Bear Stearns - anyone else worried? Any thoughts or predictions?

[Callisto]

I must admit that this has got me quite worried and the effects are being felt globally as the Asian stock markets have fallen. What does everyone else think?

We are in rented and it is grim when you are used to having your own place but will be worth it to be mortgage free.We offered 250 for a place last week that was on with a guide between 275-285.It was turned down point blank and is on rightmove today at 250?!?!?!weird

twinkie1- I think you misunderstood your DH. Hedge funds tend to have LOTS of leverage (debt).

I am not as certain as he is about how safe large banks are.

All banks borrow to meet their short term obligations. Normally, you would expect them to have matched the duration of their assets to that of their liabilities, but as the case of Northern Rock shows, this is not always the case.

not sure I agree that house price fall is a good thing. A correction is due, it is over-priced. Fine. If you have the income to move up the ladder during a recession that's great, but you will have more trouble finding a buyer for your old place. With wage stagnation, less job security and inflation is rising too this means less disposable income and nervous picky buyers. It sounds good in theory, but for most people that won't be the reality. I don't think we should wish for a house price fall because it will be symptomatic of a much deeper economic problem if it happens

Are banks with high ratio deposits to loans like nationwide seen as safer?

I am not in finance but what worrys me is for the majority of people, we work hard try to save a bit and get given advice as reliable as you could get from a dodgy guy in a pub,
Remember

1. endwoments - payout to cover mortgage and a pot of gold at the end , didn't mention shortfalls
2. Come out off public sector pensions have a private one oops we missold you that one.
3. Put your money in a compay pension - Robert Maxwell ships sails off with your money
4. Final salary pension schemes, the bizz hang one while we move the goalposts
5. Invest in property you can't rely on your pensions hang on for a 15% correction

etc etc etc

Most people just try their hardest but based on the above will probably end up with nothing, so hey maybe you should just spend your money at least you'll know what your doing with it and not line the pockets of these so called experts how do seem to have a clue on how to look after it.

Hedge funds are market opportunists - they see/make gaps in the mnarket and use the assets of other financial institutions to exploit these gaps in the market...

Did anyone see the programme on Channel $ the other week or so delving into the whole collapse of Northern Rock and sub prime markets in US/UK..

The scary thing is that the govt and regulatory bodies like the FSA are aware of these dodgy products, but never act in time or it suits them to turn a blind eye...

GryffinGirl - there will always be a buyer for any decent home, at the right price. But in a falling market, it is probably wise not to use bridging loans to buy a new house before selling the old one.

I agree that house price falls are not entirely and necessarily good news. But hyperinflation of house price increases is a really terrible thing, since nothing was done to prevent it, a correction is now necessary.

Without a dramatic correction there will be huge social implications as the UK becomes a more and more unequal society due to the house price boom that has already happened.

It is already happening we have no power over it.It has nothing to do with estate agents and sellers they can set an asking price but in teh end the banks and surveyors will control the market

it has made me and dh wonde whether we should spread our money

we'e out of the housin market atm and so have our assets in a savings account (with one institution) (it is AAA rated, but still...)

This is what my DH has to say about it all as I am a finance wally!

It only gets really bad when the value of your house falls below the outstanding on yr mortgage?.so if our house fell to 300k then if we sell it for 300k we still have to find 30 grand to pay back the mortgage company. In that respect you basically got to sit it out, pay the mortgage or take the loss. Yeah the next house we might buy is cheaper for sure but you?ve still got to fund the shortfall if you sell below your mortgage level. So it will really effect those with massive LTVs (loan to value of say 90-100% where any move down in house prices means you?ve lost money). A cooling of in house prices isn?t the end of the world and I would say a full scale crash is unlikely as there is a structural shortage of housing in this country. Wouldn?t go buying too many flats for rental income tho?

She?s totally wrong about Northern Rock. They are nothing like Bear Stearns or Carlyle. NR probably have the least risky lending profile on the planet in respect of their mortgage book. NR?s mortgage book is essentially prime (i.e. people borrowing typically 2-3 time salary with good credit history)?.however their over- reliance on wholesale funding though was high ? i.e. they were c.70% reliant on other banks lending to them, not millions like me or you putting our 500 quid in a bank. When they issued subordinated (i.e. last in the queue if the liquidators turn up) USD debt in June/July (can?t recall which) and 2 days later issued a profit warning, almost their entire USD funding base basically told them where to go and that they could expect to never see another penny again ? cue shortfall and run on the bank.

Err.. I didn't say anything about a risky lending profile

Northern Rock failed because of liquidity problems. So did Bear Stearns. Because both had mismatched duration of assets and liabilities and had to borrow heavily in the markets to cover. This is what I said. Which is also what your DH is saying.

Who is totally wrong about Northern Rock?

Yes NR suffered because they relied on funding the loans they made through the credit market to a far greater extent than many banks but they also suffered because they have a poor quality mortgage book. They lent up to 125% of the house value with a mortgage and unsecured loan package.

