AIG in desperate troube

[david mcgee]

If this one goes it really is financial armageddon.

We will have to go back to bartaring and growing our own food, hope you have a big window box.

[Geoff Kilpatrick]

This will be interesting. Apparently, every major bank in the world has some sort of exposure to AIG. This is the sort of systemic risk that central banks are meant to protect.

 

It is worth pointing out that the main catalyst for all of this were some PC politicians in the States who thought that the concept of mortgages being given to people who were in a position to repay them as being discriminatory. From there, the NINJA mortgage was born and the toxic mortgages developed to try and offload the liability.

[Deevers]

Don't really think that there is any chance of them going down. The establishment know the knock on effect that it would have and will save it.

[Chad Sexington]

If this one goes it really is financial armageddon.

We will have to go back to bartaring and growing our own food, hope you have a big window box.

 

I'm ready.

 

[southlondonjambo]

the main catalyst for all of this were some PC politicians in the States

 

nothing to do with investment banks trying to sell down their exposures on the capital markets to investors in order to increase their profits then? nor homeowners who took on far too much debt which they could never ever hope to repay?

[Geoff Kilpatrick]

nothing to do with investment banks trying to sell down their exposures on the capital markets to investors in order to increase their profits then? nor homeowners who took on far too much debt which they could never ever hope to repay?

 

That was a simple consequence of inflating the money supply and making things appear cheap and risk free. Cheap money, easy pickings, the good life. I'm not exonerating people and bankers of their responsibilities, I'm saying that the political pressure to make mortgages available for "the many, not the few" (where have you heard that before?) has led to these consequences. It was never the intention, of course, but that's what happened.

[jambos are go!]

That was a simple consequence of inflating the money supply and making things appear cheap and risk free. Cheap money, easy pickings, the good life. I'm not exonerating people and bankers of their responsibilities, I'm saying that the political pressure to make mortgages available for "the many, not the few" (where have you heard that before?) has led to these consequences. It was onever the intention, of course, but that's what happened.

 

 

The intention was to make quick buck profits and hugely inflated salaries and bonuses for a reckless management and risk takers. At the end of the day it seems they they think that various national tax payers should take on the consequences of that foolhardy risk. Taking that logic forward there would appear to be an arguement that the high earners should be public servants who ultimately have to manage the crisis and formulate a solution(including rigorous regulation instead of free market mayhem).

[Nelly Terraces]

This will be interesting. Apparently, every major bank in the world has some sort of exposure to AIG. This is the sort of systemic risk that central banks are meant to protect.

 

It is worth pointing out that the main catalyst for all of this were some PC politicians in the States who thought that the concept of mortgages being given to people who were in a position to repay them as being discriminatory. From there, the NINJA mortgage was born and the toxic mortgages developed to try and offload the liability.

 

Thanks Mrs Thatcher. So it wasn't the disgusting fat overpaid pigs within companies like Lehman Bros and uncontrolled corporate greed to blame then?

 

Pull the other one.

[Geoff Kilpatrick]

The intention was to make quick buck profits and hugely inflated salaries and bonuses for a reckless management and risk takers. At the end of the day it seems they they think that various national tax payers should take on the consequences of that foolhardy risk. Taking that logic forward there would appear to be an arguement that the high earners should be public servants who ultimately have to manage the crisis and formulate a solution(including rigorous regulation instead of free market mayhem).

 

Which is why they should crash and burn, in theory.

 

However, the contagion risk could lead to meltdown. That's why AIG might go the same way as Fannie Mae and Freddie Mac, and that would be reasonable. The whole management team should be sacked and then the company broken up without causing a panic.

 

Northern Wreck didn't fall into this category.

[jambos are go!]

Which is why they should crash and burn, in theory.

 

However, the contagion risk could lead to meltdown. That's why AIG might go the same way as Fannie Mae and Freddie Mac, and that would be reasonable. The whole management team should be sacked and then the company broken up without causing a panic.

 

Northern Wreck didn't fall into this category.

