主播大秀

I think these banks need to wake up and smell the coffee. They have made bad decisions and they need to take the rap. I'm afraid I have no sympathy for these people. I suspect Mr King's position will be made more pressurised by the stupidity of the Fed in letting the American banks off the hook with their rate cut.

King is right, but as ever under this supposed government, he will doubtless carry the can, leaving the politicians free as usual. But Brown will eventually reap the harvest of what he has sown as Chancellor with his lack of prudence and fiscal irresponsibility.

Mr King hasn't got any more explaining to do.

The people who need to do some explaining are the Masters of the Universe (sorry, the Boards of the Banks and their golden boys and girls) who want the taxpayer to underwrite their huge bonuses, share options and vast salaries by extending to all and sundry the affordable credit that they are not prepared to extend to each other.

Thus they would avoid accountability for their poor decisions to purchase dollops of US sub-prime debt because the consequences of their actions would be mitigated by the provision of cheap credit paid for by the taxpayer. To his credit, Mr King does not seem to want to play that game.

A disaster waiting to happen and predicted by Robert Peston ?

Mervyn King, Governor of the Bank of England is not to blame for this fiasco. His belief, quite rightly, is if a bank recklessly allows itself to trade irresponsibly and potentially goes under why should everyone else bail them out ?

Blame should fall squarely on the Financial Services Authority (FSA) - who were created and are instructed by the current Government. Sir Callum McCarthy of the FSA says these are "exceptional" circumstances, yet the FSA has been instructing authorised firms for many years to have in place 'disaster recovery plans' for exceptional circumstances !! Why has Northern Rock ( & others ?) been allowed to run their businesses with no proper contingecy planning in place in the event of a disaster. Have the FSA been turning a blind eye or have they just been incompetent to understand these innovative strategies the banks have come up with ?

And what has been the Government reaction to this - to save face / embarrassment ?? The Government announcing they will 'save' everyone's' money may be correct, BUT the truth is now starting to come out. It seems the Government arranged this 'guarantee' to avoid the huge embarrassment of (hundreds of ?) millions of pounds of our (taxpayer's) money being potentially lost if Northern Rock collapsed. In 1991 BCCI bank collapsed with over 拢30 million of council taxpayer's monies being lost. How much is the real total of 'Public' money tied up with Northern Rock right now? Why have there not been stricter procedures put in place to stop 'our' taxpaying money being 'gambled' recklessly? It seems blindingly obvious these monies should be placed in very secure areas with absolutely no risk - i.e. some form of Government deposit? - even if the return/interest is not as good, at least the money is secure!

I think that the Bank of England was correct in not appearing to condone the risky behavior of Northern Rock.

These banks make thousands from us customers with all the charges and "set-up" fees for loaning to us, why should it be different for them?

The CEO of Northern Rock earnt 1.4 million last year and many of the people who work in this industry recieve massive bonus's - this helps fuel the unrealistic home prices not only in London but also here on the south coast.

Many of these people have second and even third homes down here, which leaves us unable to get on the housing ladder.

What should happen now is a taxation system for second homes and people who have many homes on "buy to let" this should release some more property to the market and level out the crazy prices - instead many of us have to wait and hope that the bubble bursts.

I hope the BOE sticks to its guns - risky lending and borrowing should be stopped.

The Governor of the Bank of England was right to refuse a bail out, in order to maintain sound money and the value of the currency.If the banking industry has lent recklessly to the public and each other, it is not the tax payer's duty to bail them out. We would all like to socialise our losses and privatise our profits. There will be consequences from this decision,if that is the way to go, lets do the job properly and nationalise the the banking system, then I as a taxpayer will get some of the upside too.

King did the right thing. Why should people and companies be bailed out for being stupid?

Re the Fed... Well, buhbye US dollar. Here comes inflation... Worldwide too since we all have to buy dollars. I have a sneaking suspicion that we just saw the end of the US as a superpower.

I'm getting out of cash. I pity the pensioners and low paid, the UK and US governments just said "stuff you, the banks and the foolish matter more".

The real danger is that now this particular episode would seem to be over the banks will simply go straight back to their bad old ways.

They needed desparately to be taught a lesson they would heed. In my view King has done too much already. Personally I'd have let NR go to the wall.

Now, it will soon be business as usual. More loans to PE companies that achieve absolutely nothing in terms of real economic growth and more mortgages at irresponsible salary multiples.

All that's happened here is that the real pain has been delayed for a while. Bad news.

I completely agree with both comments, Mervyn King made the right decision and banks have to be accountable for their poor decision(s) to lend money.

I do beleive that this has set a presidence and would be difficult for government to go back on. The FSA, Government & BoE need to work together to revise banking practices to ensure that this never happens again.

I admire King and I think he tried to play a straight bat in this crisis by avoiding the pitfalls of 'moral hazard'.
Unfortunately, he is surrounded at work by politically motivated flunkies, who wish at all cost to avoid any short term pain in the economy, regardless of the long term consequences that are somebody else's problem.
Alistair Darling, the Chancellor, must be under strict instructions from the PM to avoid queering the pitch for a snap election, although it may now already be too late for that. I would think he hardly has the freedom himself to adjust his underpants, let alone decide on a dispassionate policy direction in conjunction with King and the FSA.
In the Monetary Policy Committee that King chairs, note also that Gordon Brown directly or indirectly has pulled the strings on the majority of the appointments, to such a degree that King has been forced to dissent to the inappropriate process and the poor credentials of some appointees under him.
Finally, even the supposedly capitalist banks are squealing this time for massive liquidity and lower interest rates - self interest beats the acceptance of losses and market discipline every time! As Robert Peston says, the FSA is also broadly sympathetic to the banks on this score.
So surrounded by low trump cards and the Ace of trumps that is Gordon Brown, the King of diamonds cannot win this trick, but he's playing the best cards that he can in the circumstances for all of us.

I also back the BoE - at least from the moral, if not the procedural, perspective. Is it the case that banks need government subsidy when they can extract up to 拢8bn per year each in profits? Investors have a responsibility to uphold. They must monitor the risk in banking activities and take the pain when they get it wrong.

It's a shame that it comes with humiliation, but we hear a lot about the genius of the bankers. Perhaps they should have seen this coming.

We should all back Mervyn King. Surely what he is trying to do is protect the prudent bankers and allow the market to judge the foolish. They should get what they deserve, a P45.

I fully support Mr King as the only major central banker to try and preserve credibility and standards in the market. The "senior bankers" who are so annoyed have been profiting mightily by taking higher returns for higher risks. Fine, but when the risk comes home to roost don't complain, learn your lesson. The recent actions by the Fed and other ECB in flooding the markets with money must result in the value of that money decreasing (inflation). Mr King should be congratulated for sticking to his brief and trying to preserve the value of sterling.

So let me get this right... the banks are angry with the Bank of England for not making loans that they themselves would not make?

There's a fine Greek word for this sort of attitude.

I agree with Mervyn King. He shouldn't come willy nilly to the rescue of the banks at the drop of a hat.

The banks have caused all this themselves and should expect to bear most of the pain. If a few thousand overpaid wideboys in the city lose their jobs or find there is no bonus this year then maybe, just maybe, they will reflect on the fallacy of what they have done.

Northern Rock had a fatally flawed business plan that, with hindsight, was always going to fall over if there was a credit crunch or fall in house prices.

125% mortgages are still available at Northern Rock and they are still offering personal loans at 7.9% (as seen in the window of Northern Rock Birmingham this morning). All this is plain stupid.

Now Alistair Darling has guaranteed your money who fancies a 6.71% interest rate on a fixed 1 year bond at Northern Rock (next to the ad re the 7.9% personal loan)?

Although King has not covered himself in glory, the anger is coming from vested interests; banks that have high risk strategies and ex-Chancellors with power at stake. Financial 'authority' has been demonstrably weak and consumer protection woeful. A guarantee that just covers 100% of 拢2,000 in 'safe'low yielding investments is risible. One of the prices of running banks and building societies ought to be a compulsory insurance backed guarantee system covering 100% of investments up to a sensible limit of say 拢100,000

Actually handling of the crisis wasnt too bad. Having seen the Japanese banking crisis up close and studied previous ones as well as the theory, we got the necessary actions:

Checking of moral hazard (initial BoE actions)
Reassurance to avoid liquidity rather than solvency driven failures. (FSA, government interventions.)

Alistair Darling took the only action he could under the cicumstances. A wider banking crisis (which might have followed from inaction) would have been catastrophic. This was also where the Japanese ministers got to after their early taste of what trying to punish moral hazard was like. But, it leaves a major hostage to fortune - does he agree to support every financial institution in trouble? Also it may result in problems if the likes of Northern Rock just go back to business as usual.

What this episode should do is to lead financial institutions to review their lending and financing practices while people become choosier about who they leave their money with.

Agree with the previous two comments, people / banks need to be held to account. Good for King and his hard line, but I am sure Darling / Brown will now get rid of him.

Banking is an industry.

Like other industries we expect it to survive without public subsidy.

The whingeing that we are hearing from the industry now reminds me of the mining unions back in the 1980's.

Grow up boys and accept the consequences of your actions!

The "top British bankers" have only themselves to blame. Their banks have generated record profits, based, in part, on lending to other banks who were good risks who lent to companies who were moderate risks who lent to people who were bad risks. The Governor of the BoE merely enforced the recent reality-check. Let's hope that the lesson has been learned.

A key indicator of the blossoming moral hazard that this Government is cultivating would be if savers in National Savings (whose interest is often lower but which comes with the 'cast iron' security of being backed by the Treasury) began to migrate their funds to institutions who indulge in riskier profit-making practices, and who offer higher rates to lure them in - since these too now appear to have cast iron guarantees backed by the taxpayer.

I also think King did the right thing. He has to focus on the long-term viability of the economy and the financial system. In a couple of years we will look back on this as a blip. Even if this fiasco does indeed turn into a full blown crisis, things will get better. If king where to bail out banks willy nilly then how can you guarantee that they are going to show some restraint in the future. Also the more prudent banks might be rightly cheesed off, because they should be reaping some rewards for it.
This whole thing smacks to me as a huge bubble that a lot of people have vested interests for it to keep going. However, long term probably to have the bubble burst now would not be such a bad thing.

Mr. King will be respected, but not liked, for his stance. The correct moves have been done. The government faces very little risk in underwriting the Northern Rocks savers, but it has stopped the sheep at the door. Those institutions that have made silly bets on investments can foot the bill them selves. The US has always subsidised it's native businesses one way or another, and the Feds rate cut is just subsidising US banks and their risks and unrestricted lending.

