1. Neo
    Offline

    Neo Member

    Joined:
    Mar 31, 2007
    Messages:
    71
    Likes Received:
    1

    Financial screw-up for my MC

    Discussion in 'Research' started by Neo, Dec 18, 2011.

    I'm no good with anything money-wise, so I'll spell out the scenario and could someone suggest ways it could be explained?

    MC's uncle appears to have mislead MC's family over the security of a financial risk they took, one which destroyed them in the recession. House, business, gone. Uncle has powerful friends, you see, friends who in MC's eyes, should have known the collapse of a (fictional) northern bank was well on it's way. While MC's family have been moved out to a hellhole council estate in the nearest city, the MC has stayed behind after being offered a flat and a job by said uncle (family pretty much made him take the opportunity to do something, anything, with his life). The focus for the story is, of course, the searing anger the MC has for the uncle rather than the details of what happened and how, but my attempts to ad-lib the financial circumstances are laughable. How could the collapse of a bank leave a family out of house and business?
     
  2. James Berkley
    Offline

    James Berkley Banned

    Joined:
    Oct 1, 2011
    Messages:
    448
    Likes Received:
    10
    Location:
    NYC
    Is this suppose to be the United Sates?
    Because if so their investments up to 100,000 dollars would be insured in the case of a commercial banks collapse.
    Now maybe have them put all their money into higher risk investments. Maybe in the stock of an investment bank? or stocks in any company that goes under? Or into a hedge fund that goes that implodes? Or what about in to some risky futures contracts? There are a huge amount of options (no pun intended) for you. the commercial bank one is sort of difficult though.



    Disclaimer: I did terrible at finance in business school.
     
  3. mammamaia
    Offline

    mammamaia nit-picker-in-chief Contributor

    Joined:
    Nov 21, 2006
    Messages:
    19,316
    Likes Received:
    1,014
    Location:
    Coquille, Oregon
    would have to be in the u k ['council estate' housing], or a commonwealth country, james...

    neo...
    you'd best wait till a uk/commonwealth dweller arrives on the scene...
     
  4. James Berkley
    Offline

    James Berkley Banned

    Joined:
    Oct 1, 2011
    Messages:
    448
    Likes Received:
    10
    Location:
    NYC
    Did not know Neo was a Brit sorry.
    The insured deposited up to 100,000 is the only thing that is US related.
    Stocks (London stock exchange), bonds and commodities(London International Financial Futures and Options Exchange, London Metal Exchange) are still traded in the UK. (I only really remember Libor form school) but they still exist. So a lot of those investment dangers are the same.
    another option (pun intended this time) I thought of, what about an investment overseas that goes source because of politics, corruption, all the normal dangers of investment in developing countries.
     
  5. Neo
    Offline

    Neo Member

    Joined:
    Mar 31, 2007
    Messages:
    71
    Likes Received:
    1
    To clarify;

    Yes, this is set in Britain.

    The financial situation is not the story, it's purely backstory. And when I say business, I mean a gravestone-carving business owned and run by a small family, in a town of about 10,000. The man's brother (and therefore MC's uncle) is friendly with the local bank managers, etc., and in some capacity uses his influence to help them out during the boom times. When the recession hits, the family lose everything as a direct result. The only real story point of relevance is that the main character blames his uncle for destroying his life. The family, with the exception of the MC, are living in some council dive in the nearest city (good old fashioned human warehousing), while the MC has stayed on and taken a job (provided by the uncle, to the MC's chagrin), because his mother made him promise to take the opportunities on offer and try his best to get out of the hole they're in.

    I simply need a scenario where the recession made the family lose their house and business, really. It may be blindingly obvious but like I say, I know little of money-matters.

    Thank you!
     
  6. Neo
    Offline

    Neo Member

    Joined:
    Mar 31, 2007
    Messages:
    71
    Likes Received:
    1
    Ultra-bump
     
  7. James Berkley
    Offline

    James Berkley Banned

    Joined:
    Oct 1, 2011
    Messages:
    448
    Likes Received:
    10
    Location:
    NYC
    How about they simply took a lone out against the house to fund the business, and the business folded? Sort of a more their fault thing but the MC could see it still as his uncle’s fault.
    BYW you seam to be more looking for a business screw up then a financial one. perhaps combine with that they did not cover themselves properly in a contract.
     
  8. Neo
    Offline

    Neo Member

    Joined:
    Mar 31, 2007
    Messages:
    71
    Likes Received:
    1
    That's more like it! Thank you James.
     