 

Whilst Northern Rock may have been an eleventh hour rescue it does seem to have been just in time. As the global crisis deepens it might turn out that the UK Government might have a tighter grip than most. A few weeks ago folk on here were claiming the UK was ill prepared compared to other nations who had saved for a rainy day. That now looks laughable. Alistair Darling was laughed at a few weeks ago for saying this was the worst crisis for 60 years. Are those commentators laughing now? No they are spouting more bumph.

[The People's Chimp]

I'm ready.

 

 

Me too!

 

[The People's Chimp]

Thanks Mrs Thatcher. So it wasn't the disgusting fat overpaid pigs within companies like Lehman Bros and uncontrolled corporate greed to blame then?

 

Pull the other one.

 

Spot on; typical nonsense from the right trying to load blame for capitalist greed onto the poorest in society...yet again.

[The Doctor]

On the plus side, Man Utd might not get their bonus.

 

Every cloud...

[coppercrutch]

Everyone who has been greedy in the last 10 years is responsible for this. Some more than others admittedly. Right from the top down - from heads of Banks, down to Billy next door who 'bought' a new convertible last summer that he really couldn't afford.

 

Everyone who has lived within their means for the last 10 years are the real unlucky ones. If everyone had acted in the same way this would never have happened. Of course many people cannot look after their own money so the decision of what they could borrow should have been taken out of their hands - by sensible risk analysis. That is something the banks forgot to do in the last 10 years of greed. Banks are responsible. Individuals who are greedy are responsible. I am not but I will suffer like everyone else.

 

Only one difference from me however. You won't see me whining outside Lehmans front door to the cameras wantign people to feel sorry for me. These people need to get a grip and deal with it.

 

To blame all this mess on the US is ridiculous. They are key to the problems but 125% mortgages etc… in the UK and elsewhere in the World are just as much to blame.

 

We have been told over and over about 'globalisation' for the last few decades. Yet when something like this occurs it is suddenly someones else's fault and someone else's problem.

 

I am afraid it clearly doesn't work like that.

[Gavsy Van Gaverson]

Everyone who has been greedy in the last 10 years is responsible for this. Some more than others admittedly. Right from the top down - from heads of Banks, down to Billy next door who 'bought' a new convertible last summer that he really couldn't afford.

 

Everyone who has lived within their means for the last 10 years are the real unlucky ones. If everyone had acted in the same way this would never have happened. Of course many people cannot look after their own money so the decision of what they could borrow should have been taken out of their hands - by sensible risk analysis. That is something the banks forgot to do in the last 10 years of greed. Banks are responsible. Individuals who are greedy are responsible. I am not but I will suffer like everyone else.

 

Only one difference from me however. You won't see me whining outside Lehmans front door to the cameras wantign people to feel sorry for me. These people need to get a grip and deal with it.

 

To blame all this mess on the US is ridiculous. They are key to the problems but 125% mortgages etc? in the UK and elsewhere in the World are just as much to blame.

 

We have been told over and over about 'globalisation' for the last few decades. Yet when something like this occurs it is suddenly someones else's fault and someone else's problem.

 

I am afraid it clearly doesn't work like that.

 

What you have said is correct, but you dinnae half go on about it a lot.

 

[Mr Romanov Saviour of HMFC]

So what are the consequences of all this then?

 

What will happen to the normal punter on the street?

 

Alan Partridge - Clueless in finances.

[coppercrutch]

What you have said is correct, but you dinnae half go on about it a lot.

 

 

Give me a break !! Simply been trying to warn people of this for years !! To be honest most people know very little about this so I am simply educating them. I amnot exactly an expert but I know a little.

 

A bit shocked in all honesty it is going to teets up so quickly. Even for a doom-monger like myself this is scary **** !!

 

So what are the consequences of all this then?

 

What will happen to the normal punter on the street?

 

Alan Partridge - Clueless in finances.

 

Who knows what this all means for us simple punters. Tought times ahead are guaranteed. Just how tough is the question.

 

Job losses, economy in the mire etc...

 

Happened all before of course and the World got through it. However this looks a little bigger than just your normal 'downturn'.

 

Ach well no point worrying !!

[Coco]

So what are the consequences of all this then?

 

What will happen to the normal punter on the street?

 

Alan Partridge - Clueless in finances.

