Northen Rock [Merged Threads]

MarkyMarkD

More than it's got, as in more than it has to deposit with the central bank - yes.

But so what? It's not creating money, as the video suggests. It's using depositors and other banks' money to fund lending.

If banks ran the way the video seems to suggest they should, they wouldn't exist. They wouldn't make anything like the necessary return on capital to justify the risk of investing in a bank.

Most banks make around 20% return on capital. If they funded all loans from their share capital, they'd make less than 1% on average unless rates changed - which obviously they would.

roddydogs

The point is im NOT panicking but i use my savings to fund my current a/c, however it has not been possible to do this for more than 2 days now online, so to my mind the Bank has broken a fundmental agreement that i have with them that the a/c is instant access, not wait a week access!
Luckily i have other a/cs that i can access, but what of the people who dont?
Please dont post that "you got access" this just makes it worse for the vast majority who cant!

caveman38

If as predicted after the continuing run of savers withdrawing their funds and the great many more in the post cashing in theirs. That the NR in the near future will be unable to continue trading in their own name and will ultimately be bought out when the share price has hit rock bottom.
Will the new owners honour all the savings or pass that side of things over to the FSA.
We the savers (if it still is a we) are still in a gamble situation. Cash in and lose interest or trust that our saving will be honoured in full by the new owners.
What do you pro's think?

nickj_2

people probably thought that standard life and barrings bank were safe as houses

PauliPauli

MarkyMarkD wrote: »

It's interesting but it's rubbish.

Banks do NOT create money. They can only lend money which they've borrowed from someone else, whether that is a retail depositor or another bank.

The supposed claim of the video, which is that banks lend money which "they do not have" is missing the point.

Banks DO lend money which is not their own. That's the business of banking. A bank may very easily, as the video suggests, lend out hugely more money than its initial capitalisation. There's nothing wrong with that.

But they are NOT creating money by doing so - they are simply lending out money they have in turn borrowed from others (depositors or banks).

Obviously there are limits on how much they can do this, which are intended to protect depositors against the risk of a run on the bank. And there are other protection measures - such as the Bank of England stepping in as a lender of last resort.

You will note that the video is promoted by a socialist website. IMHO it is trying to make a political point rather than trying to truthfully explain how banking works.

I'd be interested in anybody being able to refute the argument in the video of the final "end game" of carrying on with current "system," not the arguments on the day to day workings of the "system" itself NR has adopted a mechanism which has brought a kind of short/medium term prosperity and will continue to do so for who ever takes them over, but will anybody these days make decisions FOR future generations which will have a corresponding detrimental effect on (quality of life wise) on their current generation? If the current ("now only") system, forces individuals down this short/medium term to live life 1) In prosperity 2) In comfort 3) or "hand-to-mouth" without being able to refute the "end game" the "moral problem"? I'm sure the NR board members with their huge bonuses understand the day to day "monetary system" more then we ever will, but do they think about's its consequences for future generations if their is no alternative "model" to the video's "end game" scenario?

StevieJ

nickj wrote: »

people probably thought that standard life and barrings bank were safe as houses

Have I missed something? What has happened to Standard Life?

[Deleted User]

If NR have issued loans on over 100bn of houses (soon to be 60bn after the crash thats coming) Then they dont need to continually back all of that 100bn with a equal amount of paper as the money is backed by the assets them selfs, so NR only needs to have 10bn in its electronic coffers no?

http://en.wikipedia.org/wiki/Money_creation

StevieJ

http://uk.news.yahoo.com/rtrs/20070916/tts-uk-northernrock-sale-a8bf950_1.html

This article suggests that 6% of savers have withdrawn funds so far, from all the panic around I was of the opinion it was much higher than this ( although this could change).

old_codger1

StevieJ wrote: »

Have I missed something? What has happened to Standard Life?

LOL great stuff... now we're starting a run on standard life

old_codger1

Yant1 wrote: »

If NR have issued loans on over 100bn of houses (soon to be 60bn after the crash thats coming) Then they dont need to continually back all of that 100bn with a equal amount of paper as the money is backed by the assets them selfs, so NR only needs to have 10bn in its electronic coffers no?

http://en.wikipedia.org/wiki/Money_creation

Not sure where those figures come from but the value of the houses they've lent money to buy isn't that relevant. That's the problem of the people that own the houses. Those people STILL owe the money back to northern rock if they've got a mortgage with them so the value of NR's mortgage book is the value of the debts people owe, not the houses which is probably a great deal more.