Northern Rock- My Pledge

[G4Z]

Well talking about tax I think you really have to factor in the 'stealth tax'. You may pay 50% income tax in Sweden but I would be willing to bet they don't have council tax, VAT and all of the other taxes we pay without thinking to much about it. If I recall correctly the actual rate of tax we pay is just a smidgen away from 50% when you total it all up. Lets not get in to the fact that the rest of Europe actually see some value for money where as here the money is squandered on an ever expanding bureaucracy and Blairs personal wars.

Also regarding rich people paying taxes, yes that is true they pay more. However they pay a lower percentage of their income than people on a much lower salary. Come April if your earning around £10k a year or less you will be screwed over even harder when the tax relief on the first £5k is removed and replaced with a 2p reduction in basic rate. Those of us on £20k - £30k will find ourselves better off than we were and that includes me, however I am not jumping for joy I think its a bloody disgrace. Particularly from a supposed 'socialist' government.

[TheAnimus]

If Northern Rock was allowed to "crash and burn" then the repercussions of people withdrawing savings, thus forcing banks to recall loans (mortgages especially) could well hasten the looming recession.

True, but in the case of northern wreck, withdrawing your savings from them doesn't effect the mortgage business.

The two might as well be seperate firms.

[Rave]

Erm Rave mate. The money isn't been used for that.

Think of it as a case of two companies, operating under one name. The investment side of northern rock, which could choose to put some money into what is in effect a different company that manages mortgages.

Its not like a wounderful life.

The money used for the mortgage was been bought at 3M intervals via the credit money market.

Yes, but Northern Rock _is_ one company, with one balance sheet. Had they not had access to emergency lending from the BoE, then they would have had to use depositors money to repay the 3M money market loans as they became due. When that ran out, they would have been insolvent- which for a bank obviously means that they're out of business. At that point their depositors, first £35K excepted, would have had to join the quewe of creditors waiting for NR to liquidate some of their assets so that they could be repaid- the assets being, essentially, their mortgage book. At the moment, as far as I can tell, NR's assets still exceed their liabilities. The trouble is that a large proportion of their mortgage lending is sub-prime, and consequently they're likely to be more vulnerable than any other bank to a house price slump/ recession/ any other shock.

The money people invested in the bank accounts was able to get a better rate normally by going for the traditional techniques. The investment side was/is (afaik) by different people, who are un-fairly been tared with the northern rock brush. These people from all accounts have a good ballanced portfolio, that is to say not too much in one place.

Well I don't know, but it doesn't really matter, because as I said NR is one company with one balance sheet. Even if the investment part of the bank had a sound portfolio of bonds etc. then as relatively easily liquidated assets they would have been the first to be sold when the money market lenders started asking for their cash back.

The money by the bank of england is for the shoring up of the mortgage business.

It's for shoring up the bank because they borrowed money on the short term markets, to lend to people long term.

When this happened you had the northern morons taking out their savings. Bo Ho, we've lost a few hundread million, that wasn't even been used to finance our mortgage deals.

Right, well perhaps you could explain to me how NR would have been able to default on the money they owed on the money markets, while protecting their depositors' savings? NR actually had something like £15-20bn of deposits before the run IIRC, of which about half was removed (I think- CBA to google since I think it would take a long time). You may call them morons, but Mervyn King thinks that they were sensible:

Once the run starts it was then rational for other people to join in,

Transcript of Mervyn King's BBC interview - Telegraph

So this money is only going to be used to 'sure up those who've 35k+' in the case the bank falls. Now don't tell me you think that its not worth 2k a head to stop the bank collapsing?

Yes, that's _exactly_ what should have happened; NR should have been allowed to fail.

All those poor families who paid a good market price, had a good credit so the PRIME lender that is NRK would do business with them.

Erm, not quite sure who you're on about here, is it people who took out mortgages with NR? How would they have been adversely affected? They cannot be obliged to repay their mortgage any earlier than the contact that they signed stipulates.

As it happens, I personally think that the takeover bids will not provide good value for the taxpayer; they money markets aren't going to recover for years. But, also IMO, they cannot realistically nationalise it- because then when people default on their mortgages and need to be repossessed (which they will, in large numbers) then it's going to be a bank owned by the government kicking them out of their homes- and into the arms of another branch of government, the council, which will then be abliged to house them. It would be a totally absurd situation. That's why I reckon that NR will have to be sold at a large cost to the taxpayer.

