British Bankers Association caught lying about LIBOR rates

The Daily Telegraph has an extrordinary article today;

First things first .

The London Interbank Offered Rate (LIBOR) is the rate at which members of the British Bankers' Association (BBA) lend money to each other for a variety of currencies. This is a benchmark reference such that , for example the Granite Bonds isued by Northern Wreck were offered in different tranches paying above Dollar LIBOR. Rates are calculated by 16 panel banks across 10 currencies and 15 lending periods ranging from overnight to one year. (Helpful BBA notes here)

This is calulated (see below) and published daily by Reuters and is accessible here - along with historic data in the form of Excel files which can be downloaded.

Yesterday LIBOR soared 8 basis points (0.08% the largest jump since it rose 0.12% on August 9th 2007), this followed commentators who have begun to question the credibility of the published figures suggesting it was being deliberately understated in an attempt to minimise the extent of the banks funding problems..

In brief they are fiddling the published figure because borrowing is more costly than stated.

WSJ report that Thursday was a different story. The highest quote of the morning was submitted by HBOS PLC, which submitted a 2.86% rate for a three-month loan. That was up 0.10 percentage point from Wednesday. HSBC Holdings PLC posted a rate of 2.85%, up 0.12 percentage point from Wednesday.

The DT reports that BBA Libor director John Ewan acknowledged that banks, " were likely to have reconsidered the information they supplied for use in setting Libor."... this was due more to "concerns about difficult market place conditions than questions about credibility," Mr Ewan said.

The DT quote Nomura rate strategist Sean Maloney who says the jump in dollar Libor was "an account to honesty". i.e after a period of fibs they had decided to 'fess up.

Mr Ewan said the reason for the jump in dollar reference rates yesterday, while sterling and euro-denominated Libor were broadly steady, was "tricky to call because it's difficult to disentangle cause and effect". Dollar three-month Libor rose to 2.8175pc, while three-month sterling Libor dipped to 5.90625pc and three-month euro Libor edged up to 4.78pc.

Mr Ewan said the association board had discussed the Libor concerns at a regular meeting yesterday, and added: "I think as a result of that, banks have been looking again at the definition of what they should submit to us." i.e they decided to 'fess up.

But market effects had also played a role and the dollar-denominated Libor was more volatile as a key reference for the derivatives market, "which is almost exclusively a dollar market", Mr Ewan said. Blather, blather, blather ...bollocks.

Anyway (who regularly pummels the Today presenters) to issue a notice :

Commenting on today’s movements in interbank lending rates, Angela Knight, Chief Executive of the British Bankers' Association, said:

"The continued rise in BBA LIBOR rates reflects increasing liquidity pressures in funding markets internationally. These were referred to in the coordinated statement by the major central banks last Tuesday."

"This is the quarter–end reporting period for many banks internationally: it was always anticipated that rates would tighten further at this time."
i.e PR ese for - we decided to 'fess up.

How is LIBOR calculated? (This is the BBA explanation )

The BBA uses Reuters to fix and publish the data daily, usually before 12 noon UK time. It assembles the interbank borrowing rates from 16 contributor panel banks at 11am, looks at the middle 50 per cent of these rates and uses these to calculate an average, which then becomes that day’s BBA LIBOR rate.

This process is followed 150 times to create rates for all 15 maturities (ranging from overnight to 12 months) and all 10 currencies for which a BBA LIBOR rate is quoted.

Plenty of room for wriggle room there then. What is plainly obvious is that the recent figure for LIBOR (especially $LIBOR) have been fiddle / adjusted / amended / reviewed to provie the market with a misleading impression.

How strapped the banks are for cash is the notice by the RBOS of the neeed to shore their Balance sheet with £10Bn from the shareholders. The success or otherwise of this offer will really tell us how flush the banks are with cash. It will be fascinating to see who the underwriters are and what discount they want.

Similiar reports in Reuters WSJ ..."The world's most widely used interest rate took its largest jump since the advent of the credit crisis in a sign that banks could be responding to increasing concerns that the rate doesn't reflect their actual borrowing costs."

....In a note to clients Thursday, UBS AG strategist William O'Donnell suggested that banks were responding to the heightened scrutiny, saying that the BBA's announcement of its inquiry was an attempt "to bring publicly posted rates back into line with the shadow interbank money rate market."

The WSJ also report William Porter, credit strategist at Credit Suisse, says the 3 months LIBOR is 0.4% undersated, Scott Peng, of Citigroup Inc. says it is 0.3 % below the actual level.

Ian Campbell offers this postscript at L'Agefi
Is there no end to the unhappy saga of banks’ loss of prestige? The suitability of the London Interbank Offered Rate, known to its familiars as Libor, as a benchmark interest rate is now being called into question. The reason is that banks themselves supply the figures upon which Libor is based—and now do not trust them.

Meanwhile the job cuts have started

The Credit crunch - Reality Kicks in as UK banks scrape in deposits

INFLATION REPORT PRESS CONFERENCE
Wednesday 8 August 2007 - Opening Remarks by the Governor of the bank of England

Sea bass is farmed off the coast of Greece and last week Mr Tesco was selling it raw, fllleted at £12.00 per Kg. This week ? ..er .... £16.75 per Kg.

Now Sea Bass fillets don't figure too highly on the Cost of Living Index but try kippers, a few weeks ago £1.20 a pair, now ...? £1.40 - and Mr Tesco will supply you then either raw (undyed) or seared with brown shit (E - 154 ) that no other country in the world will allow you to bemerde your food with.

Just another example from the daily experience as inflation / declining exchange value of money hits the pocket.... so a good time to the Bank of England Inflation report. The latest slim volume (3.5 Mb. pdf !) is was introduced by Lord Mervyn King on the 8th August. Wasn't he pleased with himself ?

"Inflation has fallen back quite sharply, from 3.1% in March to 2.4% in June, as household gas and electricity prices started to decline."

What caught the eye in his Press Release was however his bland remarks, just as the credit crunch was unsettling the banking parlours of Bishopsgate and beyond....

"In the past few weeks there have been falls in equity prices and credit spreads have widened, especially on riskier debt. We don’t know whether these tremors in financial markets signal a more disruptive movement to come, or constitute a gradual release of pressure on spreads that had built up over some time. So it’s impossible at this stage to udge how large and how persistent this tightening of credit conditions is likely to be.

The Committee will monitor carefully data on both the price and quantity of credit."

Well Lord King "The Committee will monitor carefully data on both the price and quantity of credit" in the same way others monitor the quaintly named 2nd Division of the Coca Cola League ( AKA 4th Division when sub prime mortgages hadn't hit the headlines and the Halifax or the Woolwich took six months to handle your application and don't waste their time if you are not married and don't work for the Council) to check on the progress of Rochdale.

Exhortations , either as they train beside us at the gym or from the terraces on Saturday afternoon will, it appears not deflect them from their suicidal early season traditional dive. Imprecations , sneers, offensive reamrks will be as effective as you murmering in the ears of the money jugglers of Mayfair with their hedge funds growing amok like unclipped yew or privet .

There are forces, deep ocean swells at work beyond our understanding or control which roll on regardless, uncontrolled and uncontrollable.

It took a shrewd American lady scribbler from Bloomberg to remind my Lord King with a sharp question ..

"Hello, Jennifer Ryan from Bloomberg News. I wondered if you could elaborate a bit on the extent to which the volatility in financial markets is complicating your forecasts. And also if you could discuss what kinds of concerns you have about the availability of credit going forward, both to businesses for investment purposes and to households?"

So Mervyn slaps the bitch down with some firmly worded clear observations that make it clear that they have 3 jobs to do ..

1 "The first is that monetary policy is set to meet the inflation target."

2."...interest rates are not a policy instrument for protecting unwise lenders from the consequences of their past decisions." ( Evidently not having read (or ignored)Walter Bagehot's views onthe topic in Lombard Street pub. 1862)

3." .....a central bank, obviously always monitors all the time and regularly whether or not there are risks to the stability of the financial system as a whole and whether there are any systemic risks posed by problems arising in particular institutions or markets."

Here we go again , monitoring something over which they have neither influence nor control, and there is even more of this bland wisdom of the elderly ... for Miss Ryan.

"we cannot be sure, no one can be sure at this stage whether what we're seeing so far foreshadows a more disruptive movement in financial markets or whether it's the sign of a gradual easing of pressure that allows credit spreads to return to more normal and sensible levels. That remains to be seen. I don't pretend to be able to know what will happen but we'll be ready to respond to it."

