Comments on: Northern Rock: Endgame and Collateral Damage http://www.nakedcapitalism.com/2007/09/northern-rock-endgame-and-collateral.html Mon, 23 Nov 2009 00:58:00 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Yves Smith http://www.nakedcapitalism.com/2007/09/northern-rock-endgame-and-collateral.html#comment-865 Yves Smith Mon, 17 Sep 2007 16:20:00 +0000 http://www.nakedcapitalism.com/2007/09/northern-rock-endgame-and-collateral-damage/#comment-865 The very high concept answer is that these vehicles were designed to be off balance sheet and were crafted so as not to be subject to bank capital requirements. <br/><br/>The flaw in that logic was twofold: first, in some cases, like German bank IKB, the parent provided backup lines of credit to the off balance sheet vehicle, so these transactions were hardly arm's length. <br/><br/>And in others, we may be witnessing the Bear Stearns syndrome. Although Bear owned the hedge fund management companies of its two troubled hedge funds, technically they were separate entities. Bear should have been able to allow them to fail. However, its creditors howled and Bear decided to intervene in part out of concern for its reputation. The very high concept answer is that these vehicles were designed to be off balance sheet and were crafted so as not to be subject to bank capital requirements.

The flaw in that logic was twofold: first, in some cases, like German bank IKB, the parent provided backup lines of credit to the off balance sheet vehicle, so these transactions were hardly arm’s length.

And in others, we may be witnessing the Bear Stearns syndrome. Although Bear owned the hedge fund management companies of its two troubled hedge funds, technically they were separate entities. Bear should have been able to allow them to fail. However, its creditors howled and Bear decided to intervene in part out of concern for its reputation.

]]> By: Anonymous http://www.nakedcapitalism.com/2007/09/northern-rock-endgame-and-collateral.html#comment-861 Anonymous Mon, 17 Sep 2007 10:16:00 +0000 http://www.nakedcapitalism.com/2007/09/northern-rock-endgame-and-collateral-damage/#comment-861 anyone got some good ideas on this?<br/><br/>The insurance patch (AIG etc) got shot for managing its reserve/capital ratios ( and earnings to a degree) with off balance sheet vehicles and structures. <br/><br/>Why has the banking patch been allowed to do what is materially the same, just on a much larger scale?<br/><br/>Are these the same regulators or is planet banking different?<br/><br/>Answers on a postcard please?? anyone got some good ideas on this?

The insurance patch (AIG etc) got shot for managing its reserve/capital ratios ( and earnings to a degree) with off balance sheet vehicles and structures.

Why has the banking patch been allowed to do what is materially the same, just on a much larger scale?

Are these the same regulators or is planet banking different?

Answers on a postcard please??

]]> By: a http://www.nakedcapitalism.com/2007/09/northern-rock-endgame-and-collateral.html#comment-856 a Sun, 16 Sep 2007 13:45:00 +0000 http://www.nakedcapitalism.com/2007/09/northern-rock-endgame-and-collateral-damage/#comment-856 Interesting that no country in Euroland appears on the chart. Is this an oversight or were these countries all especially prudent? Interesting that no country in Euroland appears on the chart. Is this an oversight or were these countries all especially prudent?

]]> By: Anonymous http://www.nakedcapitalism.com/2007/09/northern-rock-endgame-and-collateral.html#comment-855 Anonymous Sun, 16 Sep 2007 12:20:00 +0000 http://www.nakedcapitalism.com/2007/09/northern-rock-endgame-and-collateral-damage/#comment-855 Just shows how how wide the disparity between govt's own assessment of its credibility and competence and the view of its citizens. <br/><br/>Quote re: Applegarth: "I'm naturally clumsy. When I was in the branch, the silent alarm used to be by my feet. You could guarantee that I'd hit it every day but I wouldn't know until PC Plod came in"<br/><br/>http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/14/cnrocksos214.xml<br/><br/>Looks like the bugger put his foot on it for the last time.<br/><br/>Really the whole episode needs a good investigation because all sorts of contradictory information is floating around on whether funds were needed or not how much etc. Have they really only mortgages as collateral? Have they sought outside buyers/investors? What courses were considered before going to BOE? What funding have they tried to raise? Did they/why did they fail to do so? If its CP what are the maturity schedules amounts etc. What happened Aug 9th and in intervening period except for the foot? Just shows how how wide the disparity between govt’s own assessment of its credibility and competence and the view of its citizens.

Quote re: Applegarth: “I’m naturally clumsy. When I was in the branch, the silent alarm used to be by my feet. You could guarantee that I’d hit it every day but I wouldn’t know until PC Plod came in”

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/14/cnrocksos214.xml

Looks like the bugger put his foot on it for the last time.

Really the whole episode needs a good investigation because all sorts of contradictory information is floating around on whether funds were needed or not how much etc. Have they really only mortgages as collateral? Have they sought outside buyers/investors? What courses were considered before going to BOE? What funding have they tried to raise? Did they/why did they fail to do so? If its CP what are the maturity schedules amounts etc. What happened Aug 9th and in intervening period except for the foot?

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