When the history books are written on what caused the first (and hopefully the last) global financial crisis of the 21st century, what will undoubtedly will be regarded as the “kick off” point in the UK will be the sudden and dramatic collapse of the Northern Rock Building Society. Nobody seemed to really understand the implications of the Bear Stearns Bank and the terminology “sub-prime mortgages” must have meant very little to the average UK citizen, but when the news broke that Northern Rock was in serious financial trouble, and queues began to form around the block to withdraw deposits, then the chilling realization began to form in the minds of many that the golden era of easy finance was over. And that the time had come to pay to the piper.

One of the UK’s biggest mortgage lenders at the height of the property boom, Northern Rock were the first bank to bail out by the Bank of England during the current crisis, as other banks began to refuse them further finance. As the international banking crisis deepened, and no viable private buyer emerged, Northern Rock were eventually nationalised by the government, supposedly on a temporary basis.

A recent report issued by the National Audit Office (NAO) has begun to peel some of the layers of how this long established building society managed to find themselves in such desperate financial straits, and even after they were the Treasury began to inject considerable sums of public money into the bank, Northern Rock, continued to award mortgages that amounted to (at least) 100% of the property’s value in a rapidly declining market. .

According to their findings, the NAO have declared that Northern Rock lent up

£800m to borrowers whose mortgage could be classed as “risky” This meant that the levels of equity in the agreement were less than 30% of the value of the property. The reports goes on to reveal that as late as spring 2008, there were a considerable number of cases recorded where Northern Rock issued mortgages of up to 125% of property values where the prices were continuing to plummet.

This amounted to 30% of its entire mortgage lending at the time although the bank said £1bn of this extra lending had been agreed before September 2007.

Findings of the report also reveal that before the treasury stepped in to rescue Northern Rock in order to protect the public’s savings. The mortgage bank’s lending policy could only be described as “foolhardy.”

Around a third of their clients were holding mortgages that represented more than the property value, with a further almost twenty percent with equities of between 90 -100% and decreasing.

The NAO report, whilst it generally displays its approval of the government’s intervention to protect the bank’s depositors through keeping Northern Rock afloat, does level some criticism on the Treasury for not taking a much closer look at state of the bank’s finances, before it deciding to take the drastic step of totally nationalisation.

The Treasury is to study the report and reply to the public accounts committee at the end of the month.

It might not make for light reading for many with the report stating that the government was not only slow to respond but were totally under-prepared to handle the crisis. Obviously they hadn’t heard of Bear Stearns either!

In the meantime it will not come as a surprise to anyone in recession hardened Britain of 2009, that as a result of mortgage arrears as well as shortfalls on sales of repossessed homes, Northern Rock made a trading loss of £1.4bn in 2008

Related Websites

• At a glance - Chile [/caption] Chile Background: Prior to the coming of the Spanish...
• Fishing North and South of the I-80 North of the I 80 There are actually more good...
• Homeowners Frustrated With Bank Of American Loan Modifications President Obama initiated the Home Affordable Modification Program with guidelines...

Tags: Bailout, Bank, Bank of England, Banking, British Economy, British Pound, Credit Crunch, Financial News, Northern Rock, UK Banks

I feel so sorry for the people who came late to the property market bubble. Through fear of missing out on ever owning a house, many were railroaded into taking on mortgages by estate agents, mortgage brokers and banks. Now, more and more are facing the grim reality that they would have done much better if they had waited a year or two. What were the banks, mortgage brokers and estate agents saying at the height of the bubble? Banks…. “Are you sure you don’t want to borrow more?” Mortgage brokers? “Blue skies ahead…don’t worry…interest rates will probably come down”. Estate agents…”you’d better hurry or you’ll miss out.”

As negative equity grows at the astonishing rate of 60,000 homes a month, ministers are urging the government to rescue borrowers. That sounds all well and good and nice like….but who pays for all this? The answer is that the people who DID have the sense to sit on the sidelines during the boom will pay, along with every other member of society.

I have no issue with people who lose their jobs having their mortgage interest paid by social security payments, but what I do take issue with is bailing out people who are coming off fixed rates who can’t afford the new repayments. The interest rates aren’t earth shatteringly different than they were a few years ago, although they are a bit higher, but why should my hard earned income be taxed away to help these people? Many of them bought with the sole intent of selling the property after a few years and now are unable to do that. They have learned a valuable lesson that the property market isn’t a one way bet, despite what the banks, estate agents and mortgage brokers told them.

If the government bails out these homeowners, it is exactly like them standing outside a bookmakers shop and handing wads of cash back to the losing punters from my pocket. It’s just not on!

