Northern Rock - 23bn borrowed so far and rising...

Generali

The BoE is doing what it should do and that is acting as lender of last resort as well as guaranteeing the stability of the UK financial system.

If the BoE hadn't stepped in to guarantee NRK, then you can bet that A&L and B&B would be next. Then Barclays. In a modern economy, it's not possible just to let banks go bust, the destruction caused in the real economy is too great.

It should be noted that the BoE hasn't printed money to sort out NRK. The BoE can only print money directly by buying back Gilts and then cancelling them. The loan to NRK is a secured loan (secured against NRK's mortgage book) at what is roughly a market rate - it has to be under EU law as if it were a cut-price rate it would be an illegal subsidy. The loan book is pretty solid right now. It may be that it will deteriorate in future (I think it will) but that is speculation, not fact.

The most likely outcome, IMO, is that NRK will be bought out with the equity holders pretty much wiped out. The BoE will slowly turn the screw until the shareholders have no choice but to sell. It'd be too controversial for the shareholders to walk away with much - the Govt isn't prepared to have the 'XXX Hedge Fund makes £Squillions in NRK Takeover Scandal' (Other pages: Did NRK Cause Diana's Death? NRK Ate My Hampster).

fc123

Thanks for taking the time to reply!

dolce_vita

fc123 wrote: »

would love an "expert" view.

Cometh the hour cometh the man.

Top post Gen

[Deleted User]

Guy_Montag wrote: »

I wish I could borrow £23B to buy gold. After all gold has some value, doesn't it? Just think as long as I keep buying £10B worth of gold a month it will keep rising in value, won't it? But what happens when I can't borrow any more to sustain the gold market?

Well according to the market NRK has 500 million value. 23 bn to bail out a market where supply (of money) cant meet demand, obviously money is too cheap!!!

Gold has the value of about 800 dollars per oz. If you were to buy 23B you would shift the price on average youd prob have to pay more like 2000 dollars an oz. Equally on the sale you would flood the market so would get more like 400 dollars an oz. Should you wish to get your hands on a gram of Californium-252 be prepared to shell out a radioactive $27 million.

Just because you dont understand commodities and the market demands dont automatically assume it is stupid.

Warren Buffett
"It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

He is currently betting against the dollar. He is rumoured to have the worlds largest store of silver.

Guy_Montag

Yant1 wrote: »

Well according to the market NRK has 500 million value. 23 bn to bail out a market where supply (of money) cant meet demand, obviously money is too cheap!!!

Gold has the value of about 800 dollars per oz. If you were to buy 23B you would shift the price on average youd prob have to pay more like 2000 dollars an oz. Equally on the sale you would flood the market so would get more like 400 dollars an oz. Should you wish to get your hands on a gram of Californium-252 be prepared to shell out a radioactive $27 million.

Just because you dont understand commodities and the market demands dont automatically assume it is stupid.

Warren Buffett
"It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

He is currently betting against the dollar. He is rumoured to have the worlds largest store of silver.

I think you missed my point somewhat, or rather you did & you didn't. You see what I see, but you didn't see that I saw it. So to spoonfeed it to you:

My point was should I buy £23Bn of gold the price would, as you say, rocket. As long as I keep borrowing huge amounts of money from the BoE & buying gold, the price (though not value) of gold keeps going through the roof. The BoE can keep lending me money because it's secured against gold (now @ £2k/oz) so it's all fine, until that is I can't borrow any more & they ask for it back. I suppose I'd have to seel some gold to repay it, but, err, as you predict, since I've gone from buying to selling, the price drops & when the BoE comes round to repo my sorry @ss they only get $400/oz.


Or as Merv would say "House* prices are a matter of opinion, debt is real".

*In the example above gold.

[Deleted User]

Guy_Montag wrote: »

I think you missed my point somewhat, or rather you did & you didn't. You see what I see, but you didn't see that I saw it. So to spoonfeed it to you:

My point was should I buy £23Bn of gold the price would, as you say, rocket. As long as I keep borrowing huge amounts of money from the BoE & buying gold, the price (though not value) of gold keeps going through the roof. The BoE can keep lending me money because it's secured against gold (now @ £2k/oz) so it's all fine, until that is I can't borrow any more & they ask for it back. I suppose I'd have to seel some gold to repay it, but, err, as you predict, since I've gone from buying to selling, the price drops & when the BoE comes round to repo my sorry @ss they only get $400/oz.


