From: "Virgils Ghost" 
Newsgroups: uk.finance
Subject: Re: Bradford and Bingley could well be next
Date: Mon, 17 Sep 2007 11:53:43 GMT
Bytes: 4231


"M Holmes"  wrote in message 
news:fclo2v$dj1$3@scotsman.ed.ac.uk...
> william.hooper@gmail.com wrote:
>
>> Northern Rock savers have not lost their money and can get it back now
>> - but in hindsight we now know it was a close shave. A few months ago
>> their shares were at L12, Friday at L4 and today people are talking
>> about break up value (fire all the staff, sell the branches, run down
>> the mortgage book) of L1.80. That's a close shave, certainly not the
>> kind of risk you want to run on your cash savings account.
>
> I'm tired of people attacking these savers.  If the other banks won't
> lend to your bank, it's entirely logical to suppose there's a reason for
> that distrust.  Why be any more trusting than those on the inside who
> know morethan you do.  These people then *queued* politely to get their
> mney back, despite them believing that their life savings ar at risk.

Quite, the media has tried to paint them as irrational fools but their 
actions are entirely logical, without the BoE bail out the NR should be in 
administration, they are a failed business with a failed business model with 
some potentially nasty off balance sheet liabilities and vehicles lurking 
beneath the waves.

The commercial paper, MBS and interbank markets do not trust them and will 
not lend to them at any price, since August 9th no private sector bidder 
emerged as they were unwilling to take on the risk without BoE guarantees, 
which amounts to a public sponsored shareholder bailout. Even the current 
form of bail out demonstrates that the BoE doesn't even fully trust their 
collateral and has claimed 105p for £1 pledged in order to cover the default 
risk.

The FSA deposit guarantee scheme only fully protects the first £2000 and 
then 90% of the remaining £33k, no matter how remote a complete collapse may 
seem, why should depositors gamble with 10% of their savings or 100% beyond 
that level. These people are invested in risk free cash deposits for a 
reason, if they're taking a chance then the risk reward ratio needs to 
reflect that.

Looking at it logically from a savers point of view staying with the NR has 
no comparative advantage and many associated risks, just being assured 
future access to your money in a timely manner seems to be a problem. Moving 
to another bank is costless and potentially more rewarding given they can 
probably lock into a bond that reflects the elevated level of LIBOR.

From a PR point of view the bank has entirely abused the trust of its 
depositors and many savers are withdrawing their support as a definitive 
indication of their contempt of the mismanagement of the company, why should 
they hold firm and reward the bonus grabbing muppets that run the bank? All 
the more reason to punish them. NR are not 'owed' any further public trust.

As for assurances from the BoE/FSA/HM Treasury, well, if any of the 
aforementioned 'institutions' were doing their jobs properly then it 
wouldn't have come to this in the first place, nobody bothered to look into 
their questionable lending practices or capital adequacy ratios.

We are seeing queues of entirely logical and sensible people not money 
grabbing mobs.