Welcome to Northern Crock. We have no idea where your money is. But please do hold and a customer service representative will be with you in.... 6 days, 5 hours and 26 minutes.
We here in the US only have about 40 billion in required reserves for over a 13 trillion dollar economy. Reserves are only required to cover checking deposits.
This is becoming a "true bank run." The hysteria involved in this kind of run goes deeper than the institution itself. It reveals deeper financial anxiety.
It can act as a kind of cathartic trigger to help people express deep fears about the future. It can happen anywhere that there is a combination of deep unresolved, unexpressed anxiety and a trigger event.
By lining up in the street, people physically express (act out) what they are feeling, in a kind of exhibitionist way that makes them feel better. I'm not kidding.
The situation in the interbank market is very serious,'' said Kornelius Purps, a fixed-income strategist at UniCredit in Munich.Banks and institutions just aren't willing to lend to each other.''
Hey, it is a bank run--I thought it was the line up for the grand opening of a low rent, off-brand Hard Rock Cafe dedicated to the likes of Kenney G, Whitesnake, Vanilla Ice and Milli Vanilli.
on the drive into work just now i heard Mark Haynes, uberbull, on CNBC actually go speechless for a few seconds which is an eternity on the radio before he capitulated after a year of vicious fencing with Peter Schiff that the "mkt is setup for a big fall". amazing times.
The problem I think in the UK is the drop in insurance coverage after the first, what is it?, 2000 pounds. Nobody wants to lose 10% of what he has beyond 2000 pounds. The UK would be well advised to raise the insurance immediately to 100% of 50,000 pounds. That might stop the run.
There seems to be alot of agreement here that this would never happen in the USA.
Well there are alot of sheeple with more than 100k in a single cd or mm account. There are also a lot of sheeple that have either never heard of the FDIC or will not believe in a gubernmint safety net. Never underestimate the willful ignorance of the sheeple.
Hell, if there is a run, I might join in just for the entertainment value.
I don't get the concern... from what I was told the Brits have their own version of the FDIC. So who cares if your checking account is with a bank that defaults, the Feds (or whatever they're referred to over there) are on the hook for it.
Ok some people keep too much money in one bank. Fine they run to get some out. But in the era of ETFs, CDs, stock funds etc. who the heck keeps that much cash just sitting there in a bank account?
Old timey savers do - and my understanding of the Brit insurance is that you are 100% whole on just the first ~$4K, then 90% whole on the next ~$66K, then you are completely at risk.
James,
That would not stop the run. Middle class working prople have learned time and again who takes the fall when the kind words are trotted out by the execs and government.
"Better safe than sorry", especially when your retirement savings are on the line. At a certain age, those are irreplaceable and when you get to that age you will understand that feeling of vulnerability. You will want NO risk.
I'm too lazy to stand in line. I'd just open an account with another bank, write a personal check for the balance of my account minus five pounds. And trust the Government to prop up the bank long enough to see the check clear.
Really you've got as much chance of the check making it through as you do of getting to the front of that damn line.
Wally: Of course there is risk, of burglary, etc., if you keep 50000 pounds or whatever dollars at home in a coffee can. One reason to keep your money in an institution is security.
What's impressive is how many people are already willing to get hosed over there just to get their money out. Many are taking penalties for removing money too early, just to get away from the sinking ship. Others have gone back two or three days in a row to try to get their money out, but haven't made it through the line before the doors shut for the day. So you can pretty much guess that there is plenty of pent up demand for money. Hehe.
"As a staff member of Northern Rock I would just like to say that there is no need to panic - the Bank of England and all other authorities back Northern Rock 110%"
Gill Whitelock
Obviously Gill is a bit wrong on the percentages. That kind of talk makes me nervous, too.
But in the era of ETFs, CDs, stock funds etc. who the heck keeps that much cash just sitting there in a bank account?
Metrics Wonk | 09.17.07 - 11:31 am
Take a look at the queues. Many are pensioners. They don't invest in stocks at their age (2001 isn't that long ago when you are 80) and they haven't heard of ETFs. What could possibly be safter than a bank account? And these accounts were offering good rates.
the Tanta CDS visitor online index has been failing recently. my theory is that as TSHTF readers on this blog have become less sensitive to each and every crisis b/c of the mere fact that we have been vindicated in knowing that our dire predictions are playing out as we had foreseen.
