Borg Warner wrote:Very well explained guys, I think I understand a little better now. But I'm not going to worry because I can't do anything about it.
A question though; If my bank/lender goes under do I lose my savings and they lose my debt i.e. mortgage? (I think I know the answer but?)
In my unqualified opinion (lapsed 1993!) your savings and investments can be 'guaranteed' at the nominal amount invested up to a maximum of Ã‚Â£85K per account per bank. So similar accounts may be held in different banks for people with more to protect. But care is needed for a trap may exist. When a bank merges or is swallowed the main predators are... other banks! So your various accounts may be vulnerable......
As for guarantees - let's see. Can anyone think of, say, a potential Prime Minister giving a 'cast iron guarantee' of a referendum on the EU prior to an election and then, after winning it, reneging on the promise? Well, sue me if I'm wrong, but that is FRAUD. These guarantees may be removed overnight if the situation becomes desparate. No legislation is required, just an 'order in committee'. By a committee stuffed with placemen! There has never been, isn't now, and never will be, any politician worthy of trust. They will all do exactly as their political masters want.
When a lender fails, the on-book debts remain just that. The new owner, having bought the company for a nominal Ã‚Â£1 (yes, that's right) then owns the debt. Remind anyone of of anything beginning with 'M' and originating in Sicily? They are entitled to whatever was contained in the original mortgage agreement including the right to dictate interest rates. Mortgagees may find their rates escalating rather more rapidly and suddenly having nothing to do with the Bank of England base rate.
The original lender may have failed due to incompetence in the market. Just because you are a CEO of a bank it doesn't mean you are an economist, a banker, or a lawyer. You may just be the next Buggins in the 'right' club. You may have fallen for the dulcet tones of USA bankers, say, Freddie Mac or Fannie Mae (federal bankers US style - acting with the assumed strictures of federal investment authorities), whose agents sold thousands of home loans to people in trailer parks who had absolutely no hope of repayment of loans on otherwise ummortgeable property. These mortgages were 'unitised' ( a euphemism for bundling together thousands of mortgages and selling them on - common industry practice all over the world).
These mortgages are then wrapped in bundles (metaphorically speaking) with the golden ones on the outside, hiding the iffy ones on the inside and unlikely to be noticed. Gets a better price, see. You may have been complacent in the area of 'due diligence' by accepting the word of a 'trusted' colleague on the other side of the pond! Again, a legal requirement under British law. Result: I should say so! Fanny Mae and Freddy Mac get shot of the problem, the limeys suck it up. The upshot is your percieved relationship with your lender has changed. Big time.
The best way, and I am not recommending this, is to cast off this mortal coil with maximum debt, after placing your entire assets in trust for your children, preferrably in the Cayman Islands. If any bailiffs are sent after me, where I'm going, they are sure to like the music but it won't half be hot.
After a long and mainly successful career in financial sales my default mood is positivity (I'd have starved otherwise). So I hate being the harbinger of doom or presenting the negative. But, seriously, the calibre of rulers and governors at all levels since the demise of Thatcher leaves me totally cynical. But you'd never guess that would you.