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Northern Rock - NOT the cause of the financial crisis
HAMISH_MCTAVISH
Posts: 28,592 Forumite
Graham_Devon wrote: »You do realise you are using Northern Rock, as evidence that high ratio mortgages work and make profit...don't you?
Thats Northern Rock...
The bank that was nationalised...
That bank...
Northern Rock relied heavily on the wholesale money markets, rather than savers' deposits, to fund its mortgage lending.
And contrary to the belief of some posters on here, Northern Rock did not fail because of it's mortgage lending standards, or because of sub-prime loans it wrote, or because it's defaults made it unprofitable.
It failed purely and simply because it's business model relied on the ability to borrow short and lend long, then securitise the mortgages and resell to repay the original borrowing.
When the wholesale markets dried up due to the global credit crunch (and not just to NR, to ALL banks in the UK) this business model was unsustainable, and Nationalisation was the end result.
Now it also so happens that Northern Rock was one of the most aggressive lenders in the UK as far as sub-prime was concerned, and indeed had a greater concentration of non-traditional loans on it's books, such as 125% mortgages, Self Cert, etc.
But this had absolutely nothing to do with the reason it failed.
It wasn't defaults on it's loans that caused it to fail.
It was it's business model of borrowing short and lending long. A model that became unsustainable with the end of RMBS and the freezing up of global money markets.
Indeed Northern Rock's old mortgage book of all those supposedly sub-prime loans, the so-called "bad bank", remains profitable to this day. It made £300,000,000 profit last year alone.
Because the quality of mortgages written, whilst perhaps lower than traditional UK standards, remained an order of magnitude better than the real sub-prime slime written in the USA, that was the sole cause of the credit crunch.
“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”
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Comments
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Two threads?
Were you unable to get your point across in one?
Maybe spamming us with your take on a situation, and starting new threads to respond to posts on other threads will make what you say magically turn into fact?0 -
Can you point out the bit you believe to be not factually correct?“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
HAMISH_MCTAVISH wrote: »Can you point out the bit you believe to be not factually correct?
Yes.
Post 1.0 -
HAMISH_MCTAVISH wrote: »When the wholesale markets dried up due to the global credit crunch (and not just to NR, to ALL banks in the UK) this business model was unsustainable, and Nationalisation was the end result.
With hindsight it may be true that their loan book isn't as bad as it was feared but at the time NR had more problems than not being able to source new money for loans.
There was a run on the bank due to the fear it was under water. The "unknown" and the fear of it was the real reason it failed. Not because it couldn't get some money to lend out for 12 months.0 -
Which bit?
Or are you just unable to debate the facts?“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
JonnyBravo wrote: »With hindsight it may be true that their loan book isn't as bad as it was feared but at the time NR had more problems than not being able to source new money for loans.
There was a run on the bank due to the fear it was under water. The "unknown" and the fear of it was the real reason it failed. Not because it couldn't get some money to lend out for 12 months.
The fear from the general public was simply that NR had run out of money. Nothing to do with the loan book.....
It was announced that NR had to use an emergency loan facility from the BOE and the bank run started immediately.“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
HAMISH_MCTAVISH wrote: »The fear from the general public was simply that NR had run out of money. Nothing to do with the loan book.....
It was announced that NR had to use an emergency loan facility from the BOE and the bank run started immediately.
I know.
As I said, that fear of the unknown, first coming from other banks, and then the public and finally the Govt is what led to nationalisation.0 -
HAMISH_MCTAVISH wrote: »Which bit?
Or are you just unable to debate the facts?
All of it.
And they are not facts.
Look Hamish. What you try to claim as facts are nonsense. There is some truth, but you take it to the extreme, and ignorance makes up the most part of yor arguments.
Secondly, the very fact you need to make such a point of it, over several threads, an highlight parts in bold shows how annoyed you are getting by people not believing you.
What you write, is tantamount to myself blaming the petrol station as I'd worked out a method of keeping JUST enough diesel in the car to allow me to coast my way to said petrol station and fill up.
There was a hazard on the way, which meant I had to to stop and use the throtle, therefore using up all of my diesel, which meant I broke down.
It wasn't my planning that was at fault. Afterall, I'd planned that I could get to the petrol station if I coasted all the way. Fact.
If there hadn't been a simple hazard on the road, which caused a slight change in my decisions and plans, I'd have got to the petrol station. Fact.
Therefore, it was Shell's fault that I broke down. Fact.
Doesn't make any sense does it.
No doubt you'll just say this has nothing to do with petrol stations or diesel.
Northern Rock's business plan fell down precisely because of how it opertated.0 -
Graham_Devon wrote: »opertated.
:rotfl:
Classic.
And amazingly, that one word makes more sense than the entire rest of your post.:D“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
Classic?HAMISH_MCTAVISH wrote: »:rotfl:
Classic.
And amazingly, that one word makes more sense than the entire rest of your post.:D
A spelling mistake?
As I said, growing ever more pathetically desperate.
You made a grammar mistake above, should have read "than you're entire post". Is that classic too?0
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