So- when exactly I decide that I've been ripped off enough to enact my plan of dropping out I'm not sure. Maybe I'll just find a way to evade a couple of grand in tax instead.

Also its worth noting that those with 35k+ savings might actually have earnt them. Paid tax to aquire them, and be paying CPT on the interest made?

Yes, but in the vast majority of cases they will have acquired them when the cost of living in this country was vastly lower than it is today. Essentially I am denied the opportunity to acquire a similar level of wealth because the cost of living in this country is so high- thanks largely to the policies of the baby boomer generation (lack of development/ lax monetary policy driving up house prices, large scale immigration/ outsourcing depressing wages etc. etc.)

I am damned if I'm going to slave away to subsidise the comfortable retirements of a generation who, on current projections, will enjoy a more comfortable standard of living throughout their lifetimes than my generation will.

[=TcQi=]

True, but in the case of northern wreck, withdrawing your savings from them doesn't effect the mortgage business.

The two might as well be seperate firms.

Indeed. I worded that poorly. I meant to say, that if confidence was lost in banking, then people may withdraw savings from the other major high street banks, which most certainly are involved in mortgages.

=TcQi=

[usxhe190]

if you work in the city atm, there are a plethora of french people working here. Most of whom, including bonuses will be on at least 250k. The person i just asked paid £5k tax last year, barstard.

can you give more background to this (i.e. how someone you associate with 250k income can only pay £5k tax last year)?

[usxhe190]

The grass is not always greener. Lived in Denmark for 2 years - my basic rate of tax was 45% and the money i earned in the higher band was taxed at 65%

was thinking more of Netherlands or Switzerland but i agree that some european countries have higher taxes...and one of the reason why they all flock to the UK.

only good thing about UK is that you get a higher gross income comparative to other european countries...

[Lucio]

My biggest issue isn't with the government charging a high rate of tax, my issue is when the government is ineffeciant with our taxes. Things like gross overspending on projects like the Olympic games and the NHS (where there's more managers than care or cleaning staff!).

[Whalefish]

My biggest issue isn't with the government charging a high rate of tax, my issue is when the government is ineffeciant with our taxes. Things like gross overspending on projects like the Olympic games and the NHS (where there's more managers than care or cleaning staff!).

What about great big fat handouts to big business after they play fast a loose and cock it up?
Seems to me the 'welfare' system for chumps like those running the Northern Rock etc costs us much more than the NHS.

[TheAnimus]

Yes, but Northern Rock _is_ one company, with one balance sheet. Had they not had access to emergency lending from the BoE, then they would have had to use depositors money to repay the 3M money market loans as they became due. When that ran out, they would have been insolvent- which for a bank obviously means that they're out of business. At that point their depositors, first £35K excepted, would have had to join the quewe of creditors waiting for NR to liquidate some of their assets so that they could be repaid- the assets being, essentially, their mortgage book. At the moment, as far as I can tell, NR's assets still exceed their liabilities. The trouble is that a large proportion of their mortgage lending is sub-prime, and consequently they're likely to be more vulnerable than any other bank to a house price slump/ recession/ any other shock.

Well I don't know, but it doesn't really matter, because as I said NR is one company with one balance sheet. Even if the investment part of the bank had a sound portfolio of bonds etc. then as relatively easily liquidated assets they would have been the first to be sold when the money market lenders started asking for their cash back.

This is the thing. Savings is SEPERATE to the mortgage buisness. I'm faily sure (but should check, having to do my IMC atm) but banks aren't allowed to use depositers money to bail out their other intrests, once declared insolvant. (in england anyrate).

Also their mortgage lending is not considered sub-prime. The FT wrote a nice peice on this because some of the lesser financial covering media have been describing it as such (i did too originally) but apparently its very much prime.

The original 3M CDS (Credit Default Swap) shortfall was only part of their problems, and if it had been kept quite, they could of continued to get their funding, granted they might of been loosing money but hey. Now NO ONE will offer them a rate approching LIBOR.

It's for shoring up the bank because they borrowed money on the short term markets, to lend to people long term.

yes, this is the problem, this is what they ***ked up.