Ok I get the point about old timey savers. Keep too much money in their accounts, buy CDs from their own bank rather than shopping around for the best rates etc.
I'm also surprised at the 10% hit in the british system. If the point is to promote security in times of crisis a 90% coverage seems like a complete camel of a solution. You're still paying all the money from the treasury, but people are still freaked over the 10%. Dumb idea if you ask me.
"As a staff member of Northern Rock I would just like to say that there is no need to panic - the Bank of England and all other authorities back Northern Rock 110%"
"The bounce-back in the financial markets is probably going to be smaller than it was in 1998," when the Dow Jones industrials surged 20% from its close on Oct. 1 through the end of the year, says Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. "We should expect further problems in the financial markets from the housing troubles. In 1998, it was things that were happening halfway around the world. The crisis today is a reflection of a problem that is at the heart of the U.S. economy," Mr. Hatzius says. Today's trouble "is more serious than 1998, by a significant margin."
there might not be ANY stock mkt snapback esp. if u look at 2001-03. i still think the burden of proof is on the bulls since their theory rests purely on speculative liquidity arguments and ignores all the bad data.
Alliance & Leicester shares end 33% lower
By Steve Goldstein
Last Update: 11:41 AM ET Sep 17, 2007
Print Subscribe to RSS Disable Live Quotes
LONDON (MarketWatch) -- Alliance & Leicester (UK:AL.:
587.00, -286.00, -32.8%) , a British lender that like Northern Rock (UK:NRK:
284.00, -154.00, -35.2%) relies to a large degree on wholesale funding, ended 33% lower in London, with much of the drop occuring in the final minutes of trade.
284.00, -154.00, -35.2%) relies to a large degree on wholesale funding, ended 33% lower in London, with much of the drop occuring in the final minutes of trade.
Got a call from chase telling me I could find a better use for the money in my checkng account, which was well less than the FDIC limit, and is very volatile in amounts.
CR = my guess is there will be several problems with Banks in Europe due to the fact that as they have been moving faster towards Basle II, they have been using more risk based capital formulas compared to the US (where the FED and OCC have been reluctant to move to the new guidelines). Have you seen / heard any analysis about this?
Thanks -
Interesting that Alliance & Leicester issued a statement less than two weeks ago that it was not exposed to subprime. Do you think maybe they knew somethiing was amiss back then - could be the next shoe to drop?
"Many are taking penalties for removing money too early"
A known loss is better then an total loss any day of the week where I live.
So true. If you were a pensioner with ~100K GBP on deposit, you are protected for less than half. If the deposit is yielding 5%, then you are giving up ~5K GBP (interest) to protect ~60K GBP. Seems like a reasonable hedge to me.
I still want to know which banks are benefitting from the influx of new deposits ?
"I still want to know which banks are benefiting from the influx of new deposits ?"
It could be that it isn't going into any bank, it may turn into mattress money, some may be going into gold. Hard to say but if I had just got hosed in one bank I'd be a little cautious before jumping into another; Right now cash is king.
i have a hunch we will see an e-run in the near future. e-trade anyone?
Actually there was already a run on e-trade during the CFC run, e-trade disabled electronic payment transfers out of the bank and made everyone talk to a human to get their money.
OT:Homeowners' equity falls for 1st time in 13 years
The Basel two is a risk adjusted capital measurement so for greater risk activities you would need greater reserves. The problem is of course no one's model predicted accurately what the actual sigma level would do in case of a meltdown of subprime. I bet according to their model which priced in reserves at -3 sigma level, of course the actual losses according to their model were probably about at a -20 sigma level - statistically impossible in the context of their model. The model was a joke and their risk estimation was also a joke. You could attribute this to the fat tail of risk but no one can accurately model the real catastrophic events like the 21 sigma 1987 crash. When all the banks move to a Basel 2 risk adjusted model you just end up increasing the overall systemic risk, everyone sets their panic level at 3 sigma and then everyone runs for the exits at the same time, while of course completely doubting their ability to set the volatility in the first place.
CR = my guess is there will be several problems with Banks in Europe due to the fact that as they have been moving faster towards Basle II, they have been using more risk based capital formulas compared to the US (where the FED and OCC have been reluctant to move to the new guidelines). Have you seen / heard any analysis about this?
Thanks -
Alejandro from Argentina
The past 8 weeks in The Economist has had more than a few articles regarding this, I believe Financial Times has as well.