 

Can impact in lots of ways. Here are just some:

1) People who work for financial institutions lose their jobs

2) Future expansion of financial services dampened down - fewer jobs in future

3) Suppliers to financial institutions lose their business

4) Insolvency, M&A advice providers, Government regulators see an upturn in business opportunity

5) Banks reduce their asset size - which means credit is harder to get for both households and industry

6) As a result of 5) there is less economic activity which means knock on effects in the economy

7) Prices of insurance type products rise

8) Pension funds lose capital and dividend streams are reduced - lower payouts to pensioners

9) Government finances come under pressure with lower tax receipts and higher welfare payments - so tax rises, asset sales, service cuts etc happen

 

etc etc

[Rab]

I think a few of you are missing Geoffs point. Yes, greedy bankers carry blame. Yes, 125% mortgages and overextending personal debt carry blame. But what he's saying is that the real blame lies with those who created the conditions where bankers were in a position to abuse the system, and where buyers were able to overextend their debt.

 

CC is also right in that people who manage their finances prudently will be less affected by the current issues, but that doesn't address the cause of the issues.

[Nelly Terraces]

I decided while back that the stock market was a f'ing joke and that none of the 'experts' new ** all about how things can go, and that knowing nothing about property, I wouldn't get into that either (even though, longterm, yer quids in I reckon - I still think I'll like a dabble).

 

So, just decided to blast a few quid every month into a CASH ISA, that I'll not touch till I retire. It's just to save enough over the years so I can have a right comfy life (along wi my work pension) when I decide to pack in work.

 

Wanna know, how safe is that? Can't see it being that risky, is it? Dunno if any of you boys out there know anything (Mr Coppercrutch??).

 

Cheers.

[david mcgee]

I decided while back that the stock market was a f'ing joke and that none of the 'experts' new ** all about how things can go, and that knowing nothing about property, I wouldn't get into that either (even though, longterm, yer quids in I reckon - I still think I'll like a dabble).

 

So, just decided to blast a few quid every month into a CASH ISA, that I'll not touch till I retire. It's just to save enough over the years so I can have a right comfy life (along wi my work pension) when I decide to pack in work.

 

Wanna know, how safe is that? Can't see it being that risky, is it? Dunno if any of you boys out there know anything (Mr Coppercrutch??).

 

Cheers.

 

Cash ISAS are covered under the government scheme.

This means that the first ?32,000 is guaranteed by the government, there are calls to increase the guarantees to ?50,000.

So they are very safe, unless ofcourse the government goes bust!

[Coco]

I decided while back that the stock market was a f'ing joke and that none of the 'experts' new ** all about how things can go, and that knowing nothing about property, I wouldn't get into that either (even though, longterm, yer quids in I reckon - I still think I'll like a dabble).

 

So, just decided to blast a few quid every month into a CASH ISA, that I'll not touch till I retire. It's just to save enough over the years so I can have a right comfy life (along wi my work pension) when I decide to pack in work.

 

Wanna know, how safe is that? Can't see it being that risky, is it? Dunno if any of you boys out there know anything (Mr Coppercrutch??).

 

Cheers.

 

I guess that cash ISAs are covered by deposit protection schemes in the way that bank deposits are, though someone could perhaps confirm. There are limits for protection of savings at individual institutions though.

 

But the big risk on cash savings is inflation. It is possible that Governments and central banks erode the value of cash by deliberately causing an inflation. If that happens it could outweigh your interest income and your savings would be worth less in your retirement than they are at the moment.

[Nelly Terraces]

Cash ISAS are covered under the government scheme.

This means that the first ?32,000 is guaranteed by the government, there are calls to increase the guarantees to ?50,000.

So they are very safe, unless ofcourse the government goes bust!

 

Heh, cheers Dave, I was feeling totally reassured until that bit:p

 

Seriously though, what I kinda meant was, for example, if you have an ISA based of shares etc, then quite frankly, it donald ducked just now isn't it, whereas cash ISA's just stay at an interest rate and go up, no???

 

EDIT:

 

Bollox, just read this:

 

But the big risk on cash savings is inflation. It is possible that Governments and central banks erode the value of cash by deliberately causing an inflation. If that happens it could outweigh your interest income and your savings would be worth less in your retirement than they are at the moment.

