September 14, 2007

The Bank of England, understanding it's not their role to bail out mortgage gamblers, holds tight [UPDATE - BofE DOES 180, BAILS OUT NORTHERN ROCK]


[FLASH - UPDATE - 180 DEGREE REVERSAL FROM EARLIER POST: MERVYN KING AND THE BofE JUST HAD TO BAIL OUT A FAILING BANK HERE IN ENGLAND - YES, IT'S THAT BAD. THIS IS WHY BANKS AREN'T LENDING TO EACH OTHER RIGHT NOW - THEY DON'T KNOW WHO'S ABOUT TO GO UNDER. NOW WE'RE FINDING OUT, AND NOW ALL CENTRAL BANKS ARE IN PANIC MODE]

[UPDATE #2 - BANK RUN NOW UNDERWAY ON NORTHERN ROCK LOCATIONS IN ENGLAND... NEW PHOTO ABOVE]

The amateur-hour ECB and we-love-bubbles-US Fed are lending could-fail-soon banks hundreds of billions of dollars and Euros on demand, with (get this) toxic mortgage CDO's serving as collateral. Oh, man, is this gonna end badly. But cheers to Marvin King at the BofE for holding tight thus far, and here's hoping Ben Bernanke doesn't have his head up his ass on Monday and cut rates. Discount window, OK, mess with rates, Moral Hazard.

As one observer said about King and the BofE:

"The Bank is right in taking this position and the other central banks are wrong in apparently encouraging moral hazard."

Never have truer words been spoken. [UPDATE - NEVER HAVE SUCH BALD-FACE LIES BEEN TOLD]

And never have the risks of Moral Hazard been greater than they will be on Monday. If Ben cuts, gamblers and bubble-blowers will know that the Fed will always be there if things go wrong, so the next bubble will be even bigger. And even more hurtful. Just look what happened when Greenspan f*cked up and bailed out the dot-com gamblers. The housing bubble was the worst bubble in human history.


Here's more on the Bank of England holding rates tight, although give him a few English bank failures (they'll come) and we'll see if he can stand the heat from No. 10. [UPDATE - MERVYN KING COULDN'T STAND THE HEAT FROM NO. 10, AND KNOWS THAT IF HE DIDN'T DO A 180 TODAY, NORTHERN ROCK WOULD HAVE FAILED. MEANWHILE MERVYN KING LOOKS LIKE A LIAR, HYPOCRITE AND A JACKASS WHOSE WORD IS WORTHLESS]


No time for drastic measures, says King

Bailing out commercial banks would “sow the seeds of a future financial crisis”, Mervyn King, Bank of England governor said on Wednesday.

In making clear that the Bank of England had no intention of following in the steps of the European Central Bank in lending billions to financial institutions for three months, Mr King pointedly distinguished the Bank’s strategy from that of its central bank peers.

In a letter to the Treasury select committee, the famously unflappable Mr King acknowledged that the path ahead was “uncertain”, but made clear this was no time for drastic measures.

46 comments:

bucketshopboy said...

don't be fooled by their spin, man! they've bailed out northern rock only this morning! the first of many...

keith said...

Right after I wrote this, this headline comes in. I'm going to leave the post up to show everyone just how bad it's getting, that Gordon Brown can tell Mervyn King to bail out a failing mortgage gambler.

The sh*t just hit the fan.


Northern Rock profit warning after Bank bailout

The Chancellor confirms authorising the Bank of England rescue package; full-year profits will miss City forecasts by 23 per cent

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2451069.ece

keith said...

More:

Although Northern Rock is unable to reveal how much it can borrow, or the penalty rate at which it can do so, Mr Applegarth said that it was “clearly a substantial amount”.

Banks began to encounter liquidity issues at the beginning of August, when they stopped lending to one another amid fears that their loans would not be paid back.

Those problems were expected to subside at the beginning of this month but had not done so, prompting the action by Northern Rock.

“I can’t see when the global liquidity freeze is going to end,” Mr Applegarth said today, adding that other banks could be forced to take similar action.

“This is a global squeeze; it is not Northern Rock-specific," he said. "It must be difficult for other banks, too.”

Anonymous said...

How about the CB's start lending money to the FB's at subprime rates?

FB = Fucked Bank

keith said...

I can't believe King said on Wednesday:

- Bailing out commercial banks would “sow the seeds of a future financial crisis”

And then on Friday he bails out a commercial bank.

