During the Northern Rock bank run, the press were blamed by banking executives for scaring depositors. Since then public criticism has been scant, despite the massive taxpayer bail-out of 'Blackbird' ( the Rocks codename) -a patient that remains catatonic. Meanwhile, the broader 'subprime lending crisis' is likely to be exposed soon as the response to global mortgage fraud.
Blackbird
The governments handling of the Northern Rock crisis and the British banking system is either a result of corruption at the highest levels or terminal naivete and belief in market values. As the Government has specifically chosen to shield Northern Rock from the winds of the market the former would appear to be the case. Indeed, as this letter from the head of the FSA shows Tony Blair was highly critical of the 'tough' approach of this institution. Surprising really since it was voluntarily constituted in the first place by investment bankers anxious to avoid difficult regulations. Those working in the financial industry have been aware for some time that Northern Rocks business plan was somewhat ambitious- the board belived they had discovered a new technique for printing money that no one had ever thought of before. My mum has some savings and based on articles in the FT I asked her back in May if she had any savings in NR. The great surprise was not so surpising to many pundits.
http://www.fsa.gov.uk/pubs/foi/foi_0256.pdf
Northern Rock has frequently been hailed as the only example of a bank run on a British bank for 150-odd years. Yet this point, overlooks the case of the Bank of Credit and Commerce International. Whilst it was not Briish but international this did not prevent depositors in the UK from being skinned when it collapsed as a result of the biggest banking fraud in history. The model is similar in some respects to that of Northern Rock. Attract a capital base by offering high rates of interest, rapidly expand the loans book to generate a high rate of paper profit then desperately seek new deposits to stay afloat. In other words a Ponzi scheme.
The Northern Rock today is a zombie whose only stimulations are the massive injections of cash provided by the Bank of England, expected to reach £24 billions by year end. Going forward, the banks prospects are not good and for that matter neither are those of the UK taxpayer.
http://www.ft.com/cms/s/0/6d77107c-92f5-11dc-ad39-0000779fd2ac.html
The problem is that Blackbird needs somone to fund it other than the Government who can lay their hands on a lot of money. But hang on a minute- isn't there the small matter of a credit crunch to contend with? Aren't commodity prices- oil, grains, metals surging as a flood of cash is invested in these markets seeking to shield itself from risk. Concurrently with the credit crunch eggs, milk and cheese producers who are dependent on cheap grain are putting up farm gate prices. Coupled with supermarket mark-ups these foods are moving beyond the purses of many including those existing on minimum wage, pensioners, benefits claimants and those being squeezed by increased mortgage payments. The system is fucked and the response by DEFRA to peak food is that in this case the market will take care of food shortages.
To illustrate the dire predicament faced by the government and the 'Wreck' the Financial Times released documents prepared by investment bankers looking for a buyer. The terms many bidders are seeking all involve extensive support from the taxpayer with the government expected to still have £6 billions owing to it in 2010. Yet this prediction is based on the most optimistic market conditions that any of these investment bankers could possibly have ever dreamed of. Other proposals include the diviion of Northern Rock into healthy and sick parts. The healthy part could get back into business whilst its sick brother would be left with the bulk of the bad debts and the liabilities. Naturally, the government will be left as the creditor of the sick one.
Of course, the government is going against all the advice it has been busy giving to the rest of the world. State support of the bank is likely to run foul of the EU if it continues and it is yet another example of 'do as i say, not what I do'. Alongside the decision to drop the investigation into BAE corruption it is another nail in the coffin of British claims to promote international standards.
The Black Hole
The latest intriguing component of the whole mortgage thing which needs to be drawn together from scattered reports is the fraud angle. Massive rises in mortgage fraud have been documented since lenders increased their demands for various debt packages sold by institutions like the Northern Rock. Much of the focus has been on fraudulent applications made by individuals but more and more cases of deliberately fraudulent applications made by criminal organizations are being documented. In the Wild West of the mortgage world anything goes and just watch those house prices soar. Just make sure you offload your debt before the music stops.
Until now the centre of attention has been defaults by poor people causing ruptions in financial markets. But problems in capital markets generally stem from fraud and the inability or indolence of regulators. As one banker said of the FSA 'those guys are sooo thick!' With this new angle much of the debt that is expected to be good is likely to also be bad. In fact this cop in Miami said of fraudulent transactions in Florida "I don't know where it's going to end up," Theobald said. "I don't know when the bottom is going to be." The situation is complicated since 'mortgage mules' with good credit histories were often used to secure loans on off-plan properties leaving the crooks to pocket the difference between discounted and inflated prices. The scams are network affairs involving actions and inactions by bankers, mortgage brokers, surveyors, developers, homeowners and whoever else wants a piece.
http://www.reuters.com/article/domesticNews/idUSN1246626320071113?pageNumber=3
http://business.timesonline.co.uk/tol/business/money/property_and_mortgages/article2351316.ece
http://www.bbc.co.uk/pressoffice/pressreleases/stories/2003/10_october/29/money_programme_mortgage.shtml
http://www.fbi.gov/pressrel/pressrel05/quickflip121405.htm
For one player with previous, check out First American which at one point was controlled by the Bank of Cocaine and Counterfeiting International mentioned above.
http://www.ft.com/cms/s/0/1a339b84-88c2-11dc-84c9-0000779fd2ac.html
So if you can get over your sense of shaddenfreude at these problems being faced by the most current 'smart guys in the room' try and spare a thought for thoe who are hurting and who are going to go on hurting as financial ebola continues to get worse.
