ARmy Rumour SErvice

**Wordsmith** · 07-10-2011, 09:07

Originally Posted by Alsacien

You are impressed by journalists, not a very high bar....

Why on earth would I want to refer to newspapers when I spend all day getting it from the horses mouth?

I'm even more impressed by reports from the Bank of England, the French statistics agency (Insee), etc. I presume that they know what they're talking about.

And a simple exercise for the curious.

Here's the WSJ article.

France Lowers Outlook, Sees Italy, Spain Slump - WSJ.com

And here's the report from the French statistics agency (Insee) that they quoted:

http://www.insee.fr/en/indicateurs/analys_conj/archives/october 2011_ve.pdf

You can make up your own mind as to how accurate the journalism was. Me, I'd say that the newspaper story was a fairly accurate reflection of the contents of the French report.

I'd also say such original reports (which are often written for a lay audience) are a good resource to understand the facts behind the current headline stories.

I do the people that post on this thread the courtesy of assuming they have minds of their own and are capable of drawing their own conclusions from the available information...

Wordsmith

**Alsacien** · 07-10-2011, 09:12

Originally Posted by Wordsmith

I wonder how much Mervyn King knew about this and whether it prompted the announcement of QE2 yesterday (my bold).

Moody's downgrades 12 UK financial institutions, concluding review of systemic support

And the institutions in question:

Wordsmith

Of course it was known, even the timing is agreed.

**Alsacien** · 07-10-2011, 09:18

Originally Posted by Wordsmith

I'm even more impressed by reports from the Bank of England, the French statistics agency (Insee), etc. I presume that they know what they're talking about.

Wordsmith

The Bank of England, but not the Banque de France? You seem to be selective if the views do not support whatever weird perspective you are trying to portray....

**Alsacien** · 07-10-2011, 09:19

Originally Posted by lsquared

'Wordsmith', is there anyway that you are able to 'translate' the above into a language that an old (very old) soldier can understand? Obliged if you could. How does it affect savers in the firms listed (Nationwide)?

Give him time to Google it and he'll be right back....

**Wordsmith** · 07-10-2011, 09:19

Originally Posted by lsquared

'Wordsmith', is there anyway that you are able to 'translate' the above into a language that an old (very old) soldier can understand? Obliged if you could. How does it affect savers in the firms listed (Nationwide)?

Moodys are saying that there is no current systematic risk to the UK banking system - because the Bank of England stands behind it. However, there is a risk that the UK government will let some of the smaller, less important building societies fail. Moodys have split the financial institutions into three classes;

- Banks with a very high likelihood of support
- Banks with a moderate or high likelihood of support
- Institutions with a low or no likelihood of support

It's the latter class where Moody's say the financial risk is higher and where the downgrades have been most severe. Here's the Moody's list.

Those affected by today's rating action are Newcastle, Norwich & Peterborough, Nottingham, Principality, Skipton, West Bromwich and Yorkshire. Moody's considers that there is insufficient certainty surrounding the likelihood and extent of support available over the medium-term to the senior creditors of rated building societies smaller than Nationwide, which all have very small nationwide market shares.

However, your deposits in these building societies are guaranteed up to £85,000 by the government, so most of us mere mortals have no immediate worries. If there is a problem with these smaller building societies it will affect wealthier investors with over £85,000 in a single account.

The biggest risk currently comes from outside the UK where some of the Euro zone banks are looking a bit shaky. We are not directly involved with those, but we will take collateral damage if any of them go splat.

Wordsmith

BTW - my mortgage is with Nationwide - as are some of my savings. I'm fairly relaxed about that...

**Wordsmith** · 07-10-2011, 09:23

Originally Posted by Alsacien

The Bank of England, but not the Banque de France? You seem to be selective if the views do not support whatever weird perspective you are trying to portray....

As was discussed with you earlier by another poster, the Banque de France was pretty selective in its use of statistics - treating the Eurozone as a monolithic whole and ignoring the fact that some of the members (i.e. Greece) are on the verge of a financial crisis.

If you go back a few posts, you'll see I put in a link to a recent speech by the Banque de France's head in Tokyo...

Wordsmith

**lsquared** · 07-10-2011, 14:08

Originally Posted by Wordsmith

Moodys are saying that there is no current systematic risk to the UK banking system - because the Bank of England stands behind it. However, there is a risk that the UK government will let some of the smaller, less important building societies fail. Moodys have split the financial institutions into three classes;

- Banks with a very high likelihood of support
- Banks with a moderate or high likelihood of support
- Institutions with a low or no likelihood of support

It's the latter class where Moody's say the financial risk is higher and where the downgrades have been most severe. Here's the Moody's list.