Wow.

We're run by monkeys.

Anonymous said...

Where does all this bailout money come from? Thin air?

Anonymous said...

Start the printing presses, it's always worked before.

AMIGAUSER said...

CR is reporting how King of the BoE said one thing and did the opposite by bailing out Northern Rock.
http://calculatedrisk.blogspot.com/2007/09/bofe-bails-out-northern-rock.html

You should know by now, that it not what they say, but what they do that is important.

You should also notice that the bank of england has bailed out the Northern Rock Building society (a bank), but did nothing to rescue Rover cars ( a manufacturing company), it just goes to show that the BOE will always bail out its friends n the city, but cares nothing about the rest of the country

You should also bet on more inflation in the future, so buy companies that did well in the last inflation :-
Supermarkets, pharmaceuticals, Biotech and Copyright products.
Dont let the gold bugs sucker you in with their outdated nonsense (how did gold preserve your purchasing power in the 80s and 90s????, clue it went down in price ;-))

unomyname said...

To ANON 10:14 - Air is too substantial - it's been electrons for years but central banks are now considering quarks..

Anonymous said...

BANK RUN!!!!!!!!!!!

Anxious customers queue on street

Rival banks were handing out fliers to anxious Northern Rock customers today as they queued on the street outside some branches to withdraw money.

Northern Rock, which has confirmed it has received emergency funding from the Bank of England, has stressed that investors' money is safe and Downing Street said the Financial Services Authority had judged the bank was solvent.

http://business.guardian.co.uk/story/0,,2169348,00.html

Anonymous said...

Bank of England Bails Out Lender

The subprime crisis claimed its latest victim overseas Friday when the Bank of England bailed out mortgage lender Northern Rock.

The British central bank rescued the mortgage lender by providing emergency funds after Northern Rock was unable to finance its operations in the money markets. Northern Rock shares fell more than 20% in London, and European stock markets posted broad declines.

Anonymous said...

Consumer Confidence Tumbles to Lowest in Nearly 1 1/2 Years, Shaken by Housing, Credit Woes

WASHINGTON (AP) -- Consumer confidence tumbled to its lowest point in nearly 1 1/2 years as a deep housing slump and a credit crunch made people more worried about the country's economic health as well as their own.

The RBC Cash Index showed consumer confidence clocking in at 71.1 in September, a sharp drop from August's reading of 89.3. It marked the worst showing since May 2006, when sticker shock from high gasoline prices rattled peoples' sense of economic well-being. The index is based on the results of the international polling firm Ipsos.

"It's ugly," Richard Yamarone, economist at Argus Research, said of the latest confidence reading. "Consumers are rattled to the bone."

http://biz.yahoo.com/ap/070914/ipsos_consumer_confidence.html?.v=6

amigauser said...

Northern Rock deserves its bank run since they were one of the banks that was actually willing to lend more than a property was actually worth.

Keith do you think the management who got the bank into trouble, will be forced to resign, or do you think they will be needed to help return the bank to profitablity?

Also notice, that the state (BOE) is bailing out the bank, but in return is not getting any shares in the company, that means the present shareholders are not being punished for not watching the store properly, this will lead to further moral hazards since profits will be privatised, whilst loses will be socialised - who says the city hates socialism ;-0

keith said...

Whenever they say "don't panic" you should get worried...

http://tinyurl.com/3238c2

Mortgage borrowers and savers told not to panic

orrowers and savers have little to fear, despite Northern Rock's need for an emergency loan from the Bank of England, industry experts said, though they believe liquidity problems could slow the property market.

Mortgage borrowers and savers with Northern Rock -- the country's eighth-largest listed bank -- can have confidence that the move does not reflect any underlying business problems, the Council of Mortgage Lenders (CML) said.
Photo

Northern Rock was forced to ask for the emergency funding, the details of which have not been disclosed, after the credit crunch in the U.S. pushed British inter-bank lending costs to their highest level for nine years.

However, the CML, which represents 98 percent of residential mortgage lending in the UK, said the issue was one of liquidity and funding, as opposed to quality of lending.

Director-general Michael Coogan said: "Consumers need to understand that the problem for lenders generally at the moment is in raising funds, not in lending quality.

"The Bank of England would not have provided the loan to Northern Rock if it had concerns about the quality of the lender's own business."

