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Governor Stands Firm On Refusing To Bail Out Banks Over Their ‘risky Behaviour’

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http://business.timesonline.co.uk/tol/busi...icle2441754.ece

The Bank of England’s Governor yesterday set his face firmly against taking action to bail out banks struggling with mounting strains on lending conditions triggered by the worldwide credit crunch.

In a staunch defence of the Bank’s handling of the credit squeeze, Mervyn King insisted that the crisis was rooted in a careless mispricing of risks by institutions.

To ride to banks’ rescue now would encourage them to repeat this behaviour in the belief that it was cost-free, the Bank argued. It would also prolong markets’ reassessments of risks and add to the danger of even bigger crises in future.

He bailed NR 6 hours after confirming that bailing would encourage them to repeat it! Shouldn't he resing after publicly lying?

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http://business.timesonline.co.uk/tol/busi...icle2441754.ece

He bailed NR 6 hours after confirming that bailing would encourage them to repeat it! Shouldn't he resing after publicly lying?

...I like the link in the article to:

Alistair Darling, the Chancellor, has thrown his weight behind Mervyn King’s insistence that big financial institutions must shoulder the lion’s share of the blame for the shake-out in global credit markets.

.....is this the start of the Nulabour cover up....?..."It was these bad banks that started the bubble Gordo my old friend.....now we will let them pay for it"..........long live Nulabour...?. :lol::lol::lol::P

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...I like the link in the article to:

.....is this the start of the Nulabour cover up....?..."It was these bad banks that started the bubble Gordo my old friend.....now we will let them pay for it"..........long live Nulabour...?. :lol::lol::lol::P

King is a liar. He said he would not bail out these types of banks, and not six hours later what does he do?

What is more disturbing is, according the The Times, Northern Rock knew they were going to need a bailout from the BoE last week. They must have been arranging this loan this week before Kings "I'm a tough man" speech.

How dare this fool chastise the ECB and FED when push comes to shove he does the same. The bottom line is British citizens will be bailing out Northern Rock, not the BoE. The BoE does not produce anything for the money if doles out. The citizens of the UK pay through debasement of their currency - inflation. But wait didn't King also say this week that inflation has peaked so there was no need to raise IRs anymore? This man is full of it. Buy gold my friends.

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King is a liar. He said he would not bail out these types of banks, and not six hours later what does he do?

What is more disturbing is, according the The Times, Northern Rock knew they were going to need a bailout from the BoE last week. They must have been arranging this loan this week before Kings "I'm a tough man" speech.

How dare this fool chastise the ECB and FED when push comes to shove he does the same. The bottom line is British citizens will be bailing out Northern Rock, not the BoE. The BoE does not produce anything for the money if doles out. The citizens of the UK pay through debasement of their currency - inflation. But wait didn't King also say this week that inflation has peaked so there was no need to raise IRs anymore? This man is full of it. Buy gold my friends.

It's not exactly a bail out. House price bears could do a lot worse than have Merv at the helm in my opinion. It's a pity he's off next year.

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It's not exactly a bail out. House price bears could do a lot worse than have Merv at the helm in my opinion. It's a pity he's off next year.

I disagree it is a bailout, and I don't know how you figure the housing bears would be worse off without this pathological liar. Only this week he was telling us that inflation had peaked so there was no need to raise IRs anymore. Does he think we're all stupid? As he was actually talking Oil made another all time high, wheat a high, and so to Gold. And only today we here that petrol is to over 1 pound a liter again.

His job is to manage inflation expectations, he is quoted as saying that somewhere. That is code for lying - for what he not very good at.

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I'm not familiar with all the facts, but Merve's actions and statements appear to me to be entirely consistent and he is not a liar (be aware of libel chaps).

He will not lower the cost of money to bail out lenders but as the lender of last resort the Bank has a responsibility to help out banks with short term liquidity problems - it's in their remit.

Hope that helps clarify what Merve's been up to.

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I'm not familiar with all the facts, but Merve's actions and statements appear to me to be entirely consistent and he is not a liar (be aware of libel chaps).

He will not lower the cost of money to bail out lenders but as the lender of last resort the Bank has a responsibility to help out banks with short term liquidity problems - it's in their remit.

Hope that helps clarify what Merve's been up to.

exactly. This appears to be different. It is like someone giving you a 3 day loan while a cheque clears, as opposed to giving you cash beacuse you have no assets whatsoever.

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I'm not familiar with all the facts, but Merve's actions and statements appear to me to be entirely consistent and he is not a liar (be aware of libel chaps).

He will not lower the cost of money to bail out lenders but as the lender of last resort the Bank has a responsibility to help out banks with short term liquidity problems - it's in their remit.

Hope that helps clarify what Merve's been up to.

