Re: Northern Rock - not just liquidity?


On Sun, 16 Sep 2007 01:40:14 +0200 'abelard'
posted stuff on uk.politics.misc:

On Sun, 16 Sep 2007 00:01:42 +0100, aracari
<aracari@xxxxxxxxxxxxxxxxxxx> wrote:


On Sat, 15 Sep 2007 22:27:00 +0200 'abelard'

ok...i'd tend to regard that as much more than a mere cash-flow
problem unless it were adjudged to be very temporary and the
foundations were known to be seriously solid...

Well it appears that the NR business model has some serious flaws
and risks attached to it. What was needed was effective regulation,
but not the sort of tripe NuLab impose which usually amounts to
political control-freakery and market manipulation.

i'm not following the details closely but this looks surreal to me....
how could anyone go for aggressive lending model as the squeeze on
borrowing develops....and offer 100% mortgages in such a
financial environment....
that is what they were doing isn't it??

Bear in mind that until the US subprime mess hit the markets very
suddenly, everything was going swimmingly for NR. It's hard to jump
off a gravy train, especially if it's perfectly lawful.

i'm looking on from the sidelines in disbelief....

i wonder what proportion of loans are fixed...and what variable

Dunno. But if they try to raise mortgage rates on variable loans,
that will be subject to market competition. If they raised them much
higher than the competition, that in itself would alarm the markets.

the house prices have been looking soft for months....yet they appear
to have been following a highly aggressive stance even recently

Indeed. Poor quality feedback perhaps...

ISTM the interesting issues behind this are who's next and are the
BoE really independent? This has the aroma of Brown-Stuff saying
to Darling "just do as I say". Who knows......?

no, of course the boe isn't really peally independent....
the criterion they apply in set by the clown....and it is
*deliberately* set to enable loose money/inflation....

Exactly so.
Thinking about this (and without excusing the NR management for the
mess they've got into) one can trace the root problem straight back
to Brown-Stuff's days as Chancellor and Blair as PM.

if i can see the problems...why can't those running banks this big?
or don't they care and are relying on the clown to bail them out?

The latter I suspect. Banks have always taken on greedy speculative
investments in the knowledge that the BoE is their insurer of last
resort.

indeed...but this is over the top...

Only if/when the house of cards falters - and that happened
rather suddenly. Afaik few people predicted that the US subprime
mess would leach into global markets in serious ways. In fact we
don't know yet how bad it really is. Maybe NR are only one of
2-3 UK banks involved.

and the boe is not taking a soft stance so far....
what if the boe don't loosen? if i were in the seat i'd be very
resistant to loosening.....king has spelled out a sound and
strong policy....as he should....
the clown will be tearing his hair out.....

I'm sure the BoE will do as it's told ultimately to protect the
wider banking economy. King may be just singing in the wind and
trying to assert his fabled independence.

this is happening over and over through the years in the uk....
every time the government bails them out if they are sheep
servers....

Indeed but it happens in the US too and what is lacking is effective
regulation. Some of the home loans offered in recent times are plain
barmy: 110% of house price using 5+ times salary for borrowers in
insecure jobs!

i don't think the usa is in anywhere near the mess the uk is in....

they even seem to have parked bundles of those mortgages in
europe.....they must think the european bankers are out to lunch

Exactly so. The lure of easy profits is difficult to ignore. But
it's also true that they were packaged up to hide the real risks.
That's what's making it difficult for banks here to unravel.

even with them...the usa fed is much more flexible and independent....
mostly they believe in the market and borrowers will just shrug and
learn...
americans have a much better average level of understanding of money

He deliberately ran/runs a false inflation index (CPI), which in
turn gave rise to lower than necessary IRs, which gave rise to cheap
money and excessive borrowing, which gave rise to a house-price
boom. Along came NR and all the others who wanted to share in
the easy-profit bonanza.

We now have a debt mountain of £1.3 trillion. I feel sure the
downfall is coming ... I just don't know when.

depends on just how you define 'downfall'

It's difficult to know how bad it might get. The current economic
situation in America and UK is fragile and is happening at the same
time as rising energy prices; this could lead to a serious economic
retrenchment involving house price reductions and a rise in personal
bankruptcies and all the usual mess.

rising prices of oil are positive for everyone....i hope they stay
high.....that is rising prices not confetti money.....it should
slow the economy a bit but increasing efficiency should take up
much of it
as will development of alternatives....
america is less energy efficient than europe....they have plenty of
room to improve....and that must be good...

the rising price of oil is quite separate from money shenanigans

The risk is that they might act as a pincer movement. ie a faltering
economy due to house-price bust/banking crises all coupled to rising
energy prices. A bit like all the annual household bills arriving on
the same day.

Much waling and finger pointing ahead...but sadly not in time for
the next GE If he calls it quickly.

i think his credibility is being shredded by the day...

Must be time for another taxpayers money give-away initiative!
Something, anything to give the appearance of being in control.

what is the real value of a house in a market that is highly
distorted?....it may well be about where it is....
no-one is in control of 'the market'...and attempts at control
are asking for trouble...

mostly the buyers are acting rationally

I don't think anyone is blame-free in these messes. Govt fail on
effective regulation. The banks become greedy. Borrowers become
greedy and want to prosper. But I see the root of it down to
ineffective regulation which must be blamed on govt.
Isn't the role of govt to regulate a capitalist economy?

today's 'decision' to open meat markets looks like another
an edge of panic measure
http://news.bbc.co.uk/2/hi/uk_news/6996300.stm
"The lifting of the slaughter restriction...."

Done under pressure from the farming industry no doubt.

i think it's more likely the clown gambling....
i think he is in a flat panic and can feel his fingers slipping

he's an inveterate coward....and a little lost boy....
the job is far outside his competence....

Agreed. It'll be of morbid interest to watch him deal with a
possible crises of his own making and to see who he blames.

he has no clothes....none at all afaics
.

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