Anonymous said...

Keith,

It doesnt matter, British banks and hedge funds have been sucking up the liquidity from the Fed Reserve, Bank of Japan etc.

The BofE has been just as responsible for this mess as any other central bank.

Look at the hedge funds, they are almost 100% incorporated in the Cayman Islands, working under the protection of the Queen of England.

hurin said...

"Where does all this bailout money come from? Thin air? "

Normally what happens is that the bank will deposit a similar abount of money in government bonds as collateral.
If they can't pay the bailout money back the Bank of England keeps the bonds, when that happens a similar amount of money is destroyed as was lent out. Remember banks create money by lending, when the money is repayed it is destroyed, but because of interest rates the total amount of money has to grow.

But is this case the Northern Rock will have to deposit some of its customers' mortgages as collateral, which the Bank of England regards as sound.

If you believe that, I own a tower in Paris I'll sell to you at a favorable price.

Using customers' mortgages as collateral has been unheard of until now. The same scenario is playing out in Europe and the US, and I am predicting that once its payback time, the banks will not want to buy back their toxic waste mortgages.

Anonymous said...

Well well ... its not just the stupid Americans.

Looks like the dummies are going to loot England. Time for a Torry government when this is over.

Roccman said...

ATTENTION CLASS!!!

Chapter Review

Premise: too many useless eaters on the planet and TPTB have a plan.

1) create fear event to sit on last remaining oil reserves - CHECK 9-11

2) create demand destruction event to curb oil demand - CHECK - CRASH GLOBAL ECONOMY

3) BEGIN culling global population - WORK IN PROGRESS - no oil= no food = dieoff.

Cheers

michael said...

let's get this party started.

Edgar said...

Yeah savers shouldn't worry, their deposits are safe. The maggots plan to steal them through inflation, not by bank failures. LMAO!

Anonymous said...

If the head of the BofE is so TOTALLY OUT TO FUCKING LUNCH - how are we supposed to feel / act in regards to the rest of the banking and financial systems ?

Do you really want to leave your money with a bunch of LUNATICS ?

And if you do, I'd say that makes you even crazier and dumber than they are.

Anonymous said...

I suppose we should define a bailout. If a central bank stands by and lets you get stabbed 15 times and then steps in with first aid is that a bailout? I don't think so. These banks may or may not survive but the central banks are correct in not letting them take down the rest with them.

devestment said...

Worthless treasuries are looking better all the time.

Anonymous said...

[To: Keith...was not sure how to reach you]

Keith, I'm a professional trader, and run an in-house private hedge fund in Orange County. I understand you are coming over to Vegas soon. If you'll be down this way, we ought to connect. I've got the first round...

-Tom

P.S. What's the best way to reach you privately?

TM said...

Well, so much for the sound old pound.

mark to myth said...

I just got a flyer from countryslide bank in Tampa: 9 month CD-5.65% apr.


Wow, I couldn't make this stuff up.


BTW, Can anyone tell me where I can find some english based ADR homebuilder stocks?

London STUD said...

As my neighbor said, "Most modern Third World Country in the world"...

Anonymous said...

You guys remember when wells fargo online went out for 2-3 days a few weeks ago? Something tells me it wasn't "Server errors", but more like a way to slow the money going out. bill-pay, transfers, etc.

StiffUpperLip said...

Perhaps the chaps at Northern Rock should stop banking and start selling $20 burgers, they might be more successful.

ForWhomTheTollBuilds said...

Now Swann is saying that no one deserves any credit for predicting this crash because its impossible to know what will happen next, but that hypothetically, the time to get out is now.

He really is the worst sort of human being.

Wallflower said...

And yet the U.S. stock markets make their steady march back towards Dow 14,000. Can somebody please explain why in the face of all this bad news around the world and at home, the U.S. stock market just merrily continues on its upward march? I suspect after the Fed meeting the market is going to skyrocket once again into another faux bubble.

I have been waiting on the sidelines to re-enter the stock market...looks like I'm the dope now, but how can one manage rationally in a completely irrational world? Just go along for the ride?

Anonymous said...

