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Everything posted by Optobear

  1. Again you're twisting logic in a marvellous way. Do you see what you've done this time? You've swapped tenses, your new post is post the announcement from the Chancellor. Your attempt at logic is delightful. Do you know actually know what the word "hence" means, or how it is normally used? Your argument does nothing to prove that my assertion was flawed, deceitful or base faced nonsense, and nothing in your post above alters that. My basic position - that the FSCS scheme was inadequate is correct. The chancellor had to step in with an unprecedented guarantee to rectify the situation.
  2. Just listened to Peter Schiff from the today program on radio 4 this morning Lovely quote when asked about how defaults from borrowers in the mid-west could impact the UK "We borrowed the money from you, you lent it to us, we don't save any money and there has to be two parties" http://www.bbc.co.uk/radio4/today/ram/toda...ts_20070918.ram It is the end of the segment.
  3. If the guarantee isn't dropped again in the next few days this will all spell big trouble. Surely the bright boys in the city are all spending the morning dreaming up the arbitrage opportunities? Sell treasuries to buy bank bonds. Reprice the risk free rate, that alters the prices of all options according to Black Scholes. Make the risk free rate almost double, whoopee, what a ride for hedge funds. What happens to swaps? Create new credit vehicles that parcel up mortgages and drop the risk into the lap of the chancellor? Punish the government when it wants to borrow by making them pay Northern Rock rates. Probably the city bonuses off these opportunities will be bigger than ever. There must be someone out there thinking about these things. Probably the nice Mr Soros will find a way. Messrs Darling and Brown will find themselves in a King Canute position. The chancellor guaranteeing some deposits sounds such as small step, but fundamentally alters the whole concept of risk / return. This is like some Mary Shelley story where they don't know what they have unleashsed, and can't control it. Best to drop the whole saver's deposit pledge now and have Mr Darling fall on his sword. You can argue it isn't a real guarantee unless the Queen signs it or something, but the Chancellor can't make statements like that (at least without immediate retraction), and have the Government retain any credibility. History will judge
  4. What about the effect on future government borrowing? Traditionally treasury pays the lowest interest because there is no risk. So where the Government might have paid, say 4.5% for risk free borrowing they will now have to compete with Northern Rock (or any other risky bank), perhaps paying 6.5%. Or maybe all banks will drop to paying the treasury rate? That seems to have raised the cost of future Government borrowing by around 50%? Let's hope that the UK economy continues to see positive tax revenues, and that Gordon and Alistair never have to raise any more funds by borrowing!
  5. As you're clearly saying what I wrote is lies, deceit and bare faced nonsense, let me point out a few flaws in your arguments: 1) "it does not necessarily mean that NR will go under. Hence there will be no need for compensation so I am wondering which part of this thread is relevant. You make an assertion that NR will not necessarily go under. That may or may not be true, it is simply your opinion. To go against that, must be weighed the collective view of the world's banks that they won't lend money to NR. They presumably have the best information - i.e. details of liabilities, remaining cash instruments, lending book, levels of provisions, etc. 2) You follow on with "Hence there will be no need for compensation". Can you see the flaw there? You've asserted an opinion, and now you have taken it as a certain fact. 3) That leaves you wondering which part of the thread is at all relevant? Can't help you there, you don't seem to be able to spot that a major bank run has happened for the first time in decades, and that might have some bearing on peoples' ability to borrow money and thus support HPI. 4) "More uninformed guff from the uber bears." Well actually it was posed as a question. I was asking whether I had interpreted the information on the fscs website correctly. There appears to be a mismatch between the level of security the scheme offers and the importance that was being attached to it by the media and by the government. In case you are interested, the times today said the limit is £31,700, while another viewpoint in the FT is that the amount can be larger. Back in September a limit of £48000 was imposed for 21 firms that had previously been in default. I might not be the only person confused here. If you look at the BBC http://www.bbc.co.uk/blogs/thereporters/ro...he_numbers.html It would appear that it is marginal whether the Northern Rock have sufficient assets to pay off all creditors. In an efficient market increased risk should be accompanied by a sufficient increased return. The banks don't see sufficient return to justify their lending to Northern Rock - there simply aren't enough basis points to justify the risk. So why should the bank's customers continue to accept more risk than an alternative institution? Simple, if you have money at NR, and you can remove it, you should. You'd be a mug not to, unless they offer much better rates than they did before the Bank of England announcement. SO WHICH PART WAS THE LIES, DECEIT or BARE FACED NONSENSE?
  6. Worse than that. The figure of 4.4bn seems to be the proposed amount - increasing the cover in 2008. At the moment it is smaller, so well under the Northern Rock exposure
  7. Does anyone know how the Financial Services Compensation Scheme actually works? I had assumed it was some sort of pot of money - held by the Bank of England - to pay out if things went wrong. Its seems from reading their website that it is, in fact, a levy on the rest of the financial sector - to which they have to contribute if a bank collapses. So, there is virtually no money in reserve, and it relies on the other banks having enough cash to pay out. Last year they paid out £149m (mostly on small stuff), and their reserves were £139m - small change compared to Northern Rock. When you poke around on the FSCS website - you find they actually say that big events might occur, and would put a limit on how much they could pay out in total. There are various documents on their website - if correct, it seems they might have about £2bn to play with, and proposal to increase that to £4bn in 2008. However, that £2bn or so, relies on other banks ponying up the funds - which in the current climate doesn't look likely! Their press release says they can't interfere yet, and say that the FSA are saying Northern Rock is sound. For large events, they pass the buck back to the chancellor and Bank of England under the so called "tri-partite arrangements" It seems to me that the £31,700 is wishful thinking for something the size of Northern Rock.
