Northern Rock

[threaded]

No. It's all going belly up, the chickens are coming home to roost for Gordo. He's well and truly messed up the UK economy and it will be years before you all get out of the mire.

Yet, look on the bright side. Hmm, can't think of one.

[AtW]

If they let it go under that will set a precedent

There should be precedent set, which is that banks that gamble go bust. Same goes for those who bought houses by overstretching themselves - you can't bail out forever.

This Govt can't handle simple things like giving people child tax credits, what makes you think it can run a bank against very competitive private banks? There is zero chance of success - the taxpayer will have to pay and right now the amounts are actually pretty high - £57 bln quoted is not a small change at all, this is double the defence budget, and assuming £2 bln is 1% of income tax (it may have changed but this is the last I heard), then £57 bln is 23.5% increase in income tax, even if we take it over 5 years repayment (you need to factor in interest here - at least 5% pa), then this is over 2% raise in income tax for everyone, and this is for just one bank!.

btw, I am pretty certain Farepak will get nothing - Govt used them to set precedent, but blown billions more to waste that lesson by bailing out NR.

[Sockpuppet]

The big misconception here is that this is money thrown down a black hole. These are LOANS that Northern Rock can repay on the back of assets that it owns(approx 100 Billion pounds in mortgages), once the global liquidity crisis dissipates. Rover would not have repaid this money, that is for sure!!

If NR were such a sure thing for repaying the loans you really think they would have had to ask the govt. to help them out.

They are not able to convince people that they are going to be able to repay so tghe trouble starts. There is plenty of money out there for NR to use...just the larger banks dont think they will see any of it back.

[lukemg]

Level of ignorance around this is staggering, cyberman excepted. Please try to see the whole picture rather than the headlines on BBC (increasingly tabloid presentation) and in the newspapers.
Northern Rock was not reliant on deposits to finance the loans to homeowners, it relied on cash from the money markets. As banks decided to build up reserves due to sub-prime issue, NR could not source enough cash. They have 100 billion in loans that are still being paid back at a rate higher than the money is costing them, allowing NR to pay expenses and achieve a profit.
This will continue regardless of the source of the cash, if all the homeowners decide to pay off their loans and take a mortgage elsewhere - no problem !
All that has changed is the proportion of the cash coming from deposits, which has fallen greatly.
If anything, NR are better off getting the cash from the money markets rather than servicing millions of poxy little bank accounts, which has it's own overhead in branches, admin etc !
Yes, there are complications but the only real caveat is if the housing market crashes and millions default (or they have an excessive proportion of sub-prime mortgage holders). If this happens, virtually every bank will be in the sh!t too.

[Ruprect]

The govt did prop up Rover, to the tune of about £50M IIRC. It was, coincidentally about a week and a half before an election

[BrowneIssue]

Level of ignorance around this is staggering,

It is not just ignorance. We have been lied to so many times about so many things, that this just looks like a way of robbing the Treasury to line their grubby pockets before they lose control of government.

That's why us ignorant ones reckon this money is not going to come back: experience.

[rootsnall]

If anything, NR are better off getting the cash from the money markets rather than servicing millions of poxy little bank accounts, which has it's own overhead in branches, admin etc !

That's the problem though, the money markets won't give them any more cash. No government intervention with our cash and they would of gone under by now when loans were called in and they couldn't pay them. They should of been allowed to go bust and the government picked up what was left for free, as it is we the taxpayer will end with a big bill and the institutions who lent them money will get off for free.

[NoddY]

Level of ignorance around this is staggering, cyberman excepted. Please try to see the whole picture rather than the headlines on BBC (increasingly tabloid presentation) and in the newspapers.
Northern Rock was not reliant on deposits to finance the loans to homeowners, it relied on cash from the money markets. As banks decided to build up reserves due to sub-prime issue, NR could not source enough cash. They have 100 billion in loans that are still being paid back at a rate higher than the money is costing them, allowing NR to pay expenses and achieve a profit.
This will continue regardless of the source of the cash, if all the homeowners decide to pay off their loans and take a mortgage elsewhere - no problem !
All that has changed is the proportion of the cash coming from deposits, which has fallen greatly.
If anything, NR are better off getting the cash from the money markets rather than servicing millions of poxy little bank accounts, which has it's own overhead in branches, admin etc !
Yes, there are complications but the only real caveat is if the housing market crashes and millions default (or they have an excessive proportion of sub-prime mortgage holders). If this happens, virtually every bank will be in the sh!t too.

And what a caveat that is.

Perhaps the banks know their colleagues have lent recklessly because 'risk was underpriced'. It's the fundamental reason why liquidity is frozen - lack of trust because they are worried that the other guy might have done what we done. Guilty faces all round.

[Dow Jones]

Rescue

I find myself for the 1st time agreeing with my dear Russian friend here. The initial decision to provide liquidity was correct (after all, look at what's happening now - central banks are throwing tons of money to avert a crisis) however the way it was taken (hesitantly and publicly) and the ensuing melee of people wanting their money out has resulted in a huge propping up with billions of £ and no end in sight. NR had a business plan that guaranteed expansion at a phenomenal rate (in less than 3 years, it got to 1st in residential and 2nd in BTL with about 1/5 of the total market) with one flaw (dependance on foreign and cheap markets).
It's no coincidence that half of the contractors that I know (including myself) have 1 or more mortgages with NR.
The bad news for everyone (not just the existing NR customers) is that potentially borrowing may become much more expensive for most - or even unavailable for some.

[AtW]

If anything, NR are better off getting the cash from the money markets rather than servicing millions of poxy little bank accounts, which has it's own overhead in branches, admin etc !

How is it NR better off if they almost went bust because all that (as they assumed) readily available money stopped being available? It has been known in banking for a long time that customer deposits have got much more inertia in them - you give some teasing interest rate, people put in their cash, then they forget to move account after 6 months when teaser rate expires, so bank profits. When you deal with other banks they don't forget these things.

No one is talking right now to what kind of people NR was lending - they were certainly not top prime customers, though probably not as bad as loan sharks were lending to. Either way quality of customers who were lent money is suspect (by me at least) and in principle assets that they have might go down in price next year big time.