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The economy is not rosy...

Most people have been borrowing and spending freely believing in continued growth. Government and the financial markets insist that the economy is
healthy and that there shouldn't be any concern. So called experts continue
to entice people to borrow and spend without regard to reality.

Most people think governments will step in and save them if there is a
problem. To an extent this is true in that Europe's Central banks lent $212
billion to banks to ease the liquidity problem and now Britain is doing the same. If not done, the banks could
have gone under. The US
Federal Banks have done the same. In the end it will be the nation's middle
class and the poor who will pay.

Banks, corporate management and government continue to lie in an attempt to
hide the facts. As the situation worsens with sub-prime mortgages, banking,
and trade deficit problems, the 鈥渆xperts鈥� continue to say that the worst is
over and things are improving. This is nonsense and deceptive. The deception
may be deliberate based on the concern that acknowledging the problem may
bring panic.

In August, William Poole, president of the US St. Louis Federal Reserve Bank,
stated: 鈥�...no one has called up and said the sky is falling. It's premature
to say this upset in the market is changing the course of the economy in any
fundamental way.鈥� What was interesting was that the next day the US Feds cut
the interest rates. Did this mean that there is a problem but the fed
doesn't want to acknowledge it?

The sub-prime mortgage problem is part of a bigger problem, the U.S. trade
deficit. The U.S. trade deficit for the last 12 months was $827 billion.
America's poor and middle class can no longer afford to spend since most of
their income is going for inflated fuel and food costs.

The US median income for the middle class, in real terms, has fallen for
three years in a row. Many now have to work harder and longer to keep-up
with rising prices (healthcare, energy, education and housing). The
situation worldwide will only worsen. Other countries have significant
unemployment Spain(8%), Germany (9%), Belgium (10.5%), France (8%), Greece
(8.4%), Turkey (11.4%). And others will see an increase rather than a
decrease in their unemployed.

High unemployment will worsen budget deficits and decrease consumer
confidence, which in turn will compress economic growth. The situation is
not "rosy" as the experts are saying. The US economy is not healthy and
unless existing problems are addressed, we will have a severe recession.

Please ask your experts on Newsnight - If the worst happened and Northern Rock went under, if for example a Saver lost 拢20,000, how much of this would be covered by insurance?

Yes - I agree absolutely with William Murray's post (1.20pm). The point is, it's ALL been "smoke and mirrors" - and now the smoke's been blown away, and the mirrors are cracked. The "greed is good" mantra from the 1987 movie, 'Wall Street', was supposed to be satire. What was a parody then has now become the paradigm! How extraordinary that because John Doe in the USA (with whom we are standing 'shoulder to shoulder') can't pay his mortgage, then this threatens Western Civilsation As We Know It (or have come to know it). Even Osama Bin Laden hasn't managed to do that yet - he doesn't need to, we appear to be more than capable of doing it for - and to - ourselves !

It is all very well telling older pensioners that there is 'no need to panic'. Who can blame them, when some of them are old enough to remember [if at second hand] the effects of recession ?

They know better than we 'youngsters' [using the term loosely] that while there may not be a reason to withdraw their deposits, if other people start to believe there is, then a self-fulfilling prophecy can be realised very quickly indeed.

This may blow over for Northern Rock in a few days, especially if a 'friendly' UK takeover can be engineered behind the scenes.

But if not, and another bank goes the same way next week, it will be tricky to persuade some wise old sages, who know that 'what goes up, must come down', that this isn't the first of the dominoes to start falling..

Northern Rock bosses keep saying it's business as usual today. I have been trying to log on to the internet bank since 11.00pm last night (Thursday)without success. For a while today there were messages requesting patience and assuring customers that all transactions would be processed. Now (2.30 pm Friday)the site is down altogether. Is this because they can't cope with the volume of customers wanting to log on or is it the bank preventing it's on-line customers from withdrawing their money? Customers want to withdraw their cash because they do not trust bank executives. We know that despite the current assurances and calm words, if the bank went under, we not they would suffer financially. They have already taken their large salaries and bonuses.

Northern Rock problems have been caused by LIBOR difficulties which in turn have arisen through the possible collapse of an important property funding American Bank.Should it not be an obligation for all UK banking institutions to file an account at weekly or other periods to the F.S.A which shows their transactions above a certain level involving purchase of debts from non UK sources. ALEX POMEROY

I'd like to know how many other UK financial institutions rely on borrowing money on the international markets to finance their lending (all of them?!). I find it hard to believe that Northern Rock are alone in this.