I've brought this up in the past, I wonder if this will give the ECB an excuse to cut rates when we do to keep the Euro from taking off, or will they care as long as Chinese goods and oil remain the same?
Regarding Alliance & Leicester, whoop-de-freaking-do that they only hold euromortgages.
What if they're in bubbly London and Costa del shithole?
ARM's, yeah?
Assets going south, yeah?
Result's all the same, innit?
And it does appear that the pound is starting to crack, let's see how that bubble bursts. There was no fundamental reason why the pound was levittating as is was except as a safe haven. GBP=1.70US$ by xmas?
That's quite a line. What happened to all those stiff upper lips? Oh that's right, there a little soft after sucking on the government teat for all these years.
Checks sent out by the troubled American Home Mortgage Investment Corp. to pay the property taxes of more than 70 homeowners in the Baltimore metropolitan area have bounced, local officials said yesterday.
Baltimore City received bad checks for 53 properties - a total of about $63,500. Baltimore County said American Home Mortgage checks bounced for 21 properties, totaling $41,000. Taxes are due at the end of the month.
Re the question of where people are putting their money, see attacehed. Some are putting it into "bigger banks" assuming that a smaller one might be sacrificed. One is planning to split money across banks so no deposit over £35k. And one lady who actually GAVE HER NAME is planning to put it under her bed! Vader, please note.
I recall my parents telling me about the run on the bank in Chicago where they had their small savings account. This was in the early 30's before FDIC. They got in line and closed the account, but what to do with the cash? No problem - they just walked across the bank lobby and put it in their safe deposit box.
Some are putting it into "bigger banks" assuming that a smaller one might be sacrificed. One is planning to split money across banks so no deposit over £35k.
Yep. Duck and cover. Higher returns are now less important than asset protection. Splitting it up means that more of the deposits are being structured into 'covered' accounts.
"A lot of people here are older savers and unfortunately Northern Rock gave us a very good deal on a Silver Savings account, we thought it was a good deal," she said.
Uhh huh. Chickens are coming home looking for a place to roost.
The visual images of all those lines has got to have upper management at other institutions cringing at how fast this happened.
"Is that really true? Why then did anyone have their money in a bank that specialized in risky mortgages?"
bob, someone else may have answered this, but I'll give it a shot.
I've been reading British Blogs about this. Evidently, many LAYpeople felt that Northern Rock was growing by being a good business... they didn't know that the loans were crap.
even now, a lot of the blogs say things like this:
"well in the US you had banks lending to trailer park people, that never happened here, our loans are of much higher quality"
but they fail to realize that the reason the loans look so good is because most of them aren't impaired yet, due to continued RE appreciation.
the cracks are just starting there... sort of like here in 2005, when we only had a few cracks in the facade.
YtL - you got it. Remember when everyone was touting the miracle of Britain's RE market - how it weathered the interest rate hikes, and then took off again. Well, how do you think it took off again? Junk loans, financial shenanigans related to the junk loans creating City money that inflated the bubble even further - a vicious circle that for a while looked virtuous. This time around, the miracle will look like a 2 year echo of ours. All those buy to let idiots of the last couple of years are going to get their head handed to them just like the Central CA buyers are now. Nitwits.
LONDON (Thomson Financial) - The UK government will guarantee all deposits at embattled lender Northern Rock, said Chancellor of the Exchequer Alistair Darling.
Darling sought to allay fears that the bank could collapse, after a seemingly relentless run on the bank since news of its financial woes surfaced on Friday.
"I want to put the matter beyond doubt, in the current market circumstances, and because of the importance I place on maintaining a stable banking system and public confidence in it, I can announce today that following discussions with the governor and the chairman of the FSA (Financial Services Authority), should it be necessary, we, with the Bank of England, would put in place arrangements that would guarantee all the existing deposits in Northern Rock during the current instability in the financial markets," Darling said.
"This means that people can continue to take their money out of Northern Rock -- but if they choose to leave their money in Northern Rock, it will be guaranteed, safe and secure," he added.
Darling also said any other bank that required it would be covered by the government's guarantee.
The Chancellor was speaking to reporters after a meeting with his US counterpart, Treasury Secretary Henry
When I was in grad school (in the UK), there was a big argument over optimal policy for government guarantees for deposits.