However, your deposits in these building societies are guaranteed up to £85,000 by the government, so most of us mere mortals have no immediate worries. If there is a problem with these smaller building societies it will affect wealthier investors with over £85,000 in a single account.

The biggest risk currently comes from outside the UK where some of the Euro zone banks are looking a bit shaky. We are not directly involved with those, but we will take collateral damage if any of them go splat.

Wordsmith

BTW - my mortgage is with Nationwide - as are some of my savings. I'm fairly relaxed about that...

Many thanks - crystal clear. Luckily I no longer have a mortgage but I do have savings with Nationwide and others - mainly HSBC. Again, thanks for your explanation.

**4(T)** · 07-10-2011, 16:22

Anyone happen to know whether any UK banks do a USD account that is covered under the £85k government guarantee? I know some of the high street thieves do offshore USD accounts, but AFAIK they are not protected.

(The old man lives in Spain, where he has a small pot of USD on deposit with a local bank. The Spanish bank manager has quietly advised him to move the funds elsewhere....)

**old_nis** · 07-10-2011, 23:21

I would not advise anyone to hold US Dollars. There are many better currencies to hold, and for reasonably small quantities (say, £2000 worth) you can buy via any Bureaux de Change. My recommendation (DYOD, of course, I am no longer a financial adviser) would still be Swiss Francs. Although the Swiss have said they are going to peg their currency to the Euro, this is to hold a cork underwater. When the Euro falls too far, the Swiss may have no option but to cut their currency free, and it will bob up quite nicely. All fiat currencies are rubbish compared with silver, gold, platinum and palladium, but I would bet on the Swiss Franc to be the "last man standing", and at least it's not the GBP. Chinese Renminbi would also be nice...

**Wordsmith** · 08-10-2011, 08:35

Economics is a subject I've had an on-off interest in over the years, but I try to improve my understanding by seeking out better sources of information. I've just found a very useful glossary on the BBC website. This explains commonly used terms in finance and can be found at:

BBC News - Financial glossary: A-C
BBC News - Financial glossary: D-H
BBC News - Financial glossary: I-M
BBC News - Financial glossary: N-R
BBC News - Financial glossary: S-Z

Here are a few examples of useful definitions I suspect we might be hearing a lot of in the next few months:

Debt restructuring A situation in which a borrower renegotiates the terms of its debts, usually in order to reduce short-term debt repayments and to increase the amount of time it has to repay them. If lenders do not agree to the change in repayment terms, or if the restructuring results in an obvious loss to lenders, then it is generally considered a default by the borrower. However, restructurings can also occur through a voluntary debt swap, in which case it can be very hard to determine whether it counts as a default.

Default Strictly speaking, a default occurs when a borrower has broken the terms of a loan or other debt, for example if a borrower misses a payment. The term is also loosely used to mean any situation that makes clear that a borrower can no longer repay its debts in full, such as bankruptcy or a debt restructuring.

EFSF The European Financial Stability Facility is currently a temporary fund worth up to 440bn euros set up by the eurozone in May 2010. Following a previous bail-out of Greece, the EFSF was originally intended to help other struggling eurozone governments, and has since provided rescue loans to the Irish Republic and Portugal. More recently, the eurozone agreed to broaden the EFSF's mandate, for example by allowing it to support banks.

Liquidity crisis A situation in which it suddenly becomes much more difficult for banks to obtain cash, due to a general loss of confidence in the financial system. Investors (and, in the case of a bank run, even ordinary depositors) may withdraw their cash from banks, while banks may stop lending to each other, if they fear that some banks could go bust. Because most of a bank's money is tied up in loans, even a healthy bank can run out of cash and collapse in a liquidity crisis. Central banks usually respond to a liquidity crisis - as they did in 2008-09 - by acting as "lender of last resort" and providing emergency cash loans to the banks.

Recapitalisation To inject fresh equity into a firm or a bank, which can be used to absorb future losses and reduce the risk of insolvency. Typically this will happen via the firm issuing new shares. The cash raised can also be used to repay debts. In the case of a government recapitalising a bank, it results in the government owning a stake in the bank. In an extreme case, such as Royal Bank of Scotland, it can lead to nationalisation, where the government owns a majority of the bank.

I personally found it quite an interesting read.

Wordsmith