http://news.bbc.co.uk/1/hi/business/7070935.stm
The governments handling of the Northern Rock crisis and the British banking system is either a result of corruption at the highest levels or terminal naivete and belief in market values. As the Government has specifically chosen to shield Northern Rock from the winds of the market the former would appear to be the case. Indeed, as this letter from the head of the FSA shows Tony Blair was highly critical of the 'tough' approach of this institution. Surprising really since it was voluntarily constituted in the first place by investment bankers anxious to avoid difficult regulations. Those working in the financial industry have been aware for some time that Northern Rocks business plan was somewhat ambitious- the board belived they had discovered a new technique for printing money that no one had ever thought of before. My mum has some savings and based on articles in the FT I asked her back in May if she had any savings in NR. The great surprise was not so surpising to many pundits.
http://www.fsa.gov.uk/pubs/foi/foi_0256.pdf Northern Rock has frequently been hailed as the only example of a bank run on a British bank for 150-odd years. Yet this point, overlooks the case of the Bank of Credit and Commerce International. Whilst it was not Briish but international this did not prevent depositors in the UK from being skinned when it collapsed as a result of the biggest banking fraud in history. The model is similar in some respects to that of Northern Rock. Attract a capital base by offering high rates of interest, rapidly expand the loans book to generate a high rate of paper profit then desperately seek new deposits to stay afloat. In other words a Ponzi scheme.
The Northern Rock today is a zombie whose only stimulations are the massive injections of cash provided by the Bank of England, expected to reach £24 billions by year end. Going forward, the banks prospects are not good and for that matter neither are those of the UK taxpayer.
http://www.ft.com/cms/s/0/6d77107c-92f5-11dc-ad39-0000779fd2ac.html The problem is that Blackbird needs somone to fund it other than the Government who can lay their hands on a lot of money. But hang on a minute- isn't there the small matter of a credit crunch to contend with? Aren't commodity prices- oil, grains, metals surging as a flood of cash is invested in these markets seeking to shield itself from risk. Concurrently with the credit crunch eggs, milk and cheese producers who are dependent on cheap grain are putting up farm gate prices. Coupled with supermarket mark-ups these foods are moving beyond the purses of many including those existing on minimum wage, pensioners, benefits claimants and those being squeezed by increased mortgage payments. The system is fucked and the response by DEFRA to peak food is that in this case the market will take care of food shortages.
To illustrate the dire predicament faced by the government and the 'Wreck' the Financial Times released documents prepared by investment bankers looking for a buyer. The terms many bidders are seeking all involve extensive support from the taxpayer with the government expected to still have £6 billions owing to it in 2010. Yet this prediction is based on the most optimistic market conditions that any of these investment bankers could possibly have ever dreamed of. Other proposals include the diviion of Northern Rock into healthy and sick parts. The healthy part could get back into business whilst its sick brother would be left with the bulk of the bad debts and the liabilities. Naturally, the government will be left as the creditor of the sick one.
Of course, the government is going against all the advice it has been busy giving to the rest of the world. State support of the bank is likely to run foul of the EU if it continues and it is yet another example of 'do as i say, not what I do'. Alongside the decision to drop the investigation into BAE corruption it is another nail in the coffin of British claims to promote international standards.
The Black Hole
The latest intriguing component of the whole mortgage thing which needs to be drawn together from scattered reports is the fraud angle. Massive rises in mortgage fraud have been documented since lenders increased their demands for various debt packages sold by institutions like the Northern Rock. Much of the focus has been on fraudulent applications made by individuals but more and more cases of deliberately fraudulent applications made by criminal organizations are being documented. In the Wild West of the mortgage world anything goes and just watch those house prices soar. Just make sure you offload your debt before the music stops.
Until now the centre of attention has been defaults by poor people causing ruptions in financial markets. But problems in capital markets generally stem from fraud and the inability or indolence of regulators. As one banker said of the FSA 'those guys are sooo thick!' With this new angle much of the debt that is expected to be good is likely to also be bad. In fact this cop in Miami said of fraudulent transactions in Florida "I don't know where it's going to end up," Theobald said. "I don't know when the bottom is going to be." The situation is complicated since 'mortgage mules' with good credit histories were often used to secure loans on off-plan properties leaving the crooks to pocket the difference between discounted and inflated prices. The scams are network affairs involving actions and inactions by bankers, mortgage brokers, surveyors, developers, homeowners and whoever else wants a piece.
http://www.reuters.com/article/domesticNews/idUSN1246626320071113?pageNumber=3 http://business.timesonline.co.uk/tol/business/money/property_and_mortgages/article2351316.ece http://www.bbc.co.uk/pressoffice/pressreleases/stories/2003/10_october/29/money_programme_mortgage.shtml http://www.fbi.gov/pressrel/pressrel05/quickflip121405.htm For one player with previous, check out First American which at one point was controlled by the Bank of Cocaine and Counterfeiting International mentioned above.
http://www.ft.com/cms/s/0/1a339b84-88c2-11dc-84c9-0000779fd2ac.html So if you can get over your sense of shaddenfreude at these problems being faced by the most current 'smart guys in the room' try and spare a thought for thoe who are hurting and who are going to go on hurting as financial ebola continues to get worse.
http://news.bbc.co.uk/1/hi/business/7070935.stm