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

fc123

Just a quicky on the impact of the whole thing (with all the debate and feelings of "something not quite right".
I own a large boutique in Brighton....this summers trading was up one minute and down the next, mainly due to the weather.....we expected Sept to be slow BUT the day after the NRK, our sales fell through the floor! A certain customer just vanished.
Our Sundays are cosy couples day", down from London for the w/end..probably city workers as a weekend in Hotel du Vin doesn't come cheap...they have vanished too.

The impact of this on tiny me is; busted cashflow for the past 2 mnths (just caught up thank goodness) as our budgets are based on predicted sales (and have been at this for 20 yrs so pretty much know the game) and a real feeling of caution................spending NOTHING at the moment on a personal level....how many others are in ouir situation??

Generali

dolce_vita wrote: »

Another top post from "the inside" so to speak.

I've no doubt most of it is true (even if I don't understand the jargon)

In simple terms, the idea behind securitisation is that you can use a stream of income to secure debt in the same way you can a physical asset.

You get a mortgage. You borrow money from the bank and put up the house as security. If you don't pay back the money, the bank sells the house and gets its money back that way. Because the bank is more likely to get its money back it charges less interest.

You are David Bowie. Your back catalogue sells a reliable number of CDs each year so you there's a reliable income stream. You can thus use that income stream as security against borrowing money. If you default, you lose the rights to your back catalogue (he did that and raised a load of cash, huge amounts). That's securitisation.

Securitisation is used to turn all sorts of income streams into lump sums of cash. One of those ways is to take a load of mortgages (the mortgage repayments are the income stream) and borrow against it. That's what Northern Rock has been doing (in part).

Once you go down that road, you can take a load of these 'securitised' mortgages, and borrow against that income stream. That's a CDO. You can turn a bunch of CDOs into a new securitisation and that's a CDO squared. Then cubed, etc....

It's a bit of an oversimplification really but that's roughly whats happened and it's not a bad thing necessarily. The problem comes if you don't work out the risk of default properly. That's what's caused the credit crunch.

dolce_vita wrote: »

The thing is though Gen, sometimes one doesn't need experts to tell that something is "not right".

Like you "don't need a weatherman to know which way the wind blows"

Even to the layman, it's almost tangible- in that you can feel that there's a whole pile of !!!!!! waiting to blow.

Yeah.

http://www.slough.info/slough/s09/s09p03.html

Come friendly bombs and fall on Slough!
It isn't fit for humans now,
There isn't grass to graze a cow.
Swarm over, Death!

Come, bombs and blow to smithereens
Those air -conditioned, bright canteens,
Tinned fruit, tinned meat, tinned milk, tinned beans,
Tinned minds, tinned breath.
Mess up the mess they call a town-
A house for ninety-seven down
And once a week a half a crown
For twenty years.

And get that man with double chin
Who'll always cheat and always win,
Who washes his repulsive skin
In women's tears:

And smash his desk of polished oak
And smash his hands so used to stroke
And stop his boring dirty joke
And make him yell.

But spare the bald young clerks who add
The profits of the stinking cad;
It's not their fault that they are mad,
They've tasted Hell.

It's not their fault they do not know
The birdsong from the radio,
It's not their fault they often go
To Maidenhead

And talk of sport and makes of cars
In various bogus-Tudor bars
And daren't look up and see the stars
But belch instead.

In labour-saving homes, with care
Their wives frizz out peroxide hair
And dry it in synthetic air
And paint their nails.

Come, friendly bombs and fall on Slough
To get it ready for the plough.
The cabbages are coming now;
The earth exhales.

dolce_vita

Nice one Gen.
I'm all clear on the bowie bit - but he has got something real and proven to trade and can stand or fall on his reputation and music. And if the banks calls their money in they will have a real asset with a known value.

The NR bit all adds up to crookery though doesn't it. Because the income streams are less secure and the asset's valuation uncertain. so no-one knows what they're buying.

And while we all know that crime doesn't pay it's always the little guy that kops it not the "mr bigs".

Call it gut instinct but I just feel things are going to take a turn for the worse.

I hope this makes sense. But remember I'm no expert on these matters and I've had few drinks.

:beer:

ManAtHome

Generali wrote: »

Ok, fair enough, total assets (lending) = £113,000,000,000.

lol - £113 billion sounds a lot smaller.

If you slapped a quid down on the counter every second, would take nearly 3,600 years to hit that... (and that's less than 10% of BritLand personal debt - scary stuff).

Generali

dolce_vita wrote: »

Nice one Gen.
I'm all clear on the bowie bit - but he has got something real and proven to trade and can stand or fall on his reputation and music. And if the banks calls their money in they will have a real asset with a known value.

The NR bit all adds up to crookery though doesn't it. Because the income streams are less secure and the asset's valuation uncertain. so no-one knows what they're buying.

And while we all know that crime doesn't pay it's always the little guy that kops it not the "mr bigs".

Call it gut instinct but I just feel things are going to take a turn for the worse.

I hope this makes sense. But remember I'm no expert on these matters and I've had few drinks.

:beer:

If you take a loan book and turn it into a bond backed by the income then that should be pretty predictable too. The problem comes if you can't be bottomed to work out the credit risk for yourself and get someone else to do it for you. And that someone else is being paid by the issuer of the bonds rather than by you, the buyer.

The credit rating agencies, paid as they were by the issuers of the bonds, decided to take an optimistic view of the chances of the underlying debt being repaid.

It would probably be slanderous to quote the old saw, "He who pays the piper calls the tune" in the same sentence as saying something like, "The issuers of debt secured against mortgages paid the ratings agencies to rate that debt. The ratings agencies seem to have done the issuers a favour quite fortuitously by accidentally rating a big basket of sows ears as silk purses."

So of course I won't do it.

ManAtHome wrote: »

lol - £113 billion sounds a lot smaller.

If you slapped a quid down on the counter every second, would take nearly 3,600 years to hit that... (and that's less than 10% of BritLand personal debt - scary stuff).

Billions are very confusing - Americans (and most Brits these days) use 9 zeros. To other people, 9 zeros is 'a yard' (short for milliyard I think)

dolce_vita

Generali wrote: »

It would probably be slanderous to quote the old saw, "He who pays the piper calls the tune" in the same sentence as saying something like, "The issuers of debt secured against mortgages paid the ratings agencies to rate that debt. The ratings agencies seem to have done the issuers a favour quite fortuitously by accidentally rating a big basket of sows ears as silk purses."

Just as I thought : crookery

Generali

dolce_vita wrote: »

Just as I thought : crookery

Maybe. The City seems to be a conspiracy against everyone else as far as I can see. Then again the same can be said of most of the professions.

Anyway, it's been a very long week (best part of 60 hrs) so you'll have to excuse me.

Toodle pip!

nelly_2

I wont even give starving kids in africa 2 quid a month!

and now the labour government makes me give a bank 730 quid

Well i hope them kids in africa dont find out that they aint getting a new kalashnikov for christmas cos of me

Yeah Im all heart

Generali

It's ok Nelly, you've lent NRK money at a good rate of interest. The way things are going you might make a bit on the deal.

[Deleted User]

nelly wrote: »

I wont even give starving kids in africa 2 quid a month!

and now the labour government makes me give a bank 730 quid

Well i hope them kids in africa dont find out that they aint getting a new kalashnikov for christmas cos of me

Yeah Im all heart

I wont invest in any african countrys because (esp not diamonds), somewhere along the line you get the feeling that blood money and torture will be involved.

Same with charitys you dont know where your money will end up, prob in mugabis pocket rather then in a water pipeline.