Carney guarantees low rates on breakfast tele

Thrugelmir

wotsthat wrote: »

Having guaranteed the deposits would it have been so bad to let the bank go bust and let the market find the price? I can see a reason to bail out Lloyds and RBS but did Northern Rock or HBOS, for that matter, really represent a systemic risk to the UK's financial system?

Around 10% of the entire UK mortgage outstanding book was on its books. So the Treasury was in effect forced to take control.

Hence the issue of too big to fail. Banks need to reduced in size (asset wise). Barclays currently lends a £100 for every £3 if equity. So if it's assets fell in value by 4% then technically it would become insolvent.

This is why the thrust is still on getting the banks knocked into shape. As GFC 2 could become a reality if another trigger was pulled. That cascaded around the system.

wotsthat

CLAPTON wrote: »

I'm a bit confused here

when you say guarantee 'depositors' do you mean all depositors i.e. companies, local authorities, charities as well as 'personal' customers?

Local authorities, charities & companies deposited money on the basis that there wasn't a government guarantee (I hadn't realised there was no guarantee whatsoever in place). Yes there's an argument that government should have helped those organisations affected but 100% of deposits no questions asked - that's debatable.

My employer owes nothing to anyone other than suppliers on payment terms, has c£20m cash in the bank and resisted the temptation to make the balance sheet 'more efficient' during the noughties. I know the FD loses sleep about the cash - that's as it should be.

Company FD's could have parceled this money up and spread it across different banks and institutions but accepted that the return would be lower than if 100% of funds had been placed with a single 'best buy' provider (that's what we do). Individuals could have parceled up in convenient guarantee size chunks

The government treated organisations and individuals that deposited 100% of their cash in, say, Icesave exactly the same as those that didn't. An effective reward for misunderstanding risk.

wotsthat

Thrugelmir wrote: »

Around 10% of the entire UK mortgage outstanding book was on its books. So the Treasury was in effect forced to take control.

They took a pragmatic decision but weren't forced.

When businesses go bust their assets are sold and creditors queue up to see what crumbs are left. This has happened with some quite large companies - would it have been impossible to do the same with a small regional bank?

CLAPTON

Thrugelmir wrote: »

Around 10% of the entire UK mortgage outstanding book was on its books. So the Treasury was in effect forced to take control.

Hence the issue of too big to fail. Banks need to reduced in size (asset wise). Barclays currently lends a £100 for every £3 if equity. So if it's assets fell in value by 4% then technically it would become insolvent.

This is why the thrust is still on getting the banks knocked into shape. As GFC 2 could become a reality if another trigger was pulled. That cascaded around the system.

Sorry but you totally misunderstand the situation.

There is ABSOLUTELY NO REASON to bail out the mortgage book when a bank fails.

Mortgages are a wonderful asset: people pay their mortgage whether or not the lender is bankrupt.

What is bailed out is the people's, businesses, council's, charities SAVING.

It is the SAVERS that are bailed out.

Thrugelmir

CLAPTON wrote: »

Sorry but you totally misunderstand the situation.

There is ABSOLUTELY NO REASON to bail out the mortgage book when a bank fails.

Then you need to consider the implications of your statement. The consequences that would ripple out to the wider economy. Lehmans was purely an investment bank and look at the damage their was caused by their demise.

CLAPTON

Thrugelmir wrote: »

Then you need to consider the implications of your statement. The consequences that would ripple out to the wider economy. Lehmans was purely an investment bank and look at the damage their was caused by their demise.

bizarre....................

wotsthat

Thrugelmir wrote: »

Then you need to consider the implications of your statement. The consequences that would ripple out to the wider economy. Lehmans was purely an investment bank and look at the damage their was caused by their demise.

Letting Northern Rock go bust, or bailing out savers in a different way, would have led to different outcomes - some good, some bad.

There's no point in being blinkered enough to think that the action the government took was the only option or that the bailout couldn't have happened in a different, perhaps better, way.

I find it quite strange that you'll happily question Gordon Brown's judgement leading to the crash but strongly defend his bailout strategy.

Thrugelmir

wotsthat wrote: »

I find it quite strange that you'll happily question Gordon Brown's judgement leading to the crash but strongly defend his bailout strategy.

Doubt it was his personally. The various outcomes would have been considered. No one knew the extent of NR's problems. Remember the Directors were filing false information with the FSA. NR continued to advance 125% mortgages after the bailout in Sept 2007 through to Mar 2008. At this time NR was under the control of the Treasury. So the Government actually dug a huge hole of its making. Actually compounding the problem. Rather than tightening up underwriting criteria months earlier.

CLAPTON

Thrugelmir wrote: »

Doubt it was his personally. The various outcomes would have been considered. No one knew the extent of NR's problems. Remember the Directors were filing false information with the FSA. NR continued to advance 125% mortgages after the bailout in Sept 2007 through to Mar 2008. At this time NR was under the control of the Treasury. So the Government actually dug a huge hole of its making. Actually compounding the problem. Rather than tightening up underwriting criteria months earlier.

how many of these loans made between sept 2007 and mar 2008 are delinquent?

Thrugelmir

CLAPTON wrote: »

how many of these loans made between sept 2007 and mar 2008 are delinquent?

Figures aren't published. NR was allowed to continue as it did in the period leading up to it's problems. That's the inherent danger of putting civil servants into a commercial business.