Ladies and Gents, we have a credit crunch

[Jon MW]

As to the point why is growth important, it is important because it creates new employment which brings more disposable income into the economy therefore creating more and more employment and reducing benefit payments.

For every new pound that is created by growth it's true value is so much more because after the initial spending of that pound the next person will spend say 90% of that pound and so on and so on. As a result the demand for more goods and services increase which therefore subsequently means the creation of more employment.

Naturally the fluctuation tends to be nominal in a global economy except for when you have the largest economic country start cocking things up, cue stupid greedy yanks.

Again, this all seems like a pyramid scheme - thing A creates demand for thing B which increases thing A which creates demand for thing B etc etc. I can understand how this works when the initial seed of economic growth is something which has genuinely (to all intents and purposes) come from nowhere and is new (oil, gold or coal out of the ground, farming and agriculture which is not severe enough to affect replacement levels), but much of the new employment over the past 20 years has been in the service industry - jobs for jobs sake.

          exactly Jobs for jobs sake.... I was looking for my ancestors on the 1901 census last night and looking through the area of Cornwall where they came from it was with a tinge of sadness that i noted how many were employed by the Tin mines .. a now dead industry ... The same is true of the Oil and Gas industry .. My concern is we are plunging headlong towards oblivion when the Gas and Oil run out and all that people care about is profit profit profit...granted we all have to make a living , but my conscience pricks me and to quote Steve Earle "if we all checked in with our Conscience once i a while the world would be a better place"

Isn't this all a bit deep for a Poker forum ??

Yes we should all have careers doing something meaningful and productive - like gambling

[ifm]

and your savings

My savings are all securely deposited at Blondepoker - no worry there.

none at all


full of northern rocks, and gold fish

Credit where credit's due.

Truly LOL'd there, brilliant!!

[RichEO]

Back on topic:

Why is Northern Rock actually in any financial trouble at all? Surely it's optional. It has the current mortgages financed already with the customers paying them off. They only need more money to finance further mortgages. And although they need to expand to keep shareholders happy, I don't see why it's essential that they need to borrow money. What have I missed?

[Bongo]

They loan out money on a long term basis and finance that by borrowing in the short term, so as each short term loan expires they need to borrow again to pay off their debt.

[TightEnd]

and their margin is because they borrow short at a lower wholesale rate than the long retail lending they do

now, borrowing at LIBOR +1% on an emergency basis via the BOE that profit gets wiped out short term.

[lazaroonie]

the subprime market in this country has changed incredibly in the past 10 years.

10 years ago I was a subprime customer due to a number of factors, own business, cash flow troubles, debts etc. I would be what is called in mortgage terms today "light adverse". Today (or at least yesterday) a LA customer can get a mortgae at pretty much near bank base rate, perhaps even with a small discount if fixed for a couple of years.

When I took out my mortgage 10 years ago, we had around 3 lenders to choose from, the best of whom offered us a deal at 4.5% above bank base rates.

Clearly the current model of paring back margins on subprime products is backfiring spectaculalrly. I would include the vast majority of buy to lets out there, where the "owners" are leveraged to the hilt. They are often no more than a couple of months delayed rental income payments away from disaster.

the next couple of months could be interesting...

[ItsMrAlex2u]

I dont think too much is going to change in the market on this until the banks start announcing their next round of results.
There is no liquidity in the market as banks just wont lend to each other due to the fact that they dont know what is hidden in each others balance sheets. i.e. how deep are they into the sub prime / hedge fund issues.

Once the results are announced which would have to contain details of any catastrophies, things will ease. Personally I dont think at the moment that things are any where near as bad as the market has made it seem.
For example if a bank was in serious trouble it would be obliged to issue a profit warning to the stock exchange. (you have to do this if you forecast coming in below 10% of stated budgets).

Northern Rock will be bought by someone like BBVA at a huge discount. There is nothing fundamentaly wrong with the NR business they have just been caught out my the current unprecedented market conditions.

[doubleup]

The ppl who should be worried are NR mortgage holders.  If NR has to borrow from the BoE for a prolonged period, the higher cost will have to be passed on to borrowers.

As far as the root of the problem is concerned, more than any other industry financial services is full of bullshiters and sheep.  The bullshiters create elaborate money making schemes that the sheep don't understand, but as everyone else is doing it, they do the same and pick up their bonuses.  At the moment the sheep realise that they have no idea what their or anyone elses liability is to exotic mortgage securitisation vehicles, so like good sheep they do what everyone else is doing and stop lending money.

[steeley68]

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

I'm afraid not, son. Not on MacDonald's wages, anyway. 

[tikay]

NR are NOT in trouble, & remain profitable. They have, for reasons explained, a short-term liquidity problem, caused, in the main, by market conditions. They are not innocent, but in the main, they are small-fry caught in the crossfire of a global situation. The money markets are so elaborate these days, with financial engineering & extraordinary levels of leverage, that such hiccups will occur from time to time.

[77dave]

Im looking to sell my house and move abroad hopefully by the start of next year

Will my sale price be affected by whats going on?

Will it take longer to sell?

Should i lower my asking price a little to try to get a sale through as quick as possible

[lazaroonie]

Im looking to sell my house and move abroad hopefully by the start of next year

Will my sale price be affected by whats going on?

Will it take longer to sell?

Should i lower my asking price a little to try to get a sale through as quick as possible

house prices are generally governed by one thing - demand. If you have more demand than supply - prices will go up, and vice versa. So the question you need to ask yourself is will confidence in the market be hit by this isssue, to such an extent that there are less people in the housing market ? At a guess I would say no. The next question is will people find it more difficult to borrow money ? I would say yes, which will case less demand in the market.

I would expect prices to fall for the next few months, maybe around 5%. I dont expect this fall to be terminal though and end up in a fully blown slump.

Of course it largely depends on which sector your house is in at the moment - if you are sitting in a 3 million quid surrey mansion, I would expect these prices to be pretty impervious to the slings and arrows of everyday economics. If you have a 100 grand starter home, the chances are you will be harder hit.

[Rooky9]

Its been said many times that NR aren't actually in long term trouble - but the question surely should now be 'when will they be' if idiots keep queing 100's deep at the branches to withdraw their savings? How much of its business is based on its customers deposits? Surely they can't keep losing 1 billion a day too much longer.

I'm actually thinking of poping down there to see what they can offer me on a savings account! Apparently they come down the que every twenty minutes to ask if anyone is there to deposit!!

I hope they don't get taken over either.

[Bongo]

I think very little of their business was based on retail savings, compared to other banks at least.

Also it's a positive feedback loop, the more people take money out, the more it looks like they could be in trouble so the more people want to withdraw.

[steeley68]

Im looking to sell my house and move abroad hopefully by the start of next year

Will my sale price be affected by whats going on?

Will it take longer to sell?

Should i lower my asking price a little to try to get a sale through as quick as possible

Nope