 

Cheers bud, makes pefect sense that right enough, as inflation could wipe out any gains eh.

 

Looks like a trip to an IFA is on the cards then cos I'm well confused. Looks like whatever you do, you could be screwed. My old man (RIP) was a financial genius and made me loadsa dosh, wish he was still around.

 

Gutted.

 

TJ.

[coppercrutch]

I think a few of you are missing Geoffs point. Yes, greedy bankers carry blame. Yes, 125% mortgages and overextending personal debt carry blame. But what he's saying is that the real blame lies with those who created the conditions where bankers were in a position to abuse the system, and where buyers were able to overextend their debt.

 

CC is also right in that people who manage their finances prudently will be less affected by the current issues, but that doesn't address the cause of the issues.

 

Every time lenders get lax and splash the cash it always ends up the same way. Thing is people have short memories and in a few years it will be forgotten and the next 'boom' will begin. There are lots of rules and regulations in place to apparently stop institutions overlending and maintaining a stable capital ratio (Basle II etc..) . However this clearly does not work !! It is also extremely complicated as to how you divvy up your capital based on it's 'safety ' rating.

 

The money markets are far too complicated IMO. All these new investment vehicles for example - RMBS's, MBS's, CDO's, CDS's

 

They are all just fancy 'vehicles' made up to make more and more money out of the same initial thing. Great when it is going well but a complete disaster when it goes bad.

 

I think a wholescale restructure of the World's financial system is the only way out - in the long term. This is what Ron Paul etc? are advocating. I do not know the details myself but I may have a wee look into it. Can't be any worse than we have just now.

 

Problem is the 'money masters' want anything but this scenario.

 

Interesting stuff though !!

[Drew Busby !]

Strange crisis this. It might well be that the effects haven't trickled down to the punters yet - and indeed employment is still relatively high.

 

I'll know to get concerned when they start boarding up city-centre Starbucks as people forego overpriced coffee...or as all these pointless gift-shops which make up every second shop-window from Bruntsfield to Morningside start sprouting "closing down sale" banners.

[Rab]

Every time lenders get lax and splash the cash it always ends up the same way. Thing is people have short memories and in a few years it will be forgotten and the next 'boom' will begin. There are lots of rules and regulations in place to apparently stop institutions overlending and maintaining a stable capital ratio (Basle II etc..) . However this clearly does not work !! It is also extremely complicated as to how you divvy up your capital based on it's 'safety ' rating.

 

The money markets are far too complicated IMO. All these new investment vehicles for example - RMBS's, MBS's, CDO's, CDS's

 

They are all just fancy 'vehicles' made up to make more and more money out of the same initial thing. Great when it is going well but a complete disaster when it goes bad.

 

I think a wholescale restructure of the World's financial system is the only way out - in the long term. This is what Ron Paul etc? are advocating. I do not know the details myself but I may have a wee look into it. Can't be any worse than we have just now.

 

Problem is the 'money masters' want anything but this scenario.

 

Interesting stuff though !!

 

Interesting that you mention Ron Paul.

 

[coppercrutch]

I decided while back that the stock market was a f'ing joke and that none of the 'experts' new ** all about how things can go, and that knowing nothing about property, I wouldn't get into that either (even though, longterm, yer quids in I reckon - I still think I'll like a dabble).

 

So, just decided to blast a few quid every month into a CASH ISA, that I'll not touch till I retire. It's just to save enough over the years so I can have a right comfy life (along wi my work pension) when I decide to pack in work.

 

Wanna know, how safe is that? Can't see it being that risky, is it? Dunno if any of you boys out there know anything (Mr Coppercrutch??).

 

Cheers.

 

I have the same idea with a basic cash ISA. Not going to make you a fortune but with compound interest it should leave you a decent sum. However there are some downfalls...

 

As far as the guarantee is concerned this is shakier ground. As others have said this is covered by the compensation scheme up to 32k (although I think they extended it to the full 35k following NR ?)

 

Anyway this is just a 'retrospective' rescue scheme though. There is not a pot of cash sitting there to pay you out should your bank go bust. (I think there are a few hundred million but that really is ***** all) [i/]

 

Say a big bank goes bust. The FSA would go around all the other banks and ask them for the amount required to pay for the losses. Only problem with that being all the banks have serious capital issues and couldn't really just chuck in ?5 billion if asked !! That is why the UK Government are doing all they can to avoid any of our banks going bust. Look at what happened to NR. It is all about avoiding one going bust as the rest would probably go down with it.

