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Cheddar, I agree completely. The system is being 'fixed' from the top down when a far better and cheaper solution will be from the bottom up. If UK lenders know that the government is supporting homeowners and small business loans then they can continue knowing that they will not be faced with repossession.
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Why should my taxes be used to subsidise those who have taken out loans that they can't afford?
equitable
That was a whole different can of worms.
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Adverse - a selfish view and it's not only down to people who can't afford to repay loans - confidence in the whole market place has disappeared. If this wasn't done EVERYONE would be affected, including you. Look at some of the comments from those who may have lost thousands due to the Icelandic bank going belly up - this could have happened to any of our big banks within a few days - two lost 50% of their market value yesterday alone, any lower and shares would have had to be suspended leading to a run on the bank.
I was with a someone yesterday who was almost in tears as he spoke to me. He's ran a business for over 20 years, never going to be Richard Branson, but working for himself is what he likes and he's good at what he does. A man with a business rather than a business man.
Never missed a payment on anything, but he's been sucked in due to two main cusotmers withdrawing work. Unit is rented off the local Council who have agreed to defer rent for 1-2 quarters, a small Govt backed loan could see him OK again within 12 months.
As it is if things don't change he'll lose absolutely everything and end up living off the state. You and me will end up paying anyway.
Edited by daveyjp on 08/10/2008 at 09:51
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Some poor soul on TV yesterday, his bank, which I will refrain from naming, has put up the interest rate on his business loan/overdraft from 12% to 16% and this in a week when the main bank rate is likely to fall by .5%. Despicabe!
However, cedit can still be easily be obtained for frivolous and unimportant financial dealings. I went into a large travel agent yesterday to obtain one of their credit cards. After 5 minutes having some personal details put into their computer I was given, within 60 seconds of the agent pressing "Submit", a card with a £10,000 credit limit!
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>>Look at some of the comments from those who may have lost thousands due to the
>>Icelandic bank going belly up
They were happy enough to accept interest on their bank accounts of in excess of 7%. Why did they think Icesave was being so "generous"? There's no such thing as money-for-nothing. Never has been. Never will be.
>>a small Govt backed loan could see him OK again within 12 months.
So he's been running a business for 20 years, and hasn't thought to save any money in order to see him through possible bad times?
>>"A man with a business rather than a business man."
Clearly. Why should the Government invest in that sort of a business with somebody who is self-confessedly financially naive? The odds of the loan's being repaid...?
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>>The odds of the loan's being repaid...?>>
Well he has stayed in business for 20 years and it could probably be secured.
I think the markets are presenting their opinion, FTSE down 7% as of 09:15, Barclays down 17%.
Edited by cheddar on 08/10/2008 at 10:17
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>>I think the markets are presenting their opinion,
HBOS up 17%, quite!
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>>I think the markets are presenting their opinion HBOS up 17% quite!
HBOS is a fraction of what it was a month ago, its rise today will be because of the gov investment making the Lloyds take over more likely.
Edited by cheddar on 08/10/2008 at 10:50
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>>its rise today will be because of the gov investment making the Lloyds take over more likely.
Or, actually, possibly less likely. It might well be able to stand on its own two feet now.
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Or actually possibly less likely. It might well be able to stand on its own two feet now.
It seems that the BBC's Robert Peston might agree with you:
www.bbc.co.uk/blogs/thereporters/robertpeston
I think the truth is in the middle, the HBOS share price rise is because the banking sector per se is more secure today though while sector value is still an issue due to needing capitalisation HBOS had already taken a much bigger hit than the others.
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HBOS up 17%, quite!
And rising fast.
To avoid problems of anti-competitive claims, Brown-Darling's bail out is forcing Banks that don't need the money to take part.
For example, HSBC has a lot of funds deposited with it by Chinese savers is very solidly capitalised. Its share price was about 900p a year ago and is about 900p this month.
In contrast the other UK banks have lost value in leaps and bounds over the year.
RBoS thought it had out-manoeuvred Barclays last year when it out-bid them to take over ABN-Amro.
The irony is that LLoyds was quite solid until it was persuaded to take over Halifax-BOS which is tainted by toxic UK mortgage loans.
Similarly Barclays was fine until taking over Lehman Brothers tainted assets.
The worry is that all this intervention by the UK Govt and Bank of England will leave them having to borrow from the Chinese, and the Chinese have no more left to lend. If/when the Chinese savers start a run on HSBC in China and Hong-Kong, that is when the UK will be faced with the same fate as Iceland.
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I've dealt with similar small businesses for most of my working life.
In reality most of them are no more than hand to mouth operations making very slim profits.