Ho.Ho.Ho. "I don't pretend to be able to know what will happen but we'll be ready to respond to it."

Well you only have to look at the LIBOR rate and it's not the BOE who are responding but the bankers and money jugglers who know only too well that these "asset backed securities" which we mysteriously call collateralised debt obligations (CDO's) do not represent any asset and are certainly not secure. As a result inter bank interest rates (LIBOR) have risen and therefore the rates offered to depositors - totally and completely regardless of the Bank rate (now at 5.75%) - ie : the rate offered by the lender of the last resort. Why because they know the deep, deep, doo doo they are all in and are reluctant to lend each other money - even overnight.

3 month LIBOR usually hovers 0.1- 0.125% above Base rate yesterday it was 6.89% or 1.14% over base rate.

Today you can walk in off the street and buy deposit bonds at 8.1 % (pic) and some fixed-rate savings accounts with building societies have now reached 6.86 %.p.a.

That means LOWER bank profits, HIGHER borrowing costs, INCREASED bad debts privately and commercially and .... well don't worry, Lord King and his chums..."will monitor carefully data on both the price and quantity of credit" ...

UPDATE SUNDAY 9/9/07

Reading the Sunday blats it is evident that the wannabe city slickers have still not caght on that the MEPC's decisions about the base lending rate has been overtaken by the actual real free market out there.The BOE is simply out of control, because it is not IN control *** see D Telegraph

Also pondering on Sir Mervyn Wanking's warning to the the delightful Miss Ryan from Bloomberg ...."...interest rates are not a policy instrument for protecting unwise lenders from the consequences of their past decisions." Here is the arch regulator who cannot grasp ther reason for regulation , firstly to provide order and and control over issuers of credit and secondly to protect the improvident and credulous (and those who's SAT's scores just amtch their show size) both from themselves , and those who would prey on them. Regulation is the reason , for example in health matters that we don't have men stood on street corners explaining how they extracted the oil from the snake themsleves and that it will cure gout, lumbago, cancer and nightmares.

It is interesting to compare and contrast the remarks of Martin Feldstein (President and Chief Executive Officer, National Bureau of Economic Research) this week when the Federal Reserve top brass repaired to Jackson Hole, Wyoming for their annual knees up to discuss, "Housing, Housing Finance, and Monetary Policy" All 11 pages of his review of the proceedings are recommended reading. The contributions by the Fed's top brass e.g Frederic S. Mishkin, Member ,Board of Governors of the Federal Reserve System range from the banal ..."Developments in the housing market have a major effect on economic activity.".. Yah don't say !. to the self delusional ..."Fortunately, the overall financial system appears to be in good health, and the U.S. banking system is well positioned to withstand stressful market conditions."

"It is widely agreed that neither the Federal reserve nor the Government should bail out individual borrowers or lenders whose past mistakes have created losses .... to simply encourage more reckless behaviour in the future"

"Much of the credit market problem reflects more than a lack of liquidity : a lack of trust, an ability to value securities, and a concern about counterparty risks. The inability of credit markets to function adequately will weaken the economy over the coming months... even when the credit market crisis has passed the wider credit spreads and increased risk aversion will be a damper on future economic activity."

Feldstein of course does not run the Fed, and there is precious little evidence to date they are taking any notice of him, simply pumping liquidity into the market (inability of credit markets to function adequately ) and here in the UK Lord King and his chums..."will monitor carefully data on both the price and quantity of credit" ...and pump liquidty into the market (especially Barclays)

Daily Telegraph today "DeAnne Julius, a former member of the Bank's Monetary Policy Committee, told The Sunday Telegraph: "The Bank has a responsibility to allow the smooth functioning of the sterling money markets and it has a pretty clear framework for doing that. But it needs to apply that framework to achieve the objectives it is aiming at. The experience of the last couple of weeks does not look as if it [the Bank] has been very successful at that."

Although the markets have viewed King as reluctant to bail out irresponsible lenders, (se above - ."...interest rates are not a policy instrument for protecting unwise lenders from the consequences of their past decisions." ) the BoE has not ruled out further interventions. But senior bankers say King is unsure that pledging funds over a three-month duration would solve the liquidity crisis. He is said to share the view that the root of the liquidity problem lies in the commercial paper markets.

The resolution of the problem will bring pain to the people who indulged in past excesses. LIBOR rate have settled market rates 1.14% above base rate - they MUST pay it and the chips fall as they lie. If the system is not purged from this illusory credit, this money of the mind, everyone will suffer.

For the monent the shrewd OAP with his High Income Deposit account at the Skipton Building Society is the winner. Thrift wins.

If the BOE make credit available at preferential rates to the houses who punted these fraudulent parcels of credit , the senior offices should be taken out and strung from the lampposts in Threadneedel Street.

This hurts us more than it will hurt you.

"“promoting a competitive financial services sector leading the world and supporting continued economic innovation.”...remeber that was the Bush plan ... now Hank the Bank according to the Guradian today ...An insider said Paulson dictated the terms after summoning chief executives on Monday. "It wasn't a debate."

More bollocks from Hank ... Government owning a stake in any private U.S. company is objectionable to most Americans, me included. Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable." ...This hurts me more than it hurts you.

Harvey Pitt briefly held the Chairmanship of the US Securities and Exchange Commission (SEC) for two years until 2003 when he resigned on election day.

He is quoted by the BBC as having said yesterday on BBC World News, "We've got a 21st century financial services marketplace and a 19th century regulatory model."

He further added that there was a lack of transparency both within and between organisations and businesses in the financial / insurance sectors in the US.

Belatedly he has placed his finger on the problem that has been glaringly evident to many outside the incestuous world of international finance. The current problems of credit lockdown are a SYMPTOM not a CAUSE.

The falire to close down credit both with individuals (when were you last chased down a mall to open anew Credit card ?) businesses but also between banks and quasi (investment) banks - resulting in the soaring LIBOR rate (whose calculation has been rigged for years - see Friday, April 18, 2008 British Bankers Association caught lying about LIBOR rates ) only reflects that the gig is up for the lying bankers.

Banks of all shapes, sources and sizes have been producing fraudulent balance sheets and declaring non-existent profits and paying massive bonuses and dividends for years -

1. Lloyds bank was offering a higher yield on shares than on their best deposit accounts.
2. 60% of Sacks of Gold Gross Trading profit went in remuneration of staff.
3. leveraging of 30 - 1 was (and still is) common , ie they borrowed £30 for every £1 deposits.

The result is not lack of confidence but confusion, wrought by criminal behaviour of many (but not all) - politicians bereft of ideas have decided to throw the taxpayers money at the problem.

Hank was on the blower again the last few days but we couldn't help him... he had this crazy idea of buying into banks, taking preference shares with a 5% coupon (so he gets his (taxpapyers) money back in 20 years).

Apparently hidden away somewhere was the power for him to do this with the money in his swag bag.

Can you imagine the organisation that must be put in place to oversee this massive shareholding in banks ? Who will staff it ?

Maybe the guys lining Wall Street round the corner from the door marked EXIT at Lehman Bros.

In the UK Gordon Brown...

...says he doesn't want to run banks... Ho.Ho.Ho...This on the day when the Cabinet are ready to give the go ahead to having a National database on every individual which will have details of our web browsing, phone calls .....?

Is this the end of the beginning ? NO way...not even the begining of the start of the early part of the financial holocaust that is on it's way. Especially on those nations where financial jugglery has overtekn real economies, where people make things and sell things with worth, asset value and utility.

Next up for a shock horror explosion of concern and worry is the insurance industry.

One good bit of nes is that the EU is dismantling the nonsense of carbon trading .... Old Lord Patel's Almanac says you will here no more about Global warming in 5 years time as wesern economies fight energy costs to keep their populations fed and watered.

Yvette Copper lies, King prepared his defence and the exact nature of the assets we now own (especially Granite) are amazingly no clearer

It is impossible to fully grasp the complexities of the legislation for the rushed nationalisation of Northern Wreck (although who would argue with AK see earpiece here) but Famous for 15 Megapixels points us all to the remarks made by the fragrant, elfinesque, and frightfully beautiful Yvette Cooper who regularly exchanges bodily fluids with her well endowed Balls who no doubt populates the intimiacies of the longeurs of post coital triste with wise and witty enecdotes about life in Gordon's Treasury. ... and little good it has done her pretty little head.

