salsa-king

did they offer shares to people at 55p when they knew it would make no difference.


Surely this is FRAUD,

is it any difference to a company going into liquidation but still trading and taking money from customers?


Should the police be called in?



Phil

MrNoisy

iTrader: (28)

Don't forget that they're now taking another £50bn from the taxpayer to "rescue" the mortgage part of the business.... "hey let's just borrow more money - it's not like we're squeezing the taxpayer enough already now is it..."

Wow - you've got me ranting and it's not even 9am - you're not pslewis are you?

The Chief

Alistair was on GMTV this morning and Fiona said that bailing out the B&B will cost every household 1300 quid each.

David Lock

I don't understand this so could someone who understands please explain.

B&B had a steady income stream of mortgagees paying their mortgage at say 6.5%. B&B had to borrow money to fund the business and this became increasingly difficult and expensive. But now they can borrow money from BoE (us!) at say 5% to continue and make a turn on the rates. In a decade most of the mortgages will have been repaid leaving a surplus for us?

The fly in the ointment is that payments will overwhelm some people who will be kicked out of their houses as a last resort, poor sods, but BoE will only lose out in those instances where the loan is more than the fire sale of the house.

So why is this going to cost the taxpayer so much? dl

Leslie

Based on supposition and also what about the bad debts?

Les

The Chief

Because the billions of pounds that the goverment has had to fork out to rescue the bad debt side of it (the profitable part has been sold to the Abbey that is owned by Spain's Santander)

Of course that extra money will equate to a debt of 1300 quid for every household in the country.

Alistair said this was only temporary - whether this will be the case remains to be seen.

XRS

It appears that it will not end up costing the taxpayer very much (unless they were also shareholders ) as the FSA has invoked the deposit protection scheme, whereby the other banks pick up up to £15bn of any losses. I always thought this scheme was to protect depositors rather than the government, but if it works perhaps we can move on and stop looking for the next bank to bring down.

Finance is all about confidence, and it doesn't take much to bring down an organisation. Years ago our local building society had a run because of completely false malicious rumours which the local press and TV news channels had a field day with. The fact that they were untrue was merely an inconvenience. That society lasted only a few weeks and was quietly merged with one of the big ones (which has also now been "rescues" due to lack of confidence). I am not saying that the banks don't deserve what is happening when they have lent money recklessly, but there are some that are going down needlessly.

David Lock

I agree confidence is the key factor. The system is a mess at the moment primarily because money markets are jittery.

So would this work? Give the FSA some real clout and put in some people who know what they are talking about. Then they come up with a "model" for lending which is sensible financially and realistic in the event of property slumps/recession etc. Probably very boring but workable. Banks and Building Societies that are prepared to comply with this are given a seal of approval from FSA and BoE underwrites things if they go **** up. BoE could even make a modest charge for this. Banks that don't want to comply carry on without this guarantee if they can.

But this would mean that confidence would return and, presumably, complying banks would then be able to borrow again in the market and things would begin to settle down.

If non-complying banks go under, tough. dl

fivetide

iTrader: (1)

Technically Santander has only bought the savings side of things. What they do with that is up to them. Santander could easily invest in something very risky and make a loss. Savings are not necessarily profitable.

The mortgage side of things is where it is at. In theory everyone with a B&B mortgage now has a council house. the debts are risky but as the momnet haven't folded so if things pick up chances are it will be a nice earner.

5t.

salsa-king

if they bail all the banks out with our money... who will pay my internet wifi connection when Jo and I go unemployed?

SPEN555

You should seek advice from a Financial Advisor. Oh, hang on a minute back track that as they were part of the problem so will advise incorrectly.

Removed.

For it to be fraud I would guess that you would have to prove that they offered the shares with the certain knowledge that the company was extremely likely to, or going to, fail. An issue of shares is not a five minute thing to organise, and involves things like independent auditors, announcements to the Stock Exchange, regulators etc.

Offering shares in a company is a normal way of raising cash for a company, either to fund expansion or a takeover, pay off a debt, or boost cashflow. Shares are not a guaranteed investment, in fact they are relatively risky investments compared to things like government bonds. If you look at adverts for share issues, there is a disclaimer/warning that shares can go down as well as up.

EddScott

A decent financial adviser would not advise you to take a mortgage you could not realistically repay. If you persisted the adviser has two choice, place the mortgage but ask the client to sign it off as ignoring the advice given or suggest the client look elsewhere.

If the bank offers a high risk mortgage, you can't blame the public if they choose to accept the mortgage offered to them. Yes the people are silly for taking these mortgages on but its the banks even greater sillyness to give it to them in the first place.

XRS

Agree 100% with the model idea, only problem would be stopping those who are prepared to lie to get what they want (whether or not they could afford it).

When I took out my first mortgage in 1979 I was interviewed by the local manager, explained all of my income and expenditure and then had to wait 3 months until they had the funds available (they had a quota rather than a target). Looks like it may come back full circle to this sort of system. Only problem is that the banks are involved now, and when they get their taste for mortgages back again the madness will return.....

Removed.

I believe that a significant proportion of the bad mortgages in the US were of a type where yo basically don't have to provide any paperwork to show income, debts, job status, marriage status, if you have any credit problems. The lenders were just giving money to whoever asked for it.

Suresh

I expect it was a building soc rather than a bank then?
Building Societies used to lend from the money they got in on the liability side on savings accounts, which is why you would have had to wait probably. They would have folded too though if enough savers demanded their money at the same time, as they couldn't possibly call in the mortgages to repay their customers.

The current crisis is all about losing trust. I analysed Northern Rock's balance sheet, credit margin and defult ratio for myself and found nothing wrong with their business model to be honest. However, then joe public turned up en masse and demanded his money back - then there was nothing a bank could do.

The bank I work at would have liquidity problems too if 50% of our customers turned up demanding their money all at the same time. Thankfully, that is quite unlikely though

David Lock

It was worse that that even. Salesman conning low IQ folk who rented, to take out a mortgage and some extra cash fiddling the application at the same time. Intro rates were some silly figure but when they soon changed to realistic figures people realised that had been conned. That was real fraud and things kicked off from there IMHO. It was never this bad in UK. Here it was just folk taking a chance too many, head in sand hoping rates would always be affordable and they would have a job for ever. dl

MrNoisy

iTrader: (28)

Very true but IMHO anyone with half a brain could have seen this one coming and I'm very confused as to why nobody at the FSA or the government stepped in to stop lending at this magnitude a lot earlier.

Even so, we never did it at the same scale as the US banks - they were lending money indiscriminately to people who didn't even have to prove their income; and we're now faced with a lack of confidence in the banks which is lowering their value on the market as hedge funds try and make money from em (well, we were until the government banned short selling of aforementioned shares anyhow). I work for a fairly well known US bank and it's fair to say that the amount of bad debt on the books is astronomical!

It's a cr*p state of affairs and we should never have got here - well, we wouldn't have done if Mr Blair and Mr Brown hadn't made it so acceptable to "buy now pay later" for everything!

lozgti

What do you actually pay for another banks(customer's) money?

Leslie

It seems to me that the FSA has not displayed very much in the way of ability so far in any part of all this. Maybe this is down to the amount of influence they have and whether the government is prepared tp listen to what they say.

Les