 

So yes in theory up to 35k with each institution* is guaranteed. In reality if HBOS [i[(For example)[i/] went bust tomorrow I reckon you would be lucky to get much back at all.

 

Slightly[i/] safer are places like NR or National savings and Investments. They are backed by the Government to any amount so are slightly more safe. However if the entire system went down I wouldn't fancy your chances.

 

As Coco says the real danger is inflation eating away at your cash savings. The real rate of inflation today is probably about 8-10% ish. So if you are only getting 5% after tax then you are losing real value every day from your money.

 

My savings are in N S and I certificates that are linked to the rate of inflation. Howeve these are official figures so will not be covering real inflation in any way. At least they are pretty safe though and tax free.

 

Your final 'safe haven' is physical gold. Actual gold coins buried in your back garden. They will always (Probably) hold value one way or another. However if you bought gold in 1980 you would have had to wait over 25 years for them to reach the same value. That is without any interest gained over that period either. :eek:Today could very well be a similar situation when it comes to the value of gold. Maybe not but who knows.

 

So in reality there is no real safe place to put your cash - that you can be certain it will retail most of it's value over the next 5+ years.

 

Of course a physical asset like a house would not be a bad idea. You can live in it at worst so not a bad plan. But then again they are still way overpriced and coming down in value by the day. So do you want to be buying an asset that is falling in value by the day...

 

We can only hope this situation has reached it's peak and we don?t fall into a complete meltdown. That would ***** over everyone with debts and everyone wioth savings - and everyone elsefor that matter. Apart from the big boys.

 

No point worrying about it. It is out of our hands.

 

* Be careful with places like NW and RBS that are the same instituation as far as this scheme is concerned.

[Nelly Terraces]

BIG Cheers Coppers, interesting stuff. Looks like NS&I is the way forward. Also looks like, whichever way you look at it, you could get screwed.

 

Sheesh, what a minefield.

[Rab]

Of course a physical asset like a house would not be a bad idea. You can live in it at worst so not a bad plan. But then again they are still way overpriced and coming down in value by the day. So do you want to be buying an asset that is falling in value by the day...

 

Short term!!!!!

 

In a market like Edinburgh, a sensible property purchase will always be a good investment. Prices absolutely will increase long term.

 

It's not gonna happen any time soon, if you can afford to wait until prices hit rock bottom you should, and only take out a mortgage that you can afford but it's still a sound long term investment.

[david mcgee]

Short term!!!!!

 

In a market like Edinburgh, a sensible property purchase will always be a good investment. Prices absolutely will increase long term.

 

It's not gonna happen any time soon, if you can afford to wait until prices hit rock bottom you should, and only take out a mortgage that you can afford but it's still a sound long term investment.

 

Ofcourse house prices will eventually start to increase again, but a house should be looked apon as somewhere to live.

Not an investment opportunity, thats what caused this problem.

I think the days of people buying a dozen properties, doing them up and renting or flogging them off may be over.

If banks had lent on salary multiples instead of equity value we wouldnt have this problem.

[Geoff Kilpatrick]

I think a few of you are missing Geoffs point. Yes, greedy bankers carry blame. Yes, 125% mortgages and overextending personal debt carry blame. But what he's saying is that the real blame lies with those who created the conditions where bankers were in a position to abuse the system, and where buyers were able to overextend their debt.

 

CC is also right in that people who manage their finances prudently will be less affected by the current issues, but that doesn't address the cause of the issues.

 

Thank you.

 

And, FWIW, I think coppercrutch has been right to point out that what goes up must come down but the attaching melodrama hasn't helped.

 

What we are seeing here is a massive loss of confidence in the system and the theory of capitalism is built on confidence and trust. If bankers were incentivised on the basis of selling and to hell with risk, this is the result. The politicians and regulators job was to set the rules of the game. They failed. Then bankers should have been prudent with risk. They failed too. Consumers also take responsibility by using their house as a cash machine and taking out six or seven credit cards.

