Panic over?

WTF?_2

Alan_M wrote: »

There's a reason it's never been used, because it will simply never happen, it won't be allowed to happen by capitalism, the value of the banks shares would drop to a certain level making it such good value that it would be bought out in it's entirety.

The only situation under which I could see the guarantee coming into play is in the case of a BCCI or Barings, i.e. fraudulent mismanagement.

So in reality it's purely sentiment.

When has a bank ever catastrophically failed not due to fraud or related fraudulent activities? The government aren't stupid, they only give guarantees in situations where it's never going to be used.

Alan, from reading your posts you have a fantastic ability to deny reality.

NR went to the BoE to ask for a line of credit because if they didn't have this emergency facility from the central bank their business could not continue.

They used aggressive lending tactics to make rapid gains in the UK mortgage market (125% LTV, self-cert, higher salary multiples) reeking of US sub-prime and they used risky practices (borrowing cheap money off the markets and securitizing the mortgages) to fund that expansion - again reeking of US sub-prime.

Now that their gamble has failed, ironically enough as a result of ripples from the US sub-prime crisis spreading around the world, the public are being asked to underwrite the whole mess.


- If the Bank of England hadn't stepped in to offer them emergency credit. they would have been toast.
- If the government hadn't made the unprecedented guarantee to underwrite their deposits, they would have been toast (and a lot of other banks under threat too, unfortunately).

By any measure, the 'Free Market' would have seen this company utterly wiped out.

They are not a success story that suffered from an unfortunate turn of events: They took a huge risk which ultimately failed and they only continue to exist at all thanks to never-before-seen state intervention.

Martinslovechild

dannyboycey wrote: »

If the BOE follows suit and reduces rates, in addition to a house price crash, we will have a recession too. This is a short term solution that will exacerbate the underlying problems further down the line.

But that is likely to happen after the General Election, by which time Gordon will be in control for a further 5 years (if the polls are anything to go by).

dannyboycey

Martinslovechild wrote: »

But that is likely to happen after the General Election, by which time Gordon will be in control for a further 5 years (if the polls are anything to go by).

Bingo! I expect an election within the next 3 months. He'll get in - the s*** will hit the fan, and he'll blame it on everything but the economy HE created.

Alan_M_2

bendeus wrote: »

/off topic, but have to say it/

A very apposite and well-thought-out post.

However,

Would you refer to people on the margins of society or below the poverty line in the UK as 'trash', I wonder? Your tone appears to be sneeringly dismissive of those, both black and white, who constitute the 'have nots' in what is unarguably the most unequal 'Western democratic' (sic) society on earth. 13% of the 250,000,000 residents of the US are officially categorised as living below the poverty line, and in a country with notably low levels of social care, negligible workers' rights and job protection, which furthermore is witnessing the flight of its traditional manufacturing sector south across the Mexican border, and which has seen an increase in both real terms poverty and the gap between rich and poor under the current administration, your ill-informed choice of words are at best ignorant, and at worst, plain insulting.

I was brought up in a council house with only a single parent supporting me. Would you have regarded me as *trash*, I wonder?

If you don't like my phraseology, feel free not to read my posts.

I use colloquial phrases seen daily on chav TV and accepted in such use......or does the phrase chav upset you too?

Alan_M_2

!!!!!!? wrote: »

Alan, from reading your posts you have a fantastic ability to deny reality.

NR went to the BoE to ask for a line of credit because if they didn't have this emergency facility from the central bank their business could not continue.

They used aggressive lending tactics to make rapid gains in the UK mortgage market (125% LTV, self-cert, higher salary multiples) reeking of US sub-prime and they used risky practices (borrowing cheap money off the markets and securitizing the mortgages) to fund that expansion - again reeking of US sub-prime.

Now that their gamble has failed, ironically enough as a result of ripples from the US sub-prime crisis spreading around the world, the public are being asked to underwrite the whole mess.


- If the Bank of England hadn't stepped in to offer them emergency credit. they would have been toast.
- If the government hadn't made the unprecedented guarantee to underwrite their deposits, they would have been toast (and a lot of other banks under threat too, unfortunately).

By any measure, the 'Free Market' would have seen this company utterly wiped out.

They are not a success story that suffered from an unfortunate turn of events: They took a huge risk which ultimately failed and they only continue to exist at all thanks to never-before-seen state intervention.

As I clearly explained, the term Sub Prime is an Americanism that doesn't describe the lending of NR. It is far far worse than anything that is allowed to take place in the UK.

NR are at the riskier end of the market, and they fly pretty close to the wind. Suggesting their business was likely to go bust is falling for all the hype that has lead to the thousands of sheep queuing up to withdraw their money.

Their situation was so "dire" they didn't even draw on the funds that were put in place should they require them, and if you think they would have been allowed to go to the wall then you are truly naive.

It is not in the countries (read governments) best interest to allow NR to go bust.

Whether you think this is ethical or just, is completely irrelevant.