Therefore it is worth noting what Hansard records the ignorant haughty bitch saying yesterday....

"Banks stopped lending to each other in the normal way and Northern Rock, owing to its business model, could not get the money that it needed to keep going. The action that we took last autumn was widely supported at the time. The Government stepped in and effectively saved Northern Rock."

Up to a point Lord (Cooper)Copper... the way the shares dropped £1 on the day the NR interims were produced July 26th when the Directors had voted a 33% rise in the divvy, on the back of profits rising less than 1% on nett lending up by 47.3% a suggests that prudent bankers may well have had other and very specific reasons for not lending to Northern Wreck other than "Banks stopp(ing)ed lending to each other in the normal way" - inter bank lending was continuing but at punitive (and temporarily excessively high LIBOR rates).

Northern Wreck had in fact telegraphed their problems well before September 9th when the BOE intervened and had approached Lord King as early as August 11th/12th (BBC Radio 4 Today repeat of File on 4 Interview interview) for the odd £30Bn.well before LIBOR rates had taken off. (BBC4 Today Interview 6th November which you can hear here) which you will find is curiously truncated from the transcript here to make the timetable of events less clear.

SANTS (CEO of FSA) : " ....we immediately identified that there was a potential possible risk here to Northern Rock, and proactively engaged with them as part of our group of firms that we were moving to a crisis management mode."

PESTON: So did you contact them, as it were?

SANTS: We contacted them.
...

KING (BOE) ...bit by bit the funding, the wholesale funding to Northern Rock started to ebb away. [Note it did not STOP]

PESTON: So how much did you estimate at that stage Northern Rock was likely to have to find let’s say by the end of the year, as it were, in terms of the borrowings that they’d made from the money markets that were simply not being replaced?

KING: Well, we thought that it was of the order of about £30 billion was the amount that they would have to find. It became clear quite quickly that the bulk of that funding – say £20 billion to £25 billion or £30 billion would have to come from the Bank of England. So it became clear that Northern Rock required a very very large sum of money.
.....

KING: On the weekend ( 25/26 Aug) before we granted the facility to Northern Rock, I was asked whether, if a certain retail high street bank were to make an offer or a bid for Northern Rock, whether we would be prepared to lend that bank £30 billion at bank rate for about two years. And I think what that did was to demonstrate that our original view, that it was not possible to save Northern Rock without a large injection of money on that scale was clearly right ......

On the other point that Vince Cable raises about Granite - this was addressed by ex Treasury Minister Ken Clarke just as the clock chimed midnight last night and ended discussion in the quaint way these things are done in the Palace of Varieties Westminster. On the Division the Ayes =293 and the Noes and Malcontents = 167 and off it goes to the other place.

This was what the slim, lissom, nubile renaissance woman Yvette Cooper said ...
...and this is what the Cty savvy gent who evidently understands these things said

..and for these members of the opublic who cannot understand how Granite appears on the Balance Sheet as an asset but is a Trust whose beneficiaris the NE Downs Syndrome Group is beyond us ... but I smell a large roomful of lawyers (see Times beloe) getting ready to Hoover up very substabntial sums of dosh over many years, ready to make Jarndyce v Jarndyce look like a Sunday School PicNic. (But see newer post Saturday, February 23, 2008 Granite and the masters of the Master Trusts - exploiting loopholes with the City lawyers )

One wonders what Fitch and Co are doing to put a credit rating on Granite today ? See their report on Covered Bonds yesterday.

Late Breaking News
Public left with only 'rubbish' of Northern debts claims MP Scotsman (Edinburgh Evening News)

"However, during the Commons debate Mr Cable said Treasury Chief Secretary Yvette Cooper appeared not to know what was happening to the bank's best mortgages.He said: "What we are now being told is that in some way this has now been hived off to the benefit of a person or persons unknown, apparently, to the minister."What is going on here appears to be not public ownership of Northern Rock but an asset-stripping operation designed to benefit whoever, we don't know."This is a very serious development."

"A Treasury spokeswoman today said it was "simply wrong" to say that all the high quality mortgages are in Granite. She said: "Northern Rock does not sell all its high quality mortgages to Granite; it retains a substantial volume of high quality mortgages on its own balance sheet.Speaking outside the Commons, Labour's John McDonnell, said he had written to Chancellor Alistair Darling asking for an immediate statement."

See also BBC Online ..."Chancellor Alistair Darling has moved to calm fears about the nationalisation of Northern Rock after it emerged the bank's best assets would stay private.
Mr Darling said taxpayers would not benefit from the nationalisation of a firm holding £45bn of Northern Rock's most profitable mortgages. "

The Times Northern Rock advisers facing fees showdown -" Merrill Lynch, Citigroup and Blackstone – are holding out for their full share of £75 million in agreed fees, despite the fact that the Government did not follow their advice to sell the bank. “The reality of it is that they all had letters that had a base amount and a ‘success’ amount,” one source said.
The base amount = £50 million, with £25 million “success” fee."

"The Government is already on the hook to pay a fee of between £15 million and £20 million to its own advisers, Goldman Sachs and the legal firm Slaughter and May." ..."The Treasury has also agreed to pay £5 million to each bidding team to cover the costs of their banking advisers, lawyers and accountants."

If you understand who own Granite, NEDSA, the BOE/taxpayers/ or someone else .. please let us know.

UPDATE : 23rd September If arrived from links elsewhere please also go to see newer post Saturday, February 23, 2008 Granite and the masters of the Master Trusts - exploiting loopholes with the City lawyers )

Forget TARP .. just spread a little money around...

You have to admire the remarkable combination of chutzpah and financial legerdermain of US Secretary Henry M. Paulson, Jr. AKA Hank the Bank, on the remarks he made during his press conference reviewing ...his er.... "Financial Rescue Package "

First he sends a 3 page bill for US$700 very, very, very , very big ones to Congress without any detail of how he was going to spend it.... but we were assured that this was a Troubled Asset Relief Program which became abbreviated to TARP.

As credit markets froze in mid-September, the Administration asked Congress for broad tools and flexibility to rescue the financial system. We asked for $700 billion to purchase troubled assets from financial institutions. At the time, we believed that would be the most effective means of getting credit flowing again.

From this clear mandate to buy up the so called toxic debts .. it is / was but a small Paulsenian step to ....

It was clear to me by the time the bill was signed on October 3rd that we needed to act quickly and forcefully, and that purchasing troubled assets – our initial focus – would take time to implement and would not be sufficient given the severity of the problem. In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks.

Nor was he slow to show how fast he had been in distributing this tax payer largess to the failed banks on Wall Street - many his old friends and cronies, when he was the world's highest paid banker..

We announced a plan on October 14th to purchase up to $250 billion in preferred stock in federally regulated banks and thrifts. By October 26th we had $115 billion out the door to eight large institutions. In Washington that is a land-speed record from announcing a program to getting funds out the door

Fear not anxious tax payer, your Secretary has not forgotten his other friends...

Since announcing the Capital Purchase Program, we have been examining a wide range of ideas that can further strengthen the financial system .... we must continue to stand ready to prevent systemic failures. That is the basis for Monday's action to purchase preferred shares in AIG

Which is a simple way of explaining how AIG have somehow managed to hoover up, burn their way through US$ 155 Bn .. and it seems will soon be back for more ...."Too big to fail "

But there is more ..

First, we are designing further strategies for building capital in financial institutions. Stronger capital positions will enable financial institutions to better manage the illiquid assets on their books and better ensure that they remain healthy.

Second, we are examining strategies to support consumer access to credit outside the banking system.

..and we haven't even got round to shelling out billions to keep the Detroit rust bucket belt in the luxuries which we can afford.

The result of all this ? Well Reuters reports today ..."Short-term interbank lending rates have risen over the past two days because "there has been a change of sentiment since the latest rewrite of the Treasury's asset rescue program," said Lou Crandall, chief economist at Wrightson ICAP, in Jersey City, New Jersey."

Three-month dollar London interbank offered rates rose more than 8 basis points to 2.23625 % , the biggest rise since Oct. 10. Thursday's increase broke a streak of 23 consecutive declines.

The gap between 3 month dollar Libor over T-bill yields, the so-called TED spread, widened slightly to over 200 basis points.

