New Financial Crisis

Prestwich_Blue said:
That's not quite true. NR was praised as an innovative lender and even in August 2007, the FT and other commentators, and many analysts, were saying that it was likely to be a short term problem, with NR squeezed a bit till the markets settled down again. Bank shares were affected across the board when the sub-prime market issues surfaced, although NR's business model made them more vulnerable to volatility in the bank-to-bank lending market.

One month later, the shit hit the fan.
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Well, I was involved in that market then and I can tell you we all thought those praising NR were bonkers. Put simply, they went on a dash for growth in mortgage assets by lending 125% of value with some very dodgy underwriting on mortgages sourced from 3rd parties, mainly mortgage brokers operating in the self certified sector. ( cf Fanny Mac and Fanny Mae.)
That circle could never be squared and, as you said, they ran out of liquidity.
They also used a charity based tax scam. Needless to say, the spivs who ran it did very nicely, thank you, the CEO buying himself a nice country mansion.
 
Brooklands Blue said:
I work in financial services like you PB and the conversations we've had with alot of the lenders we introduce clients to is that they are worried about market share as they have not lent enough money since the pandemic. UK banks have much more liquidity than they did pre the 2008 squeeze but government debt levels should be a concern for us all in the next number of years.
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The liquidity they hold though is from printed money. The £ has dropped in value by 30% against the $ over 10 years so the banks do hold more money but it's 30% more worthless than it was 10 years ago.

The biggest threat at the moment is not the banks going bust and running out of money as in 2008. Instead it's inflation and the effect on currency and interest rates which makes lending extremely expensive to consumers. If people can't borrow then the economy collapses whilst indeed of course the banks are sat on full coffers.

At the moment unfortunately we have a government and economic policy which is focused on the performance of the FTSE and city as opposed to the stability of the monetary system which everyone participates in. If they were bothered then they'd tackle inflation at source, for example through energy policy changes but they don't give a toss.
 
The gold price is sky high at the moment. I remember it rocketed in 2008 too as people lost trust in financial institutions.
 
KS55 said:
Well, I was involved in that market then and I can tell you we all thought those praising NR were bonkers. Put simply, they went on a dash for growth in mortgage assets by lending 125% of value with some very dodgy underwriting on mortgages sourced from 3rd parties, mainly mortgage brokers operating in the self certified sector. ( cf Fanny Mac and Fanny Mae.)
That circle could never be squared and, as you said, they ran out of liquidity.
They also used a charity based tax scam. Needless to say, the spivs who ran it did very nicely, thank you, the CEO buying himself a nice country mansion.
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Sorry, I thought you were referring to their overall business model, rather than to their lending criteria. It did become clear in hindsight that their risk criteria were very dodgy.

There were a lot of crazy lending decisions back then. Back in the early part of 2008 I was doing some work for one of the big banks who were hurriedly reviewing and tightening LTV ratios. That's why I reckon the Glazers had to use their united shares as additional collateral.

Later on I went into Northern Rock itself, as part of the programme to slim them down and get them ready for the Virgin takeover. We put in place a really effective risk and assurance model that needed fewer than half the people who'd operated it before. So I'd also say that they weren't that clever about their operating model or cost controls.
 
inbetween said:
The liquidity they hold though is from printed money. The £ has dropped in value by 30% against the $ over 10 years so the banks do hold more money but it's 30% more worthless than it was 10 years ago.

The biggest threat at the moment is not the banks going bust and running out of money as in 2008. Instead it's inflation and the effect on currency and interest rates which makes lending extremely expensive to consumers. If people can't borrow then the economy collapses whilst indeed of course the banks are sat on full coffers.

At the moment unfortunately we have a government and economic policy which is focused on the performance of the FTSE and city as opposed to the stability of the monetary system which everyone participates in. If they were bothered then they'd tackle inflation at source, for example through energy policy changes but they don't give a toss.
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Some great points well made. I'm not a Tory or ever will I defend them but the alternative economic plan from Labour is very unclear and I believe when they return to office next December we may see market disruption akin to when Truss and Kwartang had their time in power. As my dad once said that the 2 main political parties in this country are just the different cheek of the same bottom!
 
Brooklands Blue said:
Some great points well made. I'm not a Tory or ever will I defend them but the alternative economic plan from Labour is very unclear and I believe when they return to office next December we may see market disruption akin to when Truss and Kwartang had their time in power. As my dad once said that the 2 main political parties in this country are just the different cheek of the same bottom!
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December?
There is no requirement for an election in 2023.
The deadline is January 2025.
 
talkativesprout said:
Just listening to a tech in Canada and they said similar, a lot of rich people are just buying land to protect their cash.