Interesting to see how the 'herd' mentality can kick in very quickly.

I am absolutely not saying that the people withdrawing cash are being silly - merely that they are following human nature.

When the 'petrol price' protests happened, loaves of bread were hoovered off the shelves by people who initially were sanguine but, when they saw others being foolish and buying half a dozen loaves, thought 'Well I'm not going without my morning toast just because some other eejits are being greedy..'

And it happened again with the water supply to the flooded areas..

You see, Northern Rock's CEO saying 'We are not a sub-prime lender' may be factually accurate, as they have a broad business base, but it might just carry a bit more weight if they didn't have 'Open for sub-prime business' as a big banner on their website..

Maybe we should scrap tonight's 'Newsnight Review' and ask 成人论坛2 to have a late night showing of Jimmy Stewart in 'It's a Wonderful Life'..

dear newsnight

recently a bank manager wrote agreeing to refund what seemed to me entirely spurious current account charges , sternly advising that this had been done 'on a one off ' basis

mais oui..until the next time, methought

viewers in any doubt would do well to remember that these occasionally arrogant institutions cannot survive without us - rich or poor

over simplified, but will these do ?

1. what is the likelyhood of , say , coutts - the anglo irish bank - the abbey national - going belly up over the next year or so ?

2. if a bank were to fold , what is their liability to clients, exactly?

3. where would folded banks find the lolly to re-imburse savings / deposit account clients ?

4. would banks be liable to pay back the amount in full ?

5. how soon would they be liable to pay it back ?

6. if there were a time delay , would the bank also be liable to pay interest at the bank of england base rate ?

pip pip , AB

Dear Sir,
Northern Rock Saving Website has been down all day- their phones are always engaged- Their E mail response is unhelpful.
We cannot access our money. Is this a sign of things to come!

Maybe I'm to cynical, but are the banks just trying to close out their opposition so they can then take them over?

Today I rang up Scottish Widows, in which I have rather a large nest egg in a savings account (partly as a result of a redundancy payment), to check how much I would get back should it fail. The helpful lassie on the line said it's in full up to 拢2,000 and then I think 90 per cent up to 拢33,000 and then nothing. But she assured me its financing structure is quite different from Northern Rock, and that anyway it is backed by Lloyds TSB. Please ask the experts: it is now (and more than before) seriously imprudent to have more than 拢33,000 saved with one institution and should one transfer the excess elsewhere? Or is there no reason to worrry?

if northern rock does go under does this mean i do not have to pay my morgage back

The questions are above are super clear in my eyes.

What - exactly - happens when a banks folds?

Of course, important information like this is on every school's curriculum ...err I don't think so.

Maybe even a special educating the population on how these private institutions work?

Thanks.

It seems to me the cause of the problem lies in poor assessment of the risk of the US mortgages being unpaid. Isn't this down to the actuaries or somesuch who packaged these mortgages? Those who bought these instruments secondhand were relying on the original correct assessment of risk and they and we have been cheated as a result. Let that be put right and the instruments are trustworthy.But those who bought them should have known better ,and ensured the sources of the loans were trustworthy.

Michael W Thomas

There is no easy way out of this.

The Central Banks will prop up the system and preserve the status quo for as long as is possible.

On the other hand, house prices are now so high that there are now very few first time buyers.

Starter home prices have been sent through the roof by the boom in buy-to-let mortgages. The buy to let lenders will be the next to buckle.

Turn the clock back to 1999. Two people on minimum wage could buy a two bedroomed terrace for 35,000 in my part of the world. The same property now sells for 拢100,000 and the minimum wage has stayed more or less the same.

The Market is telling the banks that prices need to fall. The system is cheating at the moment because negative equity, foreclosures and defaults damage the derivatives market that the debt has been sold into.

Expect a devaluation of currency very soon when all of this extra bank borrowing goes through the system and becomes major inflation.

According to one pundit 'there is no actual problem with the banks loan book, every one would get their money back in the event of a default.

Northern Rock is trading at just 4.5 times p/e multiples which given that the only problem is the short term liquidity crisis makes the company an outstanding takeover target for a cash rich financial operation

Northern Rock apparently supply some 23% of all mortgages in the UK and if this disappears [through a takeover] and the other banks pull back we could be looking at a 50% reduction in new mortgage lending.'

