Northern Rock run could have been avoided, says FSA chief

RenovationMan

Thrugelmir wrote: »

The reality as was later found out was totally different.

I'm confused with the relevence of your post, Thrug. Are you saying that Clapton was wrong in his post, and that NR did go bust because of mortgagees failing to keep up with payments and that NR bad debts from loans and mortgages were not about the industry average?

Is that what you're saying in your post?

Thrugelmir

RenovationMan wrote: »

Another interesting fact is that NRAM repaid £2bn to government in 2011.

Still had £85 billion of mortgage debt. So there's a long way to go before NRAM returns a profit to taxpayers.

HAMISH_MCTAVISH

RenovationMan wrote: »

I'm confused with the relevence of your post, Thrug.

Ah, the Ninja troll strikes again.

Master of misdirection, that one.

A conversation with Thrug usually goes a lot like this....

Poster-- "XYZ bank did not fail because their loans went bad"

Thrug -- "Ah, but this employee was found guilty of concealing loan losses"

It's only later when you dig into google you find the losses were immaterial, and amounted to the square root of naff all to do with why the bank failed.

Another classic Thrug misdirection tactic goes a lot like this.....

Poster-- XYZ bank did not have losses higher than the industry average"

Thrug-- "Well according to this report, the losses on the banks "Together" mortgages were eleventy times higher than prime losses sustained elsewhere"

And once again, you have to google your socks off to discover that the bank indeed did not have total losses worse than the UK average, and he's comparing a small subset of lending to a particular borrower type, with non-comparable all borrowers national data to come up with an irrelevancy.....

But by then the damage is done.... The thread has moved on. And many people have been mislead.

The Ninja troll has struck.;)

michaels

It is a fine line between illiquidity and insolvency. If circumstances change and you can only borrow at rates much higher than you have lent at then you can very quickly move from the former to the later. Bit of an occupational hazard for a bank which is why you should have enough capital for your lenders not to think you could conceivably become illiquid in the first place.

CLAPTON

michaels wrote: »

It is a fine line between illiquidity and insolvency. If circumstances change and you can only borrow at rates much higher than you have lent at then you can very quickly move from the former to the later. Bit of an occupational hazard for a bank which is why you should have enough capital for your lenders not to think you could conceivably become illiquid in the first place.

no bank in the world runs on that basis; all banks can become illiquid if enough people withdraw their funds

except, of course those like the BoE who can print their own money

HAMISH_MCTAVISH

michaels wrote: »

It is a fine line between illiquidity and insolvency.

Indeed.

And illiquidity will lead to insolvency if it's not addressed.

Which is why the BOE must always act as lender of last resort to UK banks when markets become dysfunctional.

It is the job of governments and central banks to ensure markets remain functional. Markets are far from perfect, and can be overcome by irrational fears, causing instability and dysfunction.

That is when central banks must step in to restore order and functionality.

Central banks are the most powerful financial entities on earth. They are the Alpha Predators of the financial world, fully capable of crushing market participants who step out of line.

The reticence of central bankers to use that power in the early stages of this crisis is almost wholly responsible for turning what should have been an easily fixed and simple liquidity problem into a serious and economically devastating solvency crisis.

And history will not be kind to Mervyn King and Gordon Brown as the years go by and it becomes more and more apparent that most of the financial crisis was wholly avoidable, had they not done too little too late....

Thrugelmir

RenovationMan wrote: »

I'm confused with the relevence of your post, Thrug. Are you saying that Clapton was wrong in his post, and that NR did go bust because of mortgagees failing to keep up with payments and that NR bad debts from loans and mortgages were not about the industry average?

Is that what you're saying in your post?

Northern Rock Directors lied about the true state of mortgage arrears from 2004 onwards.

So the "industry figures" that were filed with FSA were incorrect. The business was not operating as well as its accounts suggested.

If the business merely had liquidity problems. Then it needn't have been nationalised fully. The Government could merely have just bought a stake and diluted the other shareholders.

HAMISH_MCTAVISH

HAMISH_MCTAVISH wrote: »

A conversation with Thrug usually goes a lot like this....

Poster-- "XYZ bank did not fail because their loans went bad"

Thrug -- "Ah, but this employee was found guilty of concealing loan losses"

It's only later when you dig into google you find the losses were immaterial, and amounted to the square root of naff all to do with why the bank failed.

Ahhhh, nothing if not predictable.

Thrugelmir wrote: »

Northern Rock Directors lied about the true state of mortgage arrears from 2004 onwards.

So the "industry figures" that were filed with FSA were incorrect. The business was not operating as well as its accounts suggested.

I win today's round of "Thrugelmir Bingo".;)

Because while that statement may indeed be true, it's of absolutely no relevance to why the bank failed.

It failed because it borrowed short and lent long, and no bank with that business model can survive the freezing up of global credit markets.

Their loan book was of no relevance. No bank in their position could have survived without massive liquidity support.

Mikedkt

The other bank runs around Europe seem to be spreading. Greece is having about a billion every day drawn out, Spain a bit less but italy even more. Reports are in Italy and Ireland banks are freezing accounts to stem the flow out. Is it time to start withdrawing cash out of our accounts to beat the rush coming to the uk? I was in the lines outside N rock and it's not nice at all. I had no cash at home and all my wages went into my account. Sudden realization can be scary.

RenovationMan

Thrugelmir wrote: »

Still had £85 billion of mortgage debt. So there's a long way to go before NRAM returns a profit to taxpayers.

Are you really saying that NRAM, or indeed any other lender have to clear their complete mortgage book before they 'turn a profit'?

Are you really saying that? :eek: