´óÏó´«Ã½

Why should me, the taxpayer save banks who have not engaged in sensible lending?

Let the market decide and let them go to the wall and the sensible lenders survive.

These banks (capitalists) would be the first to complain in the government increases taxes to benefit the majority so why should the majority give them pity now?

So Norther Rock wouldn't have qualified - although Mervyn King testified to the treasury select committee that the lending side of northern Rock was very good - it was in the funding area that there were problems. northern rock's arrears on mortgages historically were always about half the industry average. So they would say what they are saying now, but Northern Rock didn't fail, nor did it go bust, it only recorded a loss for 2007 because the new brooms decided to write off almost all its american CDO's(which may have been overkill - after all writing it back later will flatter the new administration). The only reason it had to be nationalised was because it was the first to experience the problems that all the banks are exposed to and because comparatively small problems with funding were exacerbated by media reporting which caused the run (both by savers and other banks) which sealed its fate. It suits the Establishment to trot out that Northern Rock was "bad" - in reality it was their treatment of the patient that was at fault. Their lifeline had lead weights attached - Northern Rock was doomed once its problems became public, but in reality it could have been any of a number of others that it could have hit - and there are a lot of Bank bosses saying there but the grace of God go I.

why oh why are they trying to underpin the houseing market,let it crash thats what i say,houses are totaly over valued anyway,the future of this country that being the young ones,need a crash so they may have a brighter future ,wheres the vision in keeping houses at stupid high prices,if people lose out on profit so be it.

The Bank of England DID rescue Northern Rock, are they now saying that was a bad decision?

Dear Robert,

Please point us to your evidence that shows that the BoE considered NR to be 'badly run' before the liquidity issue arose.

This is a huge revelation - or did you just make it up to detract from the fact that you have done a U turn on the implications of the liquidity issue now that other banks have admitted their problems too? I recall you were straight on the telly talking about the safety of NR depositor's money before (never an issue) - but not now- strange indeed.

We could have had a softer landing in 2005, but they dropped interest rates to ensure another couple of years of 'good times', and to prolong the illusion of an economic miracle.

Now the truth is out, but still they're meddling. Why are they tampering with the markets to prolong this bubble? The longer it goes on the worse the crash will be.

The most frustrating thing is that the government have clearly decided to throw taxpayers' money behind looking after those who already own houses at the expense of those who can no longer afford to buy.

If they really want to help homebuyers they should just LEAVE THE MARKET ALONE, and let prices fall!

"in spite of what certain politicians and analysts seem to believe, this initiative was not designed to reduce the cost of mortgages or significantly increase their availability"

Surely even they can see that trading types of security does not increase the level of security and this move, with the planned percentage swap loading, actually reduces the amount of security in the system. It may be more easily traded but it does not create money!

The bank of England have saved a potential crash of the banking system in the short term...but for how long? Meanwhile, bank crashes abroad will still bring us down!

The core issue on Northern Rock remains the same....the bank run.

The bank run necessitated many billions of extra cash.

Had the Bank of England provided ready liquidity and not leaked then NR's initial borrowing would not have been noticed.

Maybe, just maybe, it could have used bonds or sold mortgage assets even at unfavourable rates to plug what would have been a much smaller gap.

The breathing space to run down the mortgage book.

NR was not well run but the bank run was the result of blistering official incompetence.

No other country has had one in this credit crisis and hardly any had one in living memory.

So lets get this right. Despite just a few weeks ago Mervyn King saying there would be no bail-out here we are about to do just that on a colossal scale.

So, is Mr King going to resign? Or will he remain in-post despite the fact he has absolutely no credibility regarding anything financial, but there again, which banker does anymore?

Now then, the meat of the matter - £50BN - nearly twice the entire defence budget and at a time we are fighting 2 wars. Problem now is that we've just committed our tax money to this to the bitter end. What if in 2 months time, they need more? Do we walk away or give them more? And a further 2 months down the road? Now this has started, £50BN will just be the start.

We are informed that the collateral for this is AAA securities. Problem is, there aren't any. That's what's caused all of this in the first place. Cross contamination of real AAA with sub-prime and passing the package as AAA when in fact it contains toxic elements.