The decision to nationalise Northern Rock is a win win situation for the government. In one stroke they appease their northern voters and they appease the fat cats in the city who would have been looking nervously at sliding share prices as they start to think of their billion pound Christmas bonuses this year.
And it doesn't really matter that it's tax payers money that would be used because, hey, why not introduce more stealth taxes? That's what the middle classes are for.
Hopefully we will get the opportunity to repay Gordon Brown and Alistair Darling soon at the ballot box.

There's a well known adage that banks are willing to lend you an umbrella when the sun is shining but want it back at the first sign of rain.

I see no reason why the taxpayer should be offering umbrellas to a banking industry that hasn't saved for a rainy day.

I completely agree with what Mr. King did. When the banks make money it dosent go to the tax payers, so why should the tax payers bail them out.

What goes around comes around - Banks are cut throat, money mad pirates and it's good to see them get a kicking for a change, they are ruthless in their pursuit of profit, largely unethical and they prey on the weak and show no mercy, I was sickened to see Northern Rock let off the hook, the should have been left to haemorrage their cash just a little bit longer as no doubt whether in this form or another they will be back pillaging before long

The top british bankers found their industry tarnished because due to a cavalier attitude to properly and stabily financing debt its reputation is quite properly tarnished.

They have to be worthy of the reputation they wish to enjoy. If major members of their community take risks with the funding of their lendings then they also risk that standing.

They complain when the FSA etc. take too much interest in the details of their arrangements. So when they go wrong they have to take the blame.

This is a complex issue to which there is no unique solution. It is unfiar to heap all the blame on King. On the one hand King is absolutely right that banks and their shareholders should feel the pain arising from injudicious practices and risky business models. It is not the role of the bank or the taxpayer to bail them out. On the other, the general public cannot be expected to delve into the finances and business models of high street banks when considering where to deposit their life savings. It is the FSA's role rather than King's to ensure they are 'safe'. The regulation of this bank by the FSA has failed when tested to the extreme and clearly the bank's capital base was inadequate to cover all the risks inherent in its busines model. The FSA should have a fresh look at retail banks risk based capital requirements. It should not be necessary for the Bank to be asked to consider taking on weak collateral in exchange for short-term emergency funding.

Clearly the banks themselves are to blame.

Why did the FSA allow Northern Rock to follow such a risky business model?

The only people who are innocent in this are the BOE.

I agree with Russell, these banks are not nationally owned but private with shareholders who only look out for profit. It is about time that someone stood up to these institutions whose sole aim is to make billions from those whom they serve (and they do). Accountability for their actions are what is required by those on the board who are paid very high wages to litterally gamble with other peoples money. It is now time they stood up said sorry for the mistakes they have made and help resolve the current issues before standing down from the role. The Government are Wrong to ensure something with taxpayers money as backing this sends the wrong signal to such organisations.

Senior bankers are livid?!! This is just incredible. What would the response have been some years ago if a blog began with the line: 'senior manufacturers are livid and looking for someone to blame for the collapse of Rover.' If they want someone to blame, they can blame SENIOR BANKERS!!

And another thing. The Tories should stop moaning. Only a few weeks ago John Redwood was demanding a REDUCTION in the regulation of financial services.

King was not at fault. This was a political decision and its more than likely going to come back and bite the government on the backside when the real problems begin next year.

I wonder if the bankers were indeed sickened by the sight of queues or because it took so long for them to get bailed out by the BoE, which clearly made prudent decisions without politicking, which is exactly what it is supposed to do... When people's mortgage rates go up and they struggle to meet the repayments, perhaps they should contact Mr Darling and ask for a bail out, just like the banks got.

We don't know if King had forseen this but if he had forseen the humbling of Northern Rock and the so called humiliation of the banking industry then he is a genius and has done a favour to the banking industry by giving this slap and also ensuring that no real damange is done to the investors ( common people not Norther Wreck's shareholders).
Hope the banks improve there act now.

If our economic foundation in this country, as in so many all around the world, is achieved by shuffling bits of paper around desks in the city. Then ultimately the conclusion will be financial collapse.
This time we looked down into the abyss.
Will the money lenders ever resist from injudicious lending?

the root cause of lack of oversight
in city goes back to 1997 when
eddie george then bank's gov. reluctantly accepted the independence of the bank in exchange
for regulation of banks to move to fsa.
this was a massive blow to it's
reputation and ever since then it
has laid low while watching fsa's
incomptence being taken for aride by the city and banker's fretanity in
particular.
these bankers should have collectively stewarded their own
instiutions instead of indulging
in one big drunken orgy of greediness
which has now got the better of them.
more pain to come so my suggestion
is let the guilty go to the wall
and withdraw the parachute otherwise
it will take 2 to 3 years clear this one with adrip drip news flow.

Agree with the other two comments. Given the BoE is meant to be independent i also find it appalling that it was openly pushed into acting in the way it has. In the past, at least, the manipulation was more through smoke and mirrors and probably a few 'allies' planted on the MPC. The Fed has bailed out imprudent institutions with a rate cut, the BoE will also be pressured by Gordon and Alistair to do the same - anything to keep the 'miracle' alive. And we're also meant to believe that inflation is below 2%? Codswallop - the figure is being massaged to justify a rate cut. The other funny thing is that the thousands i have lost on my shares (i.e speculative investment, though no direct connection to NRK) will not be bailed out by the government, yet these privately run banks can do as the please with no consequence. The last ten years have made me increasingly angry at how this government robs me at every opportunity - perhaps i just didn't notice before, or perhaps they're getting worse.

An interesting item on Today this morning interviewing a US lawyer in the Bronx acting for some of the victims of what is obviously developing into a sub-prime mis-selling scandal. It would seem that fear and greed are the root cause of the problems experienced by Norhtern Rock. Greed of the purchasers of the re-packaged sub-prime loans who bought them without adequate due dilligence; fear on the part of the NR depositors who allowed the lemming syndrome to override the reassurances given by the BoE and NR.

We have not seen the last of the effects of this collapse of the sub-prime lending market yet.

But will Gordon continue to take the credit for keeping interest rates so low? What price Mervin King's shoes now?

Mervyn King's only mistake was to announce that he wasn't going to bail out mismanaged banks and then to be forced into a u-turn 48 hours later by Darling and Brown.

He should resign and say that he is not willing to accept the blank-cheque bail-out policy. That way he will do the rest of us a favour and save his own reputation to boot.

I'm on King's side.

He warned repeatedly, followed the rules and erred on the side of prudence to prevent a bigger problem from occuring in the future. If others like Greenspan had behaved likewise in the past we would not be in the current mess now.

It should be remembered when the last company to borrow from the Bank (Barclays) was not named, speculation was rife. This time the company was named (Northern Rock), and the result was a run.

Who on earth accepts NINJA mortgages in America - no job, no income, and no assets? And others accept commercial paper from the ratings agencies without knowing about the underlying assets because that is 'confidential'!...

Senior bankers and large shareholders who should have known better wanted the (very large) rewards without accepting the associated risks. The boss of Northern Rock has been far too smug and complacent in my opinion: his shareholders - which include another bank - should be livid.

Capitalism is about 'creative destruction' but the irresponsible are not paying the price. I wish the firm I work for would be bailed out by the Bank in the event of a cashflow crisis: I would have far less stress and fewer grey hairs.

One of the pre-requisites for becoming a top banker is to be able to turn on the anger and demand an explanation even when you're the person at fault.

I'm not sure whether Mervyn King did the right thing or not but I admire him for not taking the easy course or action. Maybe he's the star of the show.

Robert,

You are part of the reason that the reputation of the UK banking industry has been tarnished. Your excitable reporting and exaggeration of the issues directly caused "those pictures of anxious depositors scrambling to withdraw funds".

It was representative of the sort of reportage I expect from the tabloid media - not from the lead business journalist at our state broadcaster.

I have to agree that King should not take the rap for this. He can't be seen to basically take away any sense of risk for banks.

If banks expect to receive the benefits of being private institutions then they should learn to live with the downsides of them. If you want to take stupid risks then don't run a high street bank, and go and run a more suitable vehicle for your operations.

The question is if the FSA should have stepped in at Northern Rock much sooner.

The way the government here has become joined at the hip to the financial services industry bothers me greatly.

"What happened at Northern Rock, the first run on a British in living memory, has caused deep shame and embarrassment in the banking industry."

And so it should!

This debacle isn't primarily the fault of the BoE - why should banks and their investors be exempt from the trading constraints and risks that every other company has to accept?

A few bank MDs (starting with NR's) falling on their swords would be no bad thing.

As always you betray the left wing bias of the 主播大秀. The Bank of England has acted correctly but the whole market now has carte blanche to act irresponsibly because they hold a 'Darling put option' if things go wrong. Also, no mention of the fact that the government was willing to bail out northern Rock because it made bad television and might cost them votes while victims of failed pension schemes, who are less visible, can go hang as far as Gordon Brown is concerned. This will not be printed because the 主播大秀 is a card carrying member of Nu Labour and we have to protect the reputation of Gordon 'Pension thief' Brown! Shameful.

Last Week Northern Rock issued a statement that it was not involved in the "Sub-prime" market - Has Northern Rock done anything wrong ? or is it just because it's a small fish that the other banks don't want to lend to ? If the later is the case then the Government were correct to issue the Statement - If the former the shareholders and Managers should feel the pain, not the mortgage holders / Savers.

It seems to be pretty rude of the banks to blame King for this. It's not King who has lent massive sums of money to credit-poor people on the back of ridiculous house price inflation, thereby contributing to further HPI.

Why should the bank bail out private institutions by making more cash available? Sure, they should protect depositors, but banks and shareholders should look after themselves.

If Northern Rock does go down the tubes, their aggressive sub-prime lending will be to blame, not the B of E.

If the FSA and top British bankers are looking for somewhere to direct their anger at the 'tarnishing' of their industry with 'pictures of anxious depositors scrambling to reduce funds', surely the first place to point fingers would be at the 主播大秀 and the various other media outlets who have trumpeted this doomsday paranoia over the past week? I doubt that these 'anxious depositors' paid much attention to King's actions - they were far too busy seeing headlines warning of Northern Rock's imminent demise and the collapse of civilisation as we know it! Responsible journalism is apparently becoming as rare as responsible lending.

How on earth is this King's fault? He's been "commenting" against overzealous borrowing and lending for ages now.

The blame lies firstly with the banks, secondly with the FSA for not properly regulating and that's it.

