northern rock on the news begging for cash

Generali

Doozergirl wrote: »

I thought the BoE had indicated yesterday that they would not be acting as an insurance policy for banks?

The BoE acts as Lender of Last Resort.

a support operation ‘is expected to happen very rarely and would normally only be undertaken in the case of a genuine threat to the stability of the financial system to avoid a serious disturbance in the UK economy’. If the Bank or the FSA identified a problem where a support operation might be necessary, we would inform or consult with each other. The Chancellor would be given the option of refusing a support operation, given that public funds might ultimately be put at risk.

One of the top 10 mortgage lenders going bust could reaonably, IMHO, be described as being a 'serious disturbance'.

Debt_Free_Chick wrote: »

Not least because, if the whole system went t!t$ up, the even the BoE probably wouldn't have enough money.

It's not possible for the BoE to run out of pounds. They control the printing presses! That's how the ECB and Fed have been able to add short term cash to the markets over the past few weeks. Just print a few more $/€.

Doozergirl

Has anyone got a real job they could offer me?!

WTF?_2

Debt_Free_Chick wrote: »

Not least because, if the whole system went t!t$ up, the even the BoE probably wouldn't have enough money.

But I think you're both misunderstanding the situation and misrepresenting it.

NR are not suggesting that savers have or are about to lose their money.

Like all other lenders, NR borrow money from the "market" to lend to those who want mortgages. NR have gone to the BoE to say "we have promised to lend more money, than we can borrow from the market. Can you fill the shortfall?"

The BoE have said "yes, OK". You have to make a judgment about the BoE's motives for doing this. If the BoE thought that NR could not honour that loan, would the BoE have lent the money? We're talking about the toughest lender in the Country, when we refer to the BoE.

I'm not sure how you've made the connection that savers with NR might lose out - have I missed something?

You've kind of missed the fact that if NR hadn't got emergency funding from the BoE they'd be insolvent. :rolleyes:

In that case anyone with more than 3k of savings would lose something (if only 10%). Anyone with over 35k would lose all the excess.

Don't worry though folks, they'll be bailed out to avert a crisis in the system and the only casualty will be 'the pound in your pocket' as inflation takes off thanks to artificially low interest rates and the money presses operating at maximum speed to inflate our way out of trouble.

MarkyMarkD

NR's bad debts are far better than many other prime lenders. To call them sub-prime is mis-understanding the expression.

The US sub-prime disaster was based on lending people far more than they could realistically afford, on very low short-term fixed rates. When rates expired, the borrowers couldn't make the payments and defaulted.

That's not what's happening here. The UK sub-prime "disaster" (and it's nowhere near that at this stage) is causing sub-prime lenders to price their loans up significantly, primarily due to the LIBOR rates the lenders are having to pay to get funding. And some sub-prime lenders will be unable to securitise their mortgages, and will go bust - indeed, one already has. But again, no individual savers have lost any money, because the institution involved wasn't funded by retail savers.

Abbey is the only prime lender to have increased its variable rates for new mortgages.

If NR was genuinely facing a funding crisis, they would have stopped lending. They haven't.

All that's happened is that the BoE has covered a short-term funding issue. You might recall that they've done this for Barclays a few weeks ago and, indeed, they do it all the time for various banks.

Guy_Montag

I think the complete failure of the UK (or better world) financial system might be quite good fun. Would be a bit of an un-rest cure for us all.

Debt_Free_Chick

Generali wrote: »

The trouble is, banks like Lehmans and Goldmans have huge amounts of loans on their balance sheets that really shouldn't be there (they should have been sold but there aren't the buyers). Big European banks have bought a lot of crud and are going to have to mark it to market (take the loss on to their books) at some point.

But they don't lend to housebuyers. They're investment banks - they lend to companies and governments. In general, they're a middle man, where a company/government needs to raise finance. The money they lend is backed by collateral in the form of stocks & shares, rather than residential property. I don't deny that "lending is lending", but I understood that the current credit "crisis" is about concern over individual consumer credit - rather than doubt about Companies' or Governments' ability to repay their debts.

It's inconceivable that we utter the words "Goldman Sachs" and/or "Lehmans" in the same breath as NR, HSBC or any other retail bank. Am I mad (don't answer that )

It's a different world .....

MarkyMarkD

!!!!!!? wrote: »

You've kind of missed the fact that if NR hadn't got emergency funding from the BoE they'd be insolvent. :rolleyes:

In that case anyone with more than 3k of savings would lose something (if only 10%). Anyone with over 35k would lose all the excess.

Don't worry though folks, they'll be bailed out to avert a crisis in the system and the only casualty will be 'the pound in your pocket' as inflation takes off thanks to artificially low interest rates and the money presses operating at maximum speed to inflate our way out of trouble.

This is complete cobblers, !!!!!!? Please stop scare-mongering.

If NR hadn't got emergency funding from the BoE, that would mean that they'd failed to settle their positions at the end of the day involved. That's all. It doesn't make them insolvent in any meaningful sense of the word.

And it certainly doesn't mean that they are instantly into default on their savings balances.

After settling statutory debts like taxes and salaries, retail savings balances are the first thing to get settled.

Nenen

Generali wrote: »

Thanked you by mistake. I'll make a point not to thank you next time you make an excellent point!

:rotfl: :rotfl: :rotfl: :rotfl: :rotfl: :rotfl:
Generali, I love your thinking! Only someone with as much financial savvy as you would think in terms of 'loaning' me a thanks and me having to pay it back sometime!!! Just hope you don't charge me interest!

Seriously... thanks for answering my question about the possible effects of NR situation on house prices. DH and I are financially incompetent (have always managed to sell low and buy high in the past)! We are desperate to avoid doing so once again. Currently renting a house in a very expensive area while we look for something we like/can afford (sold ours in much cheaper area last March). Now wondering if we should sit tight and keep on renting rather than rush into buying????
Wish I had a crystal ball!

Doozergirl

MarkyMarkD wrote: »

All that's happened is that the BoE has covered a short-term funding issue. You might recall that they've done this for Barclays a few weeks ago and, indeed, they do it all the time for various banks.

So is it media hype?

I do recall the Barclays thing - is it really something that happens all the time that we don't hear about or are these two instances real news?

Debt_Free_Chick

!!!!!!? wrote: »

You've kind of missed the fact that if NR hadn't got emergency funding from the BoE they'd be insolvent. :rolleyes:

Rubbish .... with respect