Stricken lender Northern Rock has attracted a buyer.
Anne Investor Of Sorts | 23.09.2007 13:51 | Analysis | Globalisation | Liverpool | World
Institutions see no value in purchasing Northern Rock. The alternative exists: the Depositors are acknowledged as the de-facto owners of Northern Rock and the whole enteprise is mutualised. Northern Rock has a buyer: its depositors.
At least 12 of the UK and Europe's biggest banks have now decided not to buy the Newcastle-based lender, according to the Sunday Times. The paper says banks have estimated that it would require too much capital - as much as £20bn - to successfully refinance Northern Rock.
The £20Bn Price tag could be covered by the deposits held in accounts. Yet that would be effective mutualisation of a limited company. It is the argument put to the Board when Northern ROck was demutualised that becoming a limited company would offer a better business model. This has failed to be sustained. The argument now is that Northern Rock should Mutualise in order to remain in existence. The Mutual Model was stable for far longe than the speculation model.
Shares in the bank have lost nearly 75% of their value since it was forced to seek emergency funding from the Bank of England two weeks ago. Yet, the Bank has retained depositors. There were mass withdrawals from Northern Rock - but these were due to the possibility that, should the Bank have gone bust, compensation would not cover deposits. It was, as the Bank of England remarked, a perfectly rational course of action. It is now perfectly rational for those depositors to take more control of the Bank.
Northern Rock got itself into financial difficulty because unlike most UK banks, it raises the majority of its funds via the global wholesale credit market. This is the aspect of the business model that holds up badly to scrutiny. This market has dried up over the past month as a result of the crisis in the US sub-prime mortgage market, which has made banks and other investors a lot more unwilling to lend to each other. Yet, even during that credit crunch, Norther Rock managed to have upwards of £2Bn of deposits. The depositors showed a confidence and acumen not seen in the expert markets. With an end of reliance on loans provided on the whim of some distant speculator, Northern Rock can continue to function as a respectable institution - actually providing the financial service it claims to.
Last week the government said it would guarantee all deposits held by Northern Rock, in an attempt to reinforce confidence in the firm. Which is the perfect opportunity for Northern Rock to be mutualised. All that is needed is for a Depositor to purchase some shares and put the motion to the Board through an extraordinary gemeral meeting. Depositors agreeing to purchase this undervalued asset is both an investment opportunity and a very visible demonstration of confidence.
A majority of analysts say the bank's future as an independent company is untenable, but a buyer has yet to come forward.
Banks said to have turned their backs on a potential bid for Northern Rock are HSBC, Royal Bank of Scotland, Barclays and Lloyds TSB. All experts in their field: non mutual banking. Which makes it increasingly tenable for Northern Rock to cease being a company and start being a mutual company. The autonomy of Northern Rock would be given strength and that would improve the market for all people seeking to buy a home: because it would base the purchase of property closer to the depositor and out of the greedy clutches of speculators. It might even help to hasten the end of speculative house purchases.
Due to the Global Credit Crunch many Investment Banks will be posting zero profits on some of their activities. These profits have gone somewhere and that somewhere is, in a large part, into mortgages. This is an opportunity for home owners to mutually own their debts. To take back control over their financial lives. It is not a get rich scheme. It is not a way of making money but shows the best response to the financial incompetence of capitalism is to use their disasters for the mutual benefit of fairly ordinary people. Not the super rich. Not the six figure salaries. But people who have to work to pay a mortgage and struggle to make ends meet.
The bottom line is that Northern ROck is better off in the hands of its depositors. Unlike the Speculators, the Depositors have maintained a level of confidence that has kept the business away from bankruptcy. Only just, but now it is time for Depositors to exercise their advantage and mutualise Northern Rock.
The £20Bn Price tag could be covered by the deposits held in accounts. Yet that would be effective mutualisation of a limited company. It is the argument put to the Board when Northern ROck was demutualised that becoming a limited company would offer a better business model. This has failed to be sustained. The argument now is that Northern Rock should Mutualise in order to remain in existence. The Mutual Model was stable for far longe than the speculation model.
