Paging the financial spodkins.

A curious thought just struck me.

This whole Northern Rock shambles, they say on the news that £1300 per
tax payer is what's keeping it afloat. But what actually makes that
money real?

We all accept the concept of money when it's in our bank accounts and
wallets, it's a local convention copied the world over. But, where money
is really just an intangible figure what's to stop a government getting
their national Bank to simply invent them up some more cash as it's
needed?

More to the point, is that actually what they do?

Thinking on an international level who would know if another country was
just making it all up?

 

Isn't that what the Merkins are doing to pay for Iraq?

 

I've no idea, but lets assume so.

So, the government puts the money into the system, it feeds down through
the people, and the government hoover it up at the other end, by means
of the nations banking system.

The total amount of money in the system can be a completely made up
figure, so long as it ensures nation full of wage slaves behave in a
predictable manner.

What a brilliant concept that really is.

 

Sounds great, until you look at what it has done to the value of the
dollar on international money markets.

 

Foreign exchange rates and inflation.

One of my widgets is worth two of your thingies. Suddenly, you've got
twice as many thingies, but they're still only worth the same total
amount - so now one of my widgets is worth four of your thingies.

Yep. The classic example heads towards Godwin, but Zimbabwe's doing a
fairly decent job of bringing it up to date.

If the country trying it on is anything other than totally isolationist,
the international financial markets will be wise to 'em before they're
even out of the top-secret meeting chuckling to themselves.

 

The US seems to be moving towards the "If you've got gold, you can always
get guns - if you've got guns, you can always get gold" model.

 

I still prefer Homer Simpson's "First you get the sugar, then you get
the power, then you get the ladies."

If only I had more sugar.

 

from another place (uk.media.radio.archers):

Our investment in Northern Rock is actually not a bad idea.

1. The Bank of England is charging a higher rate of interest than if NR
borrowed in the market (it can't because no one else wants to lend to it).

2. The accounts show that Northern Rock has huge reserves which will
only be slowly depleted by the higher interest costs it is now bearing.

3. The Bank of England has secured the loans against the mortgage
assets of NR and will get all its money back if and when there is a new
owner (otherwise we would be contravening the EU state aid rules).

So the BoE is making a nice profit out of NR with no chance of losing money.

Great game this banking business - how do I join?

 

the fact that the treasury/bank of england has nominally offered to
lend them that amount, repayable initially at the base rate, and with
the premium rolled up into a future payment[1].

Anyway, no **** in their right mind will buy them. I expect Virgin to
make an offer any day soon.

[1] that might never happen.

 

Doesn't that **** up inflation, just 'inventing' money..?

D.

 

No. Inflation of the Reichsmark (sp?) was due to a Jewish conspiracy.
Nothing to do with Schicklegruber (sp?) spending money he didn't have.

 

**** off, Blaney.

Oh ..

D.

 

Sorry, Des, couldn't resist.

 

Eh? They already did over the weekend, according to the usual
newspapers.

I was quite amused when some people talked about how these offers
"undervalued" NR. FFS, for all intents and purposes it's a bank that
would've got tits up if the both the Treasury and the BoE hadn't
stepped in. So obviously you expect someone who's flush enough with
cash (and not many companies are in the currently climate) to pay more
than pennies for this kind of business?

 

Yeah, in the same vein as BL wasn't.

Yes, but that's not the end of it. Lending at that kind of interest
rate and getting the money are two very different pairs of shoes; From
what you hear some "suitors" are/have been trying to make their offers
conditional on the BoE either extending said loans a lot further or
waiving the interest or both.

Where did they find those then? If they *had* said reserves then there
wouldn't really be a need for them to borrow money, especially at the
punitive interest rates they're currently being charged. They don't,
they have some assets that they are using for (3), but the majority of
the old business was parceled up and punted out on the financial
markets. Much like subprime mortgages. At the end of the day, that was
their business model - shift the loans and most of the risk through the
bank as quickly as possible. And then one day someone found that the
toilet was clogged and not much, if any fresh money was coming in.

Weeellllllll.

As I mentioned before, there seem to be some people who'd rather get
the terms extended or the interest waived. The above is the ideal
scenario but assuming that NR doesn't find a buyer or not quickly
enough, want to take a guess what's going to happen?

Not to mention who's going to pay for it?

Yes. Right. Sit back and think this through again. So, the lending from
the BoE to NR is secured on what? And if NR goes tits up, just *how*
much is this security going to be worth?

I wouldn't be surprised that unless they sort out this business rather
sharpish and either punt out NR quickly and profitably (which I doubt),
some people will find that they've got a mortgage with the BoE.
Figuratively speaking of course.

And *that* will be when things get really interesting - how are you
going to shift 20+ billion's worth of mortgages that a commercial
lender couldn't?

I would suggest that at this point, the whole thing stops being amusing
very quickly.

Trust me, you don't want to if you couldn't see the tiny little holes
in the above scenario.

 

have they? Ah - I wasn't paying any attention to the news at the
weekend for various reasons.