Behind it all there are still thousands of billions of pounds of SIV's, CDO's and CDS's (used as vehicles to inflate everyone's house prices etc) and many of these exotic funds are worth but pennies on the pound and even then only if you could find somebody daft enough (HM Government and the BoE) to buy them.

30% of our GDP comes from The City, a figure that is now going into reverse. To counter it they are underwriting the banks - in effect taking the money from everyone. This will further decrease the value of the pound. Not only does this punish people who don't have a mortgage or any form of credit debt, but also it punishes savers, by reducing the purchasing power of their savings.

As for the banks, they will make money out of this because they have no shame. They will effectively swap their assets for cash and will almost certainly invest it in commodity or currency speculation betting against a pound they are deliberately depressing. They certainly won't be investing in property.

If there were any decent banks with honourable bankers then one thing they won't be doig at year's end is giving themselves a bonus. Any bets? And of course the shareholders won't be expecting a dividend.

But hey. This is my money that we are giving the banks. And yours. So when they pay it back (for when read if), do I get any of the interest?

Do I as hell as like. I just get the wonderful warm feeling that I and everyone else is investing £50BN plus, with no real tangible guarentees, to artificially stop house prices falling and becoming realistic again, in order to protect bank profits and firm-up the house-owning Labour vote.

I've voted Labour through thick and thin for over 30 years. This and the 10p tax fiasco (which affects me because I'm on a low wage) has finally convinced me of what others have been saying for 10 years - the Labour Party exists in name only.

I'd vote Donald Duck before I go anywhere near one of these corrupt, greedy bankers and politicians ever again.

Robert, I think Mr King has found the silver bullet. The long-term aim is to maintain a market-orientated system, yet prevent the greedy from riding too roughshod over the gullible, all without excessive regulation. The three-year aim is to allow the economy to deflate to no worse than pre-Thatcher Britain, possibly the softest landing we can hope for.

The silver bullet is the capital ratio. The main regulatory job is to ensure that it is enforced with all banks, without distinction between investment and commercial. The ratio is absolutely important because it affects the creation of credit and therefore the supply of money and inflation.

The trick in ensuring a soft landing is to inveigle bank shareholders into paying for it. Mr King starts with RBS, who have the lowest capital ratio and are the loudest talkers. Continued.

Continued. Say Mr King says that if they change their ratio from four-pence to sixpence in the pound then the bank will bale them out. That means a rights issue. Once RBS agrees, the other banks duly follow like sheep.

Shareholders will accept the dilution. Then the bank will sell assets. Then share prices will slide as more of their gormless liar loans and credit swaps come down the revelation path. Additional rights issues may follow. More good shareholder money after bad. We will observe the incredible shrinking banking sector.

Here is the rub. Most of the institutional shareholders will take up the rights issues even if they believe the above prognosis a hundred percent. Why? Because they are greedy sheep and it is not their money. They are terrified of the ignominy if they fail to exercise their rights and are left in the cold. Ostracised. Easier to justify a wrong decision if everyone did it.

But why is the deflation inevitable? Because, in the history of hubris, the gullible lose their illusions before the greedy.

Robert
Can you or anyone else explain to me why the Banks find it necessary to lend money to each other, I always imagined that they were in competition with each other.
I realise that when they add up the totals of the transfers between bank accounts at the end of each day they may not balance and so they will have to lend/borrow money temporarily from each other but these should presumably balance out over the long term and I don't think this is what they are talking about here.
And is it not politically embarrassing that on the very day that the treasury can find 50 billion to help the poor old banks, who all made record profits of many billions last year, they cannot find a much smaller sum to correct the 10p tax injustice which affects the poorer members of society?
It is very difficult not to be cynical!

The Bank says it is buying the toxic loans at a discount. But it has not explained this discount; in particular, we are interested in two things:

1) What is the discount, as a percent?

2) How much levy is being applied to the banks for the admin of the scheme.

We need to know those two things so that we can judge that the taxpayer is fully protected from cost.


Jacques

We can all talk around this which ever way we want but just like the govt. budget issue there is one simple fact - there ain't enough cash to go around.

Massive unsecured borrowing for 10 years was always going to cause a problem and it has.

Exactly the same as The NI / pension fiasco.

The sooner everyone accepts you can't spend what you haven't got the sooner we can readjust and start again.

