banking news

[devonwoody]

http://www.bbc.co.uk/blogs/thereporters ... sited.html

Could you imagine reading something like that except in a novel.
(The thing that hits me is how the bankers were allowed to do it for so long and the pollies did nothing but collect their wages)

 

[andycktm]

All we can hope for is that this recession bites hard enough to cause change,
because when its over tax/vat is going to rise bigtime :evil:
I think can see a few new green shoots :lol:

 

[RogerS]

Given the vast total of toxic debts and losses at the banks (around the world), all those trillions of dollars would have gone towards lending and financing legitimate businesses and the consumer.

So if we (or the Govts) want to keep the wheels of commerce flowing then that money (or a large percentage of it) has to be provided for from elsewhere...which given the sheer scale is probably not achievable since the money involved is higher than many countries GDP.

We ain't seen nothing yet.

 

[BradNaylor]

We ain't seen nothing yet.

I fear you're right, Roger.

The citizens of the world have been the victims of a monstrous conspiracy and fraud perpetrated by the bankers. So far only a fraction of the poisons in the mud have bubbled to the surface.

It now seems inevitable that all the major banks will have to be nationalised before the end of this year.

Somehow though, the idea of politicians having control over the banking system doesn't inspire much confidence either!

Sensible people will adjust to a simpler way of life and avoid any unneccesary contact with financial institutions, whether as savers or borrowers.

Dan

 

[devonwoody]

I still think the crunch came about because the oil producing countries or the oil price killed the small man and took his spare cash.

What do you think?

 

[newt]

Where has all the money gone, someone must have benefited if it is real money. If it is not real, what are we all excited about.

 

[Waka]

I still think the crunch came about because the oil producing countries or the oil price killed the small man and took his spare cash.

What do you think?

Tosh :wink:

 

[BradNaylor]

Where has all the money gone, someone must have benefited if it is real money. If it is not real, what are we all excited about.

Take an individual example;

Bloke A buys his house in 1995 for £75k. He decides in 2007 that house prices have gone silly and that he will sell up and rent instead.

Bloke B likes the house and applies for a 125% mortgage with Northern Rock. His application is successful and so offers the full asking price of £275k

Northern Rock inevitably then goes bust and is rescued by the government. They and all other sub-prime lenders stop making silly loans and instead revert to traditional lending criterea.

Because no-one can borrow large sums of money any more house prices crash through the floor. The bubble bursts.

Bloke B can now no longer afford his mortgage as he has been laid off. He can't sell his house as it now worth substantially less than the mortgage he has on it. Northern Rock take possession of the house. They sell it for £120k at auction and write off a loss of over £200k after bloke B goes bankrupt.


Where's the money gone?




Bloke A's got it!

:lol:

The reason for the whole mess is the banks making nonsensical loans in the quest for ever greater profit. This pushed up house prices. They were too stupid to realise that they were inflating a bubble that would inevitably burst. The government stood idly by basking in the glory of a miracle economy and the end of 'boom and bust'

Result - bloke B has his life financially ruined.


Blokes C,D and E lose their jobs in the depression that follows and suffer hardship.

Bloke F, a first time buyer in 2012, can afford to buy a house at a realistic and sustainable price. So long as banks are prevented from repeating the catastrophic errors of the last ten years.

Bloke A is laughing.

It is of course, a lot more complicated than that but in essence that is what has happened.

Nowt to do with oil, DW!

Cheers
Dan

 

[filsgreen]

Where has all the money gone, someone must have benefited if it is real money. If it is not real, what are we all excited about.

Take an individual example;

Bloke A buys his house in 1995 for £75k. He decides in 2007 that house prices have gone silly and that he will sell up and rent instead.

Bloke B likes the house and applies for a 125% mortgage with Northern Rock. His application is successful and so offers the full asking price of £275k

Northern Rock inevitably then goes bust and is rescued by the government. They and all other sub-prime lenders stop making silly loans and instead revert to traditional lending criteria.

Because no-one can borrow large sums of money any more house prices crash through the floor. The bubble bursts.

Bloke B can now no longer afford his mortgage as he has been laid off. He can't sell his house as it now worth substantially less than the mortgage he has on it. Northern Rock take possession of the house. They sell it for £120k at auction and write off a loss of over £200k after bloke B goes bankrupt.


Where's the money gone?




Bloke A's got it!

:lol:

The reason for the whole mess is the banks making nonsensical loans in the quest for ever greater profit. This pushed up house prices. They were too stupid to realise that they were inflating a bubble that would inevitably burst. The government stood idly by basking in the glory of a miracle economy and the end of 'boom and bust'

Result - bloke B has his life financially ruined.


Blokes C,D and E lose their jobs in the depression that follows and suffer hardship.

Bloke F, a first time buyer in 2012, can afford to buy a house at a realistic and sustainable price. So long as banks are prevented from repeating the catastrophic errors of the last ten years.

Bloke A is laughing.