Let's get one thing straight here - "Lender of last resort" - Does this mean slush-funding banks that go out on an insane lending binge, lending people 125% of the value of a house (a process which only worked when the money could be siphoned through the debt markets) - if this is what being a lender of last resort then they should be bailing out a million other companies first, but of course they don't, it is their mates in the banks that are sourcing cheap money and lending it to business at higher rates (sometimes much higer) on pain of financial death if they don't keep up with their payment schedule. Quite cosy, bail out the shylocks and let the shylocks shaft everybody else.

Now, as for inflation and not lowering the cost of money - well calling a peak in interest rates whilst infation is ripping through the system is making a bunch of bent bananas out of inflaiton fighting, no question whatsoever about that, it is trying to bend the market (or market expections).

Inflation fighting is dead, they have given up, actually they gave up years ago to follow an entirely different path, a path that has played a large part in creating all the current problems.

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http://business.timesonline.co.uk/tol/busi...icle2441754.ece

He bailed NR 6 hours after confirming that bailing would encourage them to repeat it! Shouldn't he resing after publicly lying?

Not a lie, its afferms Norther Rock isnt a 'bad' bank one of the few that will be saved... not all banks have the same position. BOE wont want any major UK banks to go bust, it would send out a bad signal to the world....

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I'm not familiar with all the facts, but Merve's actions and statements appear to me to be entirely consistent and he is not a liar (be aware of libel chaps).

He will not lower the cost of money to bail out lenders but as the lender of last resort the Bank has a responsibility to help out banks with short term liquidity problems - it's in their remit.

Hope that helps clarify what Merve's been up to.

Your wasting your type, JustYield. But you are right. It's a short term loan. Northern Rock will survive perhaps another year, but they business model no longer makes economic sense.

I do think Barclays will be considered too big to fail though (transferring out my savings this weekend, just in case).

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http://business.timesonline.co.uk/tol/busi...icle2441754.ece

He bailed NR 6 hours after confirming that bailing would encourage them to repeat it! Shouldn't he resing after publicly lying?

Hope not and give the opportunity for Rachel Lomax to take over.She was instrumental in getting rates to 3.5% and instrumental in the 5-4 victory for the doves in August 2005.Do we want the chief cause of the collapse of the banking system and a weapon of financial destruction in charge.

Edited by crashmonitor

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I believe NR will be borrowing at the 1% over base which is all the BOE has offered to all UK banks? This is what Barlcays and others dipped into a few times in the last few weeks and caused a stir in the markets.

So I think the BOE are not "bailing out" NR but are just giving them liquidity to survive. But liquidity @ 6.75% must really hurt NR profits as they probably have lots of fixed and discount mortgages at less than this meaning a large chunk of their monthly income will be loss making short term which will kill their share price even further.

Does anyome know different? I.E. has the BOE done NR a 5% deal or something? I doubt it.

M

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But liquidity @ 6.75% must really hurt NR profits as they probably have lots of fixed and discount mortgages at less than this meaning a large chunk of their monthly income will be loss making short term which will kill their share price even further.

Which is probably why they have do this:

Product Withdrawal Watch

Please be advised that Northern Rock will withdraw the following Intermediary Exclusive Fixed Rate products at midnight on Tuesday 11 September 2007:

Home Buyer Intermediary Exclusive 1½ Year Flexible Fixed Rate at 5.75% with £1,995 Product Fee and £500 HWC.

Home Buyer Intermediary Exclusive 2 Year Flexible Fixed Rate at 5.85% with £1,995 Product Fee and £500 HWC.

Remortgage Intermediary Exclusive 1½ Year Flexible Fixed Rate at 5.85% with £1,995 Product Fee and Valuation Incentive.

Remortgage Intermediary Exclusive 2 Year Flexible Fixed Rate at 5.95% with £1,995 Product Fee and Valuation Incentive.

Intermediary Exclusive 2 Year Flexible Fixed Rate at 5.98% with 1% Product Fee and either £500 HWC for Home Buyers, or Valuation Incentive for Remortgages.

What are they going to pull next?

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I believe NR will be borrowing at the 1% over base which is all the BOE has offered to all UK banks? This is what Barlcays and others dipped into a few times in the last few weeks and caused a stir in the markets.

So I think the BOE are not "bailing out" NR but are just giving them liquidity to survive. But liquidity @ 6.75% must really hurt NR profits as they probably have lots of fixed and discount mortgages at less than this meaning a large chunk of their monthly income will be loss making short term which will kill their share price even further.

Does anyome know different? I.E. has the BOE done NR a 5% deal or something? I doubt it.

M

If you're entire business model is based on eliminating the cost of having a liquidity reserve, then the Bank of England stepping in to provide liquidity when you need it is very much a bail out. Northern Rock's entire business model is built on the assumption that there won't be periodic financial crises, i.e that nothing like the Asian crisis, or the Russian default, or the dot.com bust, or 9/11 will happen again (despite all of those events happening in the space of 10 years) and they will always be able to tap short term borrowing to fund long term obligations. That assumption is totally implausible and was doomed to blow up at some point.