When times are good cash goes to clear debts built up when the times are bad, or they are putting cash into the business to make it more successful- they don't squirrel it away as that won't help the business grow. Small business owners aren't interested in just money, they are interested in running a business.
In 2001 when he moved to a larger unit he took on two members of staff who were unemployed - so that saved you and me some cash - and invested in more modern machinery - exaclty the right thing to do at the time.
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Clearly. Why should the Government invest in that sort of a business with somebody who is self-confessedly financially naive? The odds of the loan's being repaid...?
I think this is what a lot of people fail to understand about the world of 'business': most small businesses are not high finance operations or 'Dragons' Den'-style innovators looking to make a quick 10 million and nor should they be. Many people with businesses are not trying to make huge profits or get rich, but simply make a living. It's no different really from going out to a 9-5 job, only the risks are higher; these people choose to do it this way because it suits them to work for themselves rather than for someone else and because there is no other way for them to get to do the work they are good at. They are the small-scale craftsmen and bespoke fabricators and niche creative folk. The money--as long as they do ok--is really secondary in their decision and when they stop working the business will fold.
Maybe this guy has personal savings, or maybe, like most people, he's just been earning enough to get by. Maybe he stuck with it too long, hoping it would provide something for the future--investing his time rather than his money--and then it was too late to get out and do something else. Unlike an employee he won't get redundancy pay or any kind of compensation if his business fails because he took all the risk himself. People like that are essential to any economy because they make and create things that could not be created any other way--bigger, less 'naive' businesses would call them uneconomic. Being mean about it really isn't fair. In any case, it seems to me that the most glaring and disastrous case of financial naivety we've seen recently hasn't been at the bottom of the business pile, but at the very top, where the compensation is going.
I agree with you about the Icesave--you make choices and take risks and have to take the consequences--but this comment is just nasty.
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... most small businesses are not high finance operations ..
Indeed. Most of them are not "businesses" at all but are similar to the subsistence farmers you find in the 3rd world. Their aim is just to earn enough to survive another day.
.. disastrous case of financial naivety we've seen recently ..
I think the naivety has been the belief in the Western economy that:
1. it is fine to spend, spend, spend and borrow, borrow, borrow.
2. house prices keep rising exponentially.
3. the concept of boom and bust was single handedly exterminated by Gordon Brown.
Regarding point 1, we see evidence of that in this forum now and again when backroomers
either - seek advice on buying cars on finance
and/or - ignore advice on buying a cheaper used car which would meet all their needs by a long way.
p.s.
www.telegraph.co.uk/news/worldnews/asia/china/3156...l
Edited by jbif on 08/10/2008 at 11:28
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A quick note from someone that is involved in a Dragon?s Den style investor backed business.
We?re not all in it for a quick buck, although obviously we hope to make some significant money out of it eventually. My company (won?t say names for obvious reasons) is developing a cancer related medical product that has potential to save many lives and save hospitals a lot of money. It?s a high tech, high development cost item, and we?ve raised well over a million in backing to help us develop it.
Given the way we operate, our cash burn far exceeds our income (for the moment). As we raise money in tranches (seriously hard work at the best of times, believe me) we have large amounts of cash to put somewhere ?safe? from time to time.
We had (have?) a significant six figure sum deposited in Kaupthing for safekeeping. A decent interest rate adds to the length of time we can develop things before having to go back to investors, and the investment seemed safe: the Icelandic banks were well capitalised and completely safe, or so we thought.
As of today we have no idea where we stand. The money was locked in for another month (the price you pay for decent interest). Even when we were worried at the beginning of the week and checked, there was no way of withdrawing no matter what penalties we paid. That?s the deal. Fair enough.
Now, we have no idea where we stand. If we lose the money then it?s all over ? we?ll go bust immediately to try and return as much cash as possible to our investors (and that includes hundreds of thousands of our personal cash and that of our families - all my savings have gone into the project). It?s not clear if the money is protected, if we might get £50k back, or if it?s all gone. Nobody seems to know, but it doesn?t look good.
What?s my point? Well, not sure really. I don?t think you had to be naive to fail to realise the scale of the approaching storm, and I don?t think it was just the greedy that got caught out. Two weeks ago all three Icelandic banks failing would have seemed almost impossible. Putting the money in there wasn?t greed, it seemed like a rational way of protecting the cash and making meaningfully large sums on interest to extend our lifetime. Well, hindsight is 20:20 isn?t it?
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Now, we have no idea where we stand.