Backers of the UK system claimed the US system created moral hazard. Since US citizens could just parcel out savings $100k per bank and have FDIC insurance, there was no incentive to care about bank solvency - you might as well put all your savings in crappy banks offering high interest rates.
I think this arguement is mostly over - The UK system of providing insurance for a percentage of your savings doesn't prevent a bank run. And when one occurs, there's political/economic pressure to step up and provide full insurance. Seems like the worst of both worlds.
"thus I am going to the bank to take out $5k or so... I want cash IN MY HAND..."
Getting a few K in cash out of the bank won't be a problem it's when you want 50K in cash that you'll have a problem and that is even without a banking crisis at least for a small FDIC insured bank and from my experience. Sorry come back in 3 days buddy if you want cash or we can write you a check now. The Government hates cash they can't track it especially the older bills although they have been working on a way to track the newer ones I believe.
first!
They better not run out of money or their will be riots like Argentina's banks had and then general panic.
Fractional Reserve Banking FTW!
Here is some Q&As from Northern Rock
http://www.northernrock.co.uk/downloads/yourquestionsanswered.pdf
NR is similar to New century and CFC.
many such banks could not exist if it was not for the Ponzi of cheap credit and rising R/E prices.
Still I am not short because this bailout is just the first. There will be more.
Perhaps Saturday Rock Blogging's next release should be :
YouTube
- Broadcast Yourself.
Welcome to Northern Crock. We have no idea where your money is. But please do hold and a customer service representative will be with you in.... 6 days, 5 hours and 26 minutes.
"Fractional Reserve Banking FTW!"
We here in the US only have about 40 billion in required reserves for over a 13 trillion dollar economy. Reserves are only required to cover checking deposits.
http://research.stlouisfed.org/publications/mt/page7.pdf
Ever tried to take 50K in cash out of a US bank it's 3 day wait.
This is becoming a "true bank run." The hysteria involved in this kind of run goes deeper than the institution itself. It reveals deeper financial anxiety.
It can act as a kind of cathartic trigger to help people express deep fears about the future. It can happen anywhere that there is a combination of deep unresolved, unexpressed anxiety and a trigger event.
By lining up in the street, people physically express (act out) what they are feeling, in a kind of exhibitionist way that makes them feel better. I'm not kidding.
The situation in the interbank market is very serious,'' said Kornelius Purps, a fixed-income strategist at UniCredit in Munich.Banks and institutions just aren't willing to lend to each other.''
But, but our stocks are fine. Buy, buy, buy.
i like best the photo of NR from the top of an adjacent bldg birds eye view on Mish's site. would someone pls get to work?
Oh to be a competent pickpocket.
Still I am not short because this bailout is just the first. There will be more.
Yal
precisely why u should be short now not later when its too late.
Hey, it is a bank run--I thought it was the line up for the grand opening of a low rent, off-brand Hard Rock Cafe dedicated to the likes of Kenney G, Whitesnake, Vanilla Ice and Milli Vanilli.
It is a true bank 'run' and they're gonna need more chocolates.
on the drive into work just now i heard Mark Haynes, uberbull, on CNBC actually go speechless for a few seconds which is an eternity on the radio before he capitulated after a year of vicious fencing with Peter Schiff that the "mkt is setup for a big fall". amazing times.
The problem I think in the UK is the drop in insurance coverage after the first, what is it?, 2000 pounds. Nobody wants to lose 10% of what he has beyond 2000 pounds. The UK would be well advised to raise the insurance immediately to 100% of 50,000 pounds. That might stop the run.
There seems to be alot of agreement here that this would never happen in the USA.
Well there are alot of sheeple with more than 100k in a single cd or mm account. There are also a lot of sheeple that have either never heard of the FDIC or will not believe in a gubernmint safety net. Never underestimate the willful ignorance of the sheeple.
Hell, if there is a run, I might join in just for the entertainment value.
I don't get the concern... from what I was told the Brits have their own version of the FDIC. So who cares if your checking account is with a bank that defaults, the Feds (or whatever they're referred to over there) are on the hook for it.
Ok some people keep too much money in one bank. Fine they run to get some out. But in the era of ETFs, CDs, stock funds etc. who the heck keeps that much cash just sitting there in a bank account?
Hey if you've got more than $100,000 cash you are not supposed to keep it in a bank. You are supposed to be buying hedge funds, etc., etc.
hmmm... just ticked up to 197 visitors - life must be getting interesting somewhere - in the live in interesting times sense!