I can only hope you are right that this is not a plan for more of the same. It would be such an irresponsible and short-sighted thing to try and safe or even further inflate the damn bubble at the expense of the UK's potential future as a normal country with a real economy. The government should rather consider investing 50 billion taxpayer-quid into science and education.

Is Robert Peston paid by any of the political parties? Its seems he always puts down Northern Rock. And now that the FSA has released a report which I feel is a bunch of lies, aswell as the government and the media all contributing. Northern Rock was the only bank that got hit due to the Media and the government with the BoE all failing to do their jobs = Northern Rock nationalisation.

Look people, there are lots of reports flying out everywhere and only the reports shown bad results and obviously protecting peoples arse's are being noticed. If Northern Rock was allowed to pass through alot of the safety nets then why was nothing done about it? why wasn't the government, executives from all sides and any other watchdog ie, EU not doing their JOBS! I smell a scandal here, and its starting to show more and more, unfortunetaly the whole truth wont come out for another 20years or so. Then, all the people responsible will probably have passed away or pardoned.

"it won't let any well-run bank collapse "

So that's most of them for the chop then because as far as I can tell none of them are well run.

May I ask?

If the banks don't trust each other to accept mortgages as assets to lend money then why should the Government? Do they (The Government) know more about the assets than the businesses? (Obviously not). Do they know less about the assets? (Almost certainly).

I thought that 'buying a pig in a poke' went out in the 1800s - obviosuly it is alive and well in the 21st Century.

(Just hope that the assets are good otherwise when the Government open up their assets they'll find a worthless 'cat' let out of the bag.)

50 billion sounds like a lot of money, but it's really no big deal- it's not like the Govt will have to pay a penny, the mere act of providing a guarantee should ensure it will never be needed. [same goes for the Northern Rock 50 billion, the Govt will actually make money from the rescue]

Now, we need to ensure three things:

i) UK banks recapitalise as RBS are about to do.

ii) Base rates are quickly lowered to 4 per cent [two cuts of 0.5] ensuring that UK remortgagers in 2008 can do so at say 4.5- 5.5 per cent- homeowners should be encouraged to go for longer than a couple of years fixed-rate deals, or for trackers at say 1 per cent over base- fair enough to allow some profit for banks, the poor dears.

iii) Banks should be warned that they will be held to account if they fail to act responsibly towards homeowners, current and future- no crazy lending, and no profiteering.

"the Bank is adamant this doesn't mean Northern Rock would have been saved....because it was, in the Bank's view, badly run."

That the most powerful economists in the UK have yet to grasp intellectual responsibility for their combined laxity and their impotent supervision of the financial system, is a confirmation that their vision of economics is so uninspired that they cannot manage the economy proactively.

The economists have been doing nothing but bumbling along, going with the flow, not rocking the boat, until recently, whence they have been doing little more than firefighting.

The real problem lies with the fact smaller banks that need help can't take part in these 'repo' deals with the BoE when they were very active in the buy to let market and self certification mortgage. Because they can't refinance pre 2008 debt at lower rates it means they have had to restrict lending and put up various borrowing rates or withdraw mortgage products. This may well have wider effects on the housing market and economy.
House price growth measured over 12 months is likely to be flat by May and negative by June or July.
With houseprices stagnating or falling already landlords who do not own the properties wholly and have borrowed heavily will be caught out by negative equity.
With decreasing rental yields these borrowers will not only see the value of the property decrease but find they have to help pay the mortgage out if the rent doesn't cover the mortgage repayments. And in the future with rising mortgage costs they may well also find out they will have to pay more per month to pay off the buy to let mortgage.
This may well lead to buy to let investors selling property forcing prices down further in a spiral effect as they try to offload heavily geared mortgage deals before they fall into negative equity and have to pay the balance back to the bank.

Oh come on, what on earth was the government supposed to do? For months other armchair expert whingers have been bemoaning the fact taht the treasury hasnt intervened leaving home owners high and dry when remortgaging was due (although of course the ´óÏó´«Ã½ including Mr Peston lied and exagerated about the true extent of the problem. I had no difficulty finding a decent deal last month) Now when action has been taken the doom mongers rush around in indignation that their taxes are being used to bail out the banks. What rot. The government has swapped bonds for mortgage debt to instill some confidence and avoid a repeat of Northern Rock that would cost the tax payer. Also the problem in the UK is just confidence. British banks have not indulged in anything like the reckless lending conducted in the US but have been contaminated non he less. Can the ´óÏó´«Ã½ PLEASE start reporting on the economy with a little less bias and sensationalism.

