Here's something you don't see every day

[UNCjigga]

ATOT Effect Needed - Let's all withdraw our money from Bank of America and see if we can bring 'er down!

 

[Mark R]

Originally posted by: FoBoT
so this event is or is not directly linked to bad mortgages in the UK?


i think i need to get that shotgun and pallet of SPAM , ASAP

It's not directly linked, but the links are several.

Northern Rock are an 'innovative' 'prime-only' mortgage lender. In reality, it means they are Alt-A with some dabbling in sub-prime. They have claimed, repeatedly, in all their press releases that they are a major 'prime only lender', yet their web-site said, until yesterday, 'Open for sub-prime business' in 36 point bold type. Their method of funding was also 'innovative'. Instead of using depositors money as funding, they borrowed on 3-month interbank loans, and lent out as long-term mortgages. No limits to the amount you can borrow, unlike deposits.

Separately, in the US, mortgage lenders were collapsing all over the place, due to high rates of delinquency on sub-prime mortgages, and falling house prices. In the US, mortgages were often sold on as MBS and derivatives such as CDOs. MBS and CDOs have been invested in heavily around the world. In the last few weeks, there has been a sudden realisation among UK banks that they could be left severely out-of-pocket from these 'toxic' investments. But more importantly, no one knows how much exposure anyone else has to these products - some banks may not even know how much they are exposed, so sophisticated are some of these products.

As a result, short-term loans between London banks have dried up. If you don't know how much Bank B has invested in 'toxic' MBSs and CDOs, would you loan then £5 billion? What if you knew that Bank B specialized in 'innovative loans'?

The result was that NR needed to re-fi a very large sum in the next few weeks (estimates range up to £30 billion, but this information isn't publicly available), but all the other banks were telling them to take a hike. So, NR was forced to approach the BoE for their re-fi.

Following a media feeding frenzy over this emergency loan, depositors have been falling over themselves to pull their savings out of NR.

These events aren't directly related to delinquent mortgages or foreclosures. Instead they represent a general financial tightening of credit, due to fears that real estate prices both in the US and UK are going to fall, and or there is going to be a recession, which may cause mass delinquency at a later date.

 

[OS]

Originally posted by: Pliablemoose

Originally posted by: dullard
In case you don't go into P&N, there is a 3 day old thread on this subject. I don't think we have seen the last of this type of thing. I suspect there will be more bank runs in the future as people irrationally fear news and make the problems far more severe.

Yep, I posted here because it's sort of a pop culture moment. And a lot of OT folks have never seen or really thought about a bank run.

I agree that we'll see more of this, the financial sector's problems are being dismissed entirely too quickly, although I don't think a single NR customer will lose a penny, it reflects public sentiment in a mega message rather than a few numbers.

Frankly, I'm concerned that the Fed's actions tomorrow will make things worse. You don't cure a heroin addict by giving them more heroin. Unfortunately so close to the election I'm sure there is political pressure on the voting members of the fed to cut the prime rate.

I read a contention somewhere that the Fed doesn't really lead interest rates, that they actually keep the FF rate somewhere between the LIBOR and 3 mo tbill rate. Supposedly based on this and futures, the rate cut is likely to be 25 bp.

 

[FoBoT]

thanks for the summary Mark R, :thumbsup:

 

[Ns1]

Originally posted by: Mark R

Originally posted by: FoBoT
so this event is or is not directly linked to bad mortgages in the UK?


i think i need to get that shotgun and pallet of SPAM , ASAP

It's not directly linked, but the links are several.

Northern Rock are an 'innovative' 'prime-only' mortgage lender. In reality, it means they are Alt-A with some dabbling in sub-prime. They have claimed, repeatedly, in all their press releases that they are a major 'prime only lender', yet their web-site said, until yesterday, 'Open for sub-prime business' in 36 point bold type. Their method of funding was also 'innovative'. Instead of using depositors money as funding, they borrowed on 3-month interbank loans, and lent out as long-term mortgages. No limits to the amount you can borrow, unlike deposits.

Separately, in the US, mortgage lenders were collapsing all over the place, due to high rates of delinquency on sub-prime mortgages, and falling house prices. In the US, mortgages were often sold on as MBS and derivatives such as CDOs. MBS and CDOs have been invested in heavily around the world. In the last few weeks, there has been a sudden realisation among UK banks that they could be left severely out-of-pocket from these 'toxic' investments. But more importantly, no one knows how much exposure anyone else has to these products - some banks may not even know how much they are exposed, so sophisticated are some of these products.

As a result, short-term loans between London banks have dried up. If you don't know how much Bank B has invested in 'toxic' MBSs and CDOs, would you loan then £5 billion? What if you knew that Bank B specialized in 'innovative loans'?

The result was that NR needed to re-fi a very large sum in the next few weeks (estimates range up to £30 billion, but this information isn't publicly available), but all the other banks were telling them to take a hike. So, NR was forced to approach the BoE for their re-fi.

Following a media feeding frenzy over this emergency loan, depositors have been falling over themselves to pull their savings out of NR.

These events aren't directly related to delinquent mortgages or foreclosures. Instead they represent a general financial tightening of credit, due to fears that real estate prices both in the US and UK are going to fall, and or there is going to be a recession, which may cause mass delinquency at a later date.

An insightful post. Who would've thought it possible.

 

[andylawcc]

only if PS3 launch had that many ppl.

 

[JS80]

Originally posted by: Pliablemoose

Originally posted by: Mark R
The government has just announced a very unusal move. It has now announced it will be giving a government guarantee for every penny in every account.

The cynics will, I'm sure, take this as an admission that the bank was insolvent and that it is being bailed out for political reasons - even though that is probably not true.

What is interesting is that the financial regulator, the financial services association has announced investigations into 3 other banks, to reassess whether they are solvent or not.

It's fairly cheap to print money

Trade-Weighted value of the dollar

of course growing 3rd world and socialist european countries as their economies shift to capitalism and appreciate will gain value against an established superpower.

 

[Flammable]

Originally posted by: andylawcc
only if PS3 launch had that many ppl.

:laugh: