Northern Rock
Posted by: Adam Meredith on 16 September 2007
I have never understood high finance - partly, I suspect, because it doesn't really make sense.
Northern Rock has shareholders - it is presumably not a Mutual Society.
BBC's business editor Robert Peston (who appears to talk abject bollocks) is quoted as saying:
"The BBC has also learned that two banks were very interested in acquiring the beleaguered firm.
However, they were concerned about doing such a big deal amid turmoil in money markets and when it was difficult and expensive to raise money from other banks and financial institutions.
Mr Peston said the two interested parties sought guarantees from the Bank of England that it would supply facilities to fund Northern Rock's assets - valued at about £113bn - if that money was impossible to obtain on the market - but that these were refused.
"The Bank did not want to be seen to be bailing out Northern Rock's shareholders and bondholders," he said.
"It feels they need to feel the pain and suffer the losses of their mistake in backing a bank, Northern Rock, whose strategy was flawed."
"It is the banking Catch 22 of our time: Northern Rock can't be sold without a guarantee of funding from the Bank of England, but the Bank is refusing to provide such funding to facilitate a sale."
He added that the Bank now had to decide whether to inject billions of pounds into the firm, or "swallow its pride" and allow public money to facilitate a sale."
What is an asset (valued at about £113bn) - if it needs to be "funded" by the Bank of England to be an asset?
If the Bank of England provides a guarantee of funding to facilitate a sale - there is then (if they're lucky) a sale in which management and shareholders get money. Do they give some/all of this back or do they just get their arses saved by the B of E?
Where do depositors fit in vis-a-vis shareholders? Or are they the same?
Even at its most "prudent" the bank industry relies on a benign lie. There is never enough "money" to give back everything to everyone as each £1 deposited supports, say, £10 of loans. This works fairly well - so long as you don't get a run on the banks - at that moment you begin to understand who has been "funding" inflation and how ill-equipped they are to maintain any stability - once the bubble bursts.
Northern Rock has shareholders - it is presumably not a Mutual Society.
BBC's business editor Robert Peston (who appears to talk abject bollocks) is quoted as saying:
"The BBC has also learned that two banks were very interested in acquiring the beleaguered firm.
However, they were concerned about doing such a big deal amid turmoil in money markets and when it was difficult and expensive to raise money from other banks and financial institutions.
Mr Peston said the two interested parties sought guarantees from the Bank of England that it would supply facilities to fund Northern Rock's assets - valued at about £113bn - if that money was impossible to obtain on the market - but that these were refused.
"The Bank did not want to be seen to be bailing out Northern Rock's shareholders and bondholders," he said.
"It feels they need to feel the pain and suffer the losses of their mistake in backing a bank, Northern Rock, whose strategy was flawed."
"It is the banking Catch 22 of our time: Northern Rock can't be sold without a guarantee of funding from the Bank of England, but the Bank is refusing to provide such funding to facilitate a sale."
He added that the Bank now had to decide whether to inject billions of pounds into the firm, or "swallow its pride" and allow public money to facilitate a sale."
What is an asset (valued at about £113bn) - if it needs to be "funded" by the Bank of England to be an asset?
If the Bank of England provides a guarantee of funding to facilitate a sale - there is then (if they're lucky) a sale in which management and shareholders get money. Do they give some/all of this back or do they just get their arses saved by the B of E?
Where do depositors fit in vis-a-vis shareholders? Or are they the same?
Even at its most "prudent" the bank industry relies on a benign lie. There is never enough "money" to give back everything to everyone as each £1 deposited supports, say, £10 of loans. This works fairly well - so long as you don't get a run on the banks - at that moment you begin to understand who has been "funding" inflation and how ill-equipped they are to maintain any stability - once the bubble bursts.
I prefer Northern Soul.
Stephen
Stephen
quote:Originally posted by Adam Meredith:quote:Originally posted by GFFJ:
the pound would not be worth the paper it was printed on in any case.
Dear Adam,
I was thinking of "the pound" in the same way as the writer of the financial news on the radio might think of it when penning the headingline, " the pound fell against the dollar in the late afternoon, after the inflation figures were announced..."
I don't suppose he or she would be thinking of a small coin falling out of a trader's pocket while a metal dollar safely stayed at the same height in the other pocket!
This would have been a perfect chance to use a smiley! But I have given them up till Easter 2036, when I will start using them again to celebrate surviving into the year of my 75 birthday! Or not!!!
ATB from George!
Adams just being Adam George 