August 9, 2007 at 18:01 #4823
Yes .. its new jingle time .. Credit Crunch .. it appears that the economy in the US is about to fall over with people borrowing money and then not paying it back. This could cause another recession.August 9, 2007 at 20:40 #110972stevedvgMember
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Dave, you don’t know what you’re talking about.
It’s perfectly possible for people to keep borrowing greater and greater sums that they’re incapable of paying back.
C Vorderman (Miss)August 9, 2007 at 23:40 #110989
Quite so Steve, a bit like the banks trying to become loan sharks but not being allowed to take peoples kids as collateral ?
I think this has been caused by banks lending money to private loan shark companies who lend the money out to high risk groups who then don’t pay it back when the property market falls in value, as it will in the uk soon.September 14, 2007 at 19:26 #114991
I can’t believe what an astute basterd I am .. I hope you all got shot of your shares.
Lack of liquidity can kill the economy dead .. same scenario as 1990, when the world bank wrote off a load of theird world debt.September 14, 2007 at 20:01 #115002wilsonlParticipant
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Very true Dave but the majority of UK investors will not hold shares. They’ll have U.T’s that are comprised of underlying companies and therefore wont easily see the risk.
Believe me, fund managers aren’t dumping at the moment and with the introduction of MiFID soon, the U.S market will have much less bearing on the UK.
Europe is fast overtaking the US in terms of investment potential so let them keep thinking that they’re financially stable.
LeeSeptember 14, 2007 at 23:21 #115039
Mmm .. I think this may be another enron type fiasco, with people lending money against assets that don’t exist.
The true face of capitalism.September 17, 2007 at 16:25 #115349
Will Northern Rock go to the wall .. and why is the bank of england bailing them out, this is just throwing good money after bad ??September 17, 2007 at 18:58 #115366insomniacParticipant
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I’m genuinely pleased that the government/B of E has guaranteed Northern Rock savers’ monies. Nonetheless, it is a legitimate question to ask "why the f@ck should the taxpayer bale out private businesses that have hit hard times?"
Should the taxpayer also bale out failing builders. farmers, bookmakers, bordellos, breweries, car makers, coal-mines, sedan-chair makers?September 17, 2007 at 19:06 #115369
I’m not totally ‘down’ with the details, insomniac, but as I understand it, the Bank of England is a profit-making organisation, and is not propped-up with tax-payers money.
And I’m not entirely sure that Northern Rock can be classed as a ‘failing business’ either. Again, my understanding is that they have an immediate cash-flow issue, due to the current reticence of financial houses to loan to each other. NR will still post handsome profits for the year, as I understand it.
My interpretation is that Northern Rock is collateral damage from the sub-prime lending fallout, and it’s troubles are only indirectly related to that fiasco.
I could be wrong though.
Where’s wit? He’s a cert know it chapter-and-verse.September 17, 2007 at 19:12 #115370insomniacParticipant
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Fair comment GH – maybe it’s not taxpayers monery that props up the Government’s / B of E guarantee. (And like I said, I’m genuinenly pleased that peoples savings aren’t going to go down the pan.)
Even so, NR is a commercial business with a board of directors,CEO, dividend benefitting shareholders who presumably know that the value of shares can go down as well as up so… would such/should such Government backed largesse be made available to other businesses?September 17, 2007 at 19:15 #115371rolandMember
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He’s probably stuck in a mile long que in his highstreet.September 17, 2007 at 19:19 #115373
… would such/should such Government backed largesse be made available to other businesses?
I guess it comes down to whether you think there should be protections for people who have already invested their money or not.
I see this BoE loan more like ABTA stepping in when a holiday company goes tits-up, myself.September 17, 2007 at 21:27 #115396
Agree their a profit making organization and somewhere in between that they try to look after the interestes of the country [possibly?] but what other bank does tax payers money go to please? Surely taxes go to the treasury which in tern the chancellor gets a say in how much goes on public spending. Are the treasury and the Bank Of england two different things?
No idea. Try googling it.September 18, 2007 at 22:48 #115519stevedvgMember
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And I’m not entirely sure that Northern Rock can be classed as a ‘failing business’ either. Again, my understanding is that they have an immediate cash-flow issue, due to the current reticence of financial houses to loan to each other.
It goes deeper than that.
NR’s problem is that they’ve got a whole load of shiite on their mortgage books.
This means they’re seen as a particularly bad risk (expected to have a high level of mortgage defaults in the next few years).
However, their willingness to write mortgages that others wouldn’t touch, without charging a sufficiently high premium to the borrowers has been their selling point and is a reason behind their growth.
Now that there appears to have been an economic downturn, this is surely just the crows coming home to roost.
However, on the flipside, there’s the questions “who’s money have they been gambling with?” and “did those people know what was going on?” and “should they be lose out because of NRs risky dealings?”
Just my 2p.
(which isn’t underwritten by the BoE)
SteveSeptember 19, 2007 at 07:01 #115528
My understanding of the way this works goes something like this; mortgage brokers (sub-prime, meaning small companies) borrow lumos of cash from the big banks. They then lend this money out to anyone that wants it. The big banks then trade these lumps of debt plus projected interest bewteen one another. The value of this debt is projected to grow as the money is bled out of the borrowers. What has happened is that the value of these lumps of debt has actually been called into question, a bit like the value of Enron’s assets did.
I’m not an expert but I like to think I can smell a scam out. NR seem to have just been unlucky here. Unless of course they could actually be called a sub-prime?
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