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	<title>Comments on: The (un)charitable core of Northern Rock</title>
	<link>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/</link>
	<description>FT Alphaville from FT.com</description>
	<copyright>Copyright The Financial Times Ltd 2006. "Alphaville", "FT" and "Financial Times" are trademarks of the Financial Times.</copyright>
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	<pubDate>Mon, 08 Sep 2008 09:25:33 +0000</pubDate>
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		<title>by: Credit Analyst</title>
		<link>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-7005</link>
		<pubDate>Tue, 09 Oct 2007 19:38:32 +0000</pubDate>
		<guid>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-7005</guid>
					<description><![CDATA[You're missing the point. Massively.
Securitization is about banks capturing excess spread, leveraging their capital and matching their assets and liabilities (yes; you read me right).
The law requires "true sale" of assets [i.e. mortgages] for a number of reasons (tax being but one of them). Banks however want to continue to capture the entire benefits of express spread (i.e. the equity value) of the assets they sell to their securitization vehicle - they do this through holding the equity piece (i.e. most junior) of the securitization (sometimes this is a subordinated loan to a particular SPV). By virtue of holding the equity piece of the securitization, two important things happen: (1) Banks experience the full margnal benefit and full mrginal cost of loan performance (as the rewards of each default avoided go entirely to the equity piece; the reverse for each default ot avoided - provided defaults stay roughly within expecations [not true of US subprime!]) & (2) The equity value of the entire securitization, including the equity piece/Sub Loan, is nil - as all the benefits of excess spreads and the costs of excess defaults are expereinced not by the legal owner of the securitized assets, but by the holder of the equity piece.
Hence: (1) the beneficiary of a the equity of a securitzation vehicle will earn nothing (and so can be anyone!) & (2) because Banks expereince the full economic gains and losses from the securitized portfolio (within reasonable tolerance of default expectations), IFRS allows them to consolidate the portfolio as they still bear the risk of the assets.

NRK didn't go under because they sold loans to Grampians: they went under because Grampians issued short term debt to finance the long dated assets which had been bought from NRK. This was NRK's decision - but to blame the loan sale process rather than the inapproprite choice of liability maturity is wide of the mark. 

Caveat: I am *NOT* an ABS expert; just someone who looks at Bank balance sheets every now and again.]]></description>
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		<title>by: Tax Research UK / Northern Rock - why it abused the charity</title>
		<link>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6999</link>
		<pubDate>Tue, 09 Oct 2007 12:33:17 +0000</pubDate>
		<guid>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6999</guid>
					<description><![CDATA[[...] There are two real problems, but each is profound. The first is that I think, to put it bluntly but quite fairly, Down’s Syndrome North East was subject to identity theft by Northern Rock in pursuit of its own profit. Its name was used in documents that acted as inducement to subscribe for billions of dollars. But as the organisation has now made clear, they are now: investigating why our charity appears to have been named as a beneficiary of a Trust without our consent. We have definitely not received any money from Northern Rock or affiliated companies, except for a one-off donation from a staff collection in 2001. [...]]]></description>
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		<title>by: Presidential candidate Ron Paul warns of coming global economic depression &#171; noworldsystem.com</title>
		<link>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6978</link>
		<pubDate>Tue, 09 Oct 2007 07:27:36 +0000</pubDate>
		<guid>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6978</guid>
					<description><![CDATA[[...] The (un)charitable core of Northern Rock http://ftalphaville.ft.c….the-uncharitable-core-of-northern-rock/ [...]]]></description>
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		<title>by: Paul Murphy</title>
		<link>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6967</link>
		<pubDate>Mon, 08 Oct 2007 16:23:40 +0000</pubDate>
		<guid>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6967</guid>
					<description><![CDATA[Thanks Richard -- aware it's v v widespread -- but it's the link to a real charity that doesn't know it is being used in this way that has pricked my interest.  Any further examples on that front?
Murphy/Alphaville]]></description>
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		<title>by: Richard Murphy</title>
		<link>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6966</link>
		<pubDate>Mon, 08 Oct 2007 15:57:53 +0000</pubDate>
		<guid>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6966</guid>
					<description><![CDATA[Almost all banks use this type of dodgy structure.

I have an article on an HBOS example, entirely off balance sheet and with £28 billion in it here http://www.taxresearch.org.uk/Blog/2007/09/14/where-is-the-liquidity-crisis/

Most of this is offshore. That's deliberate. It's part of the race to the bottom on regulation that they facilitate.

Richard Murphy]]></description>
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		<title>by: hedgehog</title>
		<link>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6963</link>
		<pubDate>Mon, 08 Oct 2007 13:46:28 +0000</pubDate>
		<guid>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6963</guid>
					<description><![CDATA[for more of the same have a look at FT blog The Real Deal : beware the banks' UFO's -  the financial markets are looking   more and more like a pack of cards every day]]></description>
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		<title>by: Charles Surface</title>
		<link>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6962</link>
		<pubDate>Mon, 08 Oct 2007 13:07:11 +0000</pubDate>
		<guid>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6962</guid>
					<description><![CDATA[Egads!  I see your point!]]></description>
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		<title>by: Tax Research UK / Northern Rock - rotten abuse of charity</title>
		<link>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6961</link>
		<pubDate>Mon, 08 Oct 2007 12:55:33 +0000</pubDate>
		<guid>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6961</guid>
					<description><![CDATA[[...] The FT blog has a post on it that reproduces a statement from Down’s Syndrome North East, which says: [...]]]></description>
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		<title>by: bshopboy</title>
		<link>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6960</link>
		<pubDate>Mon, 08 Oct 2007 12:18:09 +0000</pubDate>
		<guid>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6960</guid>
					<description><![CDATA[btw this observer piece from a week ago (!!) is also very good

http://observer.guardian.co.uk/business/story/0,,2179924,00.html]]></description>
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		<title>by: bshopboy</title>
		<link>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6959</link>
		<pubDate>Mon, 08 Oct 2007 11:53:01 +0000</pubDate>
		<guid>http://ftalphaville.ft.com/blog/2007/10/08/7902/the-uncharitable-core-of-northern-rock/#comment-6959</guid>
					<description><![CDATA[So, this begs two questions:

1. Why has it taken until after NRK's collapse for this to be discovered - surely the relavant authorities should have been looking at it earlier?  But I suppose they said that about Enron as well...

2. Which other large organisations are using similar dodgy schemes, and shouldn't the regulators be looking more closely into their SIVs and suchlike?]]></description>
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