The ECB said on Friday that overnight deposits rose, as banks continued to hoard rather than lend cash. Banks deposited 127.566 billion euros at the ECB, up from 103.318 billion the previous day.

Just to round off a week of exciting news US Retail sales fell by 2.8pc in October – the biggest drop since records began – and the fourth consecutive monthly fall.

Mr Paulsen is 63.

Man on Mission Impossible - Henry Paulson stalks Europe for ideas

Henry Paulson the Secretary of State at the US Treasury , Eagle Scout , ex Chairman and CEO of Goldman Sachs has been "doing Europe" . Germany on Tuesday. ...yesterday he was at Chatham House and talking about the current state of chassis in the world. Text here

He kicked off, .. the US economy is going through a rough period. As they have been chalking up an eye watering overeseas and budget deficit ever since George Bush slapped his boots on the desk in the Oval Office, they certainly have been going through a rough period.

Nobody noticed, because that nice avuncular Mr Greenspan kept interest rates down ...reeel low so everyone could share in Democracy's pie and the War on Terror, the War on Iraq, The War on Afghanistan, the War on Drugs, meant that the Federal Government were spilling out funds everywhere.

Everyone, everywhere shared in the bonanza as the Chinese scooped up Treasury Bonds with zilch yield and decling value.

However someone (eventually) noticed that all these borrowings rested on a crock of shit of alphabetic nightmares and persistent lies called quailtly "securitised loans" and fraudulent Balance Sheets . Now nobody has got any money even to make end meet never mind to lend to anybody. Believe me, when you are paying the salary cheques these banks have been paying it's no surprise there is nothing left to lend... hence there are a few folks losing their jobs.(Citigroup losing 13,000 alone this year..er..so far)

Anyway Good 'ol boy Beorge has noticed that his term of Office is ending and it's election time and the natives are getting restless. So the first thing Henry tells us (after telling us things are bad, reeeel bad )is that, hey just around the corner the good times will roll.... well hopefuly until the election is over and Uncle George Sam is, Henry says, " injecting $150 billion into the US economy now when it’s most needed (Election Time). To date, almost 95 million payments totaling over $78 billion have been sent". How ? By that 'ol mainstay of conservative / liberal economic policies a tax dodge.

Hey , Paul tells us, it's working , "Consumer spending data in May show these payments are
helping families weather this period of slow growth and higher food and gas prices."

Now when people tell me in the retail business ..."Last week we had a really good week" I know for certain that they know next week will be a stinker.

Same with Paul , first the good news now the bad news is ..." ... the US economy is facing a trio of headwinds: high energy prices, capital markets turmoil and a continuing housing correction."

Market Stability

This is the new voodoo man, why Alastair Darling announced in his Mansion House speech that it was intended to form a new Financial Stability Committee which would would "guide the Bank's operations in this field".

Paul identifies 3 Tranches (?)

1. ( or if you want the longer version " first and foremost, our number one priority") promoting market stability and limiting the impact on the broader economy as we work through today's institutional and markets stresses. (bit short on the detail there about how you do this..never mind, plod on)

2. Implementing the appropriate policy responses to recent events to address the deficiencies in our markets which the current problems have exposed.(bit short on the detail there, what policies ?, what deficiencies ? what problems exposed?)

3.Improving our overall financial regulatory structure to better prevent and address future turmoil.

All this will of course take time - even more so finding out why the previous "robust" , well engineered, systems and controls, processes, ... didn't work last time.

Then Paul let loose a fascinating and modestly accurate statistical detail , financial institutions worldwide have raised over $338 billion.

Institutions in the US and the U.K. have raised capital equal to 95 and 96 % of their recognized losses..in Europe, the gap is wider; there, institutions have raised only 56 % of their recognized losses so far - led no doubt by the Belgians and the cheese eating surender monkeys.

Just note that word "recognised", does that mean ;

1. That's the losses they have identified and calculated and published.
2. WE know (nudge,nudge , wink, wank.... because that's how bankers talk, like out of the sides of our mouths like Goodfellas - or is it the Mason's ?.), WE know that there is a still a bundle in the cupboard that we will eventually haul out , hopefully when the fucking sun starts shining again and we have some more notional profits to write it off against).

Oh by the way the US$ which was US$1 = 1 Euro on the illegal invasion of Iraq .. well you need US$1.60 today to buy 1 Euro.

Anyway back to Henry - who has NO worries about paying his mortgage, grocery bills or how to fill his gas tank..

Well Henry wants financial institutions to continue to strengthen balance sheets by raising capital, de-leveraging or reviewing dividend policies - you bet with the Fed in New York and the Bank of England lending money out the Discount window for all sorts of crap as security, just to keep a semblance of a banking market going.... have you seen the mortage closings this month ... and God help the small businessman.

Policy response

The US is well prepared for considering Policy issues ....Henry says. "In the United States, the Treasury Department, the Federal Reserve, the Securities and Exchange Commission and the Commodities Futures Trading Commission worked together through the President's Working Group on Financial Markets, the PWG, " ...the guys who oversaw and masterminded this fucking disaster of zero credit, economic slowdown and the federal de-housing policy ... have already got their handmaidens of Apocalypse hard at work the ..." US regulators, investors, financial institutions and credit ratings
agencies have begun to implement these and other recommendations, which include

1. Stronger mortgage origination oversight (But not why it was so pisspoor before)
2. National licensing standards (But not why they were so pisspoor before) for mortgage brokers, and 3. To improve market infrastructure (But not why they were so pisspoor before)
4. Regulatory oversight (But DEFINITELY not why they were so pisspoor before)
5. Risk management practices (But not why they were so pisspoor before)
6. Steps to address valuation issues (But not why they were so pisspoor before)
7. Policies and practices related to the credit ratings agencies (the new whipping boy)
8. The mortgage securitization chain.... on which it is worth considering what good 'ol boy Greenspan had to say a few years ago at a Fed Bankers conference.

Alan Greenspan
Federal Reserve System’s Fourth Annual Community Affairs Research Conference, Washington, D.C. April 8, 2005

"Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s.

.....we must conclude that innovation and structural change in the financial services industry have been critical in providing expanded access to credit for the vast majority of consumers, including those of limited means.

This fact underscores the importance of our roles as policymakers, researchers, bankers, and consumer advocates in fostering constructive innovation that is both responsive to market demand and beneficial to consumers. "

Would a public beheading be good enough to correct those policies of "quite efficiently judg(ing) the risk" ? This was the guy who said at a conference in Abu Dhabi in March this year ...".“For people who say we and the rest of the Central Bank should have raised flags, I say we did,”

But Henry wants to go further ..."to address not only the specific policy issues that gave rise to recent turmoil, but also the outdated nature of the US financial regulatory system. Few, if any, defend our current balkanized system as optimal." ... which is odd because that is precisely what Gordon Brown did 10 years ago in producing his masterful Tri-Partite and useless tri-umvirate of eunuchs , led by blinkered timid men allowed the uncontrolled bankers to ride a coach and horses through regulatory controls for a decade. He (and that smiling but vacuous twat Balls) balkanised the Bank of England, they didn't make it independent.

Even further ..." the G7 tasked the Financial Stability Forum, the FSF, to analyze the underlying causes of the turbulence and offer proposals for change."

"Today's priority is clearly market stability. However, looking beyond the immediate turmoil, we need to design carefully and put in place a stronger capacity for resolution and crisis intervention that reinforces market discipline."

Fine words, sweetly spoken, we could go on but read the text if you really want more.

To be fair to the Feds (that's the FBI not the unelected bankers) they moved fast , as they did with Enron, and hauled off the miscreants from Bear Stearns in public with handcuffs cuffs.. now there's nothing to see, let's move on.. now this carbon market looks really ripe for making a few bucks...how do we trade these allocations ? Well, say we bundle 'em up, a Sri Lankan pig farm (CARBO) with a single Idaho corn refiner (MON) and a wannabe maker of electric batteries (OXIDE) ... bundle it / securitise it / name it ? CARBON MON-OXIDE .... hey isn't that toxic ? Maybe, but what a great name CMO's . ... just think, a simple text fix in the software for the CDO's and away we go ..

Now the First Tier CMO's will be Libor plus, say 120 points ? .. get Owen & Avery , Sidley Austin - what's that hot chick called , she'll fix the detail?

