A pattern is starting to emerge

France\’s government has stepped in to rescue the floundering banking group Crédit Immobilier de France after the search for a buyer failed.

The move came after the credit-rating agency Moody\’s downgraded CIF, which has been up for sale since May after what it described as a \”liquidity crisis\”.

Another bank bust eh? All that high speed trading, that socially useless part of investment banking no doubt.

CIF, which specialised in mortgage lending to less privileged families, encountered problems when previously cheap funding from credit markets, on which it depends to finance its operations, dried up. A €1.7bn (£1.34bn) covered bond is due to expire in October.

Oh. So it\’s Northern Rock instead. Plain old mortgage banking killed by a funding mismatch. Well, obviously, we\’ve got to tax the high speed trading, bring the investment banks to heel, just to show that they had nothing at all to do with this.

12 thoughts on “A pattern is starting to emerge”

  1. Being able to afford a mortgage is a privilege, of course. No-one should be deprived of a mortgage purely on grounds that they can’t afford it. That’s why the bank needed the cheap finance. If the wicked capitalists hadn’t pulled the plug on cheap finance, the socialist French government wouldn’t have had to step in to ensure that families that can’t afford mortgages can continue to get them. Terrible, innit?

  2. @ Diarmid Weir
    You just don’t get facts, do you? Northern Rock had abandoned prudential lending standards in order to expand very fast. I had pointed out, more than a year before the son of a New Labour Peer triggered a bank run on Northern Rock, that its accounts showed that it was losing money on its unsecured lending, despite Applegarth’s song. Its alleged failure had *nothing* to do with Lehman Brothers etc – if you care to do *any* research whatever you will find that NR was not actually insolvent when Darling expropriated it.

  3. @john77

    ‘Its alleged failure had *nothing* to do with Lehman Brothers etc ‘

    You were right to put inverted commas on ‘nothing’. You are right that NR was not insolvent – it was a crisis of liquidity. Why was there a liquidity crisis? Here’s what the Parliamentary Report said:

    ‘Soon after inter-bank and other financial markets froze on 9 August, it became evident
    that Northern Rock would face severe problems if the markets were to stay frozen for long.
    The problems were especially severe for Northern Rock because its funding model required mortgage-backed securities and plain mortgages to be securitised, and its next
    securitisation was scheduled for September 2007.’

    Sure they were playing on the edge, but it wasn’t NR that made ‘inter-bank and other financial markets’ freeze all on their own. What’s your stake in this game?

    Tim adds: What stake in what game?

    1) I’ve been pointing out for years that what killed NR was that they couldn’t fund the mortgages they had already granted in the gap before the next securitisation. They were illiquid and they suffered a wholesale run. Which is pretty much what you say above so I’m unsure as to where we disagree.

    2) Lehman went bust in Sept 2008. NR in Aug 2007. In the absence of time machines I’d say the second was not a result of the first in that list.

  4. The implication of what you and john77 are arguing is that the behaviour of the investment banks (including Lehman Bros before their collapse) had nothing to do with the global liquidity crisis and its consequences. NR were of course particularly vulnerable to this crisis – especially in retrospect – but what happened to it cannot be seen as an isolated phenomenon.

    The ‘game’ here appears to be to get investment banking off the hook. Why?

    And it’s courteous to write your own comments – even on your own blog!

    Tim adds: My blog, my way. I’ve been adding comments like this for 8 years now. I have decided that this is indeed courteous.

    “Getting investment banks off the hook”. Why should I want to do that? No investment banks in London went bust. There was a commercial bank that fell over after a stupid takeover, several banks that failed on their mortgage books (no, not even CDOs and the like, just plain old vanilla mortgages) and several building societies.

    What hook are the investment banks on?

  5. ‘I have decided that this is indeed courteous.’

    Oh well – I stand corrected then!

    ‘What hook are the investment banks on?’

    ‘Banking’, not any specific banks. A lot of RBS’s problems were from ‘structured credit’ – held by themselves and ABN-AMRO. The ‘hook’ is Vickers, an FTT and other regulatory changes. Why focus on London when your original post was about a French bank? And is whether banks go bust the only criterion of interest?

    If you and john77 are not shilling, then what is the point you are trying to make?

  6. Regarding where Tim puts his replies – it can be inconvenient for readers to follow a thread, in that Tim’s replies don’t follow the time order of the other posts. But his replies always personally address the commenter, and it’s far easier to spot his replies this way (in a busy thread replies would otherwise get lost). In that respect it’s certainly more courteous to whomever Tim is replying to, and since his replies are personal transactions that is what matters.

    The fact Tim doesn’t censor critical replies (unlike certain other bloggers we know), that he does at least occasionally admit it when he’s been caught out (especially on stuff he doesn’t know much about), and that he takes time to explain his thinking in replies, is why I enjoy his blog despite usually disagreeing with him.

  7. DW: Northern Rock’s failure was the result of its high-risk business model. In August 2007 it found itself unable to roll the short-term loans it was foolishly relying on, because the markets became justifiably suspicious of the quality of its mortgage portfolio.

    I’d be grateful if someone who asserts that NR was not insolvent would explain just what they mean by that. It seems to me that the mark-to-market value of its assets was insufficient to cover its liabilities. If that were not the case, the government would not now be looking at a loss in the range from half to two billion pounds.

    Tim’s commenting policy is up to him. Personally I’d find it helpful if he would notify me when he adds his remarks to my comments.

  8. @PaulB

    ‘…because the markets became justifiably suspicious of the quality of its mortgage portfolio..’

    They became suspicious of all securitised mortgages and all their fellow banks! Sure NR ended up a mess, although without the credit freeze, they may have got away with it. That’s a counterfactual we’ll never know.

    But my main issue is with the idea that none of this whole story had anything to do with investment banking activity.

  9. Banks were still lending to each other in August 2007, albeit at higher rates than previously. But they weren’t willing to lend to Northern Rock.

    If you build a house out of straw and it gets blown down in the first strong wind, you can blame the wind if you like…

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