There are also some good pictures on sky news.
Error
And remember, this is day 3 and there is no sign this is abating. On the contrary...
Metrics,
Old timey savers do - and my understanding of the Brit insurance is that you are 100% whole on just the first ~$4K, then 90% whole on the next ~$66K, then you are completely at risk.
James,
That would not stop the run. Middle class working prople have learned time and again who takes the fall when the kind words are trotted out by the execs and government.
"Better safe than sorry", especially when your retirement savings are on the line. At a certain age, those are irreplaceable and when you get to that age you will understand that feeling of vulnerability. You will want NO risk.
199 visitors.
Maybe I will short something at 270...
320 would be a better omen.
James,
i'm sorry but the insurance itself contributed mightily to the moral hazard of how NR got itself into this mess in the first place.
I'm too lazy to stand in line. I'd just open an account with another bank, write a personal check for the balance of my account minus five pounds. And trust the Government to prop up the bank long enough to see the check clear.
Really you've got as much chance of the check making it through as you do of getting to the front of that damn line.
Wally: Of course there is risk, of burglary, etc., if you keep 50000 pounds or whatever dollars at home in a coffee can. One reason to keep your money in an institution is security.
And lets not forget that old timey savers = a significant fraction of all bank savers.
Also cds ARE FDIC insured.
One reason to keep your money in an institution is security.-James
bwahahahahahahahahaha
What's impressive is how many people are already willing to get hosed over there just to get their money out. Many are taking penalties for removing money too early, just to get away from the sinking ship. Others have gone back two or three days in a row to try to get their money out, but haven't made it through the line before the doors shut for the day. So you can pretty much guess that there is plenty of pent up demand for money. Hehe.
Put a fork in this puppy...it's done.
A little tidbit from the BBC website:
"As a staff member of Northern Rock I would just like to say that there is no need to panic - the Bank of England and all other authorities back Northern Rock 110%"
Gill Whitelock
Obviously Gill is a bit wrong on the percentages. That kind of talk makes me nervous, too.
It is true we don't trust each other, but that is no reason you shouldn't trust us.
Take a look at the queues. Many are pensioners. They don't invest in stocks at their age (2001 isn't that long ago when you are 80) and they haven't heard of ETFs. What could possibly be safter than a bank account? And these accounts were offering good rates.
Yal
the Tanta CDS visitor online index has been failing recently. my theory is that as TSHTF readers on this blog have become less sensitive to each and every crisis b/c of the mere fact that we have been vindicated in knowing that our dire predictions are playing out as we had foreseen.
"Many are taking penalties for removing money too early"
A known loss is better then an total loss any day of the week where I live.
"The problem I think in the UK is the drop in insurance coverage after the first, what is it?, 2000 pounds. - James"
Is that really true? Why then did anyone have their money in a bank that specialized in risky mortgages?
f that is true, I bet they raise the limit real quick.
Ok I get the point about old timey savers. Keep too much money in their accounts, buy CDs from their own bank rather than shopping around for the best rates etc.
I'm also surprised at the 10% hit in the british system. If the point is to promote security in times of crisis a 90% coverage seems like a complete camel of a solution. You're still paying all the money from the treasury, but people are still freaked over the 10%. Dumb idea if you ask me.
"As a staff member of Northern Rock I would just like to say that there is no need to panic - the Bank of England and all other authorities back Northern Rock 110%"
yes but we will only back your acct 10%
Idoc:
If everyone kept all his money at home, there would be vastly more criminal activity including home invasions than there is now. For sure.
James- just yanking your chain.
pretty soon those lines are gonna get so long that we'll need Google Earth.
i have a hunch we will see an e-run in the near future. e-trade anyone?
From Wiki:
The pound was originally the value of one pound Tower weight of sterling silver (hence "pound sterling").
Someone needs to tell these people it ain't like that nomore.
So what will happen if mervyn's bail-out fails?
Expired
"The bounce-back in the financial markets is probably going to be smaller than it was in 1998," when the Dow Jones industrials surged 20% from its close on Oct. 1 through the end of the year, says Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. "We should expect further problems in the financial markets from the housing troubles. In 1998, it was things that were happening halfway around the world. The crisis today is a reflection of a problem that is at the heart of the U.S. economy," Mr. Hatzius says. Today's trouble "is more serious than 1998, by a significant margin."
there might not be ANY stock mkt snapback esp. if u look at 2001-03. i still think the burden of proof is on the bulls since their theory rests purely on speculative liquidity arguments and ignores all the bad data.
first they lock in the depositors then they lock in the shareholders. what is this, a hedge fund?