Making Mr. King a scapegoat for this one does not strike me as a good idea.

Two parties were at fault. 1) The manager and directors of Northern Rock who followed an outrageous and imprudent policy, and 2) the FSA who have the duty to monitor and regulate the activities of individual banks and who, on this occassion, failed to call Northern Rock to order when there was a clear need to do so.

Some mud will doubtless stick to both the BoE and the Treasury (including past and present ministers) but the question I would like answered is why did the FSA allow Northern Rock to lend out 314% of its assets?

Bring on the Euro and the ECB....

Hi Robert

I'm sorry to say that your usual insightful and perceptive analysis has gone awry with this article. The Bank of England is NOT to blame for this crisis. It is a combination of the reckless and greedy actions of commercial banks and a panicking Chancellor that caused the crisis, and I wholeheartedly support Mervyn King's initial decision not to bail out imprudent banks. With hindsight though, King was caught between the proverbial "rock and hard-place". Either, punish disreputable behaviour by the banks by not offering a loan to Northern Rock (but risk contagion then spreading to other banks), or provide the loan and thus reward greedy bankers for suspect business practices. Unfortunately, King subsequently had his hand forced by panicking politicians.

You say that top bankers are "sickened" that their industry has been brought into disrepute. Frankly, GOOD! Maybe this will prompt them to sort their own houses out. The high-street banks have been acting disingenuiously for a long time - e.g. by over-charging customers on their accounts - and it is no wonder therefore depositors lost confidence in the banks over recent days. Why therefore should King be blamed for attempting to force the banks to account for themselves?

My worry in all this is that, because King's hand was forced by the Government, the bail-out fundamentally alters the dynamics underpinning the econony. In my opinion, the market should have been allowed to work its course on Northern Rock - if it had gone bust, then so be it. That maybe would have taught all bankers a well-deserved lesson not to play fast-and-loose. Unfortunately, instead, we have the bail-out which effectively signals to the banks that suspect business practice is okay.

So, whilst I acknowledge that depositors can take short-term comfort that their money is safe, there's been a missed opportunity to root out bad banking practice for the long-term. And, that's a pity!

Chris

An excellent overview of this unhappy episode. I think it says something about modern Britain that institutions such as the Bank of Englands are no longer trusted as they once were. Having said that, I think King has been naive to bring morality into the debate. We all know banks are not bastions of morality - but they are extremely successful institutions. Moreover, the Northern rock saga helps no one -least of all the credibility of the Bank of England.

King has humiliated the banks and cost them their reputation, which is the best outcome from this that anyone could expect. Bank shareholders should have done more to run their businesses with higher cash margins. He has hit them where it hurts 鈥� in the pocket. Now they鈥檒l think twice about piling money into banks operating on the fringes of liquidity.

In the meantime, the 鈥渞un on the bank鈥� will have sent shivers down the spine of many people in the UK. Let鈥檚 hope they back away from rampant greed and consumerism. We can only fervently hope that expansion is curtailed in future, or at least dramatically slowed. The motto is 鈥渟implify your life鈥� and that includes scrapping financial instruments that are too opaque to be valued. And in the longer term, shareholders must take their responsibilities less flippantly. That needs sorting out 鈥� they need to be held accountable for the chaos their weakness has caused.

no one believes the government any more. its that simple. being lied to and let down is the rule with this government, not the exception so of course their reassurances will be ignored. gordon brown always goes missing during a crisis and this was no exception. and why the hell should my taxes go on bailing out a private bank whose shareholders are happy to sit back and take profit but no risk? a bit more competence and a bit less greed in the financial sector would be a welcome change.

The problem is one of accountability. It is clearly unfair to penalise the account holders, who would have no awareness of the banking practice of lending against money market funds. Unfortunately, nor would the majority of smallshareholders. Institutional shareholders, such as pension funds, etc, should apply more due diligence in assessing the business model of a company which was aggressively and rapidly expanding its market share. Unfortunately, they also will have had their eyes almost wholly on the bottom line. After all, their own remuneration packages will be largely results driven, and in any event, they could look around the sector and be reassured by the relatively wide adoption of similar banking practice within the mortgage industry.

It is, however, wrong that the banks which have resisted such high risk funding are now "tarred with the same brush". More importantly, any guarantee by the Bank of England will be using our money to bail out the Northern Rock and any other banks who now come out of the woodwork to announce that they too have similar difficulties.

Finally, the banking sector now see a surge in share prices, and the FT100 continues its relentless drive upwards on an edifice of credit driven growth. God help us when the fixed rate mortgages at 4% or so start to expire over the next few months.

I was very happy with the BoE stand not to inject into the money markets when all around the world were panicking throwing in millions to bail out the bad practices of these banks.

While I don't wish for the average consumer to lose money, corporate investors are there to make money by taking risks and as such if they lose it's their tough luck. The government should only have backed the saving of the average joe and set an upper limit on the safety net provided.

Mr Kings decision is one of accountability, reap what your sow and one I strongly agree with. Banks hsould not be allowed to keep taking irrespobsible and risky decision and expect the Tax payer to bail them out ... you can't have your cake and eat it.

To say that the banking industry is the heart of the economy is utterly ridiculous: the heart of the economy is the millions of people who work in industries that actually do something. Banking, if anything, is like oil to an engine: dirty, grim, unpleasant, but sadly necessary to keep the whole machine running.

Why was Northern Rock an "injudicious" bank? Its mortgage default rate is about 0.7%, in the US sub prime sector its about 15%. OK, it borrowed short to lend long, but why not - its only error was to rely on short (cheap) money. This was good for the bank, its employees, the charities the bank supported - and the mortgage holders. Everyone in the UK who has a mortgage or bank loan has benefited from cheap money, why single out banks for criticism? Sure, criticise them for poor service, for expensive services, for high bonus rates to puffed up fat cats, etc, etc - but they are not to blame for this fiasco.
King and Darling are at fault - in the US problems have been much worse - and worse even in Germany and France. Mortgage lenders and banks have gone bust - how come they managed to avoid the overnight queues of anxious depositors? In a nut shell, they don't have Bown, Darling, and King.

I'm with Mr. King on this one - individuals and other businesses would not have been bailed out. What makes banks so special?

There is something deeply disturbing about Gordon Brown disappearing until it was clear that the rescue plan had worked, when he then pops up all over the media to declare the success of his government's policies? Let's speculate what would have happened if it had not worked - Darling's head on the block perhaps?

I can sympathise with Mervyn King's desire not to bail out foolhardy lending by Banks, but a wider, more balanced view is required by the Bank of England. Everyone suffers when market turmoil happens and the unedifying spectacle of a run on a High Street Bank does immense damage to public confidence in the banking sector; this could have been avoided or at least mitigated by earlier action by the Bank of England - it's all very well sticking by principle but not at any price. The Fed have been more measured and positive in their approach.

its fundamentally mental to be in rental
must try to buy
lest prices accelerate sky high
or higher still

i've read it
that credit
is easily available
the banks are bailable
the economy uncurtailable

don't want to munch
on credit crunch
already had my lunch

wheres the risk
where does it end
the ability to lend
to borrow, beg or steal
broker the deal
can't help but feel
someone should know better...

Mr King deserves great credit for having the integrity to do his job properly especially when it involves unpopular action.
He has given shareholders only limited help by offering them secured loans at a penalty rate. That should cost him little if anything.
Meanwhile the government has guaranteed deposits that would only be threatened by mortgage defaults. By doing so it reassures the public who do not grasp what it going on.
Now widespread default would be scary..

It's not surprising the banks are livid at the damage to their reputation but that damage is a self-inflicted injury. They need to realise there is no sympathy for them, only for their unfortunate shareholders who will ultimately pay the price for their greed.

With banks looking iffy and central bankers trying to inflate their way out of the debt crisis with lower interest rates (which is what caused the bubble to start with), it is definitely time to buy gold.

Mervyn King is not the real culprit here.

That "distinction" belongs to Gordon Brown, aided by an acquiescent FSA. The Brown boom was no more than a vast spending spree financed by loans taken out against the security of rising property values.

Now that house prices have stalled, and are starting to fall, we are going to pay the price.

The government will not be able to bail out all the banks that have over-lent.

A whole generation will be impoverished. Just when we have finished paying for the last big economic disaster - WWII.

Robert,

You say that so far no saver has lost money. That is not the case.
Billions of pounds has been withdrawn early from fixed rate bonds (postal accounts) with early withdrawal penalty charges.

I opened a one year fixed rate bond recently (for teddy) and have lost a charge of 60 days gross interest for closing it early.

Please could you challenge the governrment's assurances on this aspect of the fiasco ?

The original principle was sound, but it would appear that no one bothered to ask themselves, "but what are we going to do about a bank's customers if the worst comes to the worst?"

IMHO a better approach would have been to say "if the bank becomes insolvent, the government will take ownership of the bank and THEN pay back the customers". This would have protected customers (and hopefully prevented a run), while at the same time making it clear that banks could not just shrug off bad investment decisions.

Surely King's attitude is more puritan than purist. Northern Rock did not engage in risky lending. It's mortgage default rate was less than half the industry average.
What it did was exactly what every other major financial institution does - borrowed money from other banks. What created the problem was those other banks' panic reaction to the crisis over poor quality American debt. This panic seemed to confuse them into thinking that the very high quality mortgage book of N. Rock was in some way connected with American sub-prime debt. It wasn't. So King with his puritan approach of strict parent first, British economy second and the 'Lets all panic' institution of British Lemmings, sorry, Bankers are what has brought an enterprising and successful bank to it's knees.

Hello

Are you a reporter?

If you are, surely you should get to the source of the problem.

The problem is the management of NR.
Why are do you never mention how bad the management of NR are?
Why do you not mention the US government, who demanded that the market supply mortgages to people who could not afford them - unbeleivable but true?

King had not the responsibility of regulating NR. It was the FSA which was the watchdog over NR.

King warned this could happen but his job description did not allow him to do more to prevent it?