  8. I don't think fractional reserve banking is something that any individual bank can indulge itself in. Rather it is the entire system that involves fractional reserve (Person A deposits some money with a bank, that bank lends out a fraction to person B - perhaps 97% of it, person B spends the money by buying from person / organisation C. The point is that to person C it becomes real money. They can then re-deposit it with another bank, and the same original money goes around and around... ) Any bank that kept 100% of depositor's funds (acting like a piggy bank), would not be able to use that money to earn you some interest. (Just take your cash along to a bank and put it in a safety deposit box, it will be essentially safe - but it will be eroded by inflation). All building societies and bank are vulnerable to a run - they don't have enough to give back without calling in the majority of their loans (which is impossible, especially with mortgages). Each has some of their own assets (in the case of a bank owned by investors, or a BS owned by the members), and these assets are meant to plug any short term gaps, and prevent runs. So in other words, those assets disappear first, and those people suffer the loss. The best bet (in terms of safety) is probably NS&I, The government underwrite it, the only risk is that of a general financial collapse (or inflation being greater than the interest rate). The other alternative is to put £3k into each of many independent banks and building societies. That way you spread your risk, and, significantly - if there was a major system wide run, the institutions would probably place withdrawal limits - and you would then be able to get a small out of many different institutions.
  9. Are you sure it isn't just that markyh hasn't been round your house opening your mail to make sure it isn't from Birmingham Midshires? see thread: Moved Into My Rented Ast House Today....but......, Found a letter from BM, landlord arrears, need advice
  10. Is the point that there is no where else to put money? Imagine the pleasant hypothetical situation where you have several hundred million pounds to invest. You fear that the central bankers might choose (or be forced) to inflate their way out of a massive credit crash. In that situation you might well feel that property looks overpriced, gold is subject to a lot of sentiment, and you need to look for 8-10% to keep up with real inflation. Corporate bond yields would look poor. My guess is that the thing you'd go for is the stock market. It is isn't especially overpriced relative to earnings, is fairly liquid, and people can easily persuade themselves that blue-chips increase in value with inflation like a real tangible asset (there are only a fixed number of shares in blue chips like BP, so in some sense they are like gold, or diamonds, etc). What isn't so clear is whether the general population can accept anything other than a stock-market crash as evidence of a financial crisis. My guess would be that most people are so tied to the notion of the Wall Street Crash and Black Monday, that they won't accept anything else as concrete evidence of a crisis.
  11. On the subject of Merv's mid-afternoon habits. Many years ago I worked for a large bank (now owned north of the border), and I attended a meeting at the BoE on credit risk management... I can confirm that their biscuits were excellent, much the best to be had in the city in those days (1993).
  12. HIPS, as originally constituted were a good idea. Last year I lost well over a grand, through mortgage fees and surveys, on a house where it finally turned out: 1) The deeds had been lost (and to make matters worse it was on a private road, so access rights weren't clear). 2) It turned out on survey that there had been previous major subsidence, 3) The insurance was iffy because the building society had arranged the insurance, and they had lost all records. So it wasn't clear anyone would take it on (what with the vague record of subsidence) Under the original HIP proposal all of that would have been clear up-front, I would have run a mile before spending a penny. The new version would still help a little in this case, as the dodgy deeds would have been apparent. Interestingly the owner took it off the market after we pulled out from buying it, but it has just gone back on, in time to avoid the HIP deadline! I suspect he hasn't told the (new) agent of all the skeletons.
  13. Although no longer living in the area, my childhood was spent in South London, in Croydon, around Selhurst, Norwood, etc. As anyone who knows those areas will have noticed, there are lots of very attractive Victorian villas, huge town-houses, etc. As far as I know, these were once quite posh (many Sherlock Holmes stories are set there for example!), and there is obviously lots of grand architecture. However, until really quite recently (the mid -eighties or maybe early 90s) these same areas were quite un-desirable, but now it seems these areas are going up again (thanks to the Miracle of HPI). I can't help wondering if these areas will remain desirable through a down-turn (perhaps because of the attractive old houses), or whether they will sink again to semi-ghetto status. Doesn't affect me now in leafy Hampshire, but in a strange nostalgic way, I'd quite like to see those areas of grand villas retain their new found desirability.
  14. Just noticed a strange thing with yesterday's US trades. If you go to BBC business website, and look at the Nasdaq and Dow Jones curves they are almost identical: http://newsvote.bbc.co.uk/1/shared/fds/hi/...iew/default.stm Isn't it a bit strange given that they are totally different sets of stocks? It rather suggests that the markets are trading entirely on external factors influencing the overall indices rather than anything to do with individual shares. Is that evidence of automated trades, anyone in the markets care to comment? Optobear
  15. First post, Been reading HPC for many months... Noticed that the July Bank of England report made no mention of M4 growth. Checking back, each previous report had included this measure. I find that a little surprising given that there has been a lot in the media about money supply growth over past weeks. I did notice some weasel words about "The Quarterly National Accounts had contained fewer and smaller substantive revisions than normal at this time of year, as the full reconciliation and updating exercise had been postponed for a year, given other priorities at the Office for National Statistics." Wonder what they have to do that is more important? Perhaps all their computers are taken up with devising a new CPI measure, or maybe they have finally realised their data is all rubbish?
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