 

So, rather than point fingers, the solution now is to clean the system as quick as possible. That will lead to the least amount of hurt in the long run.

[coppercrutch]

BIG Cheers Coppers, interesting stuff. Looks like NS&I is the way forward. Also looks like, whichever way you look at it, you could get screwed.

 

Sheesh, what a minefield.

 

That just about sums it up !!!

 

Short term!!!!!

 

In a market like Edinburgh, a sensible property purchase will always be a good investment. Prices absolutely will increase long term.

 

It's not gonna happen any time soon, if you can afford to wait until prices hit rock bottom you should, and only take out a mortgage that you can afford but it's still a sound long term investment.

 

I do agree that property is not a bad long term thing. However if you were buying a flat today people would still be wanting 110k plus for a one bed in Gorgie !! That is still silly season IMO. I don't think people realise thatthese flats will be going for less than 60-70k in the not too distant future. I can see no reason why they wouldn't. (Except for hyperinflation but don't want to think about that )

 

Now I do agree in the current finanical mess buying a property may not actually be a bad plan. At least it provides you with somewhere to live !! Not sure about doing it with debt however.

 

As you say taking out a mortgage that you can afford is the key. In today's scenario that looks less and less likely. Jobs are about to take a tanking so any debt could be a serious millstone around your neck. It is in the good times never mind the bad.

 

PS - HBOS??..[b/][u/]

 

Down almost 40% today. What was it about 20% yesterday ? They are looking more and more like NR each and every day.

[Sheriff Fatman]

I think a few of you are missing Geoffs point. Yes, greedy bankers carry blame. Yes, 125% mortgages and overextending personal debt carry blame. But what he's saying is that the real blame lies with those who created the conditions where bankers were in a position to abuse the system, and where buyers were able to overextend their debt.

 

CC is also right in that people who manage their finances prudently will be less affected by the current issues, but that doesn't address the cause of the issues.

 

Greedy bankers were the ones who lobbied idiot polititians to change the rules. Most of those rule changes occured under Regan in the US and Thatcher in the UK.

[Geoff Kilpatrick]

Greedy bankers were the ones who lobbied idiot polititians to change the rules. Most of those rule changes occured under Regan in the US and Thatcher in the UK.

 

Actually, the real problems occurred under Bush and Blair. The tripartite regulation system completely failed with Northern Wreck. In the States, the failure has occurred because of the repeal of the Glass-Stegall (sp) Act in 2004, which allowed the banks and investment banks to effectively come together as opposed to the separation which kept the system cleaner.

 

Financial deregulation had had its boom and bust in the late 80's and early 90's. This crisis has been caused by lax monetary policy across the world since the start of the noughties.

[coppercrutch]

Thank you.

 

And, FWIW, I think coppercrutch has been right to point out that what goes up must come down but the attaching melodrama hasn't helped.

 

What we are seeing here is a massive loss of confidence in the system and the theory of capitalism is built on confidence and trust. If bankers were incentivised on the basis of selling and to hell with risk, this is the result. The politicians and regulators job was to set the rules of the game. They failed. Then bankers should have been prudent with risk. They failed too. Consumers also take responsibility by using their house as a cash machine and taking out six or seven credit cards.

 

So, rather than point fingers, the solution now is to clean the system as quick as possible. That will lead to the least amount of hurt in the long run.

 

Come on this is huge !! No melodrama about it. This weekend Merril Lynch and Lehmans went bust. Both in the same weekend.

 

I don't think it would be possible to over dramatise the current situation. The World's Financial system is a fraction away from collapsing completely.

 

I think that is a pretty big deal. I do agree with clearing this all out as quick as possible. What the outcome of that is however .............

[Sheriff Fatman]

Actually, the real problems occurred under Bush and Blair. The tripartite regulation system completely failed with Northern Wreck. In the States, the failure has occurred because of the repeal of the Glass-Stegall (sp) Act in 2004, which allowed the banks and investment banks to effectively come together as opposed to the separation which kept the system cleaner.

 

Financial deregulation had had its boom and bust in the late 80's and early 90's. This crisis has been caused by lax monetary policy across the world since the start of the noughties.