What is the difference between the Northern Rock Bank having trouble trading in Triple A 'safe' sub prime mortgage packages and these other Larger, London based, richer, more likely to sue banks having the same problem?

To 4 (above) Of course it was a bad decision to rescue Northern Rock. The BoE hated doing it and had to have both arms twisted off to do so. However - it was the lesser of two evils (probably - time will tell)

The latest drop in the ocean (50Bn) of banking stupidity cannot do anything more than be a very temporary short term and incomplete "fix".

The fact is that the asset values held as security for the loans on the books of British banks should probably be discounted to as much as 50p in the pound (as many Receivers will testify I am sure.)

The BoE has to ensure that the declines in valuations do not cause a cataclysmic disruption to the whole banking system. That is the risk. And we would all suffer in such a situation - no-one would be exempt and the hurt is never evenly spread.

I must also disagree with the point made by 22 (above) it is not all about "confidence" there are fundamentals at work too. No sane observer can say that asset values (houses) are not overvalued is the UK. We will have to get used to being on the "housing snake" not the "housing ladder".

No mortgage rescue, and the emperor has a wonderful set of new clothes...

I prefer not to have financial meltdown with banks going to the wall and people losing their savings, but I think one must admit that the system is being propped up.

And why was Northern Rock Nationalized when it could have been sold off? Why do we take the risk for this?

Let us hope that things will be stable for a bit and things don't get any worse.

Reading through much of the comment it does appear that too many commentators do not appreciate that the BoE is doing what it must do in the present state of the banking near-seizure. Allowing any major bank to actually collapse isn't an option. If the BoE let it be known that they will allow a major bank to go bust, then there would likely be a systemic collapse. Preserving taxpayers' rights is not of the highest priority.

First, expand market liquidity, then raise banks' solvency, accompanied by full disclosure of bad loans. It's the not knowing the full extent of the losses that is the cause of the banks' unwillingness to lend.

What amazes me is that the sub-prime problem has been in evidence for a couple of years in the US and the authorities here didn't pick up on it until last August.

I'm surprised that a labour government end up pouring clean taxpayer funds into the money market, primarrily to allow the financial businesses to continue the pursue of ever increasing revenues and profits (and bonusses).

Most people realise that the property market recent years has become over-inflated, due to very cheap access to mortgages. Providing these credit facilities by the truckload is how banks year after year come out with record earnings.

Now it appears as tax payers, even the ones who cannot afford to get on the first rung of the property ladder. will have to subcidise the banks for them to sustain their revenue, but probably even worse again inflate artificailly funding into a market that already are beyond sustainability.

Let fall what cannot stand on own feet, has been how nature has sustained intself for million of years. Greed is a factor with damaging effect, and I'd say that most people over time would be better off with a natural market regulation, similar to what happened to the stock market during the dot.com "regulation".

Brgds
Carsten
Reigate

If you ask me, it is easy money for the Boe as all the risk stays with the bank i.e. if the value of the assets goes down, the banks have to provide more assets to cover the downfall. Also, the BoE are also getting a fee for provinding the service (linked to the high LIBOR rate) so hopefully in three years time (max.), we would have made a tidy sum. Also, everyone is going on about NR but has it gone unnoticed that some of that money has already been paid back and the gov have, again, made a tidy little profit for the taxpayer.

Mervyn King is a disgrace his comments about Northern Rock just add insult to injury.

He was provided with a correct analysis of the situation facing banks in August last year but rather than act like the ECB or Fed he chose to sit on his hands.

The result of this was that Northern Rock was named and shamed leading to a bank run which blew a hole in its funding.

I think he should go now as it is completely obvious that this was a banking crisis which affected all banks rather than just Northern Rock and his comments now make him look more and more ridiculous.

I just hope the BOE have some control to prevent the housing market being let off the leash again.

Why are commentators and labour MP's so panicked by a housing correction. It is long overdue as a consequence of a lending and borrowing binge.

Banks and individuals now have to take responsibility for their past actions.