It is of course, a lot more complicated than that but in essence that is what has happened.

Nowt to do with oil, DW!

Cheers
Dan

I like your explanation Dan, but I think you were erring on the side of caution when you mentioned 125% mortgage. With the mortgage companies accepting an applicant's salary without checking it out, I think it would amount to a far greater ratio.

 

[RogerS]

Where has all the money gone, someone must have benefited if it is real money. If it is not real, what are we all excited about.

I can't quite get my head round this one either. Seems it was one gigantic Ponzi scheme. Bank A would bundle up a portfolio of unknown securities (which would have a healthy dose of sub-prime mortgages sprinkled in there) and they would sell it to Bank B for a profit. Bank B who would buy it because they could leverage it a bit more and sell it to bank C for a profit. And Bank C would sell it back to Bank A for a profit. All that profit (at least to my way of thinking) went towards oiling the wheels of commerce and a cosy feeling in the consumer who would spend.

The banks were always borrowing or raising cash in the short term. But then suddenly banks stopped buying these parcels (called 'securitisation') and that left whichever bank was holding the parcel unable to get rid of it. Meanwhile that same bank then had other loans that needed to be paid off and didn't have the money/couldn't raise the money to pay off the loan. So the bank needed bailing out.

Well..at least that's my take...as SWMBO said..the wheel fell off to which I replied..'well, it was a bloody great big one'.

But do you really want to know who the real plonkers are in all of this? Why our good old Labour Government who bailed out the banks by buying preference shares. Preference shares don't have any voting rights so the Govt can jump up and down all it likes but the banks can simply give them two fingers as the Govt haven't got any voting rights - which they would have done had they bought normal shares. So Golden B*ll**ks and Chancer Darling are the 2008 Pillocks of the Year.

 

[newt]

I think I know what you mean with the explanations, but if the gov is forking out lets say nearly a trillion to prop up the bloody banks, there must be lots of rich man A's. Perhaps most of them are abroad. Bloody banks.

 

[Paul Chapman]

In many cases the money doesn't exist. It only exists if you have something to back it up. Like when Golden Balls sold off half of our gold reserves. The money he got for that has now gone. So has the gold. We're skint

Cheers :wink:

Paul

PS That's also why the value of the £ is so low - government debt; mortgage debt; credit card debt; and economy dependent on the financial sector and very little manufacturing industry. This is going to get a lot worse before it gets better......

 

[devonwoody]

But it was the USA where the mortgage problem started because the poor householder hadnt got enough cash to pay the mortgage. His energy cost doubled or whatever it was. So Oil has got a part to blame. If he could have continued paying his mortgage it might possibly be said it would have happened later rather than sooner perhaps.

It was only the NR that did a proportion of 125% mortgages, which I agree was also wrong, when the borrower had used up the 25% he did not have enough money to continue his mortgage payments and then NR hit the cash crisis because there method of borrowing short and lending long failed.
typos edited

 

[Paul Chapman]

But it was the USA where the mortgage problem started because the poor householder hadnt got enough cash to pay the mortgage.

That's exactly the same thing that was happening over here - but, of course, old Golden Balls would have you thinking otherwise.......

If you remember, he left out house price inflation from the official inflation figures to hoodwink everyone that everything was OK.

Cheers :wink:

Paul

 

[Doctor]

This is the best explaination I have read for a simpleton like me.

The Subprime Mortgage Fiasco Explained
The Dot com bubble burst in 2001. Shares in internet companies collapsed and with events of 9/11, the US faced recession. The Federal Reserve responded by cutting interest rates to 1% - there lowest level for a long time.
Low Interest rates encouraged people to buy a house. As house prices began to rise, mortgage companies relaxed their lending criteria and tried to capitalise on the booming property market.
Mortgage companies actively sold mortgages to people with bad credit, low incomes - often first generation immigrants. This 'subprime market' expanded very quickly.
Mortgage salesmen were paid on commission. Therefore, they often hid the true cost of adjustable rate mortgages and did little to check whether the homeowners could actually afford repayments in the long term. Even the feeble lending checks were ignored
Many took out adjustable rate mortgages which were affordable for the first two years, but, then the interest rate increased making mortgage payments much more expensive.
In 2006, inflationary pressures in the US caused interest rates to rise to 4%. Normally 4% interest rates are not particularly high. But, because many had taken out large mortgage payments, this increase made the mortgage payments unaffordable.

Also many homeowners were not coming to the end of their 'introductory offers' and faced much higher interest rates. This led to an increase in mortgage defaults and companies lost money.
As mortgage defaults increased the boom in house prices came to an end and house prices started falling.
The falls in house prices were exacerbated by the boom in building of new homes which occurred right up until 2007. It meant that demand fell as supply was increasing causing prices to collapse, especially in suburban areas.
The Fall in house prices made the mortgage defaults more costly. If house prices are rising and someone defaults, the mortgage company can get most of the loan back by selling the house. But, now with falling house prices, they may end up with only a fraction of the house value.