I had substantial sums on deposit with NR. I knew that the deposit compensation scheme was limited, but I had not divided the money up into eight or nine different accounts largely due to the hassle that comes with with the necessary money-laundering processes and all that goes with opening new accounts - let alone remembering the passwords. In my defence ,the retail financial services system in this country is based on inertia .
But NR was a large UK bank, licensed to take deposits and it did not offer particularly high rates. It was competitive , but my on-line account paid only 0.05% more than Sainsbury's is offering.
So with no risk premium ; UK location and regulation I thought the money on deposit was safe.
When I heard of the problems on Friday morning I still had that intellectual rationale. Then I heard the likes of Prof Buiter on the radio airily dismissing the concerns of depositors like myself with more than 拢35000. With no absolute assurance I faced a small but nevertheless real risk of catastrophic loss. The intellectual case for retention in the account may have been strong but the inability to access the account on-line meant that the emotional concern became over-whelming.The loss of any control is destabilising to put it mildly.
I managed to instruct the bank to transfer most of the money on the Saturday ( I left in 拢35000).
The point is that depositors in a mainstream British bank thought the money was safe. The first shock is that it may not have been so. The second is that policy-makers in this country seem to consider that 'teaching a lesson' to bankers should be done at the expense of depositors and even contemplated doing so . And the third is the dismal performance of the Chancellor, who was asked repeatedly why , if the money was as safe as he said it was, did he not guarantee it and only did so in extremis when the damage had been done; and the FSA for not ensuring that concerns about deposits did not take the precedence that some may think they deserved.
This fiasco has cost me time , some money, and a great deal of anxiety. The Government has appeared hesitant , unsure of the priorities and inadequate to the occasion.It is untrue for the Government to claim it was decisive and took the tough decisions. It was caught like a rabbit in the headlights and has been found out . There will be a political price to pay

I entirely agreed with the intial decision. There should have been no hint of a bail out until incompetent managers had been thoroughly humiliated and sacked without bonuses, and if needed even sued and imprisoned if things really got that bad.

If you take the big salaries and bonuses in the good times, then you have to lose it all when your decsions go THAT wrong.

I fully support the stance taken by Mervyn King. The banks, with the regulatory body looking on, have brought this mess upon themselves. The Northern Rock brand name, the directors and the shareholders must be seen to feel the pain.

The savings insurance scheme has been seen by the man in the street to be valueless. This must be fixed.

The Government has shown that they can be panicked. That will cost them in the future.

Fantastic - take away the BofE's oversight role then blame it for the FSA's inept monitoring of liquidity risk. And if I were the chairman of, say, HSBC, right now I'd want to know why I should continue to maintain rigorous lending discipline and a prudent loans to savings ratio of less than 1:1 when some upstart second-rate smart-alec can swipe 20% of the UK mortgage market and then get a taxpayer bail-out. The only thing the hopelessly out of his depth Chancellor has guaranteed with this political chicanery is that this will happen again.

Post 28 - spot on. What about taking full responsibility for one's actions. If I borrowed money and then found myself short, then the lender would not hesitate to pursue me for repayment. Whilst the BoE has remembered that rule, it seems HM Government has not.

The Government is running scared. It refuses to back honest people saving for their retirement, and worse still pensioners in company schemes where no Government Guarantee exists, yet bails out imprudent City bankers. This is just bonkers.

Dr. Ros Altman at the LSE is also spot on about pensions and fairness in the financial system. Seems that our priorities as a society are financially muddled and morally bankrupt.

It's all about confidence, a commodity sadly lacking right now.

The BOE Governor, Mervyn King, was right to resist rewarding the Fee churning actions of Bankers who may well be coming unstuck as a result. Lending to people who cannot repay is none too smart, but to buy the Mortgages of the people who cannot repay beggars description as to such stupidity.
Now the Government underwrites this stupidity; the same Government that gave us WMD, the dodgy Dossier and WMD launch in 45 minutes.

God help us!!

Have just scanned through the comments on your article and it is a joy to see that every one of them hits the nail on the head

The Bank of England was absolutely right to hold the line - any banker who has put a bank on the line by their risky strategies now knows he/she will inevitably lose their job under the weight of bad publicity - the best dose of medicine possible.

Top bankers should be really sickened by the low opinion and distrust that the general population has of them and their organisations - and that goes equally for the politicians too.

That's why all those people queued up for their money and they were absolutely right. As a bonus, there will now be an improvement in the security for depositors who clearly do take risks when they put their money into the banking system.

As for other banks expecting the taxpayer to bail out a business they were not prepared to lend to - words just fail me !

I also side with King here.

NR's business model was riskier than some and did not allow for the ofshore credit squeeze coupled with almost insane withdrawal of funds. Although, as said elsewhwere, it does become sensible not to be last in the queue once there is one.

Maybe as well as improving the depositor guarantee, we should also tighten up on the rules on liquidity and require a higher deposit/bond by the banks. That will cost money because those funds will not be earning. However I don't have that much concern, the banks profits are generally rather too high.

The Bank of England are to blame for this current crisis.
They have given people cheap borrowing rates for many years and the very quickly raised rates.
The Bank of England cannot play with peoples lives like this.
Mervyn King should be ashamed of himslef and should resign.

I am strongly supportive of the governor of the BofE. Why should he bail the banks out for what is very unsound business practice? That of financing long term debt on short term financing, especially when liquidity has dried up because they won't provide it!!! The bald face cheek of it!

I am also greatly angered by the decision of the Treasury to use taxpayers money to bail the Northern Rock out, and believe that the vastly over inflated markets should be allowed to correct themselves. (If this means NR goes bang, then so be it.)

I realise that many people use Northern Rock and I sympathise with them, but giving people placed in charge of running a business soundly, who are largely motivated by self interest and greed, a blank cheque to bail them out should they make mistakes which were easily preventible, is unacceptable. (Any director paying more attention to his/her business as opposed to his/her share options will have known the credit crunch was around the corner, and taken the appropriate action.)

We need to make the board of directors of all companies more personally liable for the investment decisions they make, not offer them an all inclusive safety net.

Robert,

I'm sorry but I think that today you are over-egging the pudding a bit.

"a shocking new chapter in the annals of banking history"? yet another example of the media laying it on a bit too thick.

yes this was a remarkable story and many depositors were spooked. but maybe if the NR and BoE/FSA had pre-empted the press and took greater effort to explain to their customers/shareholders the real position of the bank then we might not have had as many retirees queueing up overnight to give you your story. perhaps what i'm driving at in general is that this whole industry needs a great deal more transparency at all levels and the regulators might need sharper teeth. Too many amateur commentators feel free to attack NRs hedge fund like activity, or their ninja mortgages but whats the REAL bottom line?!
Further, the bankers might well want to kick Mervyn King while he's seemingly down and portray him as an ivory tower theorist who was too inflexible for the real world. But on the other hand who's going to tell savers and shareholders which (if any) of our increasingly dominant banks has bought into bad US debt and hence why they have no trust in each other. flexibility goes both ways.

one final point, where did the treasury statement say they would take NR mortgages into the public sector? the tresury statement only guarantees existing deposits, pretty vague dont you think? but it seems to have done the trick. now you're all exclaiming the nationalisation of the banking industry is about to get underway!

Whilst I agree that it is not the Bank of England's role to bail out banks that have offered injudicious lending, I think the 'hanging out to dry' of Northern Rock is unfair. Essentially they have suffered collateral damage since it is the failure of the inter bank money markets that have precipitated the problems at Northern Rock, rather than offering credit to borrowers with high default risk.

Since we don't yet know the full extent of the banks exposure to sub-prime risk, it is more important than ever to maintain consumer faith in the banking system. The shareholders of the banks that have over-exposed themselves to the sub-prime market will soon extract their pound of flesh when they see the performance of share prices of more cautious banking rivals outperform thier competitors.

We are right to be annoyed at the current crisis but we must ensure that we don't punish Northern Rock just because they happen to be a victim of a broader market crisis. The Bank of England could have become a market maker of last resort in order to target liquidity into the sub-prime sector but since they were too frightened to put their neck on the line it's now down to the government to bolster Northern Rock in the short term.

... top British bankers ... are sickened that their industry ... should have been tarnished

So let me get this straight: Northern Rock had to go cap-in-hand to the Bank of England, as lender of last resort, because no other banks would lend money on the wholesale markets. Now, the leaders of those other banks are "sickened" at the consequences.

Perhaps these "leaders" need a little more foresight, and willingness to actually lead, not just follow.

Edmund.

Well, judging by the comments here, Mervyn King has plenty of support, and rightly so. I think he has done little wrong.

I watched Northern Rock's share price rise and rise over the last year or so. Where one company in a well-established industry like banking starts to dramtically outperform its peers, it's _possible_ they are much more efficient, have smarter, better motivated people and a better business model than everyone else.

However much more likely they're just taking far greater risks with their investors' money - and so it has proved. The people who took those risks have to pay the consequences, not only because they deserve to, but as an example to their peers, and to demonstrate the link between high rewwards and high risks.

(I feel rather sorry now for the HBOS manager who left after their mortgage unit underpeformed Northern Rock's in the first half of the year. Looks like HBOS shareholders should be very thankful to him...)

Northern Rock as a bank, and as a brand, is finished. The careers of the management team are unlikely to recover. Other banks will be casting a very wary eye over the funding sources for their lending to ensure they won't suffer the same fate.

For me the only change which needs to be made as a result of the Northern Rock affair is that the banking industry needs to be compelled to finance a more generous compensation scheme for depositors in the event of a bank going bust. This would avoid the need for taxpayers to finance the stupidity and greed of the banking industry in future.

I fully support Mervyn King in his actions over Northern Rock and the crisis caused by the use of sharp financial instruments.

It is not my place, as a taxpayer, to bail out a bank that is not run well.

Nope, Mervyn King is the the problem. The problem is CEOs of the shyster banks. They need to get back to basics. Taking money from customers who have some to spare and lending it to other customers who have a need for it and an ability to pay it back.

The Gov., of Bank of England must carry the can, he should have forseen the possibility of the present crisis's effect on banking and the worry experienced by ordinary savers. If he hasn't the capacity or experience to see this he shouldn't be in the job.
One thing that has always sickened me about our business system, is how labourers, plumbers - ordinary Joe soaps are made to accept responsibilty for their often minor mistakes with "your fired".
The top blokes seem to be untouchable.

Mac1 I wonder if you know anything about economics at all!

Northern Rock was very injudicious to loan such high amounts (110 & 125% mortgages) to people who may well not be able to repay them. Their default rate may be low, at the moment, as many of the people would have been tied in to fixed rate deals.

The rates have risen over the last couple of years and many people are finding that the best deal they can get now is costing them up to 拢150 a month more to pay their mortgage. Deals that come out in the next few months may well be even worse!

This is not a problem if you have a mortgage that represents 60 or 70% of your house value as you can afford to sell, if you need to quickly by taking a small loss. If you have a 110 or 125% mortgage you can't do this and if prices fall back this makes it even worse.

Northern Rock's business plan was based on a hope that commercial interest rates would stay low and house prices would continue to rise.