Shares in the bank have lost nearly 75% of their value since it was forced to seek emergency funding from the Bank of England two weeks ago. Yet, the Bank has retained depositors. There were mass withdrawals from Northern Rock - but these were due to the possibility that, should the Bank have gone bust, compensation would not cover deposits. It was, as the Bank of England remarked, a perfectly rational course of action. It is now perfectly rational for those depositors to take more control of the Bank.
Northern Rock got itself into financial difficulty because unlike most UK banks, it raises the majority of its funds via the global wholesale credit market. This is the aspect of the business model that holds up badly to scrutiny. This market has dried up over the past month as a result of the crisis in the US sub-prime mortgage market, which has made banks and other investors a lot more unwilling to lend to each other. Yet, even during that credit crunch, Norther Rock managed to have upwards of £2Bn of deposits. The depositors showed a confidence and acumen not seen in the expert markets. With an end of reliance on loans provided on the whim of some distant speculator, Northern Rock can continue to function as a respectable institution - actually providing the financial service it claims to.
Last week the government said it would guarantee all deposits held by Northern Rock, in an attempt to reinforce confidence in the firm. Which is the perfect opportunity for Northern Rock to be mutualised. All that is needed is for a Depositor to purchase some shares and put the motion to the Board through an extraordinary gemeral meeting. Depositors agreeing to purchase this undervalued asset is both an investment opportunity and a very visible demonstration of confidence.
A majority of analysts say the bank's future as an independent company is untenable, but a buyer has yet to come forward.
Banks said to have turned their backs on a potential bid for Northern Rock are HSBC, Royal Bank of Scotland, Barclays and Lloyds TSB. All experts in their field: non mutual banking. Which makes it increasingly tenable for Northern Rock to cease being a company and start being a mutual company. The autonomy of Northern Rock would be given strength and that would improve the market for all people seeking to buy a home: because it would base the purchase of property closer to the depositor and out of the greedy clutches of speculators. It might even help to hasten the end of speculative house purchases.
Due to the Global Credit Crunch many Investment Banks will be posting zero profits on some of their activities. These profits have gone somewhere and that somewhere is, in a large part, into mortgages. This is an opportunity for home owners to mutually own their debts. To take back control over their financial lives. It is not a get rich scheme. It is not a way of making money but shows the best response to the financial incompetence of capitalism is to use their disasters for the mutual benefit of fairly ordinary people. Not the super rich. Not the six figure salaries. But people who have to work to pay a mortgage and struggle to make ends meet.
The bottom line is that Northern ROck is better off in the hands of its depositors. Unlike the Speculators, the Depositors have maintained a level of confidence that has kept the business away from bankruptcy. Only just, but now it is time for Depositors to exercise their advantage and mutualise Northern Rock.
Anne Investor Of Sorts
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Northern Rocks Cause Ripples in the Swirling Cess-Pool of Capitalism
23.09.2007 18:48
For many years banks could easily borrow from each to cover if it were needed, such as short-term cash flow issues; this has been the case for decades: they would borrow from the money markets which are central funds into which banks deposit excess cash, sometimes just for one day, and from which they earn interest. Banks can also draw from it if they require cash, and so pay interest. This has been going on for decades but only over the short term: days, week’s months and normally within a nation state.
Now, since the global neoliberal financial turn that began in Chile after a US supported coup in the 70´s , many banks and other financial and corporate entities, and institutions have increasingly south larger loans freely across l borders, as the neoliberal financial ¨revolution spread from Thatcher’s Britain, and Regan’s US around the world. The aspect of neoliberalism relevant here is that finance capital (money) was allowed to move around the world where as before it was mainly confined within nation states, or lent from one state or group of banks to other states.
So today,iIt makes no difference to the Northern Rock if it borrows from Lloyds, or a dodgy bank in the US – it’s all done by the click of a computer mouse. The key factor with banks is: the more risky the loan the higher the interest rate. The thin about Northern Rock is that gets most of the money it lends as mortgages from other banks; it then lends It as these mortgages at a higher interest rate.