Moin,
Housing Doom has the BBC report
Northern Rock- Heres What a Bank Run Looks Like
Alliance & Leicester shares end 33% lower
By Steve Goldstein
Last Update: 11:41 AM ET Sep 17, 2007
Print Subscribe to RSS Disable Live Quotes
LONDON (MarketWatch) -- Alliance & Leicester (UK:AL.:
587.00, -286.00, -32.8%) , a British lender that like Northern Rock (UK:NRK:
284.00, -154.00, -35.2%) relies to a large degree on wholesale funding, ended 33% lower in London, with much of the drop occuring in the final minutes of trade.
284.00, -154.00, -35.2%) relies to a large degree on wholesale funding, ended 33% lower in London, with much of the drop occuring in the final minutes of trade.
Got a call from chase telling me I could find a better use for the money in my checkng account, which was well less than the FDIC limit, and is very volatile in amounts.
"So what's the term & interest on the CD?"
6mo, 6%
"call me again and I'll pull my account"
UMMM, UMMM, I'm sorry
"unless the CD is 7%"
Hanks for your time.
"Northern Rock appeals for white knight as run on bank continues"
Northern Rock appeals for white knight as run on bank continues - Telegraph
I should say so - unless I am mistaken the Board are PERSONALLY responsible for the loss(es) and credit obligations.
Can someone confirm if this still the case under UK bus. law, plese.
If everyone kept all his money at home, there would be vastly more criminal activity including home invasions than there is now. For sure.
Their would be a lot more dog maulings and dead people in my neighborhood everyone has a gun. We don't play that shit.
i have a hunch we will see an e-run in the near future. e-trade anyone?
infestor
fear seller...
my etrade account is full of illiquid put positions placed aug 22nd...
i'm not worried about a bank run, i'm worried about personal insolvency
So is this the bank that Banker was talking about, or does this millipede have another shoe coming off?
Oh to be a competent pickpocket.
vader | 09.17.07 - 11:25 am
Appears Northern Rock got there first.
CR = my guess is there will be several problems with Banks in Europe due to the fact that as they have been moving faster towards Basle II, they have been using more risk based capital formulas compared to the US (where the FED and OCC have been reluctant to move to the new guidelines). Have you seen / heard any analysis about this?
Thanks -
Interesting that Alliance & Leicester issued a statement less than two weeks ago that it was not exposed to subprime. Do you think maybe they knew somethiing was amiss back then - could be the next shoe to drop?
Alliance & Leicester Unit Doesn't Hold U.S. Subprime (Update2) - Bloomberg.com
"Northern Rock appeals for white knight as run on bank continues"
Call Potter.
"Many are taking penalties for removing money too early"
A known loss is better then an total loss any day of the week where I live.
So true. If you were a pensioner with ~100K GBP on deposit, you are protected for less than half. If the deposit is yielding 5%, then you are giving up ~5K GBP (interest) to protect ~60K GBP. Seems like a reasonable hedge to me.
I still want to know which banks are benefitting from the influx of new deposits ?
"I still want to know which banks are benefiting from the influx of new deposits ?"
It could be that it isn't going into any bank, it may turn into mattress money, some may be going into gold. Hard to say but if I had just got hosed in one bank I'd be a little cautious before jumping into another; Right now cash is king.
Furk - did they suspend trading on NR ?
what is going in dammit ?
i have a hunch we will see an e-run in the near future. e-trade anyone?
Actually there was already a run on e-trade during the CFC run, e-trade disabled electronic payment transfers out of the bank and made everyone talk to a human to get their money.
OT:Homeowners' equity falls for 1st time in 13 years
http://www.marketwatch.com/news/story/homeowners-equity-falls-1st-time/story.aspx?guid={F61BCEBB-D047-4F16-8958-8E8793D3880E}&siteid=yahoomy
Alejandro,
The Basel two is a risk adjusted capital measurement so for greater risk activities you would need greater reserves. The problem is of course no one's model predicted accurately what the actual sigma level would do in case of a meltdown of subprime. I bet according to their model which priced in reserves at -3 sigma level, of course the actual losses according to their model were probably about at a -20 sigma level - statistically impossible in the context of their model. The model was a joke and their risk estimation was also a joke. You could attribute this to the fat tail of risk but no one can accurately model the real catastrophic events like the 21 sigma 1987 crash. When all the banks move to a Basel 2 risk adjusted model you just end up increasing the overall systemic risk, everyone sets their panic level at 3 sigma and then everyone runs for the exits at the same time, while of course completely doubting their ability to set the volatility in the first place.