Hands up those who believe that the 8 points above under Policy Response outlined by the poacher turned gamekeeper, drafted from Sacks of Gold to Gubment are going to make the slightest dent on the banks, investment funds, hedge funds, sovereign funds (with increasing and autonomous power), the money laundering drug gangs, the squillionaire silovaki.. no .. hands up, we can't count ... no hands up ...

Damn ..now Gemma says she's had a tough day and wants a gentle rub down with patchouli oil and how about a Manhattan ?

Bank Robbers don't needs masks and guns

As the few remaining Chinooks available for training RAF crew have been reduced to royal taxis it is worth briefly considering how strapped the MOD has been for cash ...

Throwing money at helicopters

In 1995 the UK MOD ordered 8 Chinook HC3 helicopters from Boeing, especially equipped for Special Services (SAS / SBS) SAS and Special Boat Service, with satellite communications technology, extra fuel tanks and in-flight refuelling probes for long flights at a cost of £260 (£32.5Mn each).

As a cost saving measure the MInistry decided not to have them equipped with a fully digital display.

Since they were delivered in 2001 they ahve sat in a warehouse in St. Asaph, North wales. "Because" as Edward Leigh Chairman of the Public Accouts Committee explained , "of a massively botched job, they cannot be flown when there is a cloud in the sky. The MoD might as well have bought eight turkeys.''

Viz … Select Committee on Public Accounts Minutes of Evidence 25 OCTOBER 2004 -

Q133 Chairman: Thank you very much. But the fact remains, Air Vice Marshal, that for safety reasons you cannot fly this helicopter when it is cloudy; is that correct?
Air Vice Marshal Luker: That is also correct.

Des Browne the part time Minister of Defence announced last year (2007) that the MOD had at last found (or squeezed from the Treasury AKA Gordon Brown) £60-70 Mn to retrofit the machines which might see action in late 2009. In fact he is so delighted to have found the money he has announced it three times.

Throwing money out of helicopters

Now today the Bank of England has been rummaging in the drawers and found £50 Bn. (at least) because ... " banks have on their balance sheets an ‘overhang’ of these assets, which they cannot sell or pledge as security to raise funds. " ... these assets which they cannot sell or
pledge are mysteriously also " high quality mortgage-backed and other securities" (elsewhere
in the statement described as " illiquid assets ") which the BOE are going to swap for UK Treasury Bills.

The fundamental pinciple of preparing financial accounts in the UK is that they present a "true and fair view " (The US GAAP standard is "present fairly"). If the mortgage backed securities held by these banks cannot be traded or cannot be accepted as a pledge they have no value.

The Bank of England in accepting them as security (even with a "haircut" , the bankers quaint description of a discount) is accepting what no-one else will. They are doing it on behalf of the issuers of the bonds which they are swapping them for - the UK Treasury.

1.The banks have shown they can produce fraudulent balance sheets (Northern Rock - on which the Directors colluded to offer dividends in a criminal conspiracy. Ther is every reason to believe that other balance sheets have not similarly included such dishonest valuations of MBS and SIV's derived from them - which have boosted profits, dividends and bonuses. The Big "5" UK banks declared proffits of £37 Billion last year.

2. It has just been shown that in calculating LIBOR, the figures have been manipulated, altered, adjusted, fudged , deliberately to conceal the unwillingness of lenders / borrowers to undertake normal business - because, simply they cannot trust each other as they know the mutual and agreed frauds they have all jointly and severally committed.

3. The parties to these common frauds are still in place , the taxpayer through the BOE / Treasury are now willing to find £50Bn now and as far as can be ascertained unlimited funds in the future - which is at least of 3 years duration. ("Usage of the scheme will depend on market conditions. Discussions with banks suggest that use of the scheme is initially likely to be around £50bn. )

That the Treasury, which could not find £60 Mn for absolutely essential work on Chinooks for over 5 years could find £57 Bn (at the lasta ccounting ) for Northern Rock alone and now £50Bn is a fraud of immense proportions.

Literally worthless bits of paper are being offered by the same crooks that got us into this hole and accepted by the fools and incompetents in the Treasury / BOE and FSI who sat and watched it happen.

Finally today the 2 appealing Royal funsters have been meeting the victims of the ill judged, badly trained and badly supplied forces in Afghanistan and Iraq. They will shortly be sponsoring a fun charity event to raise money for a swimming pool to aid their recovery - many as a result forecast here Friday, January 27, 2006 Reid sends ill equipped troops to certain deaths in S Afghanistan

Regardless of the futilityor the illegality of any actions UK trooops may be involved in, we have, as a society a moral responsibility to equip and train our troops in the best way possible.

Instead we have been saving candle ends, de-pauperating the poorest with ill designed and heartless tax demands. Why ? So we can throw our money at the bankers.

21.04.08 BOE News Release Special Liquidity Scheme
21.04.08 BOE Special Liquidity Scheme: Information (22k) PDF
21.04.08 BOE Special Liquidity Scheme: Market Notice (31k) PDF

RBOS's CEO Fred Goodwin , 49 (£8Mn plus a year) issues his accounts for 2007 on Wednesday - Churchill and Direct Line are on the block £4-6Bn write offs are due to be disclosed, and a £10 Bn cash call on shareholders is expected, plus a savage cut in the divvy. The wunderkind's days are over.

Barclays is next ... do you want to lend them any money ?

PS to put £50Bn into perspective - Exxon Mobil last year posted the largest annual profit by a U.S. company -- $40.6 billion. = £20.3 Bn.

King of the Bank of England caused the Credit Crunch

The annual speech at the Lord Mayor’s Banquet for Bankers and Merchants
of the City of London at the Mansion House by the Governor of the Bank of England has a lengthy history - it is a tradition. It is the time of year when the Governor provides a broad review of past activity and future expectations. The Oracle speaks.

What he said last year at the Mansion House on Wednesday 20 June 2007 to the City Glitterati as they fumbled over their 3rd or 4th brandy, adjusted their weskits and lit up their vast cigars .... on expectations for inflation (and how totally fucking wrong they were) has been examined here before.

Our central view remains that inflation will fall back this year as the rises in domestic gas and electricity prices last year drop out of the annual comparison, and the recent cuts in prices feed through to household bills.

How wrong could he be ?

As ever, there is room for differences of judgement as to the appropriate level of Bank Rate – as shown by the differing views within the MPC. But every member of the Committee is determined to bring inflation back to target and keep it there – or as close to the target as possible – indefinitely.

So as a result he and the MPC have three times reduced Bank rate since then. ... resulting in what the Daily Mail has today ... (Brent is US$114 a barrel as the market open today)

Elsewhere he delivered a surprising (and in retrospect a shattering message) ...

Your decision to grant independence to the Bank of England ten years ago is widely and rightly regarded as a fundamental improvement to the conduct of economic policy in this country, and we in the Bank are grateful to you for giving us the opportunity to demonstrate the benefits of an independent central bank.

This is of course a delusion - for example King , 30 odd working days later he was asked by Loyds Bank to be allowed to take over Northern Wreck with support from the BOE but handed this hot potato very swiftly (within hours) to the Chancellor in the lievely expectation that he would refuse. Which he did.

Financial stability more generally is a topical concern in financial markets. More than
one banker and merchant in the City has said to me recently, “I cannot recall a time when credit was more easily available”. How worried should we be?

His answer takes some time to deliver - it is one that changed the world. It's force has been overlooked, misjudged and largely unheard.

Securitisation is transforming banking from the traditional model in which banks
originate and retain credit risk on their balance sheets into a new model in which credit risk is distributed around a much wider range of investors. As a result, risks are no longer so concentrated in a small number of regulated institutions but are spread across thefinancial system. That is a positive development because it has reduced the market failure associated with traditional banking – the mismatch between illiquid assets and liquid liabilities – that led Henry Thornton and, later, Walter Bagehot to promote the role of the Bank of England as the “lender of last resort” in a financial crisis.

Distributing credit risk around may spread it, but it fails to reduce it. The result is that the "the mismatch between illiquid assets and liquid liabilities" is further from understanding, monitoring and control. The total risk is the same but identification is more difficult and deliberate concealment on many, many more balance sheets, not only within the control of the FSA but often offfshore is not only made possible , but certain. Control by the Central Bank has evaporated.

New and ever more complex financial instruments create different risks. Exotic instruments are now issued for which the distribution of returns is considerably more complicated than that on the basic loans underlying them. A standard collateralised debt obligation divides the risk and return of a portfolio of bonds, or credit default swaps, into tranches. But what is known as a CDO-squared instrument invests in tranches of CDOs. It has a distribution of returns which is highly sensitive to small changes in the correlations of underlying returns which we do not understand with any great precision. The risk of the entire return being wiped out can be much greater than on simpler instruments. Higher returns come at the expense of higher risk.

