大象传媒

Evan, Evan - Isn't the point here that it shouldn't be Mervyn King in the spot light [as the B of E no longer looks after regulation] but the Financial Services 'Authority', with their penchant for 'light-touch' and 'risk-based' [sic] regulation ?

I watched Meryvn King today and I was not impressed. He like everyone in business and finance today has not seen a bank-run. Hey, but he acknowledged that he stood by and watched one. Entertaining as it may be there needs to be reference to the history books. Speculative asset over-valuation and low inflation leads to slump. (cf. 1837, 1873, 1857, 1866 and 1929 etc.) I was pleased to see that he appeared not to advocate lowering interest rates as a 'solution' as it only delays resolving matters rather than fixing them.

Openness and admitting where the over-valuations are is the only way to rebuild confidence between banks as it is for depositors. In an under-supplied housing market houses should cost 3.5 times average earnings - no more - any higher valuation of mortgage securities held by banks as mortgages are potentially bad assets. (In the US the asset value 'floor' may be lower in places such as Florida as there may be over-supply.) We need to know and with that knowledge confidence will return, but it will not return until we know.

A disaster waiting to happen ?

Will Regulations and Regulators ever keep pace with change ?

Blame should fall squarely on the Financial Services Authority (FSA). The FSA has been instructing authorised firms (whatever their size ?)for many years to put in place 'disaster recovery plans' for "exceptional circumstances" (FSA's Callum McCarthy's quote about NRock !!). Could these "exceptional" circumstances have been predicted ? Without a doubt YES!!

The FSA's 'risk based' regulation specified they intended taking a closer look at "larger Firms" because if a mistake happened it would affect alot more people. Have the FSA been asleep at the wheel ?

Why has a large firm like Northern Rock ( & others ?) been allowed to run their businesses with no proper contingency planning in place in the event of a disaster/exceptional circumstances ?
Have the FSA been turning a blind eye (How many ex-bankers run the FSA ??!!) or have they just been incompetent to understand these innovative strategies the banks have come up with ?

We need to return to a system where banks only lend 75% of a morgage and based on 3 1/2 times income.

No more self cert (fraudulent)
No more 125% morgages
No more 6x Salary
No more Affordability charts

And we wonder why Northern Rock has got itself into trouble...!

The FSA has let us down and since 2000 when Gordon Brown was made aware that the economic usccess was down to a credit boom, he did nothing to stop it...

I VOTE FOR A HOUSE CRASH
How can a reasonable person explain that house prices doubled in over 4 years...

Gordon Brown - No more boom or bust..!

Time to pay back your dues Britain!

Rather pedantic I know but just to point out that "we" (I assume you mean as in Britain) didn't build the Maginot Line. France did.
Otherwise a splendid article!

"we urgently need some thinking and some action - preferably in that order."

Some would say that we needed the same things preferably in the same order when the situation as happening. Instead we got the action, and then people started to think about what they had done. At least that's how it appears. On the side, foot & mouth is still around but appears to have disapeared off the radar whilst we are drowned in NR situation.

This is a pure and simple stitch up and it is being orchestrated by the other banks to buy Northern Rock for a song (a nice con) - I would love to see the phone records published of other banks who have made calls to the media under a freedom of information act - get my drift. It smells very bad and it is all too easy to blame the BOE. I hope the shareholders stand their ground and the depositors understand their money was alway safe in reality - how many people had more than 30k in the bank anyway. If Northern Rock goes to the wall and its share price collapses to below book value the shareholders should go to court and demand to know who did what - get my drift. It would be very interesting to see who made phone calls and why. Northern Rock only failed in one respect - it did not play the media game and attack its competitors who have collaborated to carve it up for a profit.

I red your mission statement but I think the answer is not to be found in the tool kit of economics but the use of the media to destabilize a competitor who was temporarily vulnerable.

Dear Mr Davis,

In my opinion, your comment referring to British defence mechanisms during the first World War does neither reflect Belgium's military strength nor it's efforts to resist the German invasion. I hope you will avoid such discriminating comments towards my country in future.