Sorry to say but in some parts of the UK house prices are already falling.

Northern Rock are like the gambler in the casino that has had a couple of wins in a row. Suddenly they are the king of the world and can do no wrong. In the end the casino generally wins.

Well done Mervyn you did your best.

One final point for anyone who wonders why people weren't immdeiately calmed because Alistair darling said he would sort it all out I have just to say one word

"Railtrack".

What we have seen occur in the last few days is a recognition of the true size of the 'bubble' #24juan mentions.

In the US and here it has suddenly been realised that the debt driven growth of the last ten years was backed by rising property prices. When those prices start to fall the value of the debt diminishes incurring real loses for those holding the debt, the banks. The government cannot allow house prices to fall as this removes the 'feel good factor' (remember that?) for which government usually gets blamed and ousted for at the next election.

The action of the BOE/Government allows UK banks to carry on lending to an over heated UK housing market, that infact needs a sharp correction now - not a catastrophic one this time next year.

And here's a simple test. If you know the current market value of your home ask yourself this question when you next walk in through the front door. (let's say it's valued at 拢250,000 like mine). 'Does this FEEL like two hundred and fifty thousand pounds worth of house?' I would answer no. I would say maybe 拢150,000... maybe 拢180,000 but never quater of a million!

And I'm an estate agent.

Congratulations to Mervyn King for standing up to the reckless lending tactics of the Northern Rock. The Bank of England has taught the financial markets a lesson that will be remembered for at least a generation. If you create complex financial instruments that have the potential to create huge profits for shareholders and bonuses for the management team, then you have to understand the risks involved. The Northern Rock management team did not seem to evaluate the risk of a credit squeeze in the global financial markets, and have paid the price. They have come down to earth with a bump, and no doubt will be CV polishing over the next few weeks. I hope that we see a return to traditional banking practices in the UK.

Mervyn King should be confident in his decision. It is not up to the BoE to bail out banks who financed their lending using these dubious instruments.
The banks should have refused to use debt products with no visibility of the worth of the collateral behind them. More than this the FSA should have prevented them from doing so. If this meant that they were prevented from lending then that is massively preferable to the insane lending criteria that has let people finance up to 5-7 times their annual income, fuelling further house price rises already on an upward trend due to lack of housing stock.

It's got to stop somewhere, the finincial services industry needs a reality check and maybe a bank collapse is the only way they will get it.

king made the right choice, the decisions made in this case were political, and in some ways had to be done to prevent a wider and bigger issue, that of total panic across the whole banking sector. I have to say, the fact that the information came out at all was unusual, especially with two other lenders getting support on the quiet.

NR did lend sub-prime. If you look at what the US lenders call sub-prime then NR provided the same types of loan under the same or very similar terms. the fact they do not publically advertise this fact does not change this fact.

The system need time to tack stock and think on its future actions. I hope this is a lesson for all the banks, to stop playing with peoples lives and make good sound decisions on lending.

So who gets their butt hauled through the coals on this one... I don't see anyone even getting a slap on the wrist yet!

NR was a symptom of the overall policy of the City of London of trading in intangible, derived instruments of questionable value. The same situation arose with the junk bonds crises of the 80麓s and the collapse of Long Term Capital Management in the 90麓s. The latter fortunately did not trigger chaos in the UK. However despite these two very large warning signs the UK regulators continues to ignore the fact that "intangibles" were becoming an ever more important part of the UK financial system. These often ended up being chopped, up diced, sold and in some cases resold within the same organisation. The result was some fat cats creaming off fees along the way, for delivery something which was of no real value to the economy. The only real value was in their pay check. In essence a giant pyramid scheme took over which for some reason was ignored by all the regulatory authorities.

Like everything these instruments when used in moderation probably are beneficial for all concerned, but when NR geared itself up to 365% of total deposits it should have been clear that something was potentially wrong and what happened? There was no regulation to prevent it and the BoE and FSA did nothing. NR was only acting within the framework of the law and other regimes, it did nothing "wrong". They obviously made a bad decision which will cost the directors and no doubt countless staff their jobs but in essence this is a business like any other, the only difference is that it is also a bank.

According to some stats I heard this is the tip of the iceberg. There are apparently 300-500bn of similar instruments coming on to the market from so-called "private equity" buyouts. Not to mention the pipeline of mortgage debt which is currently in limbo.

In case of bailouts like this it should be done on the basis of a loan and an increasing number of "free" shares which the respective organisation has to give to the Government. The larger the loan as a percentage of assets or market value the larger the government share. Only once the shareholders and directors see their holdings being steadily erroded will they think twice about it. If there is a real crises then the bank should be nationalised for 1 pound. That way alteast in most cases the Government would be getting a bargain rather than like in the old days when advisors forced them to see things on the cheap.

It is also worth noting that NR borrowed (I am told) about 1.6bn, Barclays did the same but no one queued to draw out funds. I smell a banking and media rat... perhaps the FSA and others should examine the role of other banks in this crises!

Any time a government gets involved in the operation of industry, it perverts market forces.

In this case, we are seeing an element of communism. Let me unpackage this. By this, I mean that the state is now guaranteeing jobs, regardless of the efficiency or effectiveness of management decisions.

Ultimately, communism has been seen to be an ineffective approach. I wont make the leap to say that pure capitalism is the great saviour, however I do feel that government intervention in this manner is wrong.

Clearly, the management team should have behaved differently. My question is this: Will those people responsible at Northern Rock be out of jobs now, or will they be allowed to continue in their cavalier approach?

The only thing that 'sickened the industry' was the lack of integrity that had crept into the system. As with all bankers and moneymen, their own particular brand of greed remains satisfied. The 'greed is good' mantra from the late eighties is alive and well in the city

Why stop at King? It's been clear for some time that the FSA, entirely manned by bankers, has not been doing its job either.
The result is the banks are now refusing to help each other, smelling blood in the water. Whether that's a good thing, from a free-market viewpoint, or a bad, as the first half of divide-and-conquer, time will tell. It's rather pathetic, however, to see the Old School Tie following The Party Line without realising that the cracks they're plastering over go much deeper than they've been told.
Whitewashing the situation won't make it go away. There are some bad losses out there and HMG still has done nothing to clean out the stables.
Many years ago, I invented the term "nothing to frighten the horses": that does not mean the horses do not need mucking out occasionally, and now is the time to reroute the Thames, or we simply face a series of repeat performances, doing ever more damage each time...

I think it`s time to call them Northern Pebble

The senior bankers get massive christmas bonuses which mean they really don`t need to work anyway, since the interest alone is millions (especially as they probably have it offshore too)

The more livid they can be made the better.

Just to wait until they lose the Overdraft charges test case too now

87 and others seem to demonstrate that there is quite a lot of scapegoating going on here. At the risk of repeating myself, the British can hardly sound superior at the FEd and ECB pouring money in, when the news ticker is saying the BoE is about to pour another 拢10bn into the markets to calm rates. Robert himself is reporting that "senior bankers" are getting worked up by the queues outside NR - but who should have been keeping a check on the markets and their own part in it?

As for message 87, I didn't hear any moaning when rates were low and people were declaring their own "cleverness" as house prices rose.

The scapegoating has some way to go yet, but it might help if everyone took a long hard look at their own involvement.

A lot of posts seem to be ignoring the fact that the panic was caused by the over the top/scare mongering reporting by people like Peston. He now believes the Government is "humiliated" - his opinion, not fact - my opinion is that the Government have responded to a situation fermented in America that deserves credit and appreciation.
Why did Peston not write the same garbage about Barclays when reached a similar understanding with the BoE as NRK?
I think saying he is not welcome in the North East is giving him too much credability. I will certainly be ignoring his future ravings.

Mervyn King was right and so were the NR savers withdrawing their money. What did the banks and the government expect when we look at their track record of evasion and broken promises? We should remember that the same people queuing to withdraw their life savings may well have been victims of the Equity & Life debacle or the scandalous loss of private pension funds that were also 鈥減rotected鈥� by regulation. NR savers knew that there would be little prospect of getting back anything much over 拢30,000 if the system failed, so of course they wanted out.

Until the banks are made responsible for their own mistakes, with deposits guaranteed in full by the industry, nothing will improve. If King should lose his job, the government will have miscalculated badly and fully deserve whatever repercussions follow. So it鈥檚 odds on then..

Whilst I agree with most commentators that the banks are mostly responsible for their problem, does no one realise what effect the continuing queues outside NR would have provoked.

We could have seen the collapse of the entire banking system with anxious customers panicking and queuing outside banks. This would no doubt have created an international crisis. And why, because the B of E wanted to teach NR a lesson.

Customers are not sophisticates, they do not understand finance. And these days they do not believe the government either. Disaster scenario? Listen to the people queuing over the weekend!!!!

I don't think I have ever seen a message board so universally in agreement with its support of the governor of the Bank of England. Despite repeated warnings over several years the government refused to take regulatory action over risky loan schemes and crazy lending multiples.

When money inevitably tightened the banks executives who profited at every turn then refused to lend money to Northern Rock at reasonable rates and now expect the taxpayer to do what they would not do themselves.

When Gordon Brown made the Bank of England independent on the matter of interest rates my reaction then was that this marked the start of politicisation of the bank, not its freedom from government interference. That metaphorically at least, the protesters would be gathering in Threadneedle street instead of Downing Street. This is what seems to have happened. Mervyn King was right to try and force the banks to clean up their own mess and perhaps the next time this happens he will hold out longer against pressure from both the banks and the government.

Just a thought, but if we can elect a mayor of London, why not elect the Governor of the Bank of England and let him stand or fall on his own decisions?

Bank of England in policy U-turn

The Bank had previously resisted making a big cash injection
The Bank of England has made a U-turn in its treatment of banks struggling to deal with the credit crunch.
It has announced that it will inject 拢10bn into the money markets in an attempt to bring three-month inter-bank interest rates down.

Crucially, the assets that banks are allowed to use as collateral will be wider than usual and will include their mortgage debt.

The Bank had previously said it was not its job to lower three-month rates.

"This is exactly what it said it would rather not do in the letter to the Treasury Select Committee last week," said Alan Clarke at BNP Paribas.

"Clearly the financial market situation has deteriorated to the point that the slowdown implied for the economy is more severe than the Bank had seen as desirable," he added.

Wow, should we start getting worried!!!!