CR is reporting how King of the BoE said one thing and did the opposite by bailing out Northern Rock.
http://calculatedrisk.blogspot.com/2007/09/bofe-bails-out-northern-rock.html
________________________________

I predict this is what will happen in America and probably the rest of the world. Faced with the emergence of public panic in the face of failing banks, governments will ALL resort to bailouts, even if they have to monetize the debt. I see world-wide inflation and stagflation building up to hyperinflation of commodities and then, ultimately, deflation as the global economy finally collapses from the Great Unwinding of the $500-$600 trillion dollars worth of derivatives....

Have a nice day.

Anonymous said...

Keith,

Good post, but I don't think you can compare England with the US in terms of the credit crunch.

Let's see how long King can hold from here going forward. This problem will affect most countries without any exceptions.

borkafatty said...

This is why i choose to keep my money close...like in my pocket, or in my mattress, tuck neatly next to my .99mm gun collection.

good day sir.

michael said...

"And yet the U.S. stock markets make their steady march back towards Dow 14,000. Can somebody please explain why in the face of all this bad news around the world and at home, the U.S. stock market just merrily continues on its upward march?"

the dollar is tanking.

Anonymous said...

Mike,

Good observation there. It seems that the market does not care for what is ocurring in the credit markets. But trust me, they know. And they know all those inflated stocks will tank.

Is it reeling in the last suckers? Or is it that they are just holding on hoping that things will return to normal? I dont know. But one thing I know. The market is set to go down in flames.

So if you are in, get out. Unless you are shorting some of those good ol Countrywide and homebuilder stocks.

Danny

blue blood line..bluebeard U>S>A.... said...

Brits dont panic, scratch one in panic and find a pirate....

Anonymous said...

is it too late to find out what side, front, back yard chickens will eat....

Lost Cause said...

You guys remember when wells fargo online went out for 2-3 days a few weeks ago?

I remember when a little bridge went "spash" in front of Wells Fargo Home Mortgage HQ.

Anonymous said...

dont know how it works there (check out pictures of the beknighted Greenspan)but if the banks loaned 10 times reserves and the hedgies did the same and derivitives did the same and so did the derivitives on /of derivitives, what good does looking for cash do?

Anonymous said...

caN NOT GET ENOUGH FISH AND CHIPS

LauraV said...

Hurin said:"I am predicting that once its payback time, the banks will not want to buy back their toxic waste mortgages".

Thats correct. It's a different story when they are forced to drink that same poision themselves, Burp!

k.w. - southern ca. said...

What we're seeing in England is a very possible future for the banking crisis here in the states.

Anonymous said...

Wallflower said...
And yet the U.S. stock markets make their steady march back towards Dow 14,000. Can somebody please explain why in the face of all this bad news around the world and at home, the U.S. stock market just merrily continues on its upward march? I suspect after the Fed meeting the market is going to skyrocket once again into another faux bubble.

I have been waiting on the sidelines to re-enter the stock market...looks like I'm the dope now, but how can one manage rationally in a completely irrational world? Just go along for the ride?

September 14, 2007 6:58 PM
-----------------

The Dow altho not an indicator of the economy is the indicator of the hearts and minds of the US investor. Many individual and group investor track the Dow and try to beat it's "performance".

Not to totally sound like a tin foil hat guy, but ......

US spends $12 BILLION+ a MONTH on Iraq. Has your taxes gone up? No. In fact for the people that can pay they have gone down. So where are they getting the dollars?? We know that they are printing it.

Now, do you think that every one of those $12,000,000,000 / month is going to Iraq? I bet some are being diverted to somewhere else!

the other trader said...

Northern Rock =
OFF SHEET DEBT,
if their "published" balance sheets looks good!!!

devils clown said...

Roccman said...

ATTENTION CLASS!!!
------------


I must scour thy tounge with flames....

The only number that resembles ANY type of thought is #1.

1 is wrong, and 2 is a non matter since oil is, and ALWAYS has been controlled by my boss. (Simple mortals are taking what was agreed to them, by HIM)

2 SHOULD BE,
2) create false demand for all natural resourses so the world PRODUCES excess supply. Me and the minions will need it through the generations, no?
They certainly won't be making it anymore.

3 should be 4. Faithless. 3 is,

3) buy all the resourse centers of the Earth, no matter what price. (Water aquifiers, fruitful farmland, Ranches with plentyful grazing land and constant water flow; on and on)

THEN 4,and NOT the way you think, suffering soul.

I am burning "the Teacher"
again.

See you in HELL, Roccman, for THINKING you know anything.