Related Websites

• New Credit Card Law - Helps or Hurts? With the passage of the new Credit Card Accountability Responsibility...
• How to Take Advantage of Falling Mortgage Interest Rates Last year the Federal Reserve started an aggressive interest rate...
• Own A Home? You're On Welfare. Well, at least that's what a columnist in Time magazine...

Tags: Bailout, Interest Rates, Mortgages, negative equity, Social Security Payments

For thousands of years, gold has been the store of value, the medium of exchange and the revered metal used to adorn us as jewellery. For decades, it has been frowned upon by central banks and economists as a barbarous relic which should be consigned to the dustbin of history. The thing is…it seems to be making a comeback!

In the last 10 years, gold has soared more than 3 fold from under $300 per ounce to, at around the $900 per ounce today. What has caused this massive shift and is it likely to continue? Well, paper notes haven’t held their value well over a long period of time. Paper currencies have been coming and going for hundreds of years. In fact, with the introduction of the Euro, Greek coins were replaced by the British pound as the earth oldest currency still in active use.

One of the reasons the British pound remained in place was due to the use of it in the empire. One of the reasons that Gold is making such a comeback is that the paper currencies of most major economies are today being debased by the increases in the money supply, which went into overdrive after the dotcom bust in order to avoid a recession. It is this monetary expansion which has led to the increase in the price of gold. More accurately, the price of gold isn’t increasing; it’s just that the value of currencies is decreasing, as they have been doing for a long time.

With the huge bailouts all over the world taking place right now, this looks set to continue. This should be great news for gold, which unlike other commodities, hasn’t fallen back considerably from 2007 highs. The reason is that gold is a safe haven during times of trouble, such as the ones we are in now. That and the fact that an ounce of gold was able to buy a quality suit and a nice pair of shoes in Roman times…the same is true today and will be true in the future, unlike any paper currency.

Gold is popular because governments can’t print more gold. Expect it to go up in price.

---

For all the best deals on Current bank account, Business bank accounts, Savings and Mortgage deals visit the number one Independent Bank Compassion site Bank—Accounts

Related Websites

• Gold Coins Coins and Paper Money -> Coins: US -> Gold Before...
• Byron Wien's 2008 Annual Top Ten Surprizes List Byron Wien, chief investment strategist for Pequot Capital, has once...
• How to Sell Gold Let's get started. The ease with which you can sell...

Tags: Bailout, British Pound, Currency, Gold

“While I have warned for years that the United States was headed into the eye of an economic hurricane, nearly every other “expert” from Washington, Wall Street, the press and academia saw nothing ahead but sunny skies. Now, suddenly, there is an overwhelming consensus that absent the Federal mortgage bailout, my dire forecast would have come to pass. While I’m glad that rose coloured glasses have finally been removed from so many eyes, the vast majority of these observers are still blind. In truth, the bailout plan substantially increases the threats to the U.S. economy. 
 
When I wrote my book “Crash Proof”, I not only predicted that our consumer/mortgage credit-based economy would fall apart, but that the government would ineptly try to repair it. The magnitude of those potential policies formed the basis of my worst case scenario. My fears have now been confirmed, and the U.S. Government is now set to destroy all hope of economic recovery. 
 
Make no mistake; had the government resisted the political pressure to interfere with the markets, we would now be experiencing a very deep recession. But by refusing to let the markets work, policy makers are resisting the only medicine capable of curing the economic disease that afflicts us. The same mistakes were made in the early 1930’s, causing a severe financial crisis to morph into the decade-long Great Depression. 
 
The government will now attempt to keep bad loans from failing and real estate prices from falling. Rather than allowing market forces to rein in excess borrowing and replenish savings, it will encourage even more borrowing and drain what is left of our savings pool. Rather than allowing our economy to return to one based on legitimate production, it will continue to encourage reckless consumption. 
 
In the end, by refusing to allow market forces to work their cure, our economy will inevitably die from the disease. Our economy will now face death by hyperinflation, which will cause a complete loss of confidence in the dollar and result in prices and interest rates skyrocketing out of sight. The evaporation of our national wealth will lead to civil unrest, food and energy shortages, and the possible imposition of martial law. If such a scenario unfolds, what is left of our Constitution will surely be completely shredded. 
 
Although this reality looms as large as anything I have ever seen, investors still do not see the forest for the trees. Convinced that the bailout will actually work, and that foreign governments are derelict for not launching similar plans, global investors are fleeing other currencies in favour of the dollar. Soon investors will discover that foreign politicians and central bankers have acted responsibly. When they do, the current gains seen by the dollar will reverse violently.”

