Newest Review: ... to pay back to anyone and eventual stability. Tomorrow I'm going to physically close my account at Northern Rock because savers and inve... more
Between a Rock and a Hard Disc
Member Name: thedevilinme
Advantages: A buyer has come in
Disadvantages: Its Richard bloody Branson
There's a saying that if you owe the bank £100 then it is you that's in trouble but if you owe £1000 then it is they who are in trouble, which is exactly the case with Northern Rock, regardless of Richard bloody Branson, which is also some sort of business proverb n less
The U.K and U.S economy upturn in the nineties was based on the housing and credit industry, big business and consumers given the comfort of being able to get credit when they needed it, whether they could pay that money back or not, the minimum 3% a month option the solution to those particular worries, which most of us do. Capitalism relies on people buying crap they don't really want to expand the economy, and a lot of people have been doing just that with money they don't really have and will never pay back, hence the phrase 'on the never never'.. The last desperate ploy to avert the tidal wave that has just hit us was to allow anyone to go bankrupt and clear all their debts in just two short years with minimal penalty-Brown writing off some of the national debt and then the punter starting all over again. The problem was that lots of young single people with no assets just went nuts on the cards and these cheap mortgages and then expected to wipe out all the loss this way with no pain. Wrong!
Brown and Blair's principal economy drivers have indeed been credit cards. If you look around your house right now there's a lot of stuff there that is absolutely useless and the money saved would have fed a whole African village for a year, but the reassurance you get from the right to buy that junk is that ethos for keeping things feeling good in our lives. The feel good factor. But now that decadence has caught up with us and we have to take the pain. Hands up who hasn't been called into your branch for a 'friendly little chat' of late, the bank manager hoping to squeeze protection insurance or more savings out of you.
I'm an account holder with Northern Rock and when I saw those queues I admit I did threat a bit. But I also knew Brown had to restore confidence in the banking industry by doing what he did...Me not joining the throngs. I don't blame anyone for queuing though. So far the Bank of England has coughed up 25 billion pounds of our money, three billion of that already spent, the rest as collateral. Now that's not the American million-a thousand millions-but the British version-a million millions-a grand from every tax payer in the land. It's a phenomenal amount.
The next bank in line to be holed will be Alliance & Leicester, their unsecured loans around 40% of their business. There's one more bank in the list that has taken big loses but fortunately it is manageable, so not to worry. Most other banks have more savings than investments, and so money they don't have to pay back to anyone and eventual stability.
Tomorrow I'm going to physically close my account at Northern Rock because savers and investors have now withdrawn 13 billion, much more than I realized. When no serious buyer came forward by Friday's deadline that suggested the Bank of England is not prepared to write off this huge loan, and so the Feb deadline is when the bank will be sold, probably at a ludicrously low price. In September it was worth 7.1 billion. Today it's worth 765 million, 11% of its original share price. This is a collapse of Enron proportions.
We hear today a Richard Branson consortium reckons he can save it, repaying 11 billion of that 25 billion, but still 14 billion short. The government is still keen to get more than 40% of that public money back, some even talking about nationalization. Branson's team says they will pay it all back over the next three years. If he could do that then why can't Northern Rock do that? Where is Branson bowing this capital from that the Northern Rock and many more big banks can't? I'm still not convinced about this ban in the long term. It needs to be engulfed by another bank to survive, not the PR king.
Northern Rocks problem is systematic of how modern financial systems are intrinsically unaccountable and unregulated, huge amounts of debt allowed in the mechanism with no real way of covering it. Because top execs and city boy's and girls wages and bonuses are based on risk then it gets out of hand. Not only that but the biggest banks and lenders seem not prepared to tell each other how much they have lost, so cant now lend to each other, the so called credit crunch.
Northern Rock borrowed 70% of its operating capital from the money markets, most of it now going critical in a off-shore Jersey holding company, the loss incalculable to the damage it's causing here. They borrowed far too much, all this down to greed so to have enough liquid cash to generate new business, buying houses and selling mortgages to people that couldn't really afford bricks and mortar. They weren't prepared to be a small local building society anymore.
We just don't know how much credit there is out there and how much of it will have to be written off when the housing price crashes and recession bites, which is inevitable next year. If banks announce huge losses then the stock price collapses and there value follows soon after, as well as the top executives jobs, which will mean even less money to lend out. It's just hard to state how catastrophic this is to the world economy. Mortgage approvals are down 37% in October alone in the UK and set to fall even more. It's not only house loans that are dropping but business loans too; small companies in need of start up or contingency loans are just not getting them. Any business owner knows that if the bank doesn't want to lend then they can't expand or function in their business effectively, which means job losses and profits slashed.
The problem is there aren't enough houses to go around now and so the market has dried up. Just about anyone who has been trying to buy a house in the last ten years has-rather foolishly-been allowed to buy one. All those people who can't really afford a mortgage in the long term are now in big trouble as interest rate rise. We are on the cusp of the most spectacular housing crash ever, not helped by those silly £400 'Hip' home sales kits. Not only are they pointless and expensive but many think they are really just a Trojan horse to get into houses so to revaluate properties into a higher council tax band, especially now that a lot of people have improved their homes with that positive equity, but not had their council tax move up to where Brown wants it.
I had a basic savings account that was earning that seemingly lapidary 84p a year interest and the money there for emergencies. I'm not going to shift it to another high street bank that I know doesn't have so much sub-prime loss.
I figure after this data theft from those two discs that a significant number of mums would have Northern Rock accounts and knowing their accounts have bee compromised now is a good time to change banks.
I also asked the NR not to send me monthly statements as I never use their cash machine and only have a savings account; every letter delivered another chance to suffer bank fraud via the 'posties' or TNT. My main account is under attack from fraudsters I another rbank so I need a plan B. The thought of all my direct debits bouncing is scary.
The quests aside Northern Rock were essentially a northern bank and only spread south when they started giving out mortgages like flesh eating diseases in our hospitals. They have that traditional trusty high street look about them and the service was fair but efficient.
The queues at lunch time seem OK in the only branch I know and the staff courteous. Even though they are no longer handing out mortgages like the American army does candy.
An over ambitions bank over extended itself and took too much risk, allowed to happen by various financiers making money out of that risk. Enron was allowed to do what they did because everyone got paid to help hide the debt-even the accountants! I do hope the banks have learnt their lesson this time and this cant happen again. Remember Barings Bank?
Summary: Going down the pan
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