On 17th November 2011 it was announced that 'Virgin Money' were going to buy Northern Rock PLC for £747 Million.
Virgin Group is a British Branded Venture Capital Conglomerate and consists of more than 400 companies around the world.
A Venture Capital Conglomerate borrows from banks to buy businesses which obviously increases the costs of those businesses as the debt for the buyout increases its costs until the finance is paid back to the bank.
Although it may be that Richard Branson has paid his own money for this bank the normal procedure would be to borrow 80% to 90% of the money from a bank and back the mortgage with a pension fund which would initially pay the mortgage. This would also remove most of the risk from Virgin Group.
As far as we are aware there are no rules which would prevent the Northern Rock Bank from providing the mortgage to Virgin Money to buy the bank.
Although the Bank will be in debt for some time, the price paid is judged by many to be a give away. If so the debt incurred will hopefully not become a problem for the new bank.
What is of more significance to us is how the new bank will operate.
The failure of Northern Rock was blamed mostly by the media on Sub-prime Loans. But what was not made quite so clear by parts of the media was that the debt for the U.S. sub prime loans had also been mixed with other types of U.S. debt which for some reason has had far less publicity. This debt included debt linked with Private Equity Buyouts. The problem with Private Equity Buyouts is that it adds costs to a business often without adding any benefits to the business.
-In the run up to the crisis, many businesses which were owned by private equity management companies in the U.S. were running into problems due to the debt they were burdened with. Due to the way that banks mix up debt, mortgages were being affected by failures in private equity and other precarious investments in banking. Endowment type mortgages were failing as a consequence. (Endowment mortgages are funds where your mortgage does not immediately pay for your home, but will pay for other business investments instead. The return on this investment should then pay your mortgage unless of course these investments should go wrong.-Anti-Crisis Economics explains why these investments go wrong!). In addition to this, many people were losing their jobs as companies managed by private equity management companies were going out of business.-Some had sub-prime loans, but if they still had their job they would still be paying their mortgages.
The future of the Northern Rock Bank must be to learn from the mistakes of the past. Linking the business of putting roofs over peoples heads of ordinary working people and their families to the pointless and un-sustainable re-mortgaging of businesses and property portfolios as well as investing in 'casino banking' in the stock markets is what led to the bank having to be bailed out. It was not caused by lending money to buy homes for the working people and families of Britain.
We would therefore wish good fortune on the Virgin Group and the new bank. But we do hope that the bank gives priority to the needs of the British people in the way of mortgages for people to buy their own homes as opposed to the kinds of investment which contributed to the crisis which has been high-lighted in Anti-Crisis Economics.
Virgin Group is a British Branded Venture Capital Conglomerate and consists of more than 400 companies around the world.
A Venture Capital Conglomerate borrows from banks to buy businesses which obviously increases the costs of those businesses as the debt for the buyout increases its costs until the finance is paid back to the bank.
Although it may be that Richard Branson has paid his own money for this bank the normal procedure would be to borrow 80% to 90% of the money from a bank and back the mortgage with a pension fund which would initially pay the mortgage. This would also remove most of the risk from Virgin Group.
As far as we are aware there are no rules which would prevent the Northern Rock Bank from providing the mortgage to Virgin Money to buy the bank.
Although the Bank will be in debt for some time, the price paid is judged by many to be a give away. If so the debt incurred will hopefully not become a problem for the new bank.
What is of more significance to us is how the new bank will operate.
The failure of Northern Rock was blamed mostly by the media on Sub-prime Loans. But what was not made quite so clear by parts of the media was that the debt for the U.S. sub prime loans had also been mixed with other types of U.S. debt which for some reason has had far less publicity. This debt included debt linked with Private Equity Buyouts. The problem with Private Equity Buyouts is that it adds costs to a business often without adding any benefits to the business.
-In the run up to the crisis, many businesses which were owned by private equity management companies in the U.S. were running into problems due to the debt they were burdened with. Due to the way that banks mix up debt, mortgages were being affected by failures in private equity and other precarious investments in banking. Endowment type mortgages were failing as a consequence. (Endowment mortgages are funds where your mortgage does not immediately pay for your home, but will pay for other business investments instead. The return on this investment should then pay your mortgage unless of course these investments should go wrong.-Anti-Crisis Economics explains why these investments go wrong!). In addition to this, many people were losing their jobs as companies managed by private equity management companies were going out of business.-Some had sub-prime loans, but if they still had their job they would still be paying their mortgages.
The future of the Northern Rock Bank must be to learn from the mistakes of the past. Linking the business of putting roofs over peoples heads of ordinary working people and their families to the pointless and un-sustainable re-mortgaging of businesses and property portfolios as well as investing in 'casino banking' in the stock markets is what led to the bank having to be bailed out. It was not caused by lending money to buy homes for the working people and families of Britain.
We would therefore wish good fortune on the Virgin Group and the new bank. But we do hope that the bank gives priority to the needs of the British people in the way of mortgages for people to buy their own homes as opposed to the kinds of investment which contributed to the crisis which has been high-lighted in Anti-Crisis Economics.
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