Banking Crisis - Bear Stearns (US's Northern Rock Scenario) impact on UK

Henwen

The more I read about the banking crisis here and in US, the more I think that there is a big element of scaremongering and psychology involved. I seriously think that journalists and the press and some influential commentators in the City have talked us all into a much bigger crisis than is necessary. Economics is largely down to control of a country's morale.

Here's the story:
Some banks get short of cash as they lent too much out. They ask the other banks, who get a bit worried and won't lend. Northern Rock and others get in real trouble as they were lending too much before and have to ask Bank of England for a loan.

One stupid bank management team does not equal a crisis. What matters is the reaction. Now, here's where the psychology starts:

Journalists report "imminent banking collapse" to get good headlines. "Banks need to be more careful" is a much less sensational headline. Jittery financiers and bankers then panic and refuse to lend even more. So there is less money in the system and the banking crisis then gets worse.

Savers in NR saw the headlines about NR collapsing and made everything worse by trying to pull out their savings. What would have happened if the FSA or Bank of England simply made NR behave more sensibly for a while and all the savers stayed put? NR might have survived.

Bear Stearns is simply the equivalent of NR but with experienced financiers rather than the ordinary public pulling their money out. They should have been harder to scare so it is slightly more worrying but not much. If the press, radio and TV would report sensibly on what is actually happening, much of the "crisis" would disappear.

Or am I just cynical?

Henwen

sealady

JPM have purchased Bear Stearns as of today! They are now looking at the different banking systems that can we worked together

ashm1

Credit is being repriced to reflect the risk. Mortgage banks will have to raise mortgage rates to rebuild margins, and tighten new lending criteria.

Lots of demand for mortgage funds, and not enough supply.

Is this the end of cheap money in the mortgage market ?

Datasafe_2

Henwen wrote: »

The more I read about the banking crisis here and in US, the more I think that there is a big element of scaremongering and psychology involved. I seriously think that journalists and the press and some influential commentators in the City have talked us all into a much bigger crisis than is necessary. Economics is largely down to control of a country's morale.

Here's the story:
Some banks get short of cash as they lent too much out. They ask the other banks, who get a bit worried and won't lend. Northern Rock and others get in real trouble as they were lending too much before and have to ask Bank of England for a loan.

One stupid bank management team does not equal a crisis. What matters is the reaction. Now, here's where the psychology starts:

Journalists report "imminent banking collapse" to get good headlines. "Banks need to be more careful" is a much less sensational headline. Jittery financiers and bankers then panic and refuse to lend even more. So there is less money in the system and the banking crisis then gets worse.

Savers in NR saw the headlines about NR collapsing and made everything worse by trying to pull out their savings. What would have happened if the FSA or Bank of England simply made NR behave more sensibly for a while and all the savers stayed put? NR might have survived.

Bear Stearns is simply the equivalent of NR but with experienced financiers rather than the ordinary public pulling their money out. They should have been harder to scare so it is slightly more worrying but not much. If the press, radio and TV would report sensibly on what is actually happening, much of the "crisis" would disappear.

Or am I just cynical?

Henwen

If you think the credit crunch is due to media hype then you want to go and read up some more........

Treadmill

Lehman Brothrers stock lost 18% but they look safeish now attention is moving on to somebody else, it almost seems like the market is demanding sacrifices... MF global down 65% looks likely to go belly up next, just issued the usual statement about not having liquidity problems lol

Dan_Collins_2

Greed gets you in the end!

globalds

As I posted earlier ...There is a lot of cash in the global system ...Just not in the traditional countries..
What we are headed for is a transfer of assets
http://www.arabianbusiness.com/514350-emaar-eyeing-bargains-in-west-#continueArticle
This link is about property aquisitions ...
http://www.independent.co.uk/news/business/news/russias-severstal-buys-us-steel-mill-799398.html
Or a steel manufacturer..Admitedly this is a forced sale ...But as a result of a previous foriegn buy out .

Dan_Collins_2

OIL!!! Wonder why Bush wants Iraq to be his friend!

globalds

mircea wrote: »

My axe to grind is about the millions of pounds of bonuses paid to those who work in the Financial Industry. My understanding is:
Joe public spends billions of pounds on gambles taken by a share trader; the trader pushes through bad gambles because they bring him a nice round bonus; and he does it for so long, he causes a total collapse of the financial markets globally. Joe Public pays for the bad gambles. The share trader retires with his million pounds bonuses to live happily ever after.
Am off to become a City trader.

I don't know whether this counts as insider trading or taking risks ...Those bankers are going to get paid even without the bonuses ...
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3607482.ece
Lets just hope it wasn't the management starting the rumours.

After Thursday's acquisition, Mr Hornby owns 721,598 shares in HBOS, worth just over £3.4 million based on the closing price that day of 473p. The speedy recovery in HBOS's share price means that those involved are already looking at a collective profit of £325,000.