Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: elmatador who wrote (28751)	1/29/2008 1:56:12 AM
From: Elroy Jetson	Respond to of 219831

In nations with central banks, the central bank always stands ready to provide complete liquidity to pay depositors to stem bank runs. In the case of Northern Rock, the Bank of England provided liquidity to replace the 44% of deposits which were ultimately withdrawn, a total of £10.5 billion. Because of the central bank, Northern Rock never had a liquidity problem. Ultimately the Bank of England guaranteed 100% of all deposits at Northern Rock, so once again because of the Bank of England, Northern Rock never had a liquidity problem. The actual problem faced by Northern was they were insolvent. Their assets included 27% subprime mortgages. The market price of these assets, roughly 1/3 of face value, were so low that it wiped out the bank's capital. Perhaps the assets are worth slightly more and Northern Rock has a modest value. Regardless, it is so close to bankrupt that they cannot continue on their own without long term assistance. When the bids from potential buyers are received one week from today on February 4, we will learn if Northern Rock is insolvent at a loss the Bank of England, or if bidders are willing to actually pay £1 or more for Northern Rock. There is no liquidity problem when you have a central bank which guarantees liquidity. But many banks are close to being insolvent, which is why banks like Citibank are scrambling to raise capital. .

To: elmatador who wrote (28751)	1/29/2008 2:19:28 AM
From: Elroy Jetson	Read Replies (1) \| Respond to of 219831

What did banks mean when they said there is "no liquidity" in the secondary market, when the subprime problem hit the headlines? What they meant was, when they tried to sell their mortgage assets on the open market they were offered substantially less than full value, say 25%, or often nothing at all! If you believe there is a liquidity problem in the subprime bond market, then put your personal savings, aka your liquidity, to the test. Buy some of these mortgage bonds and watch your money quadruple as the homeowners send in their payments in full - or not. I'm confident this is an insolvency problem and many of these loans will never be repaid. So I'd recommend against buying these discounted bonds. But if you believe its a liquidity problem you'll make big profits. Keep us posted at to which heavily discounted mortgage bonds you decide to exchange your liquidity for. .