Yours sincerely,
Louis Dzadzou

Perhaps not enough people realise that the FSA does not claim to operate a zero-failure regime.
And that's what everyone with money in the system (banks, building societies, pension funds, insurance policies) needs to understand about the real nature of risk, as unpalatable as the truth may be.

why did NR not tap into the huge funding from the ECB via NR's branches in Ireland and Denmark, as many other Uk banks have done recently during the credit crunch?

I know the 大象传媒 loves to talk about financial collapse and the end of capitalism but isn't it the case that most peole are completely unaffected by the "credit crunch"?

Markets have rebounded and although your credit crunch page says investment banks losing billions it seems to neglect mentioning the recently Q3 results showing that whilst Bears only made a couple of billion (in three months) Goldmans, Lehmans and Morgan Stanley are still in rude health... how about some positive news on the business pages? Credit is still cheap and easy to come by, the odd bank failing is good for the system.

The thing I struggle to grasp in all this is why when Barclays needed a loan
it did not set off the same panic.

But this was a panic started by people who were protected by the line of credit - and to judge by the vox-pops from the end of last week, understood they were protected. It was only once the panic was firmly under way that there was even the remotest possibility that our normal depositor protection arrangements might become an issue.

Given that by Monday at least some people seemed to be queuing just for the opportunity to tell a TV crew that they didn't trust politicians, can we be sure that _any_ revamp of depositor protection schemes would work in the long run?

I watched the Treasury Select Committee transmission and was amazed at the subsequent 大象传媒 coverage. It seemed that the 大象传媒 was ignoring what the Governor had said so that the fire was aimed at the BoE and away from the Government's legislation which had clearly prevented the crisis being solved before queues started forming in our High Streets.

So, thank you Evan for a report which accords with the facts.

I see today that the Select Committee is determined to absolve our legislators by 'grilling' the FSA.

Why can't our politicians ever acknowledge they might be wrong.
Anne Gregory

I have to admit, I was shocked to learn of the limits of depositor insurance, which basically makes the whole thing pointless. Even though I'm not with Northern Rock, once the queues were allowed to form, I started to quietly worry about my money and a general bank run.

Deposits need to be risk free. Ordinary people cannot be expected to keep a portfolio of savings accounts to diversify out the banks default risk according to their credit ratings. In a systemic crisis, this would in any case not work.

Limiting the use of the insurance needs to come from monitoring the solvency and risk position of the bank, not by capping the insurance. What's more, an absolute, cast-iron 100% guarantee means you will almost never need to apply it (unless people start to doubt it, or a bank is allowed to stray into insolvency - which is likely to be individual cases, not systemic).

This is what I learnt at school, and until last week, that's how I was convinced it worked.

A practice of covert operations are dangerous, because (as in this case) it means people will not believe any officials who claim that "everything is ok". They will know that it is the FSAs job to lie about what they know. Trust will not be there.

Simple question - if NR had collapsed and the depositors had lost most of their money, would their mortgages have been written off too?

No, I thought not.

David wrote "I hope the shareholders stand their ground and the depositors understand their money was alway safe in reality - how many people had more than 30k in the bank anyway."

Well actually most of the people in the queue I stood in for five hours last Saturday. There were lots of comments about people having all or a substantial part of their life savings or pension funds in NR. Some people had the funds from a house sale or for buying a house. Some people had hundreds of thousands.

According to Mervyn King what we did was logical.

Steveh wrote "Simple question - if NR had collapsed and the depositors had lost most of their money, would their mortgages have been written off too?

No, I thought not."

Well actually most of the people in my queue didn't have a mortgage. We paid it off years ago. That's because it wasn't an excessive sum to start with and because most of us have cleared our debts prior to getting to or near pensionable age.

Considering house prices in London, and the size of the pot needed to fund a reasonable pension these days it's hardly surprising if not everybody followed the notion of separating out all your money into accounts below 拢35,000. I know the reason I got caught out was that I failed to move on some of my money as planned and parked it 'temporarily' in NR. This week I'm having to go round opening accounts to move money and am remembering exactly why I ran out of steam last time!