When will banks volunteer sufficient humility to command public respect. The problems of subprime lending were singularly of their own creation and that of the Regulators for not insisting that all such products command a free and liquid after market. Without that in place who knows what the right valuation should be.
To go seeking to blame the Bank of England is pathetic in extreme. Banks screwed up, big time, and now will have to pay their own self inflicted penalty against their bottom lines.
Had the respective regulators not cosied up so much to the banks this disaster would never have happened. The system isn't working and the Regulators need to be less daunted by big threatening banks.

I think a post mortem will find that the Bank of England should have pumped more credit into the banking system early August, as the Federal Reserve, the European Central Bank and the Bank of Japan did.

If the current crisis was caused by the failure of the BOE to act, as lender of the last resort, then Mr. King should resign.

I cannot help thinking King will be made a scapegoat for this mess once the smoke clears. On balance, I think he handled the situation well while others panicked. However, everyone should be clear on where the real fault lies. It lies with a Government that was only too happy to build a facade of prosperity on public and private debt. It lies too with some banks who were happy to lend to customers they would not have taken on 15 or 20 years ago, and in a way unthinkable even 20 years ago. Add to this, the ever more exotic investment vehicles used by banks and other investment houses in the search for profit, it was only a case of when the storm would hit and who would go down.

However, the worst aspect of this crisis for me is the precedent set by the central banks and our chancellor. From now on, if the political pressure is great enough, governments and central banks will step in to bail out financial institutions at risk from poor business models or bad investment decisions. The great ponzi game goes on; this bodes ill for all our futures.

The actions of Darling, while creating some short-term relief, are fundamentally illogical when you think about it.

First up, the BOE cannot reasonably guarantee savers deposits in Banks like NR while investors in Nat Savings and Gilts receive a lower return for only the same safeguard.

Secondly, the central banks are ultimately only small players in global finance - the amount of tax-payers funds available is tiny compared to the mountain of potentially bad debt.

What Darling and the Fed are currently doing reeks of 'bucking the market', which never works. Lowering the base rate will have no effect while the LIBOR remains high anyway.

It is a necessary feature of capitalism that crashes will and should occur from time to time in order to restore equilibrium. We are by no means out of the woods yet on this issue.

So the Golden Ones of the banking world are blaming the BOE, yesterday they were blaming the poor fools who invested in Northern Rock and wanted there savings back. If they are so worried about the reputation of their (not our) industry I think the first port of call for a bail out would have been themselves. They could have had a whip round and used some of their profits. Instead they continue to refuse to lend to each other and expect the rest of us to bail them out. If the BOE had poured money into the banking system they would just have sucked it up and given no thanks.

"That said, top British bankers ... are sickened that their industry ... should have been tarnished by those pictures of anxious depositors scrambling to withdraw funds."

The remedy (prophylxis, even) was in their own hands? I'm sickened - by their greed, and their denial. "We'll take over NR for you and save the economy" [sotto voce] "but only if we have a humungous upside - because the price is down to penny-share values - and there is no downside because we'll have a cast-iron guarantee from the BoE."

King called their bluff. When bluffers lose, they lose heavily. They can take the consequences.

There has to be downside. Remember Blue Arrow and the NWB Memo? It was along the lines of "we'll break the rules; the worst we'll get is a slap on the wrist if found out."

69:
"the unedifying spectacle of a run on a High Street Bank does immense damage to public confidence in the banking sector"

The likely - and beneficial outcome - is that the damage will be more in the minds of the bankers, instilling a little more caution, rationality, and transparency, than it is in the minds of the real public. Much of the public have forgotten the tanker-drivers strike completely. I had forgotten it myself, despite being at Stanilow less than a year ago and talking at some length to some of those who had seen it at close quarters. Even if reminded of it, very few would then go on to consider it in the context of fuel prices, oil companies, the Treasury, government, the world economy... it's just an "event on the news" dimly remembered.

When the populace might well remember NR would be if the banking system reverted to type and was back to the 'irrationally exuberant' practices of twelve months ago; next time around the warnings from King, Trichet, Bernanke - and even Greenspan - might well find a much wider audience.

Interesting the government and the bank of england bailed out Northern Rock a publicly owned company.

Where were they when our manufacturing industry neede help. Seems if you are bank they rush to help, if you manufacture products you are on your own.

Double standards ?

Asleep at the Wheel

I think that Mervyn and the MPC have been found asleep at the wheel when it comes to the money supply. This grew at nearly 14% during the recent house price boom in 2006 when house prices in our area rose +20% in one year. Simple economics tells us that more money chasing the same amount of houses will lead to this kind of froth. I know he is targeted on CPI, but everyone knows this does not include house prices: perhaps this needs to be reviewed and his targets adapted to the peculiar vagaries of the UK economy?

In defence of Mervyn, however, the agencies fuelling this increase in money supply were the irresponsible banks (Northern Rock among them) providing excessive lending (self cert, 125% mortgages etc) due to some sort of mistaken (perhaps elitist even) belief that as self-important bankers they should be immune from the downside of their risky deals.

I am pleased that Mervyn and the BoE have finally woken up and through the example of Northern Rock they have finally taught the sector a lesson, with limited impact on other banks.

More fearful is the half point cut by the Fed, which will carry on giving the green light to irresponsible banks in the US. And I thought it was the US that invented the phrase 鈥渨ake up and smell the coffee鈥�??!

I'm neither a former investment banker, with a visceral understanding of markets or a world-class economist with an intellectual grasp of markets rather than an emotional one but I'm totally with Mervyn King on this on. He was bang on to be steadfast and not break the rules, short term pain, long term gain. Just because some 拢million earning bankers were giving him heat and were a touch embarrased about the fall out of their actions (irresponsible lending) Fail to prepare (by not evaluating the risk appropriately) prepare to fail, simple. You can teach applied maths but you can't teach common sense. Fair play Mervyn, I respect your decision.

So private bankers who protest at regulations and use every crevice in the system to avoid paying taxes want the government to bail them out when they have to face the consequences of their gross mistakes - but they want the rescue to be done in secrecy, so they still look competent and in control of events. Some nerve.

Dear Robert

Please send the comments on this blog to Gordon Brown, Alastair Darling and every top banker you know. Thanks

As with most others I agree with King.

But Northern Rock could have easily stopped the run. If they'd stayed open continously until the queues cleared there would have been no queues to show on TV, therefore no news and no panic.

It was the constant media focus on the people queuing that increased the fear, thus increases the number of people queueing, etc.

Looks like the safest place for money is in one's own house!

The directors of Northern Rock should be the ones taking the rap for their bank's recent problems. These leaders of capitalism decry government meddling in their affairs until they need bailing out. These people should be sacked and sued for dereliction of duty as a deterrent to others.
Mervyn King and the Government have been left in the impossible position of trying to minimise the impact on the wider financial community. Banks that have taken are more cautious approach for less profit will decry the action of Government/BOE/FSA and the innocent consumers will blame their lack of action for exposing them to risk.

A clear majority supporting King then yet he will almost certainly be the one to get Soprano'd!

As noted, it is indeed remarkable how Brown disappears from sight when the going gets tough - a frequent occurrence when he was Chancellor too.

Meanwhile, for all talk of prudence, it has been short-termism that has won through again and we now await the long-term pain as banking shareholders delight in the free support they have been offered by the taxpayer.

Whilst I understand the issues surrounding the current events at NR (and, presumably, many other UK lenders who have played fast and loose with the financial rules to lend as many people as possible far more money than they could afford to repay), isn't it a bit convenient to blame all of this on the US? Politically it looks better for the Chancellor to point the finger of blame at America but haven't UK institutions been doing precisely the same thing here for years? Cheap credit, interest-only mortgages and 5x, 6x or even 10x salary multiples have been standard practice here for several years (indeed they have been vital in keeping the housing market so enormously overheated). Haven't we been equally reckless with our spending, and made it far, far too easy to get into debt for the sake of keeping the economy "strong"?

I'll add my agreement to the majority who think King is right about not bailing out profligate lenders. It will be a brave & foolhardy thing to do to sack him, having first undermined him.

It seems to me that there are two issues : first, should the bank's customers be protected and, second, should the bank itself be protected?

My view is that the public should be able to bank with any regulated institution and that account holders are entitled to expect the government to stand any losses caused by any bank behaviour which was left unchecked by the regulators.

Protection of the bank itself is a different matter. If a bank lends imprudently and finds itself short of cash, this is an internal failing. The management of that bank are accountable to their (doubtless aggrieved) shareholders and that is the way it should be. The government should not be protecting the bank itself or its shareholders who are, after all, the owners of the bank that got it so wrong.

After US exports of subprime poison, Now its the US export of cheap credit and fuel inflation around the world , Thanks to the fed rate cut.

Will the media please stand up and admit their share of the responsibility for this crisis?

Northern Rock suffered a temporary cash flow problem in its mortgage lending business. It was not, and still is not, in danger of collapse. Long, long before it got there it would have been taken over lock stock or the mortgage book and investments sold off individually, something which happens in the banking world on a monthly if not weekly basis anyway. How did it get to queues of people outside their branches withdrawing all their savings (which makes the original problem worse)? Maybe it's because it's been headline news for four days in a slow news week.

The coverage has been sensational, inaccurate, speculative, and only by good fortune has the reporting not caused the same crisis at other banks which are light years away from similar cash flow issues.

Not impressed.

Robert, your precis of the situation rather adroitly makes the case for Mr. King's refusal to broaden the collateral that banks could use to raise short term funds. It then perplexingly lays at least some of the blame at his door. Irresponsible lending has been at the heart of some the UK's largest financial institutions for a good few years. The current situation is a bed of their own making, why shouldn't they lie in it ?
Regards,
JWHM

No sympathy for the bankers at all... they want to have their cake and eat it at most times and then go blaming others when it goes wrong!

Oh dear what a mess. I know the government were between the proverbial rock and an even harder place. But both the Fed ( 1/2 point cut) and political intervention, in the UK, instead of economic reasons will only worsen the situation. This looks like the just the start of a world wide panic that will ruin millions of normal households. The Feds move looks like economic lunacy and full of panic, just delaying the natural end to a gigantic economic bubble. Easy credit started this disaster and the fed seem to think that more easy credit will solve it. Have I missed something? We are doomed.

There is a disease in the banking world .... It's called "I don't understand the risks of loaning cash, and (even worse) I don't care!"

BANKS - WAKE UP!! IT'S TIME FOR YOU TO ENTER THE 21ST CENTURY - UNDERSTAND YOUR RISKS.

Otherwise, suffer the consequences of your incompetent actions!!

Mr King was right to an extented.

