What is Digg?133 Comments
- inactive, on 10/10/2007, -2/+53It should be noted that Northern Rock is unusual as far as most UK Mortgage lenders have a better mix of savings and lendings.
I believe Northern Rock is something like 80% Mortgage, 20% savings accounts. Thus, when the housing market faces a downfall, places like Northern Rock feel the pinch first, followed by the more traditional banks, which have a healthier spread of investments.
It is worth noting that many UK banks take regular loans from the Bank of England, including Barclays, which has had 3 separate loans so far this year. This in itself is not a significant worry, but the specifics of this situation are indeed a concern.
This is certainly a worry for all UK savers, and more so for all mortgage holders. - lcaller, on 10/10/2007, -13/+61Dugg down as inaccurate . Northern Rock has NOT run out of money, if you actually understand the situation you'd know this. Yes people are queuing to get their money out, but they have no idea why this is mass hysteria carried over from market forces that originates in America. Yes it's a total PR disaster but they haven't and are in no danger of "running out of money"
- Patogrande, on 10/10/2007, -2/+29I don't want to invest my tuppence, I want to feed the birds!
- gottadiggit, on 10/10/2007, -4/+21Dugg up not for the accuracy of this article but for the bigger picture of psychological perception. Which to me is noteworthy and I want to be able to see when events like this occur. Thanks for posting this.
- popothebright, on 10/10/2007, -1/+17You don't understand. There's an enormous difference between assets and liquid assets. And there's also (as many banks are now realizing the hard way) not a 1-to-1 ratio between a dollar in cash and a dollar on the books. It actually takes very few customers withdrawing their money to drive a bank into insolvency. The problem isn't the bank -- it's the perception of the bank. Banks -- ALL BANKS -- are fundamentally insolvent. Now before you dismiss this statement, it isn't mine -- it's Milton Friedman's. Banking is essentially a "confidence game". We all pretend that our money is actually in the bank, but of course it isn't. And we all pretend that the bank is investing in secure paper. But of course, they don't. When most companies talk about "assets" they talk about things they own. But for a bank, an asset is money that is "owed to it". This is not very different when debt ratings remain strong, but when there's a shock to the system, the quality of those debts (or "assets" as far as the bank is concerned) suddenly become threatened -- and threatened with leverage.
Northern Rock is far more ***** than they're pretending to be. And so are many other banks. The protestations to the contrary are glossing over the hard truths in an effort to appeal to those who don't understand the banking system, and in an effort to stop the panic. Panic is the one thing that destroys banks overnight. - jverdi, on 05/11/2009, -2/+18Bart in Voice#1: "What do you mean the bank is out of money!?"
Bart In Voice#2: "We only have enough money for the next 3 people"
-Crowd starts going crazy-
Bank Guy: "We don't have your money! It's at....Bill's House...And...Fred's House!
Moe: (Assumes to guy next to him) What the hell are you doing with my money Fred? - TheDiceMan, on 10/10/2007, -1/+16"By last night it was reported a total of £1bn had been withdrawn."
"Police had to be called to a branch in Cheltenham, Gloucestershire, when a couple barricaded the manager in her office when she refused to let them withdraw their £1m savings."
http://business.guardian.co.uk/markets/story/0,,2169786,00.html
Kapow! http://www.flickr.com/photo_zoom.gne?id=1379872448&size=l
*_* - Urusai, on 10/10/2007, -0/+15Gee, wouldn't it be grand if we all could borrow money from the government to cover our billionaire asses.
- mollerade, on 10/10/2007, -4/+18Fact check.
1) Nothern Rock has requested the use of a loan from the Bank of England. It has not used it yet.
2) The loan is not to stop them going out of business it is to enable them to continue to make profit (around $1 Billion this year).
3) Lost of people are queing outside the branches to get service, as demand for their internet service soared, the servers couldn't cope, and those who needed to make transaction, such as pay the builders, pay the rent, pay for the washing machine etc couldn't do so online, and had to go into the store. The majority of people queuing to move their money are pensioners not really understanding the issues, and unwilling to take any risk no matter how small.
4) The amount quoted of $2 Billion cash being withdrawn has no sources attached to it. It is pure speculation.
5) Nothern Rock has a lot of mortgages on its books. The only danger is of it being bought by a larger Bank, due to its share price falling.
Please approach life with a level of critical thought before falling into line with the crowd. - justinjstark, on 10/10/2007, -1/+12Northern Rock was lending more money than its customers had in savings. As a result, they had to rely on the money market to pay for these loans. As the market sank, Northern Rock had to turn to the central bank for the money. This is how the system was built to work. They are not out of money.
- irkenzim, on 10/10/2007, -3/+13... a worry for shareholders too, down 32% on Friday and over 60% since January!