GM - are you covered by this?
www.hm-treasury.gov.uk/press_102_08.htm
it seemed like a rational way of protecting the cash and making meaningfully large sums on interest to extend our lifetime
I sympathise, but also note that ever since the collapse of Christmas Savings club Farepak, but especially since Northern Rock, most money saving advice websites have generally carried a warning about the limit of your protection under different banks.
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jbif,
Thanks, but sadly not. That is the UK retail arm of the bank, we were with Kaupthing proper and had made a wholesale deposit, but our turnover is less than £1M so we qualify for the same protection as a private saver. It is very unclear how we will be treated.
Ironically we went for this because it looked safer than UK banks - the liquidity situation looked rather good until very recently. I was much more worried about our short term funds in RBS! You live and learn.
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jbif, it appears that I said no to your query too soon. We have just had it confirmed by the FSCS that we will be reimbursed in full. The type of deposit has been ruled not to matter - we are small enough to be covered as a retail depositor.
I cannot tell you how relieved I am. Thanks to everyone for the kind words, and rest assured, we will be spreading our money around the UK banking system from now on.
G
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Gordon M.
Commiserations, that's a grim place to be and I hope you can work something out.
Over the last few years I have had some professional dealings with a company (a plc) that lost support from its bankers this summer. I doubt it was the only one, but for those involved it was pretty clear even in June/July that HBOS had a problem and that it wasn't alone. This wasn't a matter of insolvency either, but operating funds. That company has survived in a new, slimmer form, but the signs of this have been around for a while.
The problem is that nobody--not the banks, not the financial journalists, not company directors, and certainly not me--were willing at the time to suggest publicly that a major bank was in trouble. As a result I expect there are many people in your position. In the months leading up to this crisis there must have been a lot of people keeping some very big secrets, or at least not saying what they thought. In a sense that's also a failure of the market. With perfect market knowledge we'd have had a run on the banks a year ago.
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Davey
I would rather the government put my money into providing secured loans to increase liquidity than give it to people who can't pay the mortgage.
That might not make me popular, but the continual propping up of the over inflated property market is one of the reasons for this mess.
Too many people and businesses have been living on the never-never for too long.
Edited by adverse camber on 08/10/2008 at 14:42
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Support should be given to families ......... that are struggling with mortgages .......
Mortgage rates these days are comparatively low. I can remember paying 14% in the 1970s, and I think some people payed as much as 15%. We just accepted that it was the going rate at the time. tinyurl.com/3ft92b
Edited by L'escargot on 08/10/2008 at 10:31
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A hypothetical scenario:
As a business (v.small private limited company), we have no protection of any of our bank deposits (unlike individuals who have the £50,000 guarantee).
Say we have a loan for £30,000 and we have £15,000 in a deposit account with the same bank, (very unlikely I know, but it could happen). The bank goes bust and we "loose" the £15,000. This would not be offset against the loan and we would still owe the liquidators the original £30,000 we borrowed!
Work that one out!
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Nick, if you turn over less than £1M you have the same £50k protection as a private saver.
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Nick if you turn over less than £1M you have the same £50k protection as a private saver.
Thanks GM. Do you know where I can get official info. regarding this? My accountant was not aware of any protection when I spoke with him a month or so ago, but times are changing pretty quickly!
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Nick,
I'm surprised your accountant didn't know about this, given its potential importance. the protection is quoted by Martin Lewis at tinyurl.com/yr6r8o but for absolute confirmation you would need to check with the FSA.
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How come all of a sudden the financial experts know what the banks have done wrong. If they'd expressed their opinions a few years ago perhaps we wouldn't have the crisis that we now have.
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Hindsight is 20:20. Seriously, I'd be a millionaire by now if I knew what I know now 2 years ago. And I don't mean market movements, I just mean that once you know the effect, then the wisdom (or not) of the cause is very obvious.
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How come all of a sudden the financial experts know what the banks have done wrong. If they'd expressed their opinions a few years ago perhaps we wouldn't have the crisis that we now have.
The problem is that anyone with any authority knows that they could cause panic by saying the wrong thing. Many company directors--just like buy to let landlords and 'I can't believe this is happening, it's so unfair!' five times salary homeowners--were too busy thinking about the money they would make to think too hard about the risks. Paul Mason on Newsnight has been going on about the Credit Default Swap market for at least a year. That's unwinding now as well. And let's face it, around the time of Northern Rock this time last year, the banks stopped lending money to one another. At that point they knew the game was up and all they could do was cross their fingers.
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I am sorry to hear of Gordon M's plight and cant offer any worthwhile advise at present though if anyone needs cheering up then Bird & Fortune are worth a listen:
news.bbc.co.uk/1/hi/business/7659334.stm
The last line being most apt!
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