Mervyn has identified the increase in risk - he fails to say what he intends to do about it, unless the key is here ...

Whether in banking, reinsurance or portfolio management, risk assessment is a matter of judgement as much as quantitative analysis. Ever more complex instruments are designed almost every day. Some of the important risks that could affect all instruments – from terrorist attacks, invasion of computer systems, or even the consequences of a flu pandemic – are almost impossible to quantify, and past experience offers little guide.

Then he adds a lesson we all learnt at a very early age... are we to assume this modest understatement encapsulates a policy ?

Be cautious about how much you borrow is not a bad maxim for each and every one of us here tonight.

The wonderfully understated double negative is a kicker - he continues....

The development of complex financial instruments and the spate of loan arrangements without traditional covenants suggest another maxim: be cautious about how much you lend, especially when you know rather little about the activities of the borrower. It may say champagne – AAA – on the label of an increasing number of structured creditinstruments. But by the time investors get to what’s left in the bottle, it could taste rather flat. Assessing the effective degree of leverage in an ever-changing financial system is far from straightforward, and the liquidity of the markets in complex instruments, especially in conditions when many players would be trying to reduce the leverage of their portfolios at the same time, is unpredictable. Excessive leverage is the common theme of many financial crises of the past.

To which he adds ..

Are we really so much cleverer than the financiers of the past?

So there we have it , Uncle Mervyn's Old fashioned Home Remedy for Financial Stability ...be careful how much you borrow - be careful how much you lend

The result ... well, 200 miles up the Great North Road the Northern Wreck were getting ready to ready to close their accounts for the half year 11 days later. Within a month the FSA had approved their Basle II arrangements so they could having seen a massive 40% growth in lending with a rise in attributable profits of less than 1% agree on a dividend rise (eventiually of course to remain unpaid) of 33%.

Nearer at home the rate at which bankers charged for interbank lending reflected Uncle Mervyn's Old fashioned Home Remedy for Financial Stability be careful how much you borrow - be careful how much you lend .... was kicking in.

36 days later Northern Wreck released their accounts and the shares dropped £1 in minuutes - a gleeful and unconcerned CEO had unloaded all his shares at the top of the market in January.

Another 9 days after that the gap between Bank Rate and Libor had reached the limit - the bankers had absorbed Uncle Mervyn's Old fashioned Home Remedy for Financial Stability - be careful how much you borrow - be careful how much you lend

The Bankers stopped lending and borrowing ....

Read the full speech here

The Banker's Money Pit swallows helicopter funds at an increasing and alarming rate. When do the Fed and the BOE run out of paper and printing ink ?

The quantity of money that the US Federal Reserve is prepared to throw out of the helicopters is truly staggering. Just to keep you up to speed , Banks and securities firms have posted losses exceeding $188 billion since the start of last year as the impact of surging defaults on subprime mortgages has roared through world financial markets like a tsunami on a Thai holiday beach.

That really is one helluva hole to fill.

That of course is merely the write offs they have made, what else is hiddden on their rotten fraudulent balance sheets ? What unrecoverable loans are there out there ? For example Barclays (on Dec 20th) are sueing (some fucking hope) Bear Stearns for US$400 Mn over 2 collapsed (and likely fraudulently run) Cayman Islands based Hedge funds.

Fed Chairman Bernanke started to fill up the bottomless money pit a day later on 21st December offering a measly Christmas present of US $20 billion, (Technically, the Fed auctioned off US$20 billion in loans - just to confuse they call it - Term Auction Facility TFA) which 93 banks bid for US$61 BN at a rate of 4.65% - which was a 10 basis points below the Fed's discount window at the time of 4.75%.

Then well after the Christmas turkey had been gobbled, he held some slightly more generous US$30Bn auctions , quickly followed by the promise of of 2 planned auctions on March 10 and March 24 of US$50 Bn. dollars - now he has anniounced the same unpleasant medicine for the moral hazardless bankers of a further US$100 BN in April - and the rumour is this will carry on at this rate until September. Or even at a higher level.."The Federal Reserve, shortly before the report was released, underscored its concern for the economy by saying it will pump more cash into financial markets to try to ease credit."

In an unorthodox move the Fed is llowing investment banks to borrow from it directly - a facility previously only the privilege of commercial banks. Presumably the loan of US$29 Bn. to J P Morgan for Bear Stearns made the process a mockery ... which is what it was.

The Fed's chairman, Ben Bernanke, will be quizzed about the auctions, by Congress next week, but they haven't got any bright ideas about what to do either . Does it have anything to do with the slide against the Euro? The yawning trade deficit ? The yawning budget deficit ?.. well never mind the suckers who voted will get their tax backs soon and everything , everything I tell ya will be fine.

Please don't anyone ask what happens when the Fed run out of pritning ink and paper.

Spring Break is just around the corner !!!!

This week there were concerted moves by central banks to bring down the Libor - the rate at which banks lend to one another - which stays stubbornly at levels that prevailed at the beginning of the credit crunch. As the banks are all liars and crooks, they won't lend to each other as they know all the other bankers are liars and crooks and they can't sucker the public much longer and stuff their fictuive balance sheets with illusory assets.

Its's no better in London

Bank of England governor Mervyn King met the Commons Treasury Select Committee on Wednesday, after the Bank put an extra £5bn into the market last week.

..." The Bank of England would continue to offer extra money in the markets as a short-term way of boosting confidence in the system," and added , confirming that they haven't a fucking clue what to do ..."The Bank of England would continue to offer extra money in the markets as a short-term way of boosting confidence in the system"

" longer-term solutions would be discussed with UK banks" .. i.e we will see if they have got any better ideas what to do.

..today the £ closed against the € down 0.092 or 0.75% @ € 1.26215 lowest ever.

The UK housing market has healthy demand boosted by insane planning laws, pent up demand from a ruising population, and fragmenting families - the market is sound although prices will rise more slowly (apparently only 1% nationally last year) and mortages will be more expensive. The insane HIP's , stamp duty, and other costs will help depress upward mobility and therfore market movement.

Wages will be held down, as inflation, led by energy and food costs will roar away pushed by global markets and forces.

Sterling will decline, against the Euro and end up at something like parity by Christmas. The decline against the dollar will be slower and shallower probably hitting US$1.80 at the same time.

Unemployment is such a fudged figure it is impossible to evaluate how it will be affected.

Constrained by the flow of funds Goverment spending will be hit, aircraft carriers, Nimrod, and asome submarines will go. The NHS will feel the pinch, transport subsidies will be cut ....

And Benranke and King the helicopter pilots will take a well cushioned early retirement.

Northern Rock -the sharks get bitten on the bum, but others join in for the kill...?

Philip Richards, is CEO of Hedge Fund manipulators RAB Capital. Philip Richards is "is one of the City’s most successful fund managers" (Bloomberg).

RAB Capital bought 6.66% of Northern Rock In September at 275 per share.They also bought some more to raise their stake to 7.1% on October 1st at 195p.

With the current share price at 82p each (ish) Mr Philips has lost his investors so far approx £40 Mn. (Lord Patel has fit of schadenfruede)

Jon Wood, the former UBS trader is CEO of SRM Global Master Fund a Monaco based hedge fund also bought 6.44% (27,131,125 shares) of Northern Rock on 21st November at 85p per share.

With their joint holding, they are threatening to make life difficult for Northern Rock, The Treasury, the FSA and the BOE - they could force an EGM (as owners of 10% of the company)....much goo it may do them.

It would be nice if they were told to fuck off - no such luck, as every day passes the prospect of the taxpayers £25 Bn (and rising) investment into the North East housing market being liquidated recedes....

Meanwhile the ECB is said to be ready to flood Europe with funds this coming week....

Wall Street Journal today ;

" Euro-zone banks are hoarding cash in moves reminiscent of August, pushing up short-term borrowing rates and prompting the European Central Bank to say on Friday it will pump extra funds into markets next week and through the beginning of next year, if necessary." (1st time since September 6th)

".... three-month U.S. dollar London interbank offered rate, or Libor, is also rising. It was quoted Friday at 5.04%, compared with 4.98% on Monday."