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Bit more sinister is the super rich with interests in fossil fuels, munitions, weaponry etc buying land in New Zealand since its the best insulated country from both climate change and political/military upheaval to the point that the Kiwis had to legislate to limit it.
 
Brooklands Blue said:
Some great points well made. I'm not a Tory or ever will I defend them but the alternative economic plan from Labour is very unclear and I believe when they return to office next December we may see market disruption akin to when Truss and Kwartang had their time in power. As my dad once said that the 2 main political parties in this country are just the different cheek of the same bottom!
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I can’t see a repeat of Truss, but you are right that Lab has not yet developed a strong policy. They will need one as our gov debt is still 98.9% of GDP.
 
KS55 said:
I can’t see a repeat of Truss, but you are right that Lab has not yet developed a strong policy. They will need one as our gov debt is still 98.9% of GDP.
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Bloody hell, think the worst we ever had was about 86% during the last crash.
 
This is pretty bad but it's a reflection on SV, and local banking in the US. Local banks can grow rapidly then get in a mess. Growth comes in fits and starts. Deposits pile in. The bank now needs to invest that money. If the investments tank, they still have to pay interest on the existing deposits. This can be a problem if it comes alongside the rate of deposits slowing substantially, which is what's happened here. Load of investment money poured into new firms, that's now dryed up.

I'll give you one guess as to which products the SV banks invested in, sealing their doom. That's right! Mortgage derivatives. There's a glut of them due to long standing low interest rates. Interest rates go up.. people can't afford the mortgages, the banks investments tank big time. And because interest rates have gone up, the amount of interest the bank owes on deposits skyrockets.

Doesn't it all sound strikingly familiar?

Anyway, the outcome is a whole load of SV firms can't pay the bills. The biggest name I've encountered probably wouldn't mean anything to people on here, and they were only partially exposed, about a quarter of their cash.

SV's bubble has been rudely popped. Many will tell you it's been coming. But it's not the end of the world in itself. We can only hope other, larger institutions managed to avoid repeating mistakes so redolent of the previous financial crisis.
 
Something is simmering in the financial sector..scary days ahead ?
 
Johnny Mars Bar said:
Probably not.

1. Crypto was always a bubble and anyone with an ounce of sense saw this coming years ago.
2. The tech sector has been struggling for over a year and a bank like SV with an over exposure to one market were always going to get hit.
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Bitcoin has crashed every 4 years or so since it began in 2009. It’s nothing new to lose 80% of it’s value.

As of today the crypto market cap is still over $1 trillion. Bitcoin is held on the balance sheets of US listed companies, is legal tender in some countries, has institutional investment, global adoption is trending upward & it has outperformed the stock market over the last decade by some ridiculous percentage.

People called it a bubble in 2014 & 2018. Compared it to tulips or called it a ponzi. Then both times, for the next 3 years watched it rocket in value. In 2023 it’s now up over 50%, so I certainly wouldn’t bet against its price going up for the next few years.
 
KS55 said:
Well, I was involved in that market then and I can tell you we all thought those praising NR were bonkers. Put simply, they went on a dash for growth in mortgage assets by lending 125% of value with some very dodgy underwriting on mortgages sourced from 3rd parties, mainly mortgage brokers operating in the self certified sector. ( cf Fanny Mac and Fanny Mae.)
That circle could never be squared and, as you said, they ran out of liquidity.
They also used a charity based tax scam. Needless to say, the spivs who ran it did very nicely, thank you, the CEO buying himself a nice country mansion.
Click to expand...
I can remember those crazy days ..had a mate who ran his own mortgage business..What Northern Rock were operating was indeed bonkers.completely unsustainable.crazy. 125% of value deals..Wow.

I wasn't aware of the charity based tax scam
 
I do feel as though we're trending towards something quite bad. I don't know if global financial collapse is necessarily it, but there's a lot of economic instability at the moment and I'm not sure what the natural end point is.

COVID threw everything all out of wack, combine that with political and social instability in many nations, the war in Ukraine, rapid inflation and rising costs of goods, and all the general fuckery going on and we have a bit of a powder keg.

Every situation is different obviously but in general don't think we as a global society ever fully recovered from the 08 crisis, and the issues creeping under the surface have accelerated since 2020.

I work for a medium size software company (in Operations so not making the big bucks) and the entire industry is just getting hammered right now. Lots of friends and coworkers being laid off. I survived one round but generally am thinking it's a coin flip whether I last the year. Which is actually an improvement over the weekend when I was genuinely nervous I wouldn't be getting paid as my company banks with SVB...
 
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