Northern Rock has borrowed 10 Billion quid

Debt_Free_Chick

Moorepart wrote: »

The simple fact is, if an organisation needs to borrow 10bn from the Government, because other banks who are educated in finance refuse to lend to them because the risk is too high and they rate that company as a dead duck, then it is highly unlikely that the money will be repaid.

Just my view but ....

I think there is less science and more sentiment involved. All lenders have a fear that borrowers (the utimate borrowers i.e. ordinary people) will start to default - for a number of reasons .... higher interest rates mean that their repayments have gone up; other bill increases (e.g. food) mean that their outgoings have increased; BTL properties are not returning sufficient to repay the loans taken out to finance the purchase.

There seems to be little evidence that this is happening now - rather, the lenders fear it will happen in the future. So now they are simply running scared and saying to themselves .... we potentially have some loans on our books that will default. So let's not make the situation worse by lending more money; let's be sure we only lend to those with top-notch credit ratings; and let's cut back what we lend, generally, especially to "wholesalers" (other lenders e.g. NR) as we don't get to vet those who borrow from them.

It's a fear factor - not based on real, hard evidence that borrowers are defaulting, or that they are about to.

I'll go further than that ..... it's based on the US sentiment. But as most banks have a huge chunk of their business in the US they're cutting back on lending globally in the hope that they recoup any losses they suffer in the US.

Just my two penn'th

Generali

Moorepart wrote: »

you assumption is that Northern Rock has the ability to pay the money back.

The simple fact is, if an organisation needs to borrow 10bn from the Government, because other banks who are educated in finance refuse to lend to them because the risk is too high and they rate that company as a dead duck, then it is highly unlikely that the money will be repaid.

When Northern Rock fold in three weeks time,(I hope they do) how will the Bank of England get the 10bn back ?

Or will Defr, or the NHS lend it to the Bank of England ? Who in turn borrows it from the Taxpayer.

Would you lend 10bn to a company with such strong affiliation to the Labour Party that it has acted so irresponsibly over the past yearss, confident that their cronies will bail them out.:huh:

The BoE only lends against collateral. They have relaxed their collateral requirements. Unless you are claiming that all Northern Rock's mortgages have no value (in effect that not only will no further payments be made on any debt to NRK but also that the collateral is worthless) then NRK will not default for the full £10 billion even if there is a run on all of their deposits.

None of the banks are lending to each other, there is nothing unique about NRK failing to get funding in the money markets. NRK's problems stem from the fact that they raise a higher proportion in the money markets than other UK banks.

They needed to borrow short term money until the money markets unfroze. That spooked depositors and caused a run. Lots of other UK banks have borrowed money in the same way (according to market rumour at least). The thing is that they borrowed it from the ECB and the ECB doesn't have to tell the markets.

I am a banker and used to work in money markets so have a reasonable idea how the money markets work.

Moorepart wrote: »

You have obviously studied economics in a Labour controlled Comprehensive School.

To patronise - a very long and complicated word that means to talk down to.

I've got a degree in economics and have worked in banking for more than 10 years. What qualifies you to comment on NRK except access to a computer?

benb76

Moorepart wrote: »

New Labour who refuse to provide housing for the needy, yet spend 10Bn of tax payers money on their cronies failed business activities. :mad:

the BofE is LENDING the money, at 6.75%, or 675 million quid a year.

that would buy a few schools and hospitals blah blah blah....

benb76

Moorepart wrote: »

You have obviously studied economics in a Labour controlled Comprehensive School.

what an utterly blinkered snob you are, myself and some of the most intelligent people I know went to state funded comps.

Moorepart wrote: »

When Northern Rock fold in three weeks time,(I hope they do)

why would you want that, some sort of sick schadenfreude?

BobProperty

Moorepart wrote: »

When Northern Rock fold in three weeks time,(I hope they do)....

benb76 wrote: »

why would you want that, some sort of sick schadenfreude?

Might have some big puts in place? (goes to check share price quickly)

Debt_Free_Chick

Moorepart wrote: »

It is a misappropriation of of public assets, the company should now be wound up and the receivers called in to pick over the remains and sell off what little assets remain, before the public find themselves funding yet another New Labour Party disaster, funded from the back of hard working British Families.


New Labour who refuse to provide housing for the needy, yet spend 10Bn of tax payers money on their cronies failed business activities. :mad:

I think there's some confusion here.

The Bank is a separate commercial organisation. It's income comes from its activities - it is NOT funded by the taxpayer. Quite the opposite really - when the BoE makes a profit, half of it goes to HM Treasury. So it CONTRIBUTES to the tax coffers - it doesn't DRAIN the taxpayer.

The BoE - NOT the taxpayer - is lending money to NR.

Darlings (rather hollow) promise to compensate savers who lose money in NR means nothing, as savers are not at risk of losing their money. The statement was made to stop those who did not understand the system from taking their money out of NR and, potentially, creating (yes, creating) NR's downfall.

I rather suspect that the money would have come from the Financial Services Compensation Scheme anyway. Certainly, the intention is that any new guarantee on savers' deposits (rumoured to be raised to £100k) WILL come from the FSCS and NOT the taxpayer. Having said that, the taxpayer will, in a round about way, pay for any claims on the FSCS - as it's funded by a levy on the financial institutions who, in turn, pass it on to their customers. Most of whom are also likely to be taxpayers.

But the point is that there has been no use of taxpayers money to lend to NR.