Related Websites

• Revolving Debt and the Economy I was reading cyncurry's article Personal Debt - Is excessive...
• Peter Schiff's New Book: (3) What You Need to Know About Invisible Inflation and The Stimulus Scandal Well so far, I'm just about halfway through reading Schiff's...
• Our Economy Needs More Engineers and Fewer MBA’s In a previous post, I expressed my opposition to a...

Tags: Bailout, Peter Schiffs, Real Estate, UK Banks, US

At what point do we put the Fed and the treasury in front of a judge? No point, the bailout bill protected them from prosecution for ever. They could crash the economy, and they will, and they are exempt from prosecution.

The Fed will fail in its bailout attempt…I’d say it’s pretty clear it’s already failed…markets down near 3500 points and credit spreads widening…the exact opposite of what they said would happen. If alarm bells aren’t ringing yet, give it a few months, this is only the start. The only thing they can do now is to pump more liquidity into the system…its kind of like trying to put out a fire with liquid…but the only liquid they have left is petrol. The thing is, they know its petrol…it’s not a mistake.

They would like you to believe that they are stupid or incompetent and that they didn’t see this coming. Many people will believe them. It’s hard to believe them when their moves have been foretold in print in Marc Faber’s book, “Tomorrow’s Gold”…they’ve acted out the playbook line by line. I’ve been preparing for this for quite a while….since I realised what was happening about 3 years ago.

Every single fiat currency system in history has ended with currency printing presses running 24/7…without exception. Every single one. Hyper inflation follows as the central banks print more and more money, devaluing currencies in lock step as they are doing right now with interest rate cuts…but mortgage costs are going up. The system is now openly broken. If you needed any proof that we are in very serious trouble, there it is. Interest rates and borrowing cost that aren’t linked at all. The most basic mechanism of monetary policy is no longer working. It’s like putting your foot on the accelerator of your car and not going anywhere…the signal that something is structurally wrong is that clear.

The end result of the printing presses is a decimated middle class, mass unemployment and mass bankruptcies as the clear out from the boom days is completed. Buy Gold.

---

For More information on specific Banks use these links

• Alliance & Leicester
• Barclays
• Capital One
• Child Trust Fund
• First Direct
• HSBC
• Post Office
• Tesco Savings

Related Websites

• Laminate Flooring - Is This A Worthwhile Choice? In fact there are a lot of reasons why you...
• Have Gold Prices Peaked? In case you were asleep, last week saw gold break...
• Will Democracy Prevail? Due to massive losses, uncertainty, and loss of confidence, credit...

Tags: Bailout, Banking, Economy, Inflation, Money Markets

75% of oncologists when surveyed said that they would refuse to take Chemotherapy if they were diagnosed with cancer. The treatment kills the body’s’ immune system at exactly the time it needs it most. The oncologists cited the fact that chemotherapy is marginal in its effectiveness and that its toxicity is very damaging to the body generally. It’s is a case of the cure being worse than the disease. I believe the same can be said of financial rescue packages.  Often, their unintended consequences are much worse than the original problem.

The bailouts in the US and the UK and other countries will have negative consequences that few currently understand. The side effect of printing vast sums to help out the financial system will have the effect of creating inflation and lowering interests to artificially low levels. It will cause the currencies to weaken and will stop the natural healing process of the financial system. Now, there are a few questions we need to ask ourselves. Is a higher inflation rate, an artificially low interest rate and a weaker currency in the nation’s best interest? The answer is obviously no. Tax payers will be protected, but savers and wage earners and those on fixed incomes will pay a heavy price for the bailouts. Anyone who holds savings in currencies where massive bailouts are happening will have the value of their savings decimated through inflation. Food will cost more. Oil will cost more. Disposable incomes will fall. It will be more difficult to save, which is really what the financial system needs. Taken to an extreme, we could see hyper inflation and a situation like Zimbabwe or Argentina where we will all be millionaires…living on bread and water.

A smoker cannot stop smoking because the short term pain is psychologically too much to bear for the undoubted long term gains. The result is that the inevitable pain is put off until the day of reckoning comes and the situation requires a much bigger dose of pain. Like the smoker, we should take the immediate pain for our own good. Let the banks fail, let the unemployment rate go up, let interest rates go to the moon, let the market sort it out…it works!

By having “big Daddy” aka the government soothe us now by interfering in a mechanism that they aren’t supposed to be interfering in, we put ourselves in a position where, instead of a few years of a sharp and undoubtedly very painful recession, we endanger our very economic existence.

This way to the coroner.

---

Related Websites

• More Pigs Approach the Bailout Trough The number of failing businesses and industries lining up for a...
• Compound Interest Week: Real Interest Rates of High-Interest Saving Accounts On Monday we learned about how long it took to...
• Understanding Bonds When you invest in a bond, you are essentially entering...

Tags: Bailout, Currency, Financial News, UK Banks, US Banks