WTF?_2

Alan_M wrote: »

As I clearly explained, the term Sub Prime is an Americanism that doesn't describe the lending of NR. It is far far worse than anything that is allowed to take place in the UK.

NR are at the riskier end of the market, and they fly pretty close to the wind. Suggesting their business was likely to go bust is falling for all the hype that has lead to the thousands of sheep queuing up to withdraw their money.

Their situation was so "dire" they didn't even draw on the funds that were put in place should they require them, and if you think they would have been allowed to go to the wall then you are truly naive.

It is not in the countries (read governments) best interest to allow NR to go bust.

Whether you think this is ethical or just, is completely irrelevant.

It's not about ethics or justice - NR are a failed business entity.

Most businesses would go to the wall under circumstances like this. Because NR are a bank, the BoE/Government will bail them out.

The Government isn't bailing them out because they are basically solvent and just experiencing momentary problems - it's bailing them out because it risks a much greater problem of loss of confidence in the banking system if it doesn't.

So trotting out the BoE/Government line that the business is inherently solvent or else it wouldn't be helped is complete misinformation.

And today the Bank of England did a massive U-turn on it's policy of intervening in the banking markets despite repeated assertions that it would do no such thing over the last few weeks. That follows a large cut in interest rates from the Federal Reserve yesterday even after they had been edging upwards for the last couple of years.

Those sorts of panic measures should tell even the most perennially optimistic that there is a very large financial iceberg approaching.

bendeus

Alan_M wrote: »

If you don't like my phraseology, feel free not to read my posts.

I use colloquial phrases seen daily on chav TV and accepted in such use......or does the phrase chav upset you too?

I wouldn't go as far as to say that your phraseology upsets me, no. More that it demeans you as much as you appear to seek to demean others by using it.

And, FYI, I don't tend to use the word 'chav', no. That may be something to do with the fact that I work with poor people in a very disadvantaged area on a daily basis, and tend to realise that the snidey categorisation of an entire social class is both intellectually bankrupt and unecessary.

Alan_M_2

!!!!!!? wrote: »

It's not about ethics or justice - NR are a failed business entity.

Most businesses would go to the wall under circumstances like this. Because NR are a bank, the BoE/Government will bail them out.

The Government isn't bailing them out because they are basically solvent and just experiencing momentary problems - it's bailing them out because it risks a much greater problem of loss of confidence in the banking system if it doesn't.

So trotting out the BoE/Government line that the business is inherently solvent or else it wouldn't be helped is complete misinformation.

And today the Bank of England did a massive U-turn on it's policy of intervening in the banking markets despite repeated assertions that it would do no such thing over the last few weeks. That follows a large cut in interest rates from the Federal Reserve yesterday even after they had been edging upwards for the last couple of years.

Those sorts of panic measures should tell even the most perennially optimistic that there is a very large financial iceberg approaching.

You're finally starting to realise through your own posts that Banking isn't actually a business in most peoples understanding of the terminology.

I disagree that they would have gone to the wall had the bank not stepped in, they would have secured funding elsewhere even if that meant a complete buy out, at what I'm sure would have been a heavily discounted rate.

As I stated before, it simply wasn't in the countries (governments) interest not to allow them to go without short term funding.

It is for want of a better word an overdraught to solve a short term cashflow problem.

How secure the business model is can only be judged over time, or do you actually know more than the directors of this multi million pound company?

codger

Some wonderful flights of fantasy on this thread, not the least of 'em the contention that Northern Rock is in no more trouble than Barclays.

Really? Barclays is a bank. Northern Rock is a money seller. If that's too difficult to fathom, then substitute "sausages" for "money" and see what happens:

1) Northern Rock retails sausages at a quid a pack
2) Northern Rock doesn't make sausages or own sausages. It just has a supply of sausages.
3) It gets those sausages at 50p a pack.
4) One day though, its suppliers refuse to send through any more sausages.
5) Northern Rock hunts around for alternative sources.
6) There aren't any.
7) Northern Rock, purveyor of sausages to the nation, is out of sausages.
8) Northern Rock is out of business.

But now the UK taxpayer is here to underpin the Northern Rock sausage outfit. So that's all right, then. Problem solved -- except the sausages which the British taxpayer is prepared to make available to Northern Rock certainly ain't going to be at the 50p a pack Northern Rock was used to where its previous suppliers were concerned.

So Northern Rock is still in the frying pan, as it were, along with what's left of its sausages.

As a result of which, Northern Rock's share price is in free fall, its major shareholders are slashing their holdings, and not a single other well-known sausage supplier wants to go anywhere near it with a barge-pole. Never mind a cheque book.

And Barclays Bank is in an identical situation, then?

Alan_M_2

bendeus wrote: »

I wouldn't go as far as to say that your phraseology upsets me, no. More that it demeans you as much as you appear to seek to demean others by using it.

And, FYI, I don't tend to use the word 'chav', no. That may be something to do with the fact that I work with poor people in a very disadvantaged area on a daily basis, and tend to realise that the snidey categorisation of an entire social class is both intellectually bankrupt and unecessary.

What a delicate flower you are.