- aargh01, on 10/10/2007, -6/+16If you read the article, they HAVE run out of money. They haven't run out of net worth, they have plenty of holdings and they're overall value is in the hundreds of billions, but they don't have the actual, physical cash for people to withdraw. In other words, not enough actual money. What good is a bank if you can't get your money out when you want? If you can't access your money in a real way, then it's no good to you in a pinch. This is what has happened now that money has gone so digital. Proof that money is fictional; the bank says they have it, your account balance says it's there, and yet it's nowhere to be found when you ask for it. They don't even seem to be able to transfer it to other banks digitally, which means even in computer-land they don't have enough money. Shouldn't they be required to start selling off their holdings in order to provide actual cash for people to withdraw?
Digging you down for missing the point. - KyleGoetz, on 10/10/2007, -0/+101 million pounds is a ***** of money to have kept in a single account.
- EntropyMan, on 10/10/2007, -0/+10Already happened. See above.
/Should we call you Postradamus? - thailand1972, on 10/10/2007, -0/+9Yes, their money CAN disappear - but only if your savings are greater than 2000GBP.
More info here:- http://news.bbc.co.uk/1/hi/business/6994746.stm
"Are savings at risk?
Anyone with money in a savings account with the Northern Rock - or indeed any other bank - needs to realise that some of their money is always at risk, if they are saving more than £2,000.
Banks are covered by the Financial Services Compensation Scheme.
If you have up to £35,000 on deposit then you would, in the event of insolvency, get back all of the first £2,000 in your account and 90% of the next £33,000.
That would be a total of £31,700 per person in compensation, or to look at it another way, a loss of £3,300.
But any money above the £35,000 threshold might be lost altogether." - MalDON, on 10/10/2007, -0/+9Actually, this is a result of the American economy creating a chain reaction.
- Angostura, on 10/10/2007, -1/+10You *do* realise that's how banking has worked for the last 1,000 year or so, right? Banks do not just take people's savings and leave them in the vault. Banks make their living by lending the money out to other people. If everyone wants their money back at once, it is a problem. As Jimmy Stewart found out in a certain Yuletide film.
- rune420, on 10/10/2007, -0/+9I hope you realize that they also loan out more than the total of their saving accounts, thus creating money out of thin air.
- Jon211, on 10/10/2007, -0/+7Well, the subprime crisis (originating in the US) has caused the money markets to effectively lock up as they don't know who owns the toxic CDOs and so Northern Rock can't get the cash it needs for day to day business anymore if you really must know.
- talywackerflash, on 10/10/2007, -0/+7Exactly. This is the type of thing that can cause unbelieveable damage. Perception is everything and people don't like what they're seeing. Multi-national corp.s are creating a new challenge as they are manipulating the worlds labor force against itself which hastens a 2 tiier world economy. Labor and "Private Capitol" , and if you read exerpts of Alan Greenspan's new book he specifically warns of a break in the social ties that make up our society due to income disparity and could result in "widespread violence". Bush ignored his recommendations.......
- halligan00, on 10/10/2007, -2/+9w00t! Fractional Reserve Banking at it's best.
Full-reserve, public money FTW. - Bewildebeast, on 10/10/2007, -1/+8Because of sensationalist crap like this, as far as I can tell
- inactive, on 10/10/2007, -0/+6UNITED KINGDOM, not just England. I know it's complex but PLEASE at least try to use the correct term in your post. There are three nations outside of England which this applies to aswell.
- Scynet, on 10/10/2007, -5/+11Because kids don't understand how the flow of money works. Not that they should, it's very complicated.
- wesb, on 10/10/2007, -0/+6Basically the US Mortgage problem has EVERYTHING to do with this.
The stages go like this:
1. US Subprime problem, banks get worried.
2. Whole market declines a few weeks ago.
3. Banks assess the risk and are unsure of what the safe investments are, decide to stop lending to each other.
Now this is where Northern Rock comes into it, the way it is run it gets a shot-term injection from the money-markets to meet any requirements it has but because the banks are all worried they won't lend to each other, hence the Bank of England has to step in. - fLUx1337, on 10/10/2007, -0/+6Its VERY rare for a bank to have enough cash for every customer to withdraw every last penny at the same time, banks work on the fact they use YOUR money for bigger things!
If a big company wants a massive loan (which alot do, nothing bad, just getting the money quicker than raising it yourself can mean the difference between launching a product next year, or in 5 yrs), then the banks loan your money, and the only way they can do this is if everyone doesn't withdraw everything at the same time!
Northern Rock (along with everyones money!) is finished because everyone want's their money. And the big companys who borrowed the money proberly won't feel the need to pay it back until their contract is over, which could be years.
Hope it does get sorted though, must suck right now if your whole life savings are at risk! :( - Angostura, on 10/10/2007, -0/+6It should also be noted that the Bank of England has extended credit to Northern Rock just sufficient to keep it operating even if every depositor emptied out every last penny. So why everyone is panicking, I don't know.
- TheDiceMan, on 10/10/2007, -2/+8Sheeple? You seem to be forgetting the fact that it's their money. So they were told by people 'in power' that all would be fine, no need to panic, no need to worry about your money. I think these sheeples actions seem to stem from, amongst other things, a lack of repect from people in high places - MDs, CEOs, governments etc.
- consonance, on 10/10/2007, -4/+9I am predicting that sometime soon someone posting a comment will blame this on the United States Federal Reserve.
