Are they in trouble? NO.
Can the government do another Northern Rock? With which bank and under what cicumstances? The first tier banks seem to be fairly stable and should be able to see out any minor storms. The government and Bank of England have been badly wounded with the Northern Rock mess and are very unlikely to let it happen again.
The Pound is falling on the foreign exchanges because it is seen as being very closely related to the Dollar and thus vulnerable to all the ills across the Atlantic. Inflation is on the rise; employment heading upwards; profits declining etc., yet the government and central bankers are in complete denial of the factsand as usual, are doing nothing whatsoever to prevent a slowdown or deeper financial carnage.
Can the government do another Northern Rock? With which bank and under what cicumstances? The first tier banks seem to be fairly stable and should be able to see out any minor storms. The government and Bank of England have been badly wounded with the Northern Rock mess and are very unlikely to let it happen again.
The Pound is falling on the foreign exchanges because it is seen as being very closely related to the Dollar and thus vulnerable to all the ills across the Atlantic. Inflation is on the rise; employment heading upwards; profits declining etc., yet the government and central bankers are in complete denial of the factsand as usual, are doing nothing whatsoever to prevent a slowdown or deeper financial carnage.
I dont mean today but 6 months 1/2 years down the line.
RBS has around 68billion of mortgage backed securities.
HBOS has around 42billion of mortgage backed securities.
BARC, AL.L AND BB.L I don't know their figures but they have mortgage backed securities aswell.
House prices could fall 20% in the UK and America.
Money markets, Bond markets are grid locked
very few new stockmarket listings
very few takeovers
All these banks have given money to hedge funds, private equity.
All these banks could lose billions more.
If any of these banks run out of money like Northern Rock could the government privatise them.
RBS has around 68billion of mortgage backed securities.
HBOS has around 42billion of mortgage backed securities.
BARC, AL.L AND BB.L I don't know their figures but they have mortgage backed securities aswell.
House prices could fall 20% in the UK and America.
Money markets, Bond markets are grid locked
very few new stockmarket listings
very few takeovers
All these banks have given money to hedge funds, private equity.
All these banks could lose billions more.
If any of these banks run out of money like Northern Rock could the government privatise them.
Northern Rock did not run out of money, it simply lost the ability to borrow money in the credit markets to lend to people for a small turn. The old banking model was very simple, people deposited money and received x% interest and the bank lent the money to someone for x+y%; and everyone was happy. The model of the new era was always based on wafer thin margins and the availability of these funds in the markets.
It is not the losses that have pushed the likes of Northern Rock and Bear Sterns over the edge, but the fact that they had cashflow problems because the asset base(s) was no longer large enough o support the borrowings. Many of the funds out there have borrowings of $30 backed by only $1 of assets, that is all well and good for as long as the underlying assets rise in price, when they do not, they implode.
A 20% fall in house prices will only bring pain to the banks that handed out 90-100% mortgages or mortgages to those who cannot meet the monthly payments (hence the term subprime). The banks that you have mentioned tended to do these through their subsidiaries (by the way, most of these were independent lenders during the last housing boom but ran into trouble and got gobbled up by the bigger lenders), and it will be quite easy for them to let them go bust if they are threatened financially. Northern Rock took all these players on without the financial muscle or the proper corporate structures in place.
Any of them could still go under but it will not be of their own making but rather through contagion.
It is not the losses that have pushed the likes of Northern Rock and Bear Sterns over the edge, but the fact that they had cashflow problems because the asset base(s) was no longer large enough o support the borrowings. Many of the funds out there have borrowings of $30 backed by only $1 of assets, that is all well and good for as long as the underlying assets rise in price, when they do not, they implode.
A 20% fall in house prices will only bring pain to the banks that handed out 90-100% mortgages or mortgages to those who cannot meet the monthly payments (hence the term subprime). The banks that you have mentioned tended to do these through their subsidiaries (by the way, most of these were independent lenders during the last housing boom but ran into trouble and got gobbled up by the bigger lenders), and it will be quite easy for them to let them go bust if they are threatened financially. Northern Rock took all these players on without the financial muscle or the proper corporate structures in place.
Any of them could still go under but it will not be of their own making but rather through contagion.
theroguetrader
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The power of market rumour - !!
speculators - a few timely short moves - HUGE money....... !!
NR (the brand) itself, got destroyed by the " media " and our INEPT government - THEY caused a psychological feedback loop, then hour after hour, day after day, those Daily Mail doom mongers increased exponentially - Sayonara NR ..!!
Bear Stearns - " Global media alert " - four days later - FIRE SALE ... !!
(its interesting to note, during the crash of 29, a financier called John Pierpoint Morgan, took some SOLID action and helped Wall St and here we are, nearly 80 YEARS later, his firm is the one bailing out Bear Stearns ) - funny that... !! :-0
speculators - a few timely short moves - HUGE money....... !!
NR (the brand) itself, got destroyed by the " media " and our INEPT government - THEY caused a psychological feedback loop, then hour after hour, day after day, those Daily Mail doom mongers increased exponentially - Sayonara NR ..!!
Bear Stearns - " Global media alert " - four days later - FIRE SALE ... !!
(its interesting to note, during the crash of 29, a financier called John Pierpoint Morgan, took some SOLID action and helped Wall St and here we are, nearly 80 YEARS later, his firm is the one bailing out Bear Stearns ) - funny that... !! :-0
Yes,they are in trouble ,BUT probably not in the way 'implied'. They are in effect now too 'big' to support the level of business and profitability that lies in front of them.Earnings expectations are in my view an optimistic joke where they are based upon an extrapolation of recent years. The markets responsible for those profits are under severe pressure ,some are none existent and likely to stay that way. In effect the UK orientated banks will be much more akin to what they were 30 years ago when the dust settles and if that were the case then they are far too big to survive in their current format. Hence , expect a lot of merger and takeover activity with the end result being being a much more compact looking banking sector capable of sustaining the level of business available. Let's face it the banking sectors been very a very crowded business and were it not for monetary policy and deregulation it could not have expanded into what we see today.That reverses from here. In fact ,I suspect B & B has been bought up exactly for that reason ,expectation of takeover.
0007
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This presupposes that there is something effective they can do. The politicians have spread the fallacy that they can control the economy - history shows this is just talk.
Standby for a very bumpy ride.
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There are a number of options at their disposal but they may not be able to sell these ideas to the public. Look at the outcry at the measures taken by the Federal Reserve and the general derision that they are receiving from different quarters yet if they stand by and watch the financial system implode, they will be lambasted for doing nothing.
Lower interst rates is the most widely used; repurchase of treasuries is another; currency devaluation (currently being used by the US and UK) are favoured options; tax rebates/refunds are another - these will be used extensively but denied in the coming weeks. Unfortunately, they have the negative effect of stoking inflation but it might well be the lesser of two evils.
0007
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Sure, they can try all the above. But its just like anti-crime CCTV - it just moves the problem from one area to another. (Just like UK government now has a problem with size of incapacity register because it migrated loads of people from the unemployment register in order to fiddle the figures).
No economist, let alone politician, has yet satisfactorily explained economic cycles. Wish i knew the answer.
