Saturday, Mar 15, 2008
The wave of bank failures is just getting started...
Telegraph Online: Bear Stearns crisis could hit UK banks
Funding costs for British banks are expected to soar in the wake of Bear Stearns' near-collapse, worsening the credit crunch and potentially pushing up the cost of lending. Credit spreads for UK banks widened yesterday, providing clear evidence that they are now judged to be higher risk.
Posted by inthedelhi @ 01:26 AM (1233 views) Add Comment
17 Comments
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1. wiltshire said...
This is incredible isn't it? For a couple of years I have seen people on this site predicting all manner of doom and gloom and now we are actually seeing our worst predictions coming true. Up until the day that Northern Rock hit the headlines in September there was hardly a word in the media about storm clouds on the horizon and now it's all you read. I think it's safe to say that sentiment has now turned and it'll take years before it ever turns back.
What a strange time we are living in. I've said a few times that I think the economic downturn we are facing will re-write the history books and sadly it looks like that might be the case. Now the worrying issue for us to contemplate is just how deep rooted have they allowed the rot to become and what tricks are they going to pull to try and avert catastrophe? Financial martial law? War with Iran? A major terrorist atrocity? As if the stakes weren't ridiculously high enough we are in a US election year and China are going to try and score massive PR with the Olympics. Whatever comes next, I foresee some serious pain for someone (maybe all citizens of western 'democracies').......
2. who stole my pension? said...
I think this is getting worse than even the biggest doom sayer thought. Nobody expected a bank run and now we have already had one and expect more. The next bank run will be much more serious as people may not stop taking their money out.
3. japanese uncle said...
To my knowledge, HPC was the only forum that discussed the serious possiblity of a bank run, and the triggering of the financial compensation scheme. I think Dairling did a good job to revise the scheme to cover up to 35,000 pounds on 100% basis. Only 90% coverages in excess of the first 3,000 must have been a major element that drove savers in queue last September. Declaring that the government will back up the scheme to the last may save the real possibility of the next bank run.
Otherwise anarchy will prevail.
4. d'oh said...
wstp - You haven't been reading all the biggest doomsayers on this website have you? I'm sure some of them have bunkers full of beans and ammunition, and I'm not completely sure they aren't just being sensible. A couple of weeks before the NR bank run, whilst out to lunch with a work colleague I went into my bank (not NR) to withdraw a few thousand pounds in cash. I told him that I thought a bank run was possible within the next couple of months, mentioning, NR, A&L and B&B, and that I thought the financial system could lock up for some time. I think he thought I was completely stark raving bonkers. I certainly got a lot of cred when a few weeks later NR went into melt down.
5. handle_it said...
"Bear also has one of the highest employee share ownership schemes and many staff will be facing huge paper losses." Anyone who's hung on to any shares in this sector deserves what's coming.
6. who stole my pension? said...
d'oh perhaps I have not expressed myself well. While a few people said this was coming what is now different is that this has gone main stream. A few people will have little, if any, impact however, if everyone thinks a bank crash is coming the effect will be dramatic. Few people will believe that the government has the money to bail out all the current suspect banks, A&L, B&B and HBOS. HBOS is a big bank. I suspect a run on one of these three will spread to the others. I don't think the compensation scheme really counted for much, people simply thought it's my money and I want it back. The saving was that once they got their money they simply crossed the road and put it in another bank. Few will believe Darling when he say's that there money is safe. Next time I think people will put their money under the bed until the know which banks have surived the crash. The risk of a significant failure have increased because people are now much more aware of the danger.
7. d'oh said...
wsmp - I agree. I suspect the next bank run in the UK will probably be unstoppable. I've already got a some of my savings effectively, though not literally, "under the mattress". However, there is the question of what one can do to protect significant amounts of liquid assets. It may well turn out that those up to their eyeballs in housing debt will come out of this better than those of us who have savings - I can't imagine the government letting the banks repossess everyone with a mortgage when the banking system locks up. There would be riots.
The point at which I realised that things were REALLY serious was when I first learnt about the value of the derivative contracts floating around out there. In good times, these are zero sum entities - for every winner there is a loser - money is transferred not lost. The problem comes when one side defaults, and a chain reaction of write-offs ensues. Currently it is estimated that there are over $600 trillion of these things floating around. A small percentage of those going into default must break the system. Truly terrifying. Makes one feel like a rabbit looking into the headlights and hoping it is a pair of motorcycles...
8. happyrenterz said...
who stole my pension and d'oh, i don't agree. The £35.000 guarantee is just that, a guarantee. The government can always fullfil it because they can print the money.
japanese uncle, I agree Darling did well to institute this guarantee. It is pleasing that Crash Gordon is still around to see the effects of his work. Uncontolled housing boom which was encouraged because it encouraged people to feel rich and spend more is about to crash, gold which he sold at a historic low now at record highs.
wiltshire, I suspect when this is all over there will be a completely different attitude to housing as an investment. Both from banks and from the general public. This can only be a good thing.
9. wiltshire said...
The reason I mentioned 'Financial Martial Law' is that at some point governments (possibly not acting alone - because what one does impacts so seriously on others???) would have to impose unprecedented and drastic measures (well, actually they've done that already haven't they? I mean severe restrictions on the movement of money type scenarios) to try and stabilise the situation. They cannot allow a run on one of the big high street banks because if that happens then all confidence in the entire system would be lost and we would possibly have financial anarchy. I wonder what would happen if 2 or 3% of the population with savings decided to put their cash under their mattresses? Would 2 or 3% be enough to cause chaos? Would it be more like 20% if there was a run on HBOS etc? I'm no financial expert by any means (as you can probably tell - and I acknowledge and respect those on here who are) but I think we're moving into an area of 'it's anyone's guess' now because although there have been banking problems before obviously we are now a truly global community, we are in the internet age and these problems have infected every single little corner of the financial world. NO-ONE knows how many dominoes could topple or how quickly.
10. japanese uncle said...
A week of compulsory BANK HOLIDAYS in UK may be a real possibility.
11. d'oh said...
happyrenterz - It may be a guarantee, and in the case of a limited number of failures printing the money would have no effect, but what if everything went pop? You'd get your 35k back, but would it be worth anything except as tinder?
12. wiltshire said...
Sorry, slight tangent here but I was just thinking that the London Olympics could be the first ever which is bankrupt BEFORE the Olympics prior to it even takes place.
13. japanese uncle said...
Athletes are invited to stay in local B&Bs while games are organized in local council pools and highschool play grounds. Hahaha.
14. d'oh said...
JU - Not possible mate, the schools sold all their playgrounds to developers...
15. bystander said...
'Financial Martial Law' ...........interesting comment wiltshire, especially in the light of the MOD saying it will be encourage all personel to wear their uniforms in public. As has been said before on this site, perhaps we will soon become adjusted to the sight of uniformed army personnel on our streets at all time????
16. bystander said...
I meant accustomed, not adjusted.
17. nopensionnohouse said...
"I meant accustomed, not adjusted."
A Freudian slip if ever there was one! Lol.