Right, well perhaps you could explain to me how NR would have been able to default on the money they owed on the money markets, while protecting their depositors' savings? NR actually had something like £15-20bn of deposits before the run IIRC, of which about half was removed (I think- CBA to google since I think it would take a long time). You may call them morons, but Mervyn King thinks that they were sensible:
Transcript of Mervyn King's BBC interview - Telegraph

Indeed, when a run is happening it does make sense to take your money out. But when you've got less than 35k, which most did. Taking it out is just retarded.

Yes, that's _exactly_ what should have happened; NR should have been allowed to fail.

But the wider implications of this would be immense, rightly or wrongly (the latter in my mind) new labour has built on a credit culture. The buy now pay later idea is not only seen in the commoner, but also government spending. The economy has been allowed to depend on it. Taking this away (allowing a bigger collapse) in the LIBOR market would be folly, and is actually worth protecting for all of our sakes.

Erm, not quite sure who you're on about here, is it people who took out mortgages with NR? How would they have been adversely affected? They cannot be obliged to repay their mortgage any earlier than the contact that they signed stipulates.

Actually in quite a few cases, the bank owns the deeds to the house, and you have no right to live there. In all honesty I don't know what the law is with regards to this in the UK as i have a fealing that practice is (thankfully) illegal here.

s it happens, I personally think that the takeover bids will not provide good value for the taxpayer; they money markets aren't going to recover for years. But, also IMO, they cannot realistically nationalise it- because then when people default on their mortgages and need to be repossessed (which they will, in large numbers) then it's going to be a bank owned by the government kicking them out of their homes- and into the arms of another branch of government, the council, which will then be abliged to house them. It would be a totally absurd situation. That's why I reckon that NR will have to be sold at a large cost to the taxpayer.

A private bid will not provide good value to the tax payer. And why should it the risk they are taking, they will want a large reward. The point is its the governments mis-guided over regulation that removes common sense that landed us in this situation, and regretably that means you & I will have to pay for it, sad fact of life.

So- when exactly I decide that I've been ripped off enough to enact my plan of dropping out I'm not sure. Maybe I'll just find a way to evade a couple of grand in tax instead.

Yes, but in the vast majority of cases they will have acquired them when the cost of living in this country was vastly lower than it is today. Essentially I am denied the opportunity to acquire a similar level of wealth because the cost of living in this country is so high- thanks largely to the policies of the baby boomer generation (lack of development/ lax monetary policy driving up house prices, large scale immigration/ outsourcing depressing wages etc. etc.)

I am damned if I'm going to slave away to subsidise the comfortable retirements of a generation who, on current projections, will enjoy a more comfortable standard of living throughout their lifetimes than my generation will.

So now your pissed off with people who've had it easyer than you? Well the cost of living isn't really *that* high here. If it really pissed you off you could always do something more profitable than you currently do, lord knows you've got the intelect for it.

Yes its criminal how much tax we have to pay, even more so how so much of it is wasted. But using it to plug a whole in a damm like this is actually quite a good way of spending it imo.

(Remeber i don't work with credit, i don't like the credit market, and in many ways a credit collapse could help the side of things I work with).

[Saracen]

can you give more background to this (i.e. how someone you associate with 250k income can only pay £5k tax last year)?

There could be a variety of reasons, especially for foreigners working here, including how and where they're paid, and where they're domiciled.

For instance, one scheme (a loophole that's now been closed) is that some city bonuses were paid in fine wines, which weren't being taxed. The wine would never actually change hands, but a voucher for the wine from a given merchant would be "paid". That voucher could then be redeemed from that merchant, at a discount rate of course, and voilà .... non-taxed income, quite legally. Other such schemes have included gold bars, Persian carpets and even bales of hay. That particular loophole has been closed, but how many others have been found/created .... if you can afford creative tax lawyers?

And, of course, there's all sorts of potential for messing about with complex trusts, offshore accounts, other business and trading losses, foreign property and investments, and so forth. And, of course, it's not unknown for the REALLY rich to negotiate one-off special provisions with the taxman, simply because their financial arrangements are so complex as to virtually defy using standard provisions. I wouldn't be surprised to find Richard Branson or Mohamed Al Fayed (etc) falling into that category, though I have no knowledge at all of whether they do.

[SiM]

can you give more background to this (i.e. how someone you associate with 250k income can only pay £5k tax last year)?

Probably works in an investment bank (they like to hire frenchies for certain sales and structuring teams) and he probably pays more tax to French government anyway or he is doing something illegal or he has found a damn good loophole (then pls pm me his contact info )

[TheAnimus]

can you give more background to this (i.e. how someone you associate with 250k income can only pay £5k tax last year)?