And as you say in the previous paragraph people with a LTV of 90-100% are at risk. Hence.......

He was disagreeing with Squiffy actually - I am going to bow out now I know nothing about hedge funds, leveredge etc as I am just a lowly banking assistant!

Lets hope DH does though!

DH is banned from mumsnet - he said rude words about people!

This is final answer though as other wise credit analysts are going to have ot get involved!

"Okay last comment.

Granted that Granite have a high % of those that borrowed >90% LTV but what percentage have defaulted?

Answer It?s one of the best performing master trusts there is.

Wouldn?t go too much further Honey else I have to get our credit analysts to write my answers!!"

Oh he can't stop himself now - will have to get him a little nickname and let him loose!

"And you should point out that the Rock didn?t ?suffer? ? that?s having a headache or a cold ? they failed because they couldn?t raise capital via the wholesale markets."

I apologise for using the word suffer.

at PPH - i thought about cashing in our equity isas a feww weeks agao but didn't do anything about it - now feel VERY STUPID.

Best to cash in soon does anyone think or wait a bit......ekkkkkk

I am on my first day of maternity leave from one of the banks in the news today and have spent ALL morning on the internet reading about what's going on!

My predictions for UK (be warned, gloomy reading):

1. Unemployment will rise significantly driven by City redundancies, cashflow problems at businesses and consumer retrenchment
2. Credit will be much harder to come by and at much more punitive rates
3. UK Plc is also trapped in a vicious leveraging circle as tax receipts come down, UK less credit-worthy AND sterling gets less attractive vs. especially currencies of those countries with a budget surplus and hence borrowing gets more expensive, deficit widens etc. etc.
4. Sterling devaluation will mean inflation continues to rise - cost of living will deteriorate
5. Asset prices will correct - houses, cars, stocks
6. Unsure about commodities! Dollar must continue to depreciate against something as Helicopter Ben continues his progress towards zero interest rates (because they worked in Japan...) and gold is probably my best guess. Dangerous investment here, though, given lack of yield and big appreciation as well as potential intervention and/or consumption-led fall in demand
7. Food will continue to get more expensive as agricultural land is scarce and the shift in Eastern consumption preferences is high-friction, this will be exacerbated by currency effects where UK is a net importer
8. Civil unrest will increase

Note - A LOT of people in financial services have their heads in the sand. At least it's warm. NH makes an excellent point about the expectations - as late as August I did a poll in our office and I was the only one who believed there would even be a recession in the States - now we have mainstream newspapers harking back to the 30s. It's a human tendency which becomes very marked at turning points (or markedly misguided) to believe what you want to believe.

In short, this is extremely serious. The only way to sustain fiat currency based systems is to keep writing more debt and now circumstances beyond the control of the Fed are ensuring that this ceases to happen. I fear it is a huge house of cards built on shit sand.

On a personal note, I transferred my pension from stocks into index-linked Gilts (inflation-protected UK govt bonds) in Dec (cashed out of other stocks and UK prop in summer 07) but the STUPID pension company didn't effect the transaction!! Cue very cross phonecall (to no effect ).

ps whilst property prices have been the catalyst, I think they are primarily a symptom rather than a cause. The cause is cheap money combined with globalisation which has enabled a credit bubble to be more sustained and further-reaching than any previous bubble.

scampmum up until 6 months ago we thought we were majorly overexposed to oil and mining stocks
now we have liquidated everything except oil and mining stocks and are pretty relieved with our excessive exposure all told

that is outrageous about your pension, I'd be spitting blood

tutt - I'd personally stick it all in Northern Rock - safest place for it at the moment if you want to keep it in cash!

Aren't northern rock only guaranteeing deposits that were already there and new deposits will only be safe up to the 35k limit like the other banks?Although they have some attractive rates atm

Well done!! wish I had some of them... although generally happy to be in cash.

The other thing I forgot to say is that most of these effects are self-perpetuating - this is behind the phenomenon of the cycle. That's why I never set much store by 'as soon as prices go down, buyers will step in' - that's a mentality that persists when price rises are firmly entrenched in the public psyche. Actually the rational response to falling prices is to hold off purchases, in the same way that in times of rising prices people will accelerate purchases, vis. property 'ladder' and the mentality 'if we don't buy now we'll never be able to afford it'. You don't get this in both directions. One of the things that really convinced us not to buy when we sold our flat was the total frenzy of the buyers. It just felt really 'top of the market' to me. DH took some convincing, though...

No on NR - it's owned by the govt so it's effectively NS&I but with better rates!

are you sure scampmum.I have my cash for a house in one account with a high rated bank but am feeling unsure and thinking of moving to ns and i although I think they have a limit of 100k?

this thread is fascinating and very helpful to someone like me who is a business and financial dunce ( although good at other things!)

DH and I are agonising over whether to move house now-ish or leave it. We want to upsize in the same area but don't know if it is too great a risk. We are mortgage free at the mo.