I run a business and if my company cannot get funding and runs out of cashflow the aletrnative is for the investors to put in Capital or let the business go BUST.
NR should have gone back to it's shareholders and requested cash injections. Pay back the dividends they received or you lose your investment?

That way investors are taking responsibility for their investments.

I entirely agree that it was the incompetence of Northern Rock's Executives in managing and releasing bad but not fatal news about its liquidity position that brought about the worst run on a Bank in living memory. Joe Public can't be blamed. They were arrogant too -'bloody hurrah' wrote Chief Exec Applegarth as the Chancellor road to his rescue.

I do not agree that King has a lot of explaining to do. I think you explained his decision very well. He is rightly unwilling to provide short term liquidity to banks whose search for yield has driven them to take risks. These institutions must realise that there is potential downside to their risk taking and be made to live with the consequences. There is however no doubt in my mind that Alistair Darling and Gordon Brown will both be looking for someone to blame and that person is likely to be Mervyn King.

There can only be one sector that should take the blame for the fiasco of Northern Rock and that is a Banking Sector that has allowed itself to be over extended with risky investments that are not transparent.
Some may say the FSA should have been more vigilant and the BoE not so harsh, but as the article states some sensible banks were incensed that reckless lending was leading requests for state support!
King was right to make his stand and the banks should not be in receipt of state welfare. If they push markets as the final arbiter based on choice etc then they should live by the rules they propogate and accept the consequences.

I wonder how many people truly understand how central banks work? Judging from the comments on here, very few, if any. I wonder how many people would be surprised, if not shocked, to learn that the Bank of England is privately owned, and rather than lending actual money, it creates money out of nothing and then lends it out at interest?

Governments have all the authority they need to issue currency. However, in this country (as in most others) the government gave away that authority to the BoE in 1694. As it happens the original floatation wasn't even paid in full! When governmenta want money for anything, instead of creating debt-free money itself (in a strictly regulated way, of course), it borrows money (at interest) from the BoE, which never refuses a loan. The loan is secured on general taxation. That's why taxes never ever come down - because the interest on ever-increasing loans can only ever increase. This is why governments are constantly looking for new ways to tax you - they have no choice! Not a single penny of income taxation goes to paying for public services and government spending; every single penny of it (both here and in the USA, and probably the same in most other countries too) goes to servicing the debt to the BoE.

How many people even know what inflation truly is? Or what a recession is? These are things that can ONLY be caused by the central bankers - and have been empirically proven to have been deliberately engineered by people like Nobel-prize winning economist Milton Friedman and Murray Rothbard.

Sound far fetched?

"Banking was conceived in iniquity and born in sin. Bankers own the earth; take it away from them but leave them with the power to create credit, and, with a flick of the pen, they will create enough money to buy it all back again. Take this power away from them and all great fortunes like mine will disappear, and they ought to disappear, for then this world would be a happier and better world to live in. But if you want to be slaves of bankers and pay the cost of your own slavery, then continue to let the bankers control money and control credit." - Lord Stamp, Director of the Bank of England, in a speech in 1940

"I care not what puppet is placed upon the throne of England to rule the Empire on which the sun never sets. The man who controls Britain's money supply controls the British Empire, and I control the British money supply." - Nathan Rothschild, 1819

Do some serious research into the subject, after all, it is YOUR money these thieves are stealing. Try watching the excellent documentary (available on Google Video) The Money Masters: How International Bankers Gained Control Of America. This is not "conspiracy theory" but a very dry examination of the history of money, and can be checked very easily for facts - as long as you don't rely too much on Wikipedia for your "facts"...

That people speak in praise of such pirates is truly incredible, but speaks volumes for the effectiveness of the brainwashing power of modern media.

I think the BofE should be applauded for the manner in which they have dealt with the situation. After all, it was the fault of the banks themselves for getting them in this mess. The BofE cannot condone this type of behaviour and if one or two of them go to the wall, then so be it. Remember, these are the same companies that having been ripping off customers for years with their high penalty charges. They are quick to pass on rate rises to mortgage holders but much slower to pass these to savers and as for customer service, what customer service? Plus, what do you think has been fuelling the housing boom? Banks were willing to lend 95% or 100% or even higher of the purchase value. It鈥檚 high time they were brought down a peg or two. If we acted in a similar way, they would be the first to penalise us for it.

Seems that Mervyn did not get a chance to handle it any differently as he's been overhauled by the polititians.BOE's so called independence has gone thanks to Brown/Darling interfering.
If BOE was Independent they did the right thing by looking at the bigger picture and not wanting to help out agressive rogue traders individual mistakes.
I see that CEOs of some subprime US mortgage lenders(that have profited massively for last 5 years) now visably show delight about the big rate cut in US and how it will help them get 'on track' again. The same CEOs never mention the wider economy, showing that no corporate individual or company in UK or US cares about the wider economy or anyone else, they all only care about their own companies profits,share value and bonuses. All that the UK govt intervention will do is just like in the US, give the green light for the rogues to go back to their old far too agressive ways to try making lots of profit at all costs and do exactly what seemed to cause the credit crunch in the first place but know that the govt may bail them out even if they take too much risk.
Having worked in UK banking I saw agressive sales lending to the wrong customers (poor credit ratings) thoughout the UK. Never understand how so called 'regulation'let this happen as having seen it first hand, regulation really seemed to be a farce as it regulates too much red tape/admin non financial things and seems to let a lot of terribly bad practices involving massive sums of money go unoticed until something goes severely wrong (like now). Mervyn should have been left to do what he thought was right for the economy and not what labour thinks will lose the least votes.

I wonder if the people asking if:
"BoE, or taxpayers, bail out injudicious banks?

Would still be asking this question if it were that bank that held their savings....

2 points to be made.
1. If the B of E has to protect against morale hazard, it can take comfort in the new hazard, i.e. unsafe practices may be bailed out by the B of E, but consumers will make sure you fail.
2. The lack of integretity from our US cousins has not been helped by our bankers willingness to jump on the band wagon to make a quick buck from risky practices.
I hope bankers and investors will take note instead of criticising M.K.

Northern Rock has not been 'bailed out'nor did it need 'bailing out'. The banking sector has not got Carte Blanche to behave irresponsibly, the government guarantee extends to 'solvent' banks only, irresponsibility will lead to insolvency and so no government guarantee available. The Government actually put ZERO taxpayer pounds at risk and at the same time removed unwarranted 'panic' amongst NR savers. Mervyn King, nor the FSA, nor NR , nor the Government are primarily to blame for this, the media are to blame for panicing NR savers. Why did the media report Barclays use of BoE funding differently ?

I have read the first 30 comments, all supportive of Mervyn King.

That says something, surely. Particularly those along the line of why are those banks whinging who wouldn't lend their own money.

I was surprised that the Chief Exec of Northern Rock didn't go on tv to say something like "We are solvent. That means we can repay all our depositors. We'd rather you didn't withdraw your money but left it with us where it IS safe, but if that is what you want to do, then we will of course give you your money"

If Darling wants to sack Mr King, what has happened to dear old Prudence?

It is clear from these comments who most people feel is to blame for this mess and it isn't Mervyn King.

In one respect banking is just like any other business, bad investment decisions have to have a cost or they keep being made.

I agree with Mr King.

Nothern Rock has a better record than many and is, in some ways, suffering because of the lack of morals in all the financial sectors.

The main problem I see here is the perceived independance that that bank of England has.

For political purposes, the Bank was effectively made independant, so the Government could blame them for their financial dealings. But, any major moves by the Bank would still need to be covered by the chancellor.

So you are left with the Mr King blancing the economy with one hand tied behind his back.

All credit to Mr King for achiveing this, mainly with a hard working gang beneath him, but the Government will always claim success when it works, and cast blame when it fails. As is always the way, the Bank remains calm whilst the other institutions panic. I also feel that the Bank will still, as this questions item shows, take the blame for the government and other institutions, just as they have before.

The way forward, in my mind, would be to undertake a complete review of our exisiting financial services (by the FSA) to undertake which parties are making the risky loans and having high faiiure rates and amend their credit rating appropriately.

This will allow people to see a rank list of lenders and deposit takers and make their own mind up with who thye save and borrow with.

This also allows the Government to take over any failed bank, without promise to cover any losses as custoemrs would have effectively been warned of the risk before using them. But it would also provide stability for banks such as northern rock, who are affected by a liquidity problem rather than a failiure.

I cannot help but think that some of this crisis was engineered by the big banks - although perhaps it went a little too far. Suddenly they stopped lending, with the effect that "upstarts" in the North and outside the City were unable to raise funds. I would imagine any upstart which suddenly grabs 25% of the mortgages from any of the pin stripers in London is bound to be unpopular.

We need a full inquiry into this mess, looking at the role of selling the same assets within the same organisations, as well as the role of the ratings agencies and excessive city bonuses in driving what was essentially a very risky market.

Anyway now the North has been taught a lesson... Money stays with the City Boys or else....

I 100% agree with Merve the Swerve - he looks like being made a fall guy here.

If he had pushed harder for a bail-out earlier, then the other banks would have just carried on with their lending practices with gay abandon.

At least now, having seen the damage to NR's share price, they must be pausing to 'step back' and review their approach.

Of course we don't know how much of the decision to assist NR was his, and how much his arm has been twisted by the Darling/Brown 'axis of moral hazard'.

Anyway, they seem to have averted a local difficulty becoming something much worse. Mervyn King is to be commended [as is Ben Bernanke] for giving companies a bit of a roasting and letting them look into the abyss, in the hope that it will frighten them into slightly more responsible behaviour in the future.

Whether they will listen is quite another matter !

Maybe this is an indication that the shareholders should be responsible for any bad debts incurred by their company. If they get the rewards when things go well, maybe they should pay when things go wrong!
This will force them into providing prper oversight into their investment and not just rubber stamping whateve the borad recommend.

I can't believe that the first 12 comments I have read all support King. Northern Rock had a flawed strategy of borrow short and lend long. It was no more guilty than any other bank of reckeless lending.
The key issue that had to be addressed very quickly was CONFIDENCE in the banking system. King rejected all the advice he rec'd from the FSA and others, didn't do what all the other central banks did (inject money into the system) and neary brought down the banking system because of it.
This smells of arrogance and stubborness. Look where it got him. If he had acted earlier we would be much better off. Who now trusts their bank and what now for the future growth prospects of the economy? I certainly don't trust him to be running the BofE.