 

The start of the trouble was the deregulation of the mortgage markets in the US and the UK in the eighties. In the US one of the major reasons behind that was the privatisation of the government agencies that went on to become Fannie May and Freddie Mac. The bosses of the newly privatised companies lobbied heavily for restrictions to be lifted on who they could lend money too. The Regan government were all to happy to do so, and the Thatcher government followed suit after lobbying from bank bosses over here.

 

Much of the problem with Northern Rock was caused by idiots panicing over something that was never going to happen.

[Rab]

The start of the trouble was the deregulation of the mortgage markets in the US and the UK in the eighties. In the US one of the major reasons behind that was the privatisation of the government agencies that went on to become Fannie May and Freddie Mac. The bosses of the newly privatised companies lobbied heavily for restrictions to be lifted on who they could lend money too. The Regan government were all to happy to do so, and the Thatcher government followed suit after lobbying from bank bosses over here.

 

Much of the problem with Northern Rock was caused by idiots panicing over something that was never going to happen.

 

***** Mae was privatised in 1968 and Freddy Mac was created in 1970.

 

Both long before Reaganomics.

[Sheriff Fatman]

***** Mae was privatised in 1968 and Freddy Mac was created in 1970.

 

Both long before Reaganomics.

 

Opps, got my dates wrong, but still ***** Mae and Freddie Mac were major players in the lobbying for deregulation in the 80's and were amoungst the worst offenders in the sub-prime mortgage fiasco (and other finacial 'blips' over the last few decades).

[Jammy T]

There is a run on AIG in Singapore

 

100s of people cashing insurance policies in. Once this gets media air play you've potentially got a N Rock scenario on your hands. Flock mentality....

 

Its interesting because this is starting to pan out exactly as I have been reading about in economy journals slated for being overly pessimistic - negative if you like

 

I dont know people continually being negative. Heaven forfend that they are right.....anyway....

 

First off - sub-prime "greed" mortgages start going belly up. Because of the way this debt was packaged (kind of in a toxic sandwich with good debt and horrible "buy a house event if you are unemployed" debt) and sold you had a big problem on your hands once that started to unfold.

 

Second. People in the public financial eye would endlessly predict we had reached the bottom of the crisis (Northern Rock, Bear Stearns, Freddie & Fannie etc)

 

Third. We wouldnt have

 

Fourth. Complicated derivative liabilities would be the next - the type of stuff that is unfolding with Lehman

 

Fifth. Insurance would then get embroiled - AIG

 

And this is all BEFORE people start losing their jobs.

 

Now when people start losing their jobs - then the prime mortgages come into play, credit card and personal debt defaults come into play, the retail and services industry suffers.

 

So standardly in a slump construction and house building workers are first to suffer closely followed by finance, then the services sector

 

Ladies and gents there is a long way for this to play out

 

AND

 

We've still to get back to really high oil prices - oil prices over and above $150 mark.

[coppercrutch]

The start of the trouble was the deregulation of the mortgage markets in the US and the UK in the eighties. In the US one of the major reasons behind that was the privatisation of the government agencies that went on to become Fannie May and Freddie Mac. The bosses of the newly privatised companies lobbied heavily for restrictions to be lifted on who they could lend money too. The Regan government were all to happy to do so, and the Thatcher government followed suit after lobbying from bank bosses over here.

 

Much of the problem with Northern Rock was caused by idiots panicing over something that was never going to happen.

 

Trying to get your money out of a bank that looks like it is going tits up - is not what I would call 'idiotic' action.

 

The compensation scheme has never been tested in a situation like this. If you would be happy to leave that in the hands of the Government and the FSA then good luck to you. However many did not. You can't exactly blame them. Why wouldn't you take your money out whenever you wanted ?

[Jammy T]

Come on this is huge !! No melodrama about it. This weekend Merril Lynch and Lehmans went bust. Both in the same weekend.

 

I don't think it would be possible to over dramatise the current situation. The World's Financial system is a fraction away from collapsing completely.

 

I think that is a pretty big deal. I do agree with clearing this all out as quick as possible. What the outcome of that is however .............

 

It was only last week I mentioned on here we were probably closer to a 1920s scenario than we were being told.

 

Even the 60 year crisis Darling spoke of appears overly optimistic.