However if I'd had a 100% guarantee up to 拢100,000 then I'd have personally left it and watched to see what happened. But only if I still had easy access.

However I think it's naieve of people to think that would eliminate people in the queues - there would still have been a lot because of older people with hundreds of thousands in NR

It seems to be that one of the main issues is that people are confused by all the different products on offer and the fact they change every 5 minutes. I must confess to looking at NS&I with some pleasure when I saw their products are the 'same old, same old' explained in simple terms anyone can understand. And that is now where a substantial part of my funds are going until this mess gets sorted.

On the question of the levy, since the risk to banks is caused by the risky business rather than the liquid cash depositers, I assume any levy will be constructed in such a way that it is paid by those conducting risky business and does not get subsidised by me and my deposits.

Or will some bright spark realise that there is now a huge market opportunity for creating a financial institution which only does business with individuals who are 50+ who have AAA assets and cash to deposit and who have a limit to the risk they are prepared to contemplate.

I wonder what would happen to banks and funds generally if all those people who 'don't understand economics' but know when they are being taken advantage of actually took their money out of the risky enterprises and placed it in a institutions which pledged to be a 'safe' place. I wonder whether that might reduce the level of 'risky' business practices?

The Labour-run committee grilling Mervyn King were just trying to sling enough mud, in sound-bite sized chunks for the TV news, to deflect blame from their leader, Gordon Brown.

This situation with the Northern Rock was brought about by panic.
The same situation could again happen in terms of them being sold on the cheap.
The reality is that if they where worth a share price in the region of 拢12 not so long ago then the current share price is a bargain and people should be buying northern rock shares ASAP.
Second point is that if Mr Darling wants to guarentee savings upto 拢100k why cant the govenment guarentee peoples pension funds upto the same amount?

Hang on a sec. These comparisons are a tad devoid of a few changes in life to from the days of the Derbyshire to Northern Rock.

The last time there was a run;

The Bank Manager was a business man not a sleezoid salesman on a bonus target. You certainly didn't certify your own income. You had to prove you were paying the loan back, usually through a repayment mortgage.

You didn't have 24 hour news filled with sound bites

Inflation measured the impact on your wallet, not the government position in the polls.

The Govt didn't pay anyone's living costs. You didn't get preganant and demand a rented flat paid for by hard working mums and dads

News cameras and outside broadcasts were few and far between and not in the hands of the likes of (Drop the Dead Donkey) Damien

A degree came from a University and meant you could think for yourself

News came from the 大象传媒, not a website sponsored by a loan company

Maybe the BoE is behind the times. Let's hope it's far enough behind to avoid the stench and ouze when the bubble bursts. As it must surely do

Economists, bankers, and politicians in Britain and everywhere else have had nearly 80 years to study the bank failures, the runs on the banks, the aftermath, and the preventive measures that ensued during the Great Depression of 1929 in the USA. Nobody paid attention, nobody gave it a thought. Can you name even one British politician, banker, or economist in all that time who worried and warned that the same thing could happen in Britain and that measures such as FDIC and SBLIC along with the risks government insured banks are restricted from taking with their depositors' money should be instituted? It's so typical of people to ignore the real risks in life and preoccupy themselves with the trivial, the unimportant. Think of all of the idiotic issues that were debated, analysed to death, and turned out to be irrelevant. Well you can now wake up and smell this coffee. It's too late this time except to do whatever must be done to contain the disaster. Now who is taking bets that when its all over, Britain will go right back to worrying about David Beckham or Prince William and forget all this boring banking nonsense?

An interesting discussion. To my mind NR's 'failure' was to take to the ultimate degree what most financial institutions have in effect being doing these last 15 years - namely lending long and borrowing short. This is in direct contradiction to the time honoured rule always to borrow long and lend short. The FSA must surely bear the greater responsibility for not ensuring that NR had an effective business continuity strategy in place; so much for 'risk based regulation'.

Mervyn King is correct, flooding the market with liquidity will result in rampant inflation down the line which will impact every person in the country and especially those on fixed incomes.

