Ladies and Gents, we have a credit crunch

[TightEnd]

http://news.bbc.co.uk/1/hi/business/6994328.stm


Exciting stuff for the academic economists on blonde!

the US sub prime market is extremely hairy too.


Not a great time to be splashing out on luxuries people if you are mortgaged, credit carded etc etc

[Graham C]

They've talked about nothing else on 5 Live this morning.  I have my mortgage with NR but apparently it makes no difference to me. If they do go bust, it will just get taken over by someone else.  I was hoping for a moment that all debts would be cancelled, but that was just a fleeting thought   They hold the deeds anyway and I'd want those back for sure.

US market has been dodgy for a while, it's one of the reasons our markets haven't been doing that well.

Nothing you can do about it though, just don't borrow more.  Things will calm down sooner or later.

[Robert HM]

I believe NR is secure and it's solvent, the sub prime market has got everybody jittery. Obviously NR's bottom line will be hit because of the publicity and the rate the B of E is going to charge. The share price will bottom out quickly and there will be a slow but steady correction upwards.

IMO!

[TightEnd]

yep, no risk for Northern Rock clients at all

15 years ago the Midland almost went under, HSBC came in and bought it

The BOE acts as guarantor in these situations as if one went under the effect on the economy would be immense


My general point is that with inter-bank lending costs rising, this will be passed on in higher charges for borrowing to us.

[The_duke]

The whole system is awash with money at the moment, it's just that the stingy banks don't want to lend to each other (or anyone else)  until it settles down. NR aren't a bank and their main business is mortgages so its a short term cash flow problem for them. Unforunately if it doen't setlle down soon individual lenders will be raising interest rates as the pithy banks make it expensive to borrow money, and we all know how long it takes them to reduce them again. However don't panic Mr Mainwairing (yet  )

[ifm]

Just rejigged my mortgage with NR this month (one fixed deal runs out another comes along) but i can't help wondering if they get themselves into trouble by offering silly amounts to their customers.
I know they offer 120% mortgages but they also offer a "together" mortgage where you can borrow unsecured on top of the mortgage with the same rate.
I know these make them very attractive to first time buyers etc. but it is so easy to go bankrupt these days it's almost free money.
e.g. (based on what i did 6 years ago) i borrowed £60k for my house + £10k for beer. The £10k was unsecured, a couple of years later i ran out of beer and they offered me another unsecured loan of up to £17k (i didn't take it) which would've meant i could have sold my house for e.g. £61k and walked away and filed for bankruptsy (sp?) when they chased too hard.
It seemed like madness to me 50% on top unsecured.

[TightEnd]

In the US, the sub prime market has been an accident waiting to happen for years. A real pyramid of lending in organisations such as Fannie Mae and Freddie Mac.

In the UK, the nearest manifestation of that has been "self certification" mortgages where individuals can borrow many multiples of salary on only the most cursory checks.

Add to that a lot of cc borrowing and unsecured credit elsewhere.

 

[TheChipPrince]

Enough of this legal mumbo jumbo, am i ever going to be able to afford a house or not?

[AndrewT]

As someone who thinks that economics and finance are all smoke and mirrors and a house of cards just waiting to collapse, can someone tell me exactly why the BoE should bail out Northern Rock for what are, essentially, bad business decisions (lending money to people who can't afford it)?

Isn't the whole point of capitalism that it is a ruthless system in which bad business decisions are punished (through companies going bust etc).

[byronkincaid]

it's just a cycle I believe similar stuff happened in the 70's and early 90's. house prices will go down and sentiment will change from "can't go wrong with property" to "never buy property" and that will be exactly the right time to start buying.

[sovietsong]

I work for a bank, when i started 4 years ago we would throw money to anybody that wanted it, secured or unsecured, recently the bank has really clamped down on lending, no more 100% mortgage and much tighter lending criteria.  Its got to the point where we wont even extend peoples terms as they cant afford the mortgage over a 5 year longer period, therefore activly encouraging people to move to the likes of northern rock et al.  

[jizzemm]

Enough of this legal mumbo jumbo, am i ever going to be able to afford a house or not?

Yes, wait a few months, House Prices are coming down..

As someone who thinks that economics and finance are all smoke and mirrors and a house of cards just waiting to collapse, can someone tell me exactly why the BoE should bail out Northern Rock for what are, essentially, bad business decisions (lending money to people who can't afford it)?

NR has a different business model to other banks, they are in the market as lenders (most of the business is lending) and they dont generate many savers, so they borrow from other banks to supply mortgages. Other banks wont borrow to them anymore for this period, so they need cash from somwhere to keep its business going.

[sovietsong]

As someone who thinks that economics and finance are all smoke and mirrors and a house of cards just waiting to collapse, can someone tell me exactly why the BoE should bail out Northern Rock for what are, essentially, bad business decisions (lending money to people who can't afford it)?

Isn't the whole point of capitalism that it is a ruthless system in which bad business decisions are punished (through companies going bust etc).

If the BoE didnt bail them out the impact of them going bust would be much worse than lending them a few quid.  

[AndrewT]

As someone who thinks that economics and finance are all smoke and mirrors and a house of cards just waiting to collapse, can someone tell me exactly why the BoE should bail out Northern Rock for what are, essentially, bad business decisions (lending money to people who can't afford it)?

Isn't the whole point of capitalism that it is a ruthless system in which bad business decisions are punished (through companies going bust etc).

If the BoE didnt bail them out the impact of them going bust would be much worse than lending them a few quid. 

And the impact would be?

[TightEnd]

higher unemployment, far worse consumer confidence, recession

If depositors lose confidence in those they deposit with, the whole economy slows down dramatically

Its why the BOE acts as lender of last resort, not to bail out the company but to prevent it having to bail out the consumer


The company: almost certainly will get bought.