 

All this is is the end of the first phase of the problem IMO

[ToadKiller Dog]

Me too!

 

 

 

me also.

[jambos are go!]

Actually, the real problems occurred under Bush and Blair. The tripartite regulation system completely failed with Northern Wreck. In the States, the failure has occurred because of the repeal of the Glass-Stegall (sp) Act in 2004, which allowed the banks and investment banks to effectively come together as opposed to the separation which kept the system cleaner.

 

Financial deregulation had had its boom and bust in the late 80's and early 90's. This crisis has been caused by lax monetary policy across the world since the start of the noughties.

 

Acually since the Reagan and Thatcher eras policies telling the state to get out of the way of business and individuals have held sway. Let the market function and we'll all be better of. Keynes will be smiling in his grave.

[Guest]

I wouldn't get too worked up about AIG just yet. S&P have dropped their rating from AA+ to A+ with a warning that it could be reduced to BBB if things don't get any better.

 

No need to hit the panic button just now, but maybe time to move the seat a wee bit closer to it

[coppercrutch]

I wouldn't get too worked up about AIG just yet. S&P have dropped their rating from AA+ to A+ with a warning that it could be reduced to BBB if things don't get any better.

 

No need to hit the panic button just now, but maybe time to move the seat a wee bit closer to it

 

I wouldn't be too sure...

 

"AIG, the troubled insurer that sits at the heart of the financial system, has one more day to come up with the capital to stay afloat, according to David Paterson, New York governor"

 

"He thought the company would need around $75bn-80bn in new capital"

 

"The cost of insuring $10m of AIG bonds for five years on Tuesday rose to $5.8m upfront plus $500,000 per year, up 66 per cent from the $3.5m upfront quoted on Monday. This implied that capital markets were getting ready for AIG to default"

 

So to insure $10 million of bonds for 5 years is going to cost about $8.3 Million. That tells me they are classed as rather risky to say the least !!

 

http://uk.biz.yahoo.com/16092008/399/aig-39-day-39-stay-afloat.html

[david mcgee]

Looking at the current situation on the Dow, it looks likely that there will be a cut in US interest rates later today and its also likely that either the US Government will bail out AIG or they have found someone who will bail them out.

 

Is this good news?

 

Well in the short term they will have averted what looked like an imminent collapse in the financial system.

However it just makes things even messier and harder to predict where all this will lead.

 

The US Government cant just keep printing money and bailing out every mismanaged company.

 

Can it?

[Rosewood]

Looking at the current situation on the Dow, it looks likely that there will be a cut in US interest rates later today and its also likely that either the US Government will bail out AIG or they have found someone who will bail them out.

 

Is this good news?

 

Well in the short term they will have averted what looked like an imminent collapse in the financial system.

However it just makes things even messier and harder to predict where all this will lead.

 

The US Government cant just keep printing money and bailing out every mismanaged company.

 

Can it?

 

Looks like it may be the latter option as the US Treasury have reiterated their statement that they won't be bailing out any financial institutions.

 

We'll see though.

[coppercrutch]

Looking at the current situation on the Dow, it looks likely that there will be a cut in US interest rates later today and its also likely that either the US Government will bail out AIG or they have found someone who will bail them out.

 

Is this good news?

 

Well in the short term they will have averted what looked like an imminent collapse in the financial system.

However it just makes things even messier and harder to predict where all this will lead.

 

The US Government cant just keep printing money and bailing out every mismanaged company.

 

Can it?

 

Well they can but their currency will gradually become worth as much as the Zimbabwean Dollar.

 

I reckon we could be watching the very clear end of the US of A as the number one nation in the World.

 

Of course they won't be liking that much. We all know what is likely to happen in that situation.

 

My guess is Iran will get it, but who knows

[flecktimus]

Well they can but their currency will gradually become worth as much as the Zimbabwean Dollar.

 

I reckon we could be watching the very clear end of the US of A as the number one nation in the World.

 

Of course they won't be liking that much. We all know what is likely to happen in that situation.

 

My guess is Iran will get it, but who knows

 

All because of an insurance company going bust;)

[david mcgee]

No interest rate cut in the US, cant see the markets liking it.