA ?
The main point is that it wasn't sub prime lending or bad debts that brought Northern Rock down but the freezing of the credit markets.
Their business model wasn't a secret, it's just that no-one anticipated the credit markets freezing up because I believe it was literally unprecedented, never happened before.0 -
OK.
The Americans had a property/mortgage boom.
We had a property/mortgage boom at around the same time.
Hamish & co blame our troubles on the Americans.
I`m suggesting that our mortgage market was "assisted" by what was happening in America before the crunch.
It went badly wrong in America, and our banks suffered. Hamish & co often suggest that we`d have been OK if the Americans hadn`t been so badly behaved. I`m asking if the Americans had run their banks responsibly, would our banks have been able to lend like they did (and therefore inflate our property prices to the levels they reached).
Yes, even easier probably because more of the money that was thrown away in the US would have been available to fund UK lending institutions.0
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