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"Breakeven Crash Requirement"
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who died and made you king of defining what percentage is and is not a crash?
I haven't defined anything. You said 20% and specifically defined the 20% as "a pretty big crash". I simply responded to you.20% is quite a big crash
Like shooting fish in a barrel this is.0 -
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I don't know what to say to you graham, just good luck and best wishes.
Maybe when you are another 50,000 post older we can have a worthwhile discussion0 -
Graham_Devon wrote: »You may remember a couple of banks that are no more.
Northern Rock and Bradford & Bingley.
There is a reason they are no more. One of the main reasons is they were so up to their neck in the type of mortgages you talk about.
There was, therefore a reason for tighter regulation of the mortgage market.
That's just complete fantasy. Utter drivel.
Northern Rock did not fail as a result of the defaults from UK residential mortgage lending.
In fact the Northern Rock loan book, comprising the worst of the worst of UK mortgages, has made BILLIONS of pounds of profit for it's new owners since nationalisation.“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 -
Graham_Devon wrote: »WHY couldn't they get funding when other banks not offering the types of loans the 2 failed banks were offering, could? .
The reasons for the credit crunch and resultant banking crisis are well documented and clearly understood and NR "Together Mortgages" had the square root of naff all to do with it.
First, the Credit Crunch:
The credit crunch was a direct result of one thing and one thing only.
American banks bundled some truly horrific sub-prime loans together and with the complicity of ratings agencies, mis-sold them on the global markets as AAA investments. These were bought by pension funds, banks, investment funds, etc all over the world.
To illustrate the scale of the problem, a new word was invented. The NINJA loan.... No Job, No Income, No Assets. Ignorant people were being mis-sold these loans on an epic scale. People without a job, without any income, and without any assets were being give $500,000 mortgages on a 1% introductory teaser rate, with no understanding the rate would revert to 5% within a year or two and the loan would inevitably default.
And then of course, the inevitable happened. American sub-prime mortgages started defaulting in very large numbers, up to 30% of loans written by some lenders, and the losses caused the biggest US sub-prime lender, New Century Financial, to file for bankruptcy in April 2007.
Contagion then started to spread throughout the American financial system as the scale of these mis-sold American sub-prime backed AAA investments was realised. And just 3 months later, in July 2007, Bear Stearns Investment Bank, one of Wall Street's biggest, announced that investors in two of it's hedge funds would get little, if anything, back on their investments.
At this point, the contagion goes global.....
By August 2007 BNP Paribas announce that investors will get nothing back from two of it's funds because it can't value them, owing to "complete evaporation of liquidity from the system".
Banks all over the world stop lending to each other, and the wholesale money markets dry up, because nobody knows who owns these American mortgage backed obligations, how big the problem is, and who will be left holding the bag.
At this point the ECB pumps 200 Billion Euros into the system to fight the liquidity crisis, and the Federal Reserve, Bank Of Canada, and Bank of Japan also intervene.
By September 2007, the LIBOR interbank lending rate, the rate at which banks lend money to each other to fund consumer lending such as mortgages, rose to 6.8%. UK banks started hoarding capital, and UK wholesale funding dried up.
Those banks whose business model relies most heavily on access to wholesale funds, such as Northern Rock, start experiencing a cash flow crisis and turn to the Bank of England as lender of last resort.
Word of this gets out in the media, and we have the first run on a UK bank in 150 years. The UK government steps in to guarantee deposits at Northern Rock, and the run ends.
But it's not just Northern Rock that's in trouble.
ALL of the UK banks are having trouble accessing funds.
It makes no difference whether you're Northern Rock, RBS, HSBC, LLoyds TSB, or BOS, the global wholesale money markets have frozen up, and whether you're a good lender or a bad lender is immaterial.
The financial system was in melt-down.
And absolutely none of this so far has anything to do with UK mortgage lending standards, UK sub-prime, UK mortgage default rates, or UK house prices.
Which brings us neatly around to point 2......
The wholesale lending markets, UK banks, UK lending standards:
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 supposedly "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 higher LTV lending 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", is still profitable to this day. It made over £1,000,000,000 (One Billion pounds) profit in just the last 2 years.
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”0 -
HAMISH_MCTAVISH wrote: »That's just complete fantasy. Utter drivel.
Northern Rock did not fail as a result of the defaults from UK residential mortgage lending.
In fact the Northern Rock loan book, comprising the worst of the worst of UK mortgages, has made BILLIONS of pounds of profit for it's new owners since nationalisation.
You say it was utter drivel, but then go on to agree with me, without realising it possibly, by stating they had "the worst of the worst of UK mortgages".
Many people have taken you to task on looking at the profits from the loan book, so theres no need to go over it all again. Same goes for the wall of text above you have copied and pasted - you've stated it and it's been disagreed with so many times (not just by me) I'm not sure why you have posted it again.0 -
Graham_Devon wrote: »You say it was utter drivel, but then go on to agree with me, without realising it possibly, by stating they had "the worst of the worst of UK mortgages". .
A profitable loan book is a profitable loan book.
Simple as that.
A bank which has a profitable loan book cannot be taken down by the defaults which come as a result of lending standards for that profitable loan book.
This really isn't rocket science Graham....“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 -
Graham_Devon wrote: »the wall of text .
Anyone who claims there is a simple answer to a complicated question is an idiot.
I don't post meaningless soundbites that are demonstrably wrong.;)
Perhaps you could learn from that....“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: »A profitable loan book is a profitable loan book.
Simple as that.
Hehe.... fish are shooting themselves now
HAMISH_MCTAVISH wrote: »Anyone who claims there is a simple answer to a complicated question is an idiot.
.
Anyway...
It's not in Northern Rocks case as you ignore the money that had to be ploughed into it and the fact that all the "bad" stuff was put in a bad bank. Clearly if you syphon off all the decent loans, you'll end up with a profitable loan book. The point being, they didn't have that profitable loan book to begin with.
It's like seperating your loss making shares from your profit makign shares and then claiming if you look at your profit making shares in isolation, every single share you have bought has made a profit. Ignorance is bliss, as they say.
But anyway, like I say, no point in doing this for the 18th time. Others are far more eloquent than I in disagreeing with you on this.0 -
Graham_Devon wrote: »It's not in Northern Rocks case as you ignore the money that had to be ploughed into it and the fact that all the "bad" stuff was put in a bad bank.
Good Grief...
It's the so called "bad bank" that has been spectacularly profitable!!!
http://www.thisismoney.co.uk/money/markets/article-3127261/Bad-bank-hits-profit-Lender-set-deal-wreckage-Northern-Rock-Bradford-Bingley-profitable-RBS-TSB-Virgin-Money-together.html#ixzz3y1USrP6KBritain’s ‘bad bank’ – set up to deal with the wreckage of Northern Rock and Bradford & Bingley – is more profitable than Royal Bank of Scotland, TSB and Virgin Money put together.
UK Asset Resolution (UKAR) posted an 11 per cent jump in profits to £1.4billion for the year until the end of March.
How could you not know this???“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
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