Probably works in an investment bank (they like to hire frenchies for certain sales and structuring teams) and he probably pays more tax to French government anyway or he is doing something illegal or he has found a damn good loophole (then pls pm me his contact info )

Indeed, he pays most of the tax to the cheese eating surrender monkies. He has to make at best a pittyful contribution here.

And from what i understand most of the non-doms pay very little in their home land either!

[greenalien]

Yes, but in the vast majority of cases they will have acquired them when the cost of living in this country was vastly lower than it is today. Essentially I am denied the opportunity to acquire a similar level of wealth because the cost of living in this country is so high- thanks largely to the policies of the baby boomer generation (lack of development/ lax monetary policy driving up house prices, large scale immigration/ outsourcing depressing wages etc. etc.)

I am damned if I'm going to slave away to subsidise the comfortable retirements of a generation who, on current projections, will enjoy a more comfortable standard of living throughout their lifetimes than my generation will.

So really, you're bitching because some people who are older than you are wealthier than you are? Never mind that a lot of such people have worked long hours for many years, and paid the tax that paid for your education, the roads you drive on, the NHS, the railway network, etc. (whilst also paying back the USA for lending the UK the money to finance WW2!). I know you're unhappy with the way house prices have boomed over the last few years, fuelled by cheap credit, but buying a house has always been a gamble and, like all gambling, some win and some lose. The cost of living may have been less in the past, but so were wages - and we now live in a global economy, with a booming world population, all of whom want a slice of the pie - hence the rise in oil, commodity and food prices. If you want a better life, stop complaining, be glad that you speak and write English, which gives you a great advantage. Do some studying, get yourself more qualified so that you can get a better job. If you can't be bothered to do that, be sure that there are plenty of people across the world who are doing so; there is no future in unskilled or low-skilled work.

[M0nkeyb0Y]

Rave - you always create a stir - keep at it.

As a caveat: NR shouldn't have been allowed to fail. Joe public invest in it, they are the sort of people who don't research the risk involved with a bank (should anyone) - so they didn't know what they were getting into. If NR failed it would have resulted in a run on all banks 1929 stylee... catastrophic.

MB

[Rave]

Rave, I can understand your reasoning, but as TheAnimus pointed out, the Bank of England’s actions are arguably an attempt in maintain confidence in the banking system (which ironically you seem to be losing).

Losing? I lost it a couple of years ago. My overdraft of about £1000 could be cleared pretty quickly if I hit ebay or got off my arse and chased up the insurance settlement my wife is owed. If my bank goes bust I couldn't give a monkeys. As it happens I'm with Barclays, who are in no danger IMO of going bust. Next year they'll announce a few billion pounds worth of losses on the financial instruments they've ben so keen on, and their shareholders will be very very very unhappy, but they won't go bust.

If Northern Rock was allowed to "crash and burn" then the repercussions of people withdrawing savings, thus forcing banks to recall loans (mortgages especially)

Banks cannot recall a mortgage unless it's in arrears- or possibly, depending on the small print, unless the value of the property it's secured on has fallen below the value of the outstanding loan. But we haven't had a house price crash yet, so that's no worry is it?

could well hasten the looming recession

Right, so we'll all be better off if we stave off the looming recession will we? Why deal with a problem now when we can make the situation worse and deal with it later? Eh?

I do however agree with you, that the bosses of Northern Rock acted irresponsibly by implementing a short sighted/vulnerable business model, but many believe that this case is indicative of the industry-wide problem concerning subprime loans. For instance, the EU central bank has just pumped $500bn into the markets to ease the credit shortage emanating from subprime concerns. Frankly this makes the £50bn hand out to Northern Rock seem rather paltry in comparison!

Oh yeah. Silly me for worry about a paltry amount of my cash like £2k. I daresay I won't miss it.

[Rave]

This is the thing. Savings is SEPERATE to the mortgage buisness. I'm faily sure (but should check, having to do my IMC atm) but banks aren't allowed to use depositers money to bail out their other intrests, once declared insolvant. (in england anyrate).

Yeah, please do check that out. Because if that's true, there would have been no need for anyone to guarantee NR depositors savings, n'est-ce pas?