The only rational solution is for the BOE to assume control over NR (by legislation if necessary), neither the Gubment or the BOE can allow blackmail or sale with no or little prospect of recovery of the loans made.

Only be nationalisation and run-off / sale of the loans can they be assured of recovering some of our money. King should demand this or resign ... failing that he should be strung up outside Threadneedle Street as a warning against talking about "moral hazard" and not having the balls to really stand up and be counted.

Meanwhile Lord Patel draws your attention to his post on August 13th Lombard Street. Walter Bagehot 1873 before all this was made public and just a week after the NR Board and the BOE were talking secretly about loans of £30Bn.... 2 weeks after the Board had declared a divided rise of 33% on the basis of increased profits of 1%.

Bagehot wrote ...

"...[a very high interest rate] will operate as a heavy fine on unreasonable timidity, and will prevent the greatest number of applications by persons who don't require it. The rate should be raised early in the panic, so that the fine may be paid early; that no one may borrow out of idle precaution without paying well for it; that the banking reserve may be protected as far as possible."

Too little and too fucking late and now we all pay the fucking price of their "timidity".

Adam Applegarth interview on June 28th - a revealing glimpse into the mind of a financial criminal

Adam Applegarth CEO (now almost EX CEO) of Northern Rock gave an interview published on June 28th on "Thisismoney.co.uk.

This was 2 days before the period end when six month interim accounts were drawn up by the Directors, and just after the company isued a profits warning.

It is worth remembering that he had sold on Lord Patel's birthday 25th Jan 2006 52,253 shares @ 957p = £500,061.21 and the next day 111,426 shares @ 957p = £1,066,346.82).

April 2007 he bought under a company wide share scheme 262 shares for a approx £3,000...

Quotes :

"All of Applegarth's wealth is tied up with Northern, where he has his mortgage, current account and his company pension. "

"I genuinely think Northern Rock shares are a steal, so to a certain extent we are vulnerable because we are small. Of course it would be good to remain independent, but we are a PLC and I am not the master of that destiny. "

"Bear Stearns reckons fast-growing Northern's business model is flawed in the current environment, when Libor is accelerating faster than the Bank of England base rate. "

"This is the stickiest rate environment there could be for us, yet we are still getting a 15% profit increase. But that kind of gets lost in the wash," ( The 6 months results showed a profit increase of 1%)

"There are always good days and bad days,' he smiles. The bitterness of the profit downgrade was sweetened by Northern finally receiving its Basle II waiver yesterday, which will release spare capital and pave the way for 'a huge increase in dividends and share buybacks" (The 6 months accounts incorporated a dividend increased by 33%.)

Northern Rock plc - Down’s Syndrome North East Association (UK) - Granite "securitisation" and the duties of the Directors of Northern Wreck- a puzzle

STOP PRESS
At 4.45 pm BST it was announced that Northern Rock Directors have stopped payment of the Interim dividend. The Directors are believed to have now bowed to pressure from the Financial Services Authority and the Treasury not to make the payment of £ 59. It is expected to confirm the decision later today.WHY DID IT TAKE SO FUCKING LONG ???
Daily Telegraph

You might at some time have picked up a Prospectus (but it's unlikely)...


TF ? Well it's an offer for a series of notes that pay interest which is determined by referral to the USD LIBOR rate. These are complicated bits of paper and the prospectus is 344 pages long and requires a 43 page Glossary of defined terms - Pages 297 - 340 ..... for example an "insolvency event" takes 3 pages (297-281) to explain. (read all 344 page pdf here) .. and a good tax accountant, corporate lawyer, plenty of stiff drinks and lot of time. (click to enlarge)
You can save all that if you consult Richard Murphy, Accountant, sometime writer on tax affairs for the Observer who has appeared in BBC radio and television documentaries on taxation issues at his website - or at least a post entitled "Northern Rock - The Questions Needing Answers" posted on Monday September 17th. This provides you a detailed and lucid, (and thankfully) brief explanation of how these bits of paper slot into the Balance Sheet (or not as the case may be) of Northern Rock plc representing, as they do £40 Bn worth of mortgages held by customers of Northern Bank plc.

Briefly , Granite Finance Holdings and a clutch of subsidiaries of that entity is owned by a body called The Law Debenture Intermediary Corporation plc which is a Law Debenture Company which has offices in London, NewYork,Delaware,HongKong,the Channel Islands and the Cayman islands and they work very hard with their teams of lawyers and financial prestifigitators to provide what the wizards of international finance call "special purpose vehicles".

Granite and all within it is owned by them and NOT Northern Bank plc. but it does so as a Trustee and it acts as a Trustee you might be astonished to find, if you have a mortgage on your sweet little 3 bed semi in Nuneaton , as follows..

The entire issued share capital of Holdings is held on trust by a professional trust company under the terms of a discretionary trust for the benefit of one or more charities. The professional trust company is not affiliated with the seller - as the prospectus says (Page 47 of pdf) ..

The entire issued share capital of Holdings is held on trust by a rofessional trust company under the terms of a discretionary trust for the benefit of one or more charities. The professional trust company is not affiliated with the seller. Any profits received by Holdings, after payment of the costs and expenses of Holdings, will be paid for the benefit of the Down’s Syndrome North East Association (UK) and for other charitable purposes selected at the discretion of the professional trust company. The payments on your notes will not be affected by this arrangement.

However the 2006 Accounts state..

Basis of consolidation

The financial information of the Group incorporates the assets, liabilities, and results of Northern Rock plc and its subsidiary undertakings (including Special Purpose Entities). Entities are regarded as subsidiaries where the Group has the power to govern financial and operating policies so as to obtain benefits from their activities. Inter-company transactions and balances are eliminated upon consolidation.

In other words that trust is not real says Paul Murphy - Northern Rock plc controls Holdings, but pretends not to via complex legal structures for certain purposes to try to avoid some of the risk of ownership arising from doing so, no doubt. It is a legal charade.

Which goes along way to explaining why when the HM Treasury announced their gurantee arrangements on Thursday 20th September they excluded -

"The arrangements would not cover other debt instruments including:
1. Covered bonds
2. Securities issued under the “Granite” securitisation programme
3. Subordinated and other hybrid capital instruments. "

Paul Murphy says that this exposes three thing ..

a) An abuse of the charity involved, who (he stresses) need not even have given their assent to be used in this way;
b) A contempt for those who take the real risk on financial markets, which is at the end of the day as this fiasco is showing, you and me and the government;
c) The construction of an arrival device to ensure that as few people as possible, almost certainly the Northern Rock directors included, know just how this deal works. I guarantee you it’s a tiny number that do.

And it’s this wholly artificial construction, seeking to shift liability and to avoid responsibility and abusing common sense decency with regard to the abuse of charity to achieve commercial aims that is pulling Northern Rock down.

After some further pondering / reading Paul posted again on 21st September entitled Northern Rock - those in the queue were right

He raises a beguilingly simple question :

Why did Northern Rock create such a complicated structure for its debt?

The answer is this:

So that it could put the claims of its depositors below those of the City if anything went wrong with the company.

He goes on to point out forcibly that the fact is ,that if Northern Wreck did fail to find a buyer , and go down , the 40% of securitised loans in the Granite companies and £30 odd billion in the ‘wholesale’ and ‘covered’ notes (excluded from the Treasury guarantee remember) would all have a prior claim against the assets because of the way in which they were constructed.

The people guaranteed to lose were the ordinary depositors of Northern Rock.

Because of the absurdly low capital structure of this so called bank following its demutualisation a decade ago whilst the shareholders were always high risk takers in this game, they were vastly outnumbered in value by the depositors. Did those depositors know quite how much risk they were taking when lending funds to such an organisation?

So Paul explains the depositors were actually at massive risk - and he says the shocking thing is no-one was told this...

1) The FSA did not say this - well not out loud and in public;
2) The Bank of England have not said this - well not out loud and in public;
3) The Treasury have not said this - well not out loud and in public. In fact, they went out of their way to say the exact opposite for several days.

The reality must be that each of these knew that the depositors in this organisation were being exposed to excessive and unreasonable risk because its directors had exposed them to it, deliberately.

Chairman Matt Ridley (£315,000 pa.) wrote to MP's yesterday (Full text here) like a good Geordie whinger he says..."We have not been a reckless lender."...."The board is well aware of its responsibility to its many shareholders..." ..." Our 6,300 staff have worked extraordinarily hard".. no doubt they have and will continue to do so in fear of their future employment (Un burdened like the CEO with a £2.3 Mn Pension Pot) ... but not a mention of their responsibility and concerns for their depositors.