The Role of Credit Default Swaps
You might imagine that this irresponsible lending by US mortgage companies would mean they would go out of business - end of story. However, the problem of the US mortgage defaults was spread across the financial system.

Mortgage companies in the US borrowed from other financial institutions to lend mortgages. They sold collateralised mortgage debt in the form of CDOs to other banks and financial institutions. This was a kind of insurance for the mortgage companies. It means that other banks shared the risk of these subprime mortgages.
Because these subprime mortgage debts were bought by 'responsible' banks like Morgan Stanley, Lehman Brothers e.t.c. risk agencies gave these highly dubious and risky debt bundles triple A safety ratings. Thus banks either ignored or were unaware of how risky their financial position was.
Therefore, when mortgage defaults in the US occured, many banks and financial institutions around the world had to write off bad assets. E.g. AIG had been insuring many of these mortgage debts so was faced with huge losses
The extent of this bad debt is estimated by the IMF to be close to £1.3trillion.

Freezing of Money Markets.
In addition to bad debts, the other problem was one of confidence. Because many banks had lost money and had a deterioration in their balance sheets. They couldn't afford to lend to other banks. This caused a shortage of liquidity in money markets.
Banks usually rely on lending to each other to conduct every day business. But, after the first wave of credit losses, banks could no longer raise sufficient finance.
For example, in the UK, the Northern Rock was particularly exposed to money markets. It had relied on borrowing money on the money markets to fund its daily business. In 2007, it simply couldn't raise enough money on the financial markets and eventually had to be nationalised by the UK government.
Because banks were short of liquidity, they have been selling assets such as their mortgage bundles. This caused further falls in asset prices, further liquidity shortages and further deterioration in bank balance sheets. (The Paulson plan is to try to reverse this cycle by the government buying these financial assets no one else wants to buy.)

The Vicious Cycle of the Financial Crisis
1. Share Prices

Because banks have lost money, people have been selling shares in banks. This fall in their share prices was speeded up by aggressive 'shorting' of banking stocks. The fall in share prices have compounded the problem of banks because

investors / consumers lose confidence
More difficult to raise finance on the stock market.
Part of the UK plan is to buy bank share capital to give greater confidence to the banks and enable them to raise sufficient finance.

2. Housing Markets

The shortage of finance means that banks have had to reduce lending, especially mortgages. The shortage of mortgages has caused further falls in house prices, especially in the UK. Falling house prices are magnifying the loss of banks as more default on their mortgage and loan payments.

3. Economy

Falling house prices, shortage of finance and collapsing confidence have caused the 'real economy' to decline. Investment and consumer spending has fallen therefore major economies face recession and rising unemployment. The rising unemployment increases the chance of more mortgage defaults and further bank losses.

 

[Paul Chapman]

Excellent piece, Doctor.

And, so we are told, nobody in government, the Bank of England or the FSA could see this coming. So what exactly were they doing.... :?

Cheers :wink:

Paul

 

[devonwoody]

Sorry to keep harping back on oil, but if the retail price was 50% less than it is today people would have money to spend or pay of debt and the economy would have money flowing again. (Also prices retail could fall because of lower costs)

 

[Grinding One]

You guys over there are wondering where the money has gone?? Some of it has of coarse gone to Oil,but more has gone into Drug Zars pockets....I see it every day in the news ,so and so got busted by the police and the cops got Millions of dollars plus millions more in confiscated drugs.Every day news....
The Obama inauguration committee is spending 150,000,000.00 just so he can say I accept the presidency.What a waste of money when we do not have it.He probably could have done it inside the white house with a T.V camera for a lot less.He spent well over 200,000,000.00 to get elected...who got that money I am wondering???
When it comes to push or shove ,the little man has got to pay,and the big boys sit back and keep it rolling in.Bail out my butt,they created this mess let them bail each other out with their money or do as I do and cut needless spending.Wake up world! Pick yourself up ,and earn it yourself,I am broke.
Sign of the times,you can only go to the well so many times before its empty,someone needs to drill another well.

 

[RogerS]

...
The Obama inauguration committee is spending 150,000,000.00 just so he can say I accept the presidency.What a waste of money when we do not have it.He probably could have done it inside the white house with a T.V camera for a lot less.He spent well over 200,000,000.00 to get elected...who got that money I am wondering???
......

I didn't realise that 7000 Portaloos could be so expensive !!!

 

[Jake]

But do you really want to know who the real plonkers are in all of this? Why our good old Labour Government who bailed out the banks by buying preference shares. Preference shares don't have any voting rights so the Govt can jump up and down all it likes but the banks can simply give them two fingers as the Govt haven't got any voting rights - which they would have done had they bought normal shares. So Golden B*ll**ks and Chancer Darling are the 2008 Pillocks of the Year.

Preference shares have other (in the circumstances, massive) advantages, and only a ******* would have invested the money through ordinary shares.