As long as money can make more money in this way and the middle man can takes his cut, the system expands and creates more cash: so that know there is a massive amount of cash swilling about looking to be lend or invested to make a profit. This money cannot sit tight and do nothing because inflation will erode its worth; it must be invested and so economies must grow to facilitate and absorb all the investment and loans. If not there will be recession, and possible collapse, and worse of all the rich might lose some money. Normally in a recession, it´s the poor who pay, although in the 1960´s and seventies, social democratic states made the rich pay.
Neoliberalism was the answer by the rich and powerful to social democratic states that made the rich pay as well as the poor for the recessions they were largely responsible for. It was also the answer to the way social democratic states had taken away power from the traditional elites like the aristocracy and rich.
What has surfaced lately is a loans crisi. However, this crisis has been festering away for years, but given medicin by central banks and favourable government assistance and policy.
Because so many have defaulted on loans, for example mortgage holders in the US with bad credit ratings - who were given mortgages at relatively high interest rates which went on to rise further as central banks raised interest rates across the world - banks have become reluctant to lend more money to other banks with bad debts, or those without concrete assets to cover the loans. This process exacerbates the second problem, if the banks with large numbers of defaulting debtors go bust, other banks who have given them loans will also be affected. This problem has begun to ripple around the world.
The Central banks normally bail out bans heading to go down the tubes, because the knock on domino affect could trigger a massive collapse of the banking system. This is what they are doing now – they are lending money to these banks. This process in itself causes problems; one of them is inflation- the neoliberal financer’s biggest nightmare.
A second way to counter this rippling or domino effect of bad loans, which deters banks from lending and thus brings about recession is called a liquidity (of money) crisis – the central banks pump money into the system to keep the cess pool swilling around. Truth be told these central banks have only a vague idea, because the workings of capitalism are as complicated and as uncertain as quantum mechanics. And anyone who says they really understand really understands quantum mechanics or capitalism is bullshitting or deluded.
The result is that nobody really knows what’s going to happen. International finance and the problems it has caused locally mat right themselves or may not and the thing may go down the tubes. But you an be sure that poor people and poor countries will pay for it if the system recovers –that is how it’s always been. When the rich start to suffer then you know revolution is in it’s nascent stages. might recover or the
Put simply: the rich get low interest rates, and the poor high. For example, a poor third world country will have a huge interest rate slapped on its loans, despite the fact that nations are not permitted to go bankrupt, unlike business. The liability for a poor nations debt is put on future generations.
Wobbling banks are deep shit for capitalism, the deepest shit; hence neoliberal governments around the world are doing what they can to hold up the If the banks go down, the whole superstructure of capitalism tumbles. But don’t rush down to the Halifax just yet and withdrawer all your savings – so far it’s just a wobble – that would really exacerbate the problem exponentially.
The serious problem that has arisen over the last year is that banks have stopped borrowing to each other and to leveraged based entities which have few concrete assets. If I go to the Halifax and ask to borrow 1 million pounds, because I want to invest it in stock and shares; and say: well I can easy pay back the high interest you would ask on the loan by my profits. They’d say no to you. But they have been saying yes to shit loads of finance houses and new business exploiting the availability of huge amounts of cash swilling about out there that needs to be put to work to earn money for banks, and has rising exponentially since the trans – national neoliberal revolution.
The so called success of neoliberalism has been built on personal and corporate debt – borrowing to expand economies by creating new markets, and borrowing to fuel consumer demand. Debt has to a large extent greased the wheels of capitalism for a few decades.
Unsupportable debts of banks and recession would spell disaster for capitalism. If this happens, it’s the rich that should be made to pay and not the poor – but it would take a real substantive revolution to bring about that. That´s a lot of Rocks.
Yours as ever
Harold Hamlet
Harold Hamlet
e-mail:
harold.hamlet@virgin.net