GOLDMAN 555

After the Tony Blair spin machine I really thought things might change with Brown.....

How wrong was I it's even worse what mess this Northern Rock thing is they are heavily subsidising the private sale(£10 billion) of this mess so that they can save face.... £10 billion!!!!!!!!!!!!!!!!!! OMG that is a ridiculously large sum of money.

Funny thing is house prices are crashing the economy is crashing who sold the most dodgy mortgages.......... Northern Rock therefore they are going to be hit hard by the slowdown.

And who is going to be paying off these idiots you guessed it. You and me.

What a mess

DCI Gene Hunt

This is what happens when accountants run a company.... prepare for worse to come

Leslie

I wonder if someone can give us an honest reason why the taxpayer should subsidise a private company which is failing because of its seriously mistaken actions and policies.

We can't even be sure of getting the taxpayers' money back either!

Les

Snazy

Goldman 555, your not one half of Goldman Sachs, Labours current advisors on this are you.... Has Gordon pissed you off?

Just kiddin.

Sore point is NR, so take cover

Im sure it says somewhere in the manifesto something about the strongest economy in X years............. hmm. Might have to take that bit out.

Just saving people the bother of the usual stuff....

Still not as bad as the Thatcher years, coal mines, poll tax, unemployment blah blah blah

lozgti

I don't understand the latest suggestion/plan from the government at all.

I don't understand how the taxpayers would allegedly benefit from future profits either.Would we all get a divvi? Think not.

Bye bye our money

GOLDMAN 555

Not as bad as the Thatcher years.....

I'm not so sure the coalminers and smashing the unions wasnt a good thing for the economy as a whole.

It wasn't great but this constant blatant bs coming out the government is doing my head in and I can't remember a time when I distrusted the government so much.

This situation with Northern Rock personifies the under handed blatant spin this government uses all too often.

They've basically lost £10 billion of our money on now they are trying to wiggle their way out of it.

GOLDMAN 555

If Northern rock was located in a Conservative party stronghold would the government of stepped in..... I think not

PeteBrant

Because the effect of letting it fail would have been potentially disasterous for the ecomony, not to mention the customers of Northern Rock.

However, the whole situation could have been avoided with better handling - Had the matter ended with the loan from the BoE without the run on the bank, non of this would have happened.
Theorhetically any profits would go to the state, and in turn to you and me in the form of improved services and /or tax cuts.

SJ_Skyline

Why didn't they do the same with Rover... Or did they?

Prasius

iTrader: (1)

I don't know - throwing tax money at unprofitable and failing businesses, be they coal mining, car manufacturing or banks/building societies seems a stupid idea to me.

All of which Labour has done at some point in time - BMC, Rover, British mining, Northern Rock.. I'm sure there are plenty of other examples; and all they have simply achieved is prolong the misery and waste public money.

PeteBrant

It entirely depends on the what the whole picture throws up

It;s easy to say "don;t throw money at a failing business" but hpw many bsinesses depends on that customer - For example at Rover, you not only had the workforce there paying tax, and in full employment - but you had many businesses dependent on Rover as thier primary customer, suppliers, contractors, haulage etc etc.

All of these people are emplyed, pay tax, dont; claim unemployment etc.


Looking at it soley from a "Throwing money at a failing business" point of view with any big employer is taking a very narrow view.

lozgti

I understand the bit about no one lending NR money to enable them to then lend it to borrowers BUT

Where are all their profits from mortgage payments or whatever to pay some back?

All I have seen is them sell off some of their mortgage book to raise money.

Does this company make money or not is what I can't fathom

PeteBrant

Under normal circumstances , yes.


You borrow at 3% and lend at 5%.

The trouble comes when you lend to people that end up not paying you back.

Prasius

iTrader: (1)

To be fair Pete, I think the situation with Rover could have been turned around if intervention had been done earlier and with some common sense. The reason Rover went bust (basically) is because they made old crap cars too slowly with too big a workforce. Many, although not all (to the unions obvious disgust ), of those jobs could have possibly been saved with a Government backed intervention involving people who actually knew how to run a well functioning car maker. Unfortunately, we all know that government interventions usually turn out to be utter *****-ups....

Martin2005

Is does make me chuckle when people start a thread, by moaning about 'spin', then 'spin' the issue themselves to make a point.

A more sensible approach might have been to say 'what should the government have done to secure the integrity of the banking system'?

Any thoughts?