Go Browns!
CR = my guess is there will be several problems with Banks in Europe due to the fact that as they have been moving faster towards Basle II, they have been using more risk based capital formulas compared to the US (where the FED and OCC have been reluctant to move to the new guidelines). Have you seen / heard any analysis about this?
Thanks -
Alejandro from Argentina
The past 8 weeks in The Economist has had more than a few articles regarding this, I believe Financial Times has as well.
I've brought this up in the past, I wonder if this will give the ECB an excuse to cut rates when we do to keep the Euro from taking off, or will they care as long as Chinese goods and oil remain the same?
Regarding Alliance & Leicester, whoop-de-freaking-do that they only hold euromortgages.
What if they're in bubbly London and Costa del shithole?
ARM's, yeah?
Assets going south, yeah?
Result's all the same, innit?
And it does appear that the pound is starting to crack, let's see how that bubble bursts. There was no fundamental reason why the pound was levittating as is was except as a safe haven. GBP=1.70US$ by xmas?
Northern Rock PLC
RE: NORTHERN ROCK PLC
GBP 2,790,000.00
MATURING: 10-Dec-2009
ISSUE DATE: 12-Dec-2002
ISIN: XS0159597110
PLEASE BE ADVISED THAT THE INTEREST RATE FOR THE PERIOD
10-Sep-2007 TO 10-Dec-2007 HAS BEEN FIXED AT 6.996250 PCT
DAY BASIS 91/365
INTEREST PAYABLE VALUE 10-Dec-2007 WILL AMOUNT TO: GBP 17.44 PER GBP 1,000.00 DENOMINATION
IF YOU HAVE ANY QUERIES PLEASE CONTACT THE RATE FIX DESK ON
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Fitch moves defaut rating from A to A-. Reason: Strained funding options
I am just glad that everything is "contained" to little things like bank runs, etc. Wow!
"I am just glad that everything is "contained" to little things like bank runs, etc. Wow!"
I think that damn butterfly must be flapping it's wings again.
That's quite a line. What happened to all those stiff upper lips? Oh that's right, there a little soft after sucking on the government teat for all these years.
Northern Rock PLC
RE: NORTHERN ROCK PLC
GBP 11,060,000.00
MATURING: 10-Dec-2009
ISSUE DATE: 10-Dec-2003
ISIN: XS0182223965
PLEASE BE ADVISED THAT THE INTEREST RATE FOR THE PERIOD
10-Sep-2007 TO 10-Dec-2007 HAS BEEN FIXED AT 7.026250 PCT
DAY BASIS 91/365
INTEREST PAYABLE VALUE 10-Dec-2007 WILL AMOUNT TO: GBP 175.18 PER GBP 10,000.00 DENOMINATION
Checks sent out by the troubled American Home Mortgage Investment Corp. to pay the property taxes of more than 70 homeowners in the Baltimore metropolitan area have bounced, local officials said yesterday.
Baltimore City received bad checks for 53 properties - a total of about $63,500. Baltimore County said American Home Mortgage checks bounced for 21 properties, totaling $41,000. Taxes are due at the end of the month.
Topic Galleries -- baltimoresun.com
Re the question of where people are putting their money, see attacehed. Some are putting it into "bigger banks" assuming that a smaller one might be sacrificed. One is planning to split money across banks so no deposit over £35k. And one lady who actually GAVE HER NAME is planning to put it under her bed! Vader, please note.
BBC NEWS | Business | Northern Rock customers air their views
Sorry that 1:21 anonymous was me.
I recall my parents telling me about the run on the bank in Chicago where they had their small savings account. This was in the early 30's before FDIC. They got in line and closed the account, but what to do with the cash? No problem - they just walked across the bank lobby and put it in their safe deposit box.
Some are putting it into "bigger banks" assuming that a smaller one might be sacrificed. One is planning to split money across banks so no deposit over £35k.
