A BBC newsreader, Huw Edwards, described the UK bank at the heart of the current liquidity crisis as “Northern Wreck” yesterday. An inadvertent slip of the tongue, perhaps, but a view that tallies with other commentators who point out that the bank’s difficulties were evident long before it actually came off the rails. Shouldn’t the government also have forseen these problems, and acted earlier?
Alistair Darling may have seen off a collapse in consumer confidence for now by guaranteeing savers’ deposits, but many of Northern Rock’s customers want to know why it took the sight of thousands of them queueing in high streets up and down the country before there was any attempt to shore up confidence and intervene.
Northern Rock itself put out a profit warning at the end of June and, as international money markets dried up, saw a further run on its shares as investors rightly predicted it wouldn’t hit its revamped profit targets for the year. There was then a hunt for prospective buyers as the situation worsened and bank directors realised they had a major problem on their hands — yet the Bank of England still refused to consider propping the bank up.
So whose fault is it? The regulator’s? The Bank of England’s? Or the government’s? Opposition politicians are pointing their fingers at the Chancellor — but is that fair? Or is all this turmoil one of those cyclical things that we’d forgotten about when times were good?
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13 comments so far
Adam Applegarth is the man who should carry the can for this. His strategy brought the company to its knees and he should pay the price.
- Posted by Paul HemsleyUnfortunately he will soon resign with a massive pay-off and then join some other gullible company on its board of directors.
For it to be the governments fault the situation the banks now find themselves in would have to have been anticipated. I don’t think many people anticipated that such risky financial instruments as these sub-prime mortgages would be packaged up and sold on to unsuspecting investors. The real villains are those who knowingly sold these on, and those who gave mortgages to people with no income, no capital, and no chance of paying the money back. Why are banks not suing these people?
- Posted by Dudley HolleyThe government however, is responsible for the UK climate of ‘live today default tomorrow’, and the legacy of today will haunt us for many years to come.
Saving by ordinary people might have ceased altogether if the government had not stepped in. The problems in financial markets were not caused by ordinary savers in Building Societies but those savers could easily have become the main victims. All this seems so obvious that, yes, it is incredible that the government took so long to act.
- Posted by John LambleSeems to me that the support given by the Government and the Bank of England to the Northern Rock Bank is not so much about boosting up the Northern Rock but rather a case of window dressing in order to save the Government serious embarrassment resulting from possible questions from the financial quarter. I agree that the savings of account holders will be safe for now, though share holders will be feeling distinctly nervious and quite rightly so.
- Posted by Peter SchwarzAfter eight years of trying to round-shoulder its obligations with the Equitable Life saga, the DTI (or whatever it is currently called), has yet again failed to do its duty. What is the purpose of this ineffective organisation?
- Posted by Alan WombellThere appears to be a number of parties complicit to this situation, and where some degree of blame should be placed:
1. The BBC for scare monger reporting, that caused the “run” on Northern Rock
2. The Bank of England for not stepping in sooner with their guarantee of “lender of last resort”, and acting in the interests of the UK economy - as the ECB did for Europe and the Federal Reserve did for the USA.
3. The management of Northern Rock for mis-matching funding requirements and sources of funding (this is basic accounting principles)
4. The Government of the United Kingdom for being SLOW
Will these lessons be learned or will be have the same situation in another credit crunch cycle? Some of us are old enough to remember Barings, BCCI, Slater Walker etc.
- Posted by mark fieldThe workers at the banks did things that were very successful for the last 5 to 10 years, profitable and popular for all investors.
Then the complication of what they had done meant that no one knew for sure who was going to have to pay for the losses when things started to go bad.
The major lenders and investors refuse to fund anyone who looks over streatched and Northern Rock is one of the more dependent on wholesale borrowings.
BUT N.R. ARE NOT THE ONLY ONES. There are similar banks in most countries and in some countries almost all of the banks are in a similar state.
The ‘blame’ is very wide. It starts with the senior workers in the banks who created these clever investments, it includes the investors who wanted higher yields, it includes the regulators who are never brave enough to stop you getting a mortgage or stop you putting your money in a higher interest account. It includes the central bankers and politicians who called for lower interest rates and financial support whenever anything goes bad.
- Posted by Jeff AdamsAs one friend of mine put it: “Thanks very much Mr Darling, there’s a few investments I also made with Ladbrookes Bank that I would also like you to underwrite!”
If we are to believe that the market is so good at self-regulation then why does the government, and the British tax at large always seem to be bailing companies out? Do we not get the worst of both worlds: the inability to effect the actions of a company, but still having to mummy-cuddle them when they mess up!
- Posted by Nazof course its the governments fault, Crash Gordon has presided over an economy based on excessive borrowing, fudged inflation figures, a collaspe of manufacturing and yet he is quoted in the main stream press as being the best chancellor ever! Crash Gordon the seeds of debt you allowed to be sowed are no coming home be a man and accept the blame
- Posted by markas far as i can see the only losers sre the share holders
- Posted by tonyWhat happened was the inherent inabilities in a free market economy to adjust to modern current climates. Governments being all powerful they have to oversee the proper running. What this goverment done was rather late,and to shore up their right to govern.
- Posted by PurewalJeff Adams (earlier) has it right. Somewhat like at Barings, management on Wall Street and in the City fail to understand what their ‘clever’ financial instrument structurers are really up to (from which they and shareholders receive significant gains short-term) and the likes of Northern Rock, not to mention pension funds (all eventual losers), pile in to buy these investment products.
- Posted by Graham MellorGordon Brown and the Governor of BoE have no chance and can only react. If, as it seems, management at financial institutions and credit rating agencies have only limited day to day risk management capability, regulators and government will have an even sketchier overview and no chance to anticipate the full impact until things suddenly turn sour!
We have to accept that the evolution of financial markets will always give rise to occasional turmoil and losses for the unwary. That is unless and until someone is clever enough to make everything devised by those on the leading edge of money making (hedge funds and alternative instrument brokers etc.) transparent without destroying market and competitive opportunity. An impossible task given that it is already acceptable practice to allow ‘black box’ products and trading strategies that only favour the institutions and have made market volatility the name of the game!
” CRASH GORDON ” is crashing and it`s only the beginning. After years of mis-management I dread to think what the future will bring!
- Posted by RichardWhy? are the house price inflation figures left out of the overall inflation calculations?
If they had been in over the last 9 years ,interest rates wuold have been around 8% over this period,and we would not be facing this frightening future