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love this quote

House prices fell for the first time in nearly two years in the three months to August, according to data from the Royal Institution of Chartered Surveyors.

Melanie Bien added: "Some people may find it harder to get mortgages as lenders reassess risk and look at who they lend to even more carefully.

"We saw Norwich & Peterborough reduce maximum LTVs (loan to value) this week and, if other lenders follow suit, first-time buyers with little or no deposit may find it harder to get a mortgage."

Huh, duh, if you have little or no deposit YOU SHOULD NOT BE PURCHASING, is it that hard to work out. Jesus.

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What is the money Northern Rock has borrowed for? To pay wages? Or to lend out as mortgages?

If it is to lend out as mortgages ... and the only institution that would lend to them is the BOE - what will happen when they've lent the tranche they've just borrowed? Borrow some more? Doesn't that make the BOE effectively a mortgage lender with Northern Rock as the middleman?

Wish I understood this lark.

What would happen to the UK housing market if the 5th largest lender didn't have any money to lend? Interest rates up, house prices down.

For bankers it seems to be 'heads I win, tails you lose'. They either lend small amounts at high interest or large amounts at low interest. Either way they win.

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What is the money Northern Rock has borrowed for? To pay wages? Or to lend out as mortgages?

If it is to lend out as mortgages ... and the only institution that would lend to them is the BOE - what will happen when they've lent the tranche they've just borrowed? Borrow some more? Doesn't that make the BOE effectively a mortgage lender with Northern Rock as the middleman?

Wish I understood this lark.

What would happen to the UK housing market if the 5th largest lender didn't have any money to lend? Interest rates up, house prices down.

For bankers it seems to be 'heads I win, tails you lose'. They either lend small amounts at high interest or large amounts at low interest. Either way they win.

The BoE state NR have reserves in excess of its requirements, so the lending is for either of the two things you mention (mortgages or running costs like wages).

If it is for mortgages, the BoE should not have done this! As they would be financing their business, not just giving short term liquidity as it's says it is.

Barclays, on the other hand, didn't have enough cash to meet it's reserves at the end of the day (which happened twice in August) this is what caused them to borrow from the BoE.

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Huh, duh, if you have little or no deposit YOU SHOULD NOT BE PURCHASING, is it that hard to work out. Jesus.

Why not? If you can afford the payments and make sufficient overpayments / stay in the property long enough to ride out any downturn what's the problem?

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I believe NR will be borrowing at the 1% over base which is all the BOE has offered to all UK banks? This is what Barlcays and others dipped into a few times in the last few weeks and caused a stir in the markets.

So I think the BOE are not "bailing out" NR but are just giving them liquidity to survive. But liquidity @ 6.75% must really hurt NR profits as they probably have lots of fixed and discount mortgages at less than this meaning a large chunk of their monthly income will be loss making short term which will kill their share price even further.

Does anyome know different? I.E. has the BOE done NR a 5% deal or something? I doubt it.

M

I dont remember exactly how much NR has borrowed from the BoE or how much from LIBOR at around the same rate but it is a considerable amount.

If you look at the rates they are giving mortgages at (around 6.4% in many cases) you an see they are making a considerable loss every day. How long can they make this loss before they are unable to service these growing differentials?

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I dont remember exactly how much NR has borrowed from the BoE or how much from LIBOR at around the same rate but it is a considerable amount.

If you look at the rates they are giving mortgages at (around 6.4% in many cases) you an see they are making a considerable loss every day. How long can they make this loss before they are unable to service these growing differentials?

They're still offering at 6.4%? No wonder they need to borrow money, surely they could just put up their rates due to lack of finance and wait it out, losing whatever market share they need to in the meantime.

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NR had funding needing rolling over which they are saying they won't be able to rollover.

What they have actually said is that they have asked for a "facility" to borrow this money from the BoE.

They have also said they have not yet used this facility. (although seems nailed on they will, since they've asked for it).

The money will be LENT to them, short-term by the BoE against AAA grade security (although what that comprises in actuality is anyone's guess!).

So they must still repay this short-term lending to the Bank as soon as they can. They will want to as well, since they are going to pay 1% over base to borrow it, which will mean they're most likely losing money on it.

They have issued a trading statement to the Stock Exchange this morning (which is on their website if you care to look http://companyinfo.northernrock.co.uk/down...ockEx140907.pdf to this effect. My reading of it is that they will not be taking on new loans until the MM sorts itself out.

Basically 2 things will happen as I understand it - Either the MM will calm down and they will refinance as they have done previously, repaying the BoE facility. Or they won't be able to and will need some form of capital funding once their cash runs out.

I would have thought the most likely scenario is a balance sheet lender taking on their loan book. But who has enough cash to buy-up £120bn of loans in the current climate?

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