SO NR and its business model [of using borrowed money rather than savings] has been a powerhouse driving the uk housing market. NR won't go under but the housing market might now drift.

On a lighter side when it was thought Napoleon was about to invade England there was a run on the Bank of England that was stopped by only paying out in copper coins. Anyone who remembers the old big penny will know how heavy a bag of those can be.

If Northern Rock was bankrupt, the holder of a 拢100,000 deposit would get back 拢31,700. The holder of a 拢100,000 mortgage would be legally obliged to repay it all, with interest. The run on this Bank is best understood in terms of a lack of trust by people in Banks generally. They have been shown to be unscrupulous in business practices designed to earn massive profits. The banking charges saga provides evidence of this. Banks are notorious for using small print to hoodwink customers into terms and conditions which are essentially dishonest. Successive Governments have failed to protect consumer interests and the public interest in the regulation of banking and financial services generally. Few doubt that this sorry mess will be paid for by consumers or the taxpayer, in one way or another, and that higher interest rates are on the way.

It is now almost 4.30 am on 15th September and I have been trying unsuccessfully throughout the night to access our on-line savings account with the Northern Rock. The bank is asking its members to be patient, as the site is busy, but I am increasingly thinking that customers are being 'locked out' - as part of the bank's strategy. Queues out on the street are highly visible but the likes of us are not.

Why has no one mentioned that Northern Rock is a member of the Financial Services Compensation Scheme and even if they were to fold (no reason other than public panic why they should)all customers would get back 100% of the first 拢2000 of their savings and 90% of the next 拢33,000.

Access. Not only is there no access to Northern Rock e-savings I believe there is a lock down to prevent withdrawals. Unacceptable.
There is little faith in the assurances uttered by Darling, Northern Rock and others.
The word 'Access,' or 'Easy Access' will no longer be seen as a certainty.
Just as Equitable Life chose to change the meaning of the word 'Guaranteed' Northern Rock will inevitably change the meaning of the word 'Access'.
Other e-savings providers should beware.

Strange how the recently discovered species 鈥渟ub prime鈥�, who, having no political or financial clout, to the extent that, presumably "prime" politicians could not keep the jobs on which "sub prime" depend, to meet repayments, (which, apparently, are the foundations on which world economics sit), in their home Country.
As politicians allow 鈥渟uper primes鈥� to chase even higher status, by moving manufacturing etc to cheaper countries, it surely is not a surprise that mortgages cannot be repaid. Sub primes are forced to, and encouraged to commit to mortgages, which are on the limits of affordability. Forced to because council building is virtually none existent, and apart from living with parents for a very long foreseeable future, or paying private rents, which come close to making the difference between renting and taking out a mortgage mostly non-existent. Encouraged to, as the number of new households, vying for the small numbers of housing, pushing up bottom end prices, presumably helping up the 鈥減rimes鈥�. None of these mortgages are taken out on the basis that they, at some point, are not going to be paid. All this talk about 鈥渟ub prime鈥�, ignores the question at what point if any, do the 鈥減rime鈥� mortgages come under pressure, and what then will be the outcome?
Surely 鈥減rime鈥� politicians are already working, so as not to allow this to come about? Could it be they come to the recognition that, rather than ensuring profitable banks are in a secure operating condition, they create the conditions that allow 鈥渟ub primes鈥� to meet the commitments they, in the main, thoughtfully and honestly, if nervously, undertook? Wouldn鈥檛 everyone then be a whole lot less nervous?
Possibly a na茂ve, uneducated, and unsophisticated, nevertheless hopeful viewer, dispassionate about the effect, passionate about the cause.

Cameron and his running dog Osborne jumping on the bandwaggon and blaming Brown-makes a change from Blair!
Most of the comments above conveniently forget that the rot set in in the early 60's when banks touted for accounts persuading that the workers/firms/businesses would be better off not recieving cash in hand, as I did when I first drew my monthly salary. Once they got our money then the next 40 years has been spent on us getting us hooked on credit as an easy way for them to make money by excessive rates of interest.
When that ran out, the last 20 years has been spent, started under the Tories (which Osborne has forgotten) where banks lent us money we could not afford to pay back. Everything on credit not cash.

Now all those panicking are realising that the whole industry is built on money that does not exist. When 80% of the wealth of this country is made in the City of London, that should tell you something?
With prices and interest rates rocketing as we are now finding out as they outstrip wage awards (except for the rich and speculators), we had just better batten down the hatches and put your assets in gold!!