  9. psychotick
    Offline

    psychotick Contributing Member Contributor

    Joined:
    Feb 10, 2011
    Messages:
    1,375
    Likes Received:
    315
    Location:
    Rotorua, New Zealand
    Hi,

    The deposit security schemes developed all around the world in the advent of the latest financial collapse, generally only protect depositors. If you actually own the bank, you are screwed when it falls over. (except in America and a few other places where they are busy shoring up failing banks.)

    As to how a bank can fail, that's easy. Banks make money by taking your money and giving you some interest on it, and then lending it out to others for higher interest. So they profit from holding your money. Usually the problem with banks is that they lend too much money to others who are too high risk - speculation. Which means that if they loaned your money to someone else for a few cents on the dollar, and then that someone else can't repay them, the bank is screwed for the whole dollar. They owe it to you and can't get it back from those they lent it to.

    The other crisis that hits banks is what's known as a 'run'. This where people lose confidence in a bank and try to get their money out, before it collapses. But in doing so they usually cause the bank to collapse. Banks are required to keep a certain percentage of their investor's money back, it varies from country to country but it's usually a round five percent. Now say someone starts a rumour, ABC bank has made too many bad investments and is about to collapse. The first thing everyone does is run to the bank and try to get their money out. When that five percent they stored runs out, and it can happen, then the bank is technically insolvent. They can no longer trade. This isn't the same as broke, since they still have all those loans they made to recoup, as long as they weren't terrible loans, but it takes time for loans to be repaid. Think thirty odd years for a mortgage etc. With no business coming in, who would give their money to a bust bank, unable to pay their bills and staff, and declaring bankruptcy so that all the assets and liabilities are put in the hands of receivers, it's pretty much over.

    And then the receivers often solidify the losses by making deals. They can't wait thirty years for loans to be repaid. So they go out and say to the people that owe the bank money and say things like, you owe a hundred grand in the next thirty years, but we can't wait that long. Give us fifty grand now and we'll call it square.

    So after all that long winded prattle, the answer to your question is that the uncle's bank made some bad investments that couldn't be repaid. Word got out about financial mistakes made, and there was a panic and a run. After that the bank became insolvent and was put into bankruptcy.

    Hope that helps.

    Cheers, Greg.
     
  10. Neo
    Offline

    Neo Member

    Joined:
    Mar 31, 2007
    Messages:
    71
    Likes Received:
    1
    This is excellent! And it would make sense if my mc's uncle was himself the owner of the bank rather than just "someone who knows people." Thank you!
     
  11. Neo
    Offline

    Neo Member

    Joined:
    Mar 31, 2007
    Messages:
    71
    Likes Received:
    1
    Okay, so let me get this straight for what I hope is the final time. I've read the advice given and I think I have it.

    The Smith family own a small business and their own home. Business is faltering but then Uncle comes along as says, "I'm very friendly with the top man at LocalBank...I'll bet I can get him to allow you to remortgage your house to shore up the business." Smith family say, "Yes please!" Of course the mortgage they get is one of those harmless subprime 125% jobs, back in the heady pre-recession days (pre-2008 or thereabouts). So then comes the recession. Local factories close, people leave, get evicted, etc., and business really dries up. Since business was never really that good to begin with, the Smiths have been missing a lot of payments on that mortgage, saved from reposession only because Uncle is friendly with the manager. However, it's red faces all round when LocalBank turns out to have spent most of it's capital (or assets, or whatever they call it) on a hell of a lot of bad loans and mortgages. There's a run on the place, and it monumentally collapses. No government bailout for them - it's like Northern Rock gone very bad.
    So the Smith's business falls on it's arse just as their mortgage (their very bad mortgage, the one that was sunk into a failed business) gets called in when the recievers come a-knocking. Goodbye house, goodbye business, hello crummy flat in the roughest inner-city hellhole you can imagine.

    Is that a feasible, working example of how someone can lose their home and business? The MC's parents are not actually in the story at all, as I say, because the financial stuff is backstory. But is this right? If not, could someone maybe amend it? To recap, it's a tiny family business in a small town, and a small local bank, and the outcome must be that they've lost their home and business because of a poor financial offer. I think my example covers it, thanks to the input of those on this thread.
     
  12. James Berkley
    Offline

    James Berkley Banned

    Joined:
    Oct 1, 2011
    Messages:
    448
    Likes Received:
    10
    Location:
    NYC
    yes if england does not have depositers insurance to stop the run senerio.
     
  13. Neo
    Offline

    Neo Member

    Joined:
    Mar 31, 2007
    Messages:
    71
    Likes Received:
    1
    Well my local bank (northern rock) survived a run only because the government stepped in to nationalize it. Otherwise it would have collapsed altogether.
     

Share This Page