Or as Merv would say "House* prices are a matter of opinion, debt is real".

*In the example above gold.

Get you now, sorry I dont sleep much so am often in my own little world.

Yep same thing really :T

Anyone for pimms? im thirsty

Generali

Guy_Montag wrote: »

I think you missed my point somewhat, or rather you did & you didn't. You see what I see, but you didn't see that I saw it. So to spoonfeed it to you:

My point was should I buy £23Bn of gold the price would, as you say, rocket. As long as I keep borrowing huge amounts of money from the BoE & buying gold, the price (though not value) of gold keeps going through the roof. The BoE can keep lending me money because it's secured against gold (now @ £2k/oz) so it's all fine, until that is I can't borrow any more & they ask for it back. I suppose I'd have to seel some gold to repay it, but, err, as you predict, since I've gone from buying to selling, the price drops & when the BoE comes round to repo my sorry @ss they only get $400/oz.


Or as Merv would say "House* prices are a matter of opinion, debt is real".

*In the example above gold.

The problem you would have is in servicing your debt.

Let's say for the sake of argument that the debt from Guy Montag's Leveraged Gold Investment Fund is rated CC, that is that they are 'highly vulnerable, very speculative bonds' (that's probably better than you'd get but bear with me). You'd be looking at paying about LIBOR+500bps, about 9.8% at the moment (if you borrow at 6 months).

Your fund has taken in investment capital of £2.3 billion so you're looking at borrowing £20,700,000,000. That's going to cost you £2,028,600,000 a year or £169,050,000 a month to service. That doesn't include the cost of office space, auditors, administrators, keeping your capital requirement in shape and getting cabs to lap dancing clubs to be lavishly entertained by your brokers.

If your bet is wrong, servicing your debt is going to wipe out the fund pretty quickly. Buying £23bio of gold is going to push the price up. Being forced to sell it is going to push the price back down. You'll be squeezed on both sides of your investment.

You could try approaching Big Bank to be your Prime Broker on that basis but my guess is that you won't make it past reception, let alone into one of their glass corner offices.

You could try setting up a fund to invest in gold mining companies as they pay a dividend to help you service your debt but you're almost certainly best off sticking with the day job.

BTW, don't forget that the price of the Barbarous Relic is in dollars. The dollar is declining in value so isn't rising as quickly as it at first appears.

If you want to get rich in The City:

1. Get a PhD in mathematics in something that can be applied to trading
2. Use that to become a derrivatives analyst
3. Get lucky with your derrivatives recomendations
4. Keep moving around and getting bigger and bigger g'teed bonuses
5. Retire when they sack you for making a bad call - they don't take the bonuses back!

[Deleted User]

As long as we base teh investment on the pyramid with us at the top, limited liability protecting everyone from the recievers and the government picking up the tab. I believe it would be great.

When shall we start, goldicus pyramidus investicus corperatious

The housing market has proven pyramid schemes can be done safely, without liability to those responsible. It has also proven you can grow money from it forever, by just using more and more equity release.

Generali

Good Morning Yant1 - that isn't even the biggest pyramid scheme in town.

The biggest pyramid scheme is the Old Age Pension (the govt one). It's entirely unfunded so is 100% reliant on new money coming in to pay existing claims against it! Hope nobody here's relying on it and if you are then you enjoy beans on toast. People in their 20s and 30s are going to get pretty fed up with paying other peoples' pensions to them.

There's going to be quite a political storm (a real one, not some rubbish manuactured by bored lobby journalists) when an entire generation (baby boomers) realise that they were suckered by a bunch of socialists.

Moorepart

If Northern Rock really continues with business as usual on the cost of the taxpayer, I would expect very nice legal battles of the taxpayer versus Mr Darling and Mr Brown in the not too distant future. I hope they have good lawyerss.

We'll see Applepcornhead and Merv appearing on the MSE forums soon asking how they can consolidate all their loans into one. Seems the UK taxpayer has been forced to give them a blank cheque, thanks to NuLab stupidity.

The UK is knackered, isn't it?

It's as simple as that.