/Nostradamus - Jon211, on 10/10/2007, -0/+5Barclays used the BoE in a different way, through the standing lending facility.
Northern Rock used the BoE as a lender of last resort as they couldn't source the cash from elsewhere.
See the BoE's website for the differences:
http://www.bankofengland.co.uk/markets/money/sf/index.htm
http://www.bankofengland.co.uk/financialstability/lolr.htm - MikeSD34, on 10/10/2007, -0/+5Their money isn't technically in the bank either though. The reason you can get an account which accrues interest over time is because they use the money you deposit to create loans for other people. They make money off the interest accrued by those loans, and you get a small chunk back. At least that's how I understand it.
- inactive, on 10/10/2007, -0/+5Good job on researching or even reading the article before you buried this. The US Mortgage crisis has forced this bank to be in crisis because they run their bank from a providing 80% of their assets to loan mortgages. The credit crunch effected Northern Rock and has put their available funds in a tight position.
- RedViper1999, on 10/10/2007, -1/+6God people on digg can be such morons. Please stop digging anything that is advertised on that damn gold bullion site. Its just a ploy to scare people into buying gold. Hell, bbc.com has an article on this bank and they say its not going to go bust so its this bullion site shooting things out of proportions.
- noahhoward, on 10/10/2007, -0/+5When you put money in the bank that money doesn't sit there, they spend it, they invest it and he loan it to other people. If everyone makes a run on the bank at the same time and the bank has not invested its money wisely it can be caught without enough money to cover the balance of its customers.
- Buelldozer, on 10/10/2007, -2/+7So now the President of America is in charge of the U.K. banks?
- kazamx, on 10/10/2007, -1/+5Not really. Its only a problem if they can't get their hands on cash when they need. Yes all their own assets are tied up and they can't use these. Thats why the bank of England provides float funds to make sure their isn't a problem.
Even if every single customer wanted their money back it would be no problem. - mm82, on 10/10/2007, -2/+6The press is focusing on the depositors withdrawing funds, when the exact problem is that the bank's deposit base is small to begin with. It can't source its regular avenue of funding because the ABS and covered bond markets are effectively closed down from the liquidity crisis; NOT due to risk management lapses on NRBS' part. The press love to make sensational and untrue headlines but fail to pay attention to the Bank of England's statement, "The FSA judges that Northern Rock is solvent, exceeds its regulatory capital requirement and has a good quality loan book." Bottom- line, they use the BoE facility for short-term funding needs and liquidity returns to market or liquidity crisis continues and they are bought out.
- JavertHolmes, on 10/10/2007, -7/+11Ron Paul also predicted eye tattoos, refurbished Xbox 360s dying within 5 minutes of use, and that an alaskan bird will make the longest flight ever measured. He is one hell of a guy.
- Bamborzled, on 10/10/2007, -1/+5Ron Paul's tears can cure cancer.
Ron Paul could defeat Chuck Norris blindfolded and handcuffed.
Ron Paul stopped the Soviets from launching their nukes.
Ron Paul created the Earth in six days.
Ron Paul can turn water into wine.
Ron Paul can revive his friends from the dead.
Ron Paul killed the guy who leaked Harry Potter 7 on the Internet.
etc... - popothebright, on 10/10/2007, -0/+4Remember folks: You are living in their spin-zone. You don't have "money in the bank". And you have *never* had "money in the bank".
Instead, the bank owes you money. Because the reality is that you *lend* your money to the bank. And you do it at the cheapest rates in the industry. Why? Because you believe that they are a good debtor. And they are. That is, until we all believe otherwise at the same moment in time. At which point the game is up. - diggumup, on 10/10/2007, -0/+4It's the perceived notion of the depositors that the bank might go under. Bank runs are more a psychological conflict than a financial one and it has a snowballing effect unfortunately.
- Bushlied, on 10/10/2007, -1/+5Let me know when the banks go under, so I can call in my loans and buy out the banks and their property. That way I can hold more realistate and sink the general economy and sit fat and rich. While all you poor folks get even more in debt. Thank you for your ignorance and blind devotion to my organization. Big Brother out.
- ticklecricket, on 10/10/2007, -4/+7do you really expect the bank to keep over a billion dollars in _cash_ in the vault?
- cornerback42, on 10/10/2007, -0/+3It's a Wonderful Life.
- Konrad9, on 10/10/2007, -0/+3Let's also note that running in and taking your money out MAKES ***** WORSE.
- poodpood, on 10/10/2007, -4/+7 '.............hoards of customers lined up at every Northern Rock branch across the entire country of Britain.'
Britain is not a country. Geography 101. - inactive, on 10/10/2007, -0/+3The correct term is United Kingdom.
- Angostura, on 10/10/2007, -0/+3And what exactly are they going to do with it? Big mattress sales are going to be impressive, perhaps?
- cklol, on 10/10/2007, -0/+3Tuesday**
- tonybls12, on 10/10/2007, -0/+3Great Britain is an island, United Kingdom is a country. It really isn't complicated... wrong.
Great Britain is many islands and the United Kingdom is more than one country . l -
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