Also their mortgage lending is not considered sub-prime. The FT wrote a nice peice on this because some of the lesser financial covering media have been describing it as such (i did too originally) but apparently its very much prime.

Northern Rock were one of the few banks to offer '125%' mortgages. In a market that's nearing the top (A.K.A. the U.K housing market in 2006/2007), a 100% mortgage is hardly prime. A 125% mortgage is as sub-prime as they come.

Again I CBA to look up the exact statistics, but from Jan 2007 until pretty recently, NR was the No1 mortgage lender in volume terms in this country. 2007, as everyone is about to learn, was the top of a massive bubble. They've leant a great deal of money secured on a lot of very overvalued property. Personally, if I wanted to see how much NR actually held in assets, I'd take the total outstanding value of their mortage book, and then wipe about 25% off it. I think house prices will drop by much more than 25%, but if they're smart they'll liquidate a fair bit of it before the bottom of the market.

The original 3M CDS (Credit Default Swap) shortfall was only part of their problems, and if it had been kept quite, they could of continued to get their funding, granted they might of been loosing money but hey. Now NO ONE will offer them a rate approching LIBOR.

Yeah...and here's a newsflash- LIBOR has recently spiked about 1.5%. This problem hasn't been caused by an inability to keep secrets- it's been caused by a massive and ongoing credit crunch. It's not as if NR's funding model was somehow a secret. Anyone who paid attention to how they'd been doing business could see that they were playing a risky game- which is why a bunch of traders shorted the hell out of them.

Indeed, when a run is happening it does make sense to take your money out. But when you've got less than 35k, which most did. Taking it out is just retarded.

No, because only 90% of your money from (forgive me if I'm wrong, it's in the ballpark) £3k to 35K is protected. Someone with £35K deposited stood to lose £3200 if the bank went bust. I'd waste a day or two queuing outside my bank to save £3200, TBH.

But the wider implications of this would be immense, rightly or wrongly (the latter in my mind) new labour has built on a credit culture. The buy now pay later idea is not only seen in the commoner, but also government spending. The economy has been allowed to depend on it. Taking this away (allowing a bigger collapse) in the LIBOR market would be folly, and is actually worth protecting for all of our sakes.

Well, I have no debts, and if you could please explain to me why I should pay more tax to bail out those who have live beyond their means I'd be grateful?

Actually in quite a few cases, the bank owns the deeds to the house, and you have no right to live there. In all honesty I don't know what the law is with regards to this in the UK as i have a fealing that practice is (thankfully) illegal here.

It's very simple, which is why letting NR go bust would have had little or no effect on those who had outstanding mortgages with them. AFAIK in _every_ case the bank retains the deeds to the house until you've paid off your mortgage, but there are strictly limited circumstances in which they are entitled to demand that you settle the mortgage in full- the main one being that you fall behind on your repayments.

So, if everyone keeps paying their mortgage payments, which they will because we're not going to have a rise in interest rates or a recession then nobody has anything to worry about.

A private bid will not provide good value to the tax payer. And why should it the risk they are taking, they will want a large reward.

Good value as far as I'm concerned is the refunding of all my money within a year or two. I'll forego the interest with good grace.

The point is its the governments mis-guided over regulation that removes common sense that landed us in this situation, and regretably that means you & I will have to pay for it, sad fact of life.

*splutter**cough* So you're trying to tell me that Northern Crock being able to borrow (I'm guessing) ~£60bn on the short term money markets and then lend it out on terms averaging 20-25 years was the result of "the governments mis-guided over regulation"???!?!?!

Seriously?

C'mon Alex, we've had a drink together, I know you're not that bloody stupid.

So now your pissed off with people who've had it easyer than you? Well the cost of living isn't really *that* high here. If it really pissed you off you could always do something more profitable than you currently do, lord knows you've got the intelect for it.

What I currently do is work my arse off at all hours of the day and night. Most people could do what I do if they were prepared to start work at 4.15am or finish at 2am (usually two days before they start at 4.15am again ). Yes I am a reasonably clever chap but I certainly do not have what it takes to be a manager or, I dunno, any kind of IT worker. I simply do not have the personality type to be a successful manager, and I don't have the attention span to learn stuff I'm not actually interested in (could probably do it with Ritalin/Speed, but they're not exactly legal ).

(Remeber i don't work with credit, i don't like the credit market, and in many ways a credit collapse could help the side of things I work with).

So, erm, why aren't you on my side?