Leslie

Thanks for the answer Pete, I am no expert in high finance. Aren't we also risking disaster for the economy though by propping it up to the tune of £50 billion plus.

What would happen to someone with a mortgage with them if it all fell down? doesn't it mean that the company would lose the mortgage repayments but would that matter if it went to the wall.

I know the shareholders would lose out but isn't that the risk you take in shareholding and haven't they lost most of it already anyway?

Les

SJ_Skyline

Les,

I guess as with any other company it would be placed into administraton.

It's just like any other bankrupcy, just with a few extra zeros at the end.

fast bloke

There isn't really a risk to the 50 billion. That is just 'spin spin spin' as it were. In reality, there is very little risk UNLESS the property market drops by more than about 35-40% (All properties purchased above 75% LTV will have MIG's in place, even if the borrower didn't pay for them. ) The 50 billion is secured on property. The only way NR and subsequently BoE wouldn't get their money back would be if houses that were purchased at less than 75% LTV ended up in -ve equity. If you have a 25% deposit, you don't tend to go to NR, who specialise in the 100% bracket and don't compete with the other big players in the lower LTV. So if you take a house purchase at 100k with no deposit, borrower defaults and NR reposseses. House prices have dropped 30%. House would sell for 70k, MIG would pay 25k and NR would lose 5K. If prices had only dropped 25%, NR would not lose anything.

lozgti

Weren't they doing some 110% stuff?

Chris L

You also have to consider EU state aid rules - normally govts are prevented from getting involved. The govt bailing out Rover would probably not have been allowed. Normally govt's don't get involved with private business because it is just that - private. They have no interest in protecting private shareholders!

The difference with Northern Rock is that it is a bank and anything that shakes people's confidence in banks is generally considered bad news and that is why the govt had to step in. That said, this deal will still have to be approved by the EU. If they rule it as illegal state aid, then there is only one other choice - nationalisation. They don't want the stigma of nationalisation to save NR so this is the only other real option. What in effect it is doing is pushing the problem away until after the general election...

fast bloke

They did up to 125% at various stages, but anything above 100% is a combination of mortgage and personal loan. They don't do 'sub prime' for 100% or 125%, so the type of people they lend to have a good track recond and are more than likely to pay it back. What they have on their books is sound business. Their only problem has been that they can't get cash to bring in more sound business. If the initial 5 billion had been handled properly there might have been no problem at all. Bad PR and loads of people removing their savings ensured that they didn't have another 20 billion available to lend. Now NR are viewed by other lenders as 'sub prime' and they can borrow very little of their requirement. The 'news' that they sold a mortgage book for 2 billion odds isn't really news at all. This is how many of the cash poor lenders operate.

PeteBrant

Precisely.


At at least some of the blame lies with the Government not acting soon enough and sending out mixed messages at the beginning.

And some of the blame lies with the BoE revealing they had an emergency loan to NR - If that had not become public knowledge, again, none of this would have happened (probably)

fast bloke

Barclays had already used the same facility two weeks previously, but they did it openly. NR tried to keep it quiet and got found out

rik1471

Can someone explain to me why the government doesn't want to nationalise Northern Rock? These matters fly over my head.

Martin2005

They are afraid of the 'N' word, given their 'New Labour' economic credentials

GOLDMAN 555

Look at the above graph if you follow the trend house prices will fall below the red trendline at around £110,000 average price that's more than 40%.

After today's performance of the stock marketthis crash is likely to be worse.

If this happensthe government have lostover £20 billion of our money

GOLDMAN 555

National Statistics Online

This is one of the main reasons the stock market crashed today call me cynical but the press release was announced while Alistair Darling was talking to Parliament about Northern Rock......Spin surely not

fast bloke

If the property markets dropped by 40%, the govt would have lost 7.5 billion in the absolute worst case, only if NR had loaned money exclusively on 100% LTV deals and none of those properties had increased in value AT ALL since the mortgage completed. - Still would not a good situation by any measurement, but would still be very very unlikely IMHO.....

None of this really matters much, as it is only relevant if NR was to be put into run off, which is the worst case scenario.

kingofturds

iTrader: (1)

I cannot see the **** truly hitting the fan over this until labour are out of power

Trout

iTrader: (1)

That is not what happened at Northern Rock - at least not directly.

It was defaulting in the US marketplace that meant that that Banks refused to lend out cash to other banks to fund mortgage debt - unfortunately the very business model Northern Rock was based on.

So Northern Rock could only borrow at 7% plus (if at all) and lend at 5% and so became economically unviable.