This is a wake up call to the banks and everyone else that risk must be accounted for.

We cannot prop up an over inflated house market.

The govt must not meddle too much otherwise the price to be paid in a few years time will be even greater than now.

If the banks Directors have lost all their money, through reckless decisions in their greed to make more money, are they not guilty of "Misfeasance"?
(I think that's how you spell it.)

And if these banks do not have the money to pay their bill's then surely they are Insolvent. The Directors who are therfore trading Insolvent then would loose the protction of being a Limited Company.

Then surely the people who are allowing them to trade Insolvent are as guilty as the Directors and should become personally Liable ie Forfeit their own Assets.

How would an Insolvency Practitioner see this?

Just a Thought!

Credit Default Swaps ...the elephant in the room that absolutely everyone in the 'room' is absolutely determined not to talk about. They are vast ....trillions of dollars ...and they have/are going bad.

Isn't this just a continuation of creating new money out of debt? Are the banks just going to carry on as usual with this new money?

Northern Rock is doing the right thing i.e. downsizing to the size it should be, using real money economics.

RBS is doing it the other way i.e. trying to raise money to justify its size and/or selling assets, using real money economics.

What are the rest of them going to do? Cross their fingers and hope that all their customers don't run out of money? Remember for most people the inflation rate they are experiencing is nothing like the official ones (headline, undelying or CPI) and is far in excess of any income/pay increases thay can expect.

Not sure that many of the banks have learned this yet.

I find the whole situation absurd, what are we supposed to teach our children about financial matters when financial imprudence is rewarded and the sensible who haven't borrowed themselves into the massively inflated housing market consistently end up the losers?

The message seems to be borrow or get left behind.

What bothers me is that nothing was done to prevent this even though many people had warned about debt levels, reckless lending and totally insane house prices for many years. Weren't we told everything was ok because interest rates are low and people are richer (bizarrely because house prices had gone up)?

And what wll be done to prevent taxpayers money being used in the same way that got us into this mess?

Isn't this just more smoke and mirrors? If it's really true that the bank is bearing all the risk associated with their dodgy mortgage assets, then surely it doesn't matter if they've been lent a rock-solid (am I still allowed to use that phrase in this context?) government-backed bond. If the assets on which it was based prove to be worthless, then they're back where they started. So what was the point?

On the other hand, if the money provided to the banks really is rock-solid, then are the banks really taking the risk?

Am I missing something obvious here, or is this just rearranging deckchairs?

Does this mean that banks will be stopped form paying large bonuses to their staff or will they be allowed to borrow taxpayers money to continue making these payments ?

It seems to me fundamentally wrong to lend someone money when you have evidence that they have previously been giving their money away

Why don't we do something constructive like protest outside Dowing Street. I am willing to take a day off work and let the PM know my feelings of lending money to greedy banks.

The Chancellor and the Prime Minister are obviously running scared of a fall in house prices.

The problem is though that unless the banks continue to lend on high multiples of earnings, then house prices must fall. Current prices are sustained by multiples of between 4 and 5 times joint income. Once banks restrict themselves to 3 times joint income (and a sizable deposit) then houses will simply not sell for the prices prevailing at the 2007 peak. It will only take a few forced sales and for buy-to-let investors to try to take their profits to tip the balance.

Ministers are trying to persuade first-time buyers to venture into the market. This attempt seems immoral at a time when those first-time buyers will be taking on a massive risk should house prices slip even slightly. So much for Gordon's 'moral compass', it must be gyrating wildly at the moment.

Setting aside the risk to new home-owners, there is the fact that with interest rates rising in Europe we cannot guarantee in which direction our rates will go next. The Monetary Policy Committee may well have to raise rates to prevent the risk of inflation.

By what economic philosophy have the Government thus decided to encourage people to keep buying? I suspect it is fear of what will happen when they face the electorate in 2010.

t

Governance gone mad, I think financial organisations need to be much more cautious in the first instance, the conditions should not have been right where they were able to be so frivolous. Although the comparison is tenuous, this does remind me a little of the Enron scenario, where actions and decisions of a few men, where able to have a devastating impact on wider society. Moral hazard should not be a possibility, so corporate governance needs to be much more robust in the first place. What happened to fiduciary relationships? Your bank should be an organisation you can trust.