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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum
GLD 445.60-10.1%Jan 30 4:00 PM EST
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To: Snowshoe who wrote (22720)9/18/2007 2:38:53 AM
From: Elroy Jetson  Read Replies (1) of 219928
 
Obviously taking a period of time to get your money back is not a full guarantee. With the FDIC they typically announce the bank is closed and will re-open the next day as the branch of a different bank with the same account numbers.

Its also obvious that Northern Rock's shareholders are pretty rational in selling off their shares at a steep discount. They will take a big hit. Northern Rock operates like Countrywide Bank in the US. This is, they make loans and sell them off to the secondary market, which is now closed.

Countrywide needed a small amount of additional capital to keep the loans already committed to, which had not been sold yet. But neither Countrywide nor Northern Rock are in a position to keep originating loans without either the secondary market or lots of additional capital. This means the business is worth much, much less to shareholders - but depositors are safe. Countrywide has obtained additional capital to operate on a modest level, but they are still worth far less than they were.

The bottom line is that home loans of the type previously available from Countrywide and Northern Rock are no longer available in quantity. This means home prices take a big hit - but not bank depositors.

It would take a massive amount of new money to keep making home loans on the same basis without the secondary market buying. Japan did this with the Home Lending Corporation, America and the UK should not - and almost certainly will not.
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