[OPE] Northern Rock

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Mon Feb 25 2008 - 12:30:53 EST


The figures I saw weren't correct. I haven't delved into this yet properly, I haven't read a really good analysis yet either, but the point is that Northern Rock, which is really a multinational group of affiliated companies (in the UK, Jersey, Guernsey, Ireland, USA, etc.), doesn't simply make money from financing mortgages, borrowing shortterm money at lower interest and lending at longterm higher interest, deposits etc.  They make money from all sorts of things. They issue various types of commercial loans which are secured on property, bond issues, unsecured personal loans, insurance, shares (in which a couple of hedgefunds are involved in a major way), you name it. They resell a portion of the mortgages, or securities stakes on those mortgages. Because of the different tranches of obligations, it is therefore not really clear what one should understand by the "mortgage book". The theory is that by mobilising large capitals involving considerable risktaking, they can offer competitive mortgage rates, but whether this is really true I don't really know.  It wasn't strictly necessary to "nationalise" Northern Rock, that's more a political thing, a sort of slap on the wrist and a trust exercise.

I was just trying to get an indication of the magnitudes of insolvency of financial institutions, what it means. There are all kinds of wild theories about meltdown, collapse, Roubini and so forth, but to get this in perspective you have I think to take a look at the magnitudes and proportions of the capitals involved. 


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