The price of bailing out the riskier members of the banking industry is threefold: higher taxes for all tax payers, higher Government borrowing to fund public services and high inflation.

Why should the depositors of Northern Rock be bailed out by the tax payer? The answer my friends is political expediency, a bank failure and the resultant political fallout would mean the loss of the next election.

So much for the economy being in the safe hands of the politicos who can only see as far as the next election and their control of the levers of power. The country's economy can go to the dogs as long as someone else is there to take the blame!

We're talking about it like it's all over. All we've done so far is inflate the system further and postpone the inevitable for a short while.

With a debt based monetary system, there must be booms and busts. In order for the system to work, it must grow every year or it'll falter.

The basic monetary system itself is unstable, it doesn't have to be that way. We should be looking at changing the monetary system, not implementing more rules or laws; building walls round the banks to protect them.

They'll just do it again, only bigger.

My history shows that after the Maginot Line failed so miserably it was the turn of the British Expeditionary Force to attempt to plug the line. The result was Dunkirk! I hope that these Government guarantees which have been handed out do not result in the same waste of scarce resources.

I am surprised that the other banks will not touch NR. Their assets of 拢120Bn must contain some really dodgy mortgages or the money has been spent on holidays/cars etc. and there are no real assets. Sorry shouldn't I mention that these may be our own sub-prime?

Simple solution: put the depositors ahead of the bond holders in the queue should the bank go under, for say the first 拢100,000 of any deposits, or better yet the first (average house price at time of the failure) to keep it index linked.

Er, SteveH - bit of basic accounting: If you hold an asset like a debt, you must call it in immediately as part of the liquidation of your assets. These are then used to cover your liabilities. So, writing off debts owed to you would be defrauding creditors.

NR had a bad business model, which was risky - they gambled and lost. Let hem sink - along with all hte people, who have been buying the shares recently, hoping they would go up again (on a takeover or at public expense as they might rise on the guarantee) or to get the divi. Or will this lot be wanting a guarantee against a failed bet too?

"We need to return to a system where banks only lend 75% of a morgage and based on 3 1/2 times income.

No more self cert (fraudulent)
No more 125% morgages
No more 6x Salary
No more Affordability charts"

This is the bank's responsibility to determine, not 'the system'. If the bank feels the lender can repay according to the schedule set then they should be assessed according to risk and (potentially) allowed to borrow. If the bank collapses.... well that's they're own fault (as long as depositors are protected).

6x Salary may be reasonable, such as where the loan is interest-only, or where the individual can increase their salary to compensate over the next few years (e.g. the young, just starting work).

And calling for a house-price crash? Surely *you* would be hurt by that too, unless you are simply seeking to gain (buy-to-let?) at others' expense?

The FSA doesnt care about retail depositors, transparency or anything that matters to consumers.
Northern Rock changed the traditional bank / b.s. practice to one of selling off its loans and borrowing money, but didnt bother to tell people depositing money with it that it had a high risk strategy of managing its depositors money.
And the FSA thinks that's ok ? NR are a bunch of schiesters, and the FSA are utterly useless.

The FSA and the govt and the BoE stand by while these institutions move massive amounts of liabilities off their balance sheets to so called Structured Vehicles, and do nothing because its supposed to be the shareholders responsibility.

Mervyn King watched the credit markets seize up as institutional interest rates rose and seemed to forget he's supposed to influence credit costs. Why do you think the ECB and the US put so much money into their markets as soon as there was a sniff of trouble ?

Bringing credit costs down in the institutional world might not make people want to lend, but at least the balance sheets of sound companies wouldnt suddenly look like toxic waste. The BoE is incompetent, as the housing bubble shows. Expect a change at the top in 6 months or so. They wouldnt want rock the boat right now.

Dont be surprised that NR doesnt find a buyer prior to a fire sale. Why would you buy a premiership team when you know it's going to get relegated to the lower divisions. Wait for it to fall and pick it up for pennies on the pound when insolvency hits.

Liabilities go out of the window but mortgage holders have to keep paying.