Northern Rock

[Mike]

All their savings are now safe. I thought there was a funny quote in the paper this morning from a Saver trying to withdraw her savings.

The bank needs to repay the loyalty of its customers

This as she is queuing to withdraw her cash which could be construed as dis-loyalty! They had kept her waiting all day and she was turned away at 5:00pm by exhausted staff. If we are not careful this will cause a economic disaster in the UK.

Bradford and Bingley, Alliance and Leicester, Halifax Bank of Scotland were other companies identified by analysts as potentially having a 'funding gap'. The shared in Alliance and Leicester and Bradford and Bingley dripped yesterday rather dramatically. This is despite both companies having different strategies and being well regulated with no reports of cashflow!

Thus the panic rolls on!

[mr_e]

We had a discussion about this last night. The conclusions were as follows:

1) Media create unnecessary concern.
2) Stupid people panic and draw their money out.
3) This creates an actual problem.
4) Normal people then feel the need to draw money out.
5) Share prices plummet and a buy-out ensues.
6) Northern Rock as a brand is finished.

Proof once again that, collectively, people can be really dumb. Part of me's glad that their short-term borrowing practises have been exposed, because it may encourage more restraint in the financial markets (on top of the whole sub-prime thing). Hell, the whole banking system's messed up, with the whole fractional reserve thing and whatnot.

But, as ever, people will forget and in about twenty years it'll happen again.

Edit: The government have fully guaranteed all deposits: BBC article. Looks like some of the commentators were right.

[Andy]

I don't really see what all the fuss was about because the Bank of England has a legal obligation to protect your money (presumably in the small print section) in every savings account that you register.

With England/UK also having around the 4th strongest economy in the world then I don't think that as a strong economic power (and certainly as a power with a new government leader), we would have allowed Northern Rock to close and let everyone lose their money. Another country would have been a different matter.

In honesty, I have to admit that I am looking at the decent interest rates that Northern Rock are offering on ISAs at the moment. Now maybe the time to invest to get a good deal.

[mr_e]

Technically, they only have an obligation up to £35,000 and even then it's 90% of anything over £2,000. Hence the concern.

Those Northern Rock fixed rate ISAs do look good, as long as you're okay with not having access to your money for at least a year. Have you looked at the NS&I Direct ISAs? I seem to remember them being pretty competitive as well.

[Mike]

I don't really see what all the fuss was about because the Bank of England has a legal obligation to protect your money (presumably in the small print section) in every savings account that you register.

The Bank of England has an obligation to exchange coins and notes you have in your possession for gold. When you put money in an account you are actually 'investing' in a system, therefore you have done this at your own risk and the BoE have no further obligations. The banks are generally low risk because they are large and for the most part stable organisations.

[Mike]

It is looking like Richard Branson and Virgin Media are likely to be the new owners of Northern Rock. It would be nice for the bank to remaiin in British ownership (rather than an american hedge fund) you could say that the hedge fund would only be interested in the company as long as it was making money! It would then be rebranded as Virgin Money! Interesting name?!

[Andy]

It would then be rebranded as Virgin Money! Interesting name?!

Not for much longer though. The amount of people who would be using the ''hole in the wall'' would mean a name change within a week!

[Mike]

You mean the 'Virgin Hole' is not going to be an acceptable form of branding for their new cash machines. . . . Good thing northern rock don't seem to have many!

[Mike]

The shareholders are upset that their shares are being undervalued - they are obviously hoping for a nationalisation of the bank because a government will not be too bothered about paying full price for the shares!

[Mike]

There was an article today about NR being a bit naught when it concerned a charity in Jersey - the do seem to have been making more than a little bit of a mess of it arn't they!? :D

[Mike]

The BBC are reporting a drop in house prices! I wonder how long it is going to be before Lizzie and I feel the pinch of the weakened house market?! On the plus side we are currently in an area where the house market is pretty strong - a house down the road from us went to sealed bids the other week which is pretty amazing!

[johnriley1uk]

In the long term it's your biggest asset, but as that is only realised when you sell, house prices in the interim don't have any effect on you.

However, interest rates do and these are inter-connected. If the housing market did go into recesssion, interest rates would have to fall and then ther market would respond accordingly.

The real killer for people is where they have got used to a very low fixed rate and when it ends there is a large jump in what they pay.

It seems like a good time to rein in spending, reduce credit card use and build some reserves.

The trouble is when we keep wanting things!

[Andy]

The thought of a looming recession is one that is constantly in the back of my mind even if we did buy our house cheaper than the area (now that we have done work to it, it has risen 15+% or something). We have taken out a fixed mortgage that will last for the next four and a half years so we will not be knobbled suddenly by high interest rises. Even though ours is higher than the current interest rates, I wanted that for the potential security it offered. Speaking to one of the women at work, hers has gone up by £120 in the last year and a half which is a hefty increase. Like most people I think that we will see out the recession if it comes because at the end of the day, if I have a roof over my head and a loving woman by my side then whatever life throws at me I know I will be OK.

[mr_e]

The problem the BoE have at the moment is that inflation is above target...raise the base rate!...wait, but house prices are slowing...lower the base rate!...but inflation is too high!...etc

We're certainly in for at least a slowing of the economy, but what's the point of continuous growth anyways? It doesn't help that the last few years of growth have mostly been due to rampant borrowing. The only winners here are going to be banks, and quite likely a lot of buy-to-let lenders as well (in short, those who already have a decent supply of capital or equity).

[Mike]

Have you noticed how quietly the government has been lending more and more money to Northern Rock! This article suggests that the government backing to the bank is now in the region of £57 billion pounds! Yikes that is such an amazing amount of money it is untrue. I don't even think that the world's richest men could buy out northern rock at that sort of price. I think only Bill Gates would be able to do such a thing. . . and even that would impoverish him for no good reason.