Yep. Duck and cover. Higher returns are now less important than asset protection. Splitting it up means that more of the deposits are being structured into 'covered' accounts.
"A lot of people here are older savers and unfortunately Northern Rock gave us a very good deal on a Silver Savings account, we thought it was a good deal," she said.
Uhh huh. Chickens are coming home looking for a place to roost.
The visual images of all those lines has got to have upper management at other institutions cringing at how fast this happened.
"one lady who actually GAVE HER NAME is planning to put it under her bed!'
Poor bastards in England can't own guns hope she has a big, mean, ugly looking dog named Killer
"Is that really true? Why then did anyone have their money in a bank that specialized in risky mortgages?"
bob, someone else may have answered this, but I'll give it a shot.
I've been reading British Blogs about this. Evidently, many LAYpeople felt that Northern Rock was growing by being a good business... they didn't know that the loans were crap.
even now, a lot of the blogs say things like this:
"well in the US you had banks lending to trailer park people, that never happened here, our loans are of much higher quality"
but they fail to realize that the reason the loans look so good is because most of them aren't impaired yet, due to continued RE appreciation.
the cracks are just starting there... sort of like here in 2005, when we only had a few cracks in the facade.
They're lining up for HOVs sale of the century
YtL - you got it. Remember when everyone was touting the miracle of Britain's RE market - how it weathered the interest rate hikes, and then took off again. Well, how do you think it took off again? Junk loans, financial shenanigans related to the junk loans creating City money that inflated the bubble even further - a vicious circle that for a while looked virtuous. This time around, the miracle will look like a 2 year echo of ours. All those buy to let idiots of the last couple of years are going to get their head handed to them just like the Central CA buyers are now. Nitwits.
I've already said this:
but I purposefully kept all my savings account balances under the FDIC limit for exactly this reason.
I am somewhat worried still, though, about time delay to getting my cash.
thus I am going to the bank to take out $5k or so... I want cash IN MY HAND...
I don't see this getting a lot of US press... I wonder if it's trying to control the panic?
AVOIDING A FULL RUN: this just in:
LONDON (Thomson Financial) - The UK government will guarantee all deposits at embattled lender Northern Rock, said Chancellor of the Exchequer Alistair Darling.
Darling sought to allay fears that the bank could collapse, after a seemingly relentless run on the bank since news of its financial woes surfaced on Friday.
"I want to put the matter beyond doubt, in the current market circumstances, and because of the importance I place on maintaining a stable banking system and public confidence in it, I can announce today that following discussions with the governor and the chairman of the FSA (Financial Services Authority), should it be necessary, we, with the Bank of England, would put in place arrangements that would guarantee all the existing deposits in Northern Rock during the current instability in the financial markets," Darling said.
"This means that people can continue to take their money out of Northern Rock -- but if they choose to leave their money in Northern Rock, it will be guaranteed, safe and secure," he added.
Darling also said any other bank that required it would be covered by the government's guarantee.
The Chancellor was speaking to reporters after a meeting with his US counterpart, Treasury Secretary Henry
reminicsent of Continental Illinois bailout in the 80's... where all FDIC deposits were paid out, but also NONcovered deposits were also covered.
this is getting out of control. very dangerous.
the problem now: everything causes fear. Even things meant to reassure are causing alarm.
the day that Bernanke goes up and says "Have no fear, all of Wells Fargo's deposits are covered" is the day I withdraw everything in cash.
YTL
When I was in grad school (in the UK), there was a big argument over optimal policy for government guarantees for deposits.
Backers of the UK system claimed the US system created moral hazard. Since US citizens could just parcel out savings $100k per bank and have FDIC insurance, there was no incentive to care about bank solvency - you might as well put all your savings in crappy banks offering high interest rates.
I think this arguement is mostly over - The UK system of providing insurance for a percentage of your savings doesn't prevent a bank run. And when one occurs, there's political/economic pressure to step up and provide full insurance. Seems like the worst of both worlds.
"The only thing we have to fear is fear itself." - FDR
"thus I am going to the bank to take out $5k or so... I want cash IN MY HAND..."
Getting a few K in cash out of the bank won't be a problem it's when you want 50K in cash that you'll have a problem and that is even without a banking crisis at least for a small FDIC insured bank and from my experience. Sorry come back in 3 days buddy if you want cash or we can write you a check now. The Government hates cash they can't track it especially the older bills although they have been working on a way to track the newer ones I believe.