In a final flourish he writes ..."our priority is to find the best way forward for our customers, our shareholders and our staff." ... and presumably the depositors must shift the best they can with the half cock and as yet still undefined Government guarantee.

The frightening thing is that this "structured finance" is happening every day, every where in this global financial world. Banks everywhere have been involved in this massive carousel of complicated entities by which they aseek to reap the rewards and avoid the risks.

Slowly the whole hocus pocus falling apart ... Bear Stearns before the New York Bankruptcy Court and Judge Lifland discovered that their 2 bankrupt Hedge Funds Bear Stearns High- Grade Structured Credit Strategies Enhanced Leverage Master Fund Ltd., 07-12384, and its sister Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd., 07-12383 could not seek protection U.S. lawsuits because Judge Lifland said ..

"The only adhesive connection with the Cayman Islands that the funds have is the fact that they are registered there,'' ... "There are no employees or managers in the Cayman Islands, " he added in his written judgement," the investment manager for the funds is located in New York, the administrator that runs the back-office operations of the funds is in the United States along with the funds' books and records, and prior to the commencement of the foreign proceeding, all of the funds' liquid assets were located in the United States.''

Page 48 of the Granite prospectus states that ..

The mortgages trustee
Granite Finance Trustees Limited is a private limited company incorporated in Jersey,
Channel Islands. Its registered office is at 22 Grenville Street, St. Helier, Jersey JE4 8PX.

Granite Finance Trustee Limited is a subsidiary of Granite Finance Holdings Limited - which is described above who hold the shares in trust for - Down’s Syndrome North East Association (UK) .

Material Jersey (Channel Islands) tax considerations (prospectus page 283)
Tax status of the mortgages trustee and the mortgages trust
It is the opinion of Jersey (Channel Islands) tax counsel that the mortgages trustee
will be resident in Jersey for taxation purposes and will be liable to income tax in Jersey at a rate of 20% in respect of the profits it makes from acting as trustee of the mortgages trust. The mortgages trustee will not be liable for any income tax in Jersey in respect of any income it receives in its capacity as mortgages trustee on behalf of the beneficiaries of the mortgages trust.

Down's Syndrome North East
Down’s Syndrome North East are a charitable, parent led volunteer organisation with a membership of over 300 families - they had a website - www.DownsSyndromeNorthEast.org. which is closed and used to have a contact 0191 5250233 or a defunct e-mail adress RachelBarron@DownsSyndromeNorthEast.org.uk


This information was obtained from the Easter 2007 Easter Network News letter ther will be more later ... this is what Matt Ridley said to MP's in his letter to them yesterday ..


The board is well aware of its responsibility to its many shareholders, including tens of thousands of small shareholders, as well as to our largest shareholder, the charitable Northern Rock Foundation, to which we give a unique 5% of pre-tax profits to support good causes in the North East, especially those working on social deprivation.

Like £2 Mn a year to Newcastle United etc.,... Rugby ....

Northern Rock - declaring Dividends, lining pockets, failing to declare insolvency, deceiving shareholders, mortgage holders and the public J'accuse !

The Basel Committe on banking Supervision are responsible for issuing Basel II -a set of recommendations on banking laws and regulations which aim to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face.

The stated intention is to protect the international financial system should a major bank or a series of banks collapse.

This translates into a set of risk and capital management requirements which have been designed so that baks holds capital reserves appropriate to the risk the bank exposes itself to through its lending and investment practices.

The general principle being, that the greater risk, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability.

What is currently the final version to date was issued on July 4th 2006 with three aims (or pillars in the jargon);

1. To ensure capital allocation is more risk sensitive
2. To Separating ad quantifying operational risk from credit risk
3. Attempting to align economic and regulatory capital more closely to reduce the scope for regulatory arbitrage (This is the situation where a regulated institution takes advantage of the difference between its real (or economic) risk and the regulatory position - e.g re-locating a business in a less regulated / tax zone - Virgin islands, Jersey etc.,)

95 national regulators indicated they were to implement Basel II, in some form or another, by 2015 which indicates that there was not perceived to be any desire to rush the implementation of the new and updated protocols.

This is what the Financial Services Association say about Basel II on their website (Page last updated 23/05/07) ...(inter alia)

This revised capital adequacy framework will further reduce the probability of consumer loss or market disruption as a result of prudential failure. It will do so by seeking to ensure that the financial resources held by a firm are commensurate with the risks associated with the business profile and the control environment within the firm. The new Basel Accord will be implemented in the European Union via the Capital Requirements Directive (CRD). It will directly affect banks and building societies and certain types of investment firms. The new framework consists of three 'pillars'. ....


This is what the CEO Adam Applegarth said on Page 4 of the Interim results published July 26th.. (Warning 40page pdf)

"We are pleased to have achieved approval for use of our Basle II rating systems. This means that the benefits of Basle II enable us to increase our 2007 interim dividend by 30%. Going forward our dividend payout rate increases to 50% of underlying EPS from around 40%. "

..after having said in a prior pragraph....

"The outlook for the full year is being impacted by sharp increases in money market and swap rates seen in the first half. This has resulted in a negative impact on net interest income as mortgage pricing in the market generally has lagged behind increases in funding costs in the year to date. "

On Page 15 of the report is the announcement of the details of the dividend declared by the Directors, based on their view of the company, it's capital base, solvency, market conditions, future prospects, cash flow etc.,...

Dividends

The introduction of Basle II, which requires less capital to support new lending, also enables a review of the Company’s dividend policy. It is proposed that for 2007 and beyond, dividends will be maintained at a payout ratio of around 50%. The interim dividend therefore increases by 30.3% to 14.2p (2006 - 10.9p) payable on 26 October 2007 to shareholders on the register on 28 September 2007.

It is interesting therefore that on Wednesday June 27th - 3 days before the Accounts were drawn up, and one month before the Directors (who hold some 340,000 shares) declared a 30% dividend increase that the Guradian reported.. under the headline -"Northern Rock in a hard place "written by Rupert Jones

"Shares in Northern Rock tumbled more than 10% today after it issued what was effectively a profit warning, conceding it had mispriced its mortgages.

Britain's eighth-biggest bank said its underlying profits were likely to rise 15% this year to about £422m - below analysts' average forecast of 17% growth to about £430m.

At one point this morning the shares were down by almost 14%, at 832p. They closed down 113.5p at 834p....



The bank said expectations for higher UK interest rates "have risen further than anticipated". As a result, it is suffering from a "structural mismatch between Libor [London inter-bank offered rate] and bank base rates".


It warned that higher funding costs, delays in pushing through the rate rises to borrowers on fixed-interest mortgages and other factors would cost the group up to £200m in net interest income. This will be partially offset by other gains of up to £50m. " (Ends)



Therefore it is not difficult to see why ..

1. The Directors have consulted Freshfields about issuing and paying the declared interim dividend.

2. That many people expect the interim dividend will not to be paid.

3. That many people believe the declaration of the dividend in the circumstances was reckless.

4. That this indecision has led to a false market in the shares as no-one can be cetain that a dividend will be paid.

5. That the FSA should have acted to clarify the position at some time between today and when the Directors first approached the Bank of England for financing.

6. That a view can be taken that the Directors have prepared false accounts.

7. That the haste in adopting , what appears to be the more relaxed Basel II standards they seized an oportunity to declare a dividend and thereby put the future of the business at risk - bearing in mind what the FSA say - "It will do so by seeking to ensure that the financial resources held by a firm are commensurate with the risks associated with the business profile and the control environment within the firm. " The quoting of the Basel II standards merely confusing the vast bulk of shareholders and providing a spurious and quasi lega authenticity to their actions - one which slipped by the Rolls Royce minds of the BOE and the FSA.

8. That the Directors are not "fit and proper" to run the business and the FSA should suspend the share price and direct the necessary operations to put the business in the hands of managers capable of managing the business so that it does not put the enterprise at risk.



Matt Ridley (Chairman at £300,000 a year and Adam Appelgarth (£1.2 Mn , plus divvies plus a fat pension) and their fellow Directors have a great deal of explaining to do - not only to their shareholders, but their mortgage holders, and the public at large.

.. and so have the FSA, the Bank of England and the Chancellor of the Exchequer past and present.