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LQD: Anglo Disease: Another Symptom?

by ChrisCook Sat Jan 19th, 2008 at 11:58:09 AM EST

It's probably been remarked upon here before and I missed it but a recent article Lenders to rely on Funding Models tells us that despite the Northern Rock fiasco lenders are going to continue to rely on wholesale funding.

My question is: do they have any choice?

Or is another symptom of the Anglo Disease the fact that the retail depositor is a dying breed, and that the people in whose hands wealth is concentrating don't tend to have a deposit account with the Chipping Sodbury Building Society?

I find this an interesting and depressing comparison.

The group said UK lenders had traditionally used savings deposits to fund their mortgage business, but raising money through the wholesale markets had become increasingly popular in recent years.

It said during 2000 wholesale markets accounted for an average of just 27.8% of all funding, but by the first half of 2007 this had nearly doubled to 47.8%.

Scratch my head as I might, I really cannot see any way - in the current paradigm - how this trend could be reversed.....

Well I think there are two potential pressures here:

One is a decline in "retail saving" due to concentration of wealth in the hands of those who don't do much "retail saving." Another aspect might also be the growth of alternative investment options for the middle class also.

Alternatively, all we know is that they don't have the deposits to back the loans they make. But that could be because they have worked hard to make many more loans than before?

I'll try to dig out some figures on "retail deposits."

by Metatone (metatone [a|t] gmail (dot) com) on Wed Jan 16th, 2008 at 07:19:44 PM EST
I wonder how interested some of these institutions really are in retail saving business. Though the cost of the money itself is lower, the banks have to bear the expenses for branches and <gasp> people to run them - elements that seem to be irreconcilable with modern business plans.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
by dvx (dvx.clt št gmail dotcom) on Sat Jan 19th, 2008 at 02:02:51 PM EST
[ Parent ]
Quite so.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sat Jan 19th, 2008 at 02:39:34 PM EST
[ Parent ]
That article by DataMonitor, calling itself the oxymoron ´business intelligence´, seems the most unfounded and unprofessional compilation of unrelated bits and pieces to reach a conclusion.

Unsourced, unsigned and undefined statements massaged to look like analysis.  It makes no sense and does not logically follow a reasonable thought process to its end.

It is not credible information to reach any decision.

Our knowledge has surpassed our wisdom. -Charu Saxena.

by metavision on Thu Jan 17th, 2008 at 04:57:50 PM EST

But the few facts they do quote speak for themselves...

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Jan 17th, 2008 at 06:14:53 PM EST
[ Parent ]
If all the loans that Northern Rock has originated and then repackaged, securitised and shoved off the balance sheet and into the Granite SIV are brought back onto the balance sheet, what would be NR's loans-to-reserves ratio?

I bet it would be less than 1%.

We have met the enemy, and he is us — Pogo

by Carrie (migeru at eurotrib dot com) on Sat Jan 19th, 2008 at 12:01:02 PM EST
Pardon my ignorance but what does the 'LQD' prefix stand for?
by The3rdColumn on Sat Jan 19th, 2008 at 12:16:03 PM EST
Lazy Quote Diary.

We have met the enemy, and he is us — Pogo
by Carrie (migeru at eurotrib dot com) on Sat Jan 19th, 2008 at 12:16:59 PM EST
[ Parent ]
What you need to look at are the real figures, not the relative proportions of funds raised from wholesale and retail markets. The wholesale funding market has been growing in absolute terms over the past 20 years partly because of new investment vehicles that offer corporates a good combination of liquidity and growth potential on their excess cash. Whereas in the 1980's they'd keep the cash stashed away in different types of unflexible money markets, today they put them in various mid to long-term funds and draw on short-term credit (usually from the same financial institutions where they invested in the funds)... while using these funds as collateral.
by vladimir on Sat Jan 19th, 2008 at 02:05:15 PM EST
As someone who had no faith in Bushco and refused to invest in the stock market much the last decade (oops bad call) I can tell you that ordinary time deposits don't offer squat return.  I've have been much better off buying speculative real estate (even without leverage).

You can't offer 1 year CD's at 3% when inflation is 3% and expect people who do save to rush right up to the window.  

People may seem irrational but they aren't when you look at them in aggregate.  If there is no return on saving, use the money instead.  That's the Greenspan legacy.

by HiD on Sat Jan 19th, 2008 at 03:20:50 PM EST

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