All this was an accident waiting to happen. It all started by not regulating the amount of money that banks can lend.
Want a mortgage ? no job, no decent income, go to Northern Rock and others and get 125% of your wished-for salary.
Everybody knew this but as long as speculators and buy-to-letters are around, everybody plays the game cause there's always some fool who will pay more for what you have.
The bank of England or the FSA (Fraudulent Services Authority) knew all this and obviously didn't interfere because doing so did not serve the political aims of the previous and current government.
The housing market, if left to its own devices, should have crashed back around 2001. It didn't. The crash did not disappear, it just shifted and will happen at some other stage and the longer it delays, the harder the landing gets.
The recent case of Northern Rock (NR) is nothing but the beginning of this massive crash. NR is no longer a viable business and will have to either go to the wall or be bought by another bank.
The losses from this transaction, if sold, will be offset and borne by the bank of England out of tax-payers money or simply by printing more money just like they did recently and thus devaluating everybody else's money.
The idea that the bank of England interferes to save a bank from collapse due to it's own bad decisions and greed is ludicrous. What happens if tomorrow bank X finds itself in the same situation ? will they lend it money and not tell us ? will they not lend it money and eb accused of not being even-handed ? Or will they bail every bank that has trouble making it the best type of business to be in ?
If you ran a business and you needed some liquidity to avoid going to the wall, does NR or any other bank has pity for you ? No they don't. so why should the BofE or Tax payers for that matter ? Is it because they employ people ? your business does too. Is it because it's politically damaging and the chief engineer of this mess is now running the country ? The latter seems to be the right reason. The sight of people, pensioners on the whole,
queuing outside banks to get their unguaranteed hard-earned money, was shown all over the world and caused tremendous irreparable damage to the UK and showed that people no longer trust their government or any so-called independent insitution.

The BofE, the FSA, the government and the general public should learn these lessons:

1-For the savers who in most cases didn't even know their money beyond a certain limit is not guaranteed.
Please make sure they now know and change the rules so that people's money when deposited in a bank is 100% safe and guaranteed by the government. This means that banks are not allowed to gamble with it. If it is 4 billion or 50 billion they have, well they just deposit it with the central bank. If they want to gamble, they can use their own money.
For the savers who incurred fees by withdrawing their own money, who compensates them ?

2-Shame on the current government in the UK which can no longer be trusted with anything. The root cause of this are consistent lies.

3-This tarnished reputation of NR is not an accident. It is the result of consistent, year-in-year-out lending practises by the bank. Strangely enough, this behaviour gets rewarded by bonuses.
This is wrong and immoral. Nothing wrong with people earning lots of money but to pay over the oods somebody who wrecks a bank, destroys the livelihood of its 6500 employees, tarnishes the reputation of this and other banks along the way, cannot be right.

4-All those with vested interest who keep telling us the the economy is sound, think again. All those who keep telling us (mainly these mortgage pushers) that house prices are going up, think again.

5-For ordinary people, if you have lots of money deposited with a single bank, I would suggest you spread it around. This way you will reduce your risks in the case of a repeat of this case.

I fear this saga is just the beginning of something big. It may wither quietly but expect the value of your current money and earnings to be lower moving forward.

King insisted that intervention was imprudent as it would not punish the bank. I think the lesson from NR is that if banks do take this sort of risk then the share holders and investors will punish it. Ask the NR board next week when they are out of a job.

So bankers are upset about their industries tarnished image as a result of this episode. What makes them think their image was shiney after outrageous bonus payments, and illegal penalty charges, product misselling and shameful security lapses.

Which planet are these people on?

Surely the banks in general partly have themselves to blame - for an industry that relies so heavily on the trust of its customers it has abused that trust in recent years to maximise profits (things like charging for ATM use, the issue over making profit on penalty charges, maximising amount of cheques bounced when an account goes overdrawn, etc., come immediately to mind). It is hardly surprising then that people are less than willing to believe what a bank tells them.

King is right.
The Banks need to feel the pain.
As usual though after 20 years of "regulation" the FSA is the same as its
predecessors.
Different name... same toothless, useless poodle.
Why werent the Endowment, Pension, Maxwell and Equitable sufferers also bailed out?
This HAS set a dangerous precedent for the next time.....

Mervyn did a fantastic job and to proove him right, and unlike what some analysts like Robert did, this situation had been resolved in a couple of days.
One of the problems that exacerbated this situation is the fact that certain quarters keep mentioning the UK only and not the whole world of banking.
Robert, you are well aware of the fact that this lack of business to fund their loans had been coming since July this year, yet because our economy is strong we could surmount it easily. I am not saying that the problem is over, far from it, cause from now on financial institutions would be asking for more security for their money which they lend to other Banks, so we might be seeing a change in culture rather then change of hands of Banks. This is going to have a short term effect on the money in circulation and it is for this reason that the BOE has now injected more funds into the system, and at a quite low rate as well.
Scaremongering and rumours do not do justice to financial experts.
The bust in our economy, with very high interest rates that experts had predicted to start at the beginning if 2007 has not materialised either. Looks like Brown got his sums right during these last ten years! The BOE is also doing a good job in keeping INFLATION under control. That is the biggest disease of an economy. In the meantime Sterling lost some of it's value which is fine, as we need to boost our exports.

Peston wake up!

King is quite right to attempt to minimise the 'moral hazard' that banks don't or won't look into, because of sheer greed.

Adam Applegarth as both a CEO (of Northern Rock) and therfore a macro economist should be sacked forthwith with no golden paprachute. This is a global economy, stupid! Everything is tied in to everything else. To say he didn't see it coming is laughable. Does he not read the press / watch TV?

All this talk of Bankers saying what a disgrace is nauseating. This is probably why city types are referred to by the populace in general as (a bastardisation of cockney rhyming slang) 'merchant bankers'.

While Mervyn King took a stand based on principle and sound economic reasoning he nevertheless failed tremendously.
If he were to step outside his office and read the brass plate at the front entrance he will find that it says: 鈥淏ank of England鈥� and not 鈥淚nstitute of Economics of England鈥�. He must act as a banker, making commercial decisions. This entails choosing between undesirable alternatives, such as the potential meltdown of the banking system and the perception of inconsequence by bailing out a lender.
He must understand that this is not the time to send a message to 鈥渢he boardrooms鈥� , because it will be undone by panic on the street.
He must understand, while a principled stand in this crisis may be good is some 鈥渓ong term market equilibrium鈥�, that this equilibrium will establish itself more likely in Frankfurt than London.

The most serious accusation that can be levelled at Mervyn King, the banker, is it that his actions were late and badly communicated. For an economist, these would be no charges at all.

King acted appropriately in refusing early bail-out. The right outcome has come about. The depositors have not lost a penny but the shareholders have lost lots!

Fiscal sensibility needs to be reborn! Maybe this will be its new birthdate!

Long live the King at the helm of the bank!

He is a safe pair of hands and I want him to stay!

I am in a small mnority here. I think MK was wrong. Interbanking locked up; his job was to get it moving again. He did not. His failure to do so lead to the problem at NR - the most vulnerable of the banks to system failure.

The property bubble has been inflated by the lenders who compiled their house price indexes on remortgage valuations not market values, and were responsible themselves for pushing up prices to earm more and more money for people to buy exactly the same property for more and more money.
It is clear also that it has become a general trend that the default risk is no longer born by the originator of the credit line.
Where does dodgy credit card debt end up and who is taking on the risk for the loans we see advertised on television,"Borrow money to pay off your debts".
Which stupid overpaid banker is accepting these loans as collateral?
I have nothing but complete and utter contempt for the bankers who have been greedy crooked and stupid.
As for the Government, Tony Blair and his weapons of mass destruction have ensured that the public do not believe a word of anything they say, it should come as no surprise whatever that Government assurances were totally disbelieved..

Most mortgage lenders and banks fund their lending through a combination of customer deposits and the money market. Northern Rock is different - it relies almost totally on the money market. This is a valid approach to funding and the BOE and FSA were fully aware of it.

The BOE should have made it easier for Northern Rock to obtain funding and is partially responsible for this mess. Northern Rock is a viable company and is solvent. It will now be sold at a massive discount to the highest bidder.

The previous comments about the government subsidising Northern Rock are well off the mark. They are actually making a lot of money from this debacle as they are lending at penal rates. People also need to bear in mind how much the banks contribute to the UK economy through tax and charity donations.

I feel sorry for Northern Rock's shareholders and the government intervention has been too little and too late.

I'm neither a former investment banker, with a visceral understanding of markets or a world-class economist with an intellectual grasp of markets rather than an emotional one but I'm totally with Mervyn King on this on. He was bang on to be steadfast and not break the rules, short term pain, long term gain. Just because some 拢million earning bankers were giving him heat and were a touch embarrased about the fall out of their actions (irresponsible lending) Fail to prepare (by not evaluating the risk appropriately) prepare to fail, simple. You can teach applied maths but you can't teach common sense. Fair play Mervyn, I respect your decision.

Northern Rock are an anomally. Their meteoric growth has hidden all manor of ills. Their famously low arrears rate - is a sham. The arrears have been hidden within the large volume of bad debt. Northern Rock are a case of clever bankers manipulating their balance sheets.

The queues of customers are the fault of:
i) Gordon Brown's raid on the Pension schemes and customers more worried than they should be about pensions
ii) The other banks in the UK, who do not really trust or understand Northern Rock's (dodgy) business model and not willing to loan to them

The BoE did the right thing.

Why should the Bank lend money that the banks themselves are not willing to lend to each other?? It's their mess, they should clean it up and accept the consequences of their actions.

They have enjoyed the huge bonuses and income, but expect the tax payer to pick up the tab for their excesses & mistakes.

If a bank has to fail because of it's reckless behaviour, then let it. In the end we will all be better off.

So the Bank of England is widening its lending requirements to allow the use of mortgages as collatoral for borrowing from the insitute of last resort.

Does this mean that now the BoE will be underwriting the same toxic investments that have led to this crisis in the first place?

If the banking system wishes to be free to make a profit and return shareholder value, it should be free to mess up and go bust. Afterall, the price of shares can down as well as up and past performance is no guarantee of future return!

please do not blame mervyn king.Businesses should be left to sink or swim on directors decisions.The house market is set for a crash and the longer it is supported the more people off the street will continue to borrow.
The current worlwide train will have to come off the rails for a period,people have to learn where they have been wrong and get back to the good old days.Lets face it not very many people appreciate what they have today,they just want more.Society has gone bonkers.

Moral hazzard?

It's a shame so few in the banking industry or the government know or act on the meaning of the phrase.

Mr King is to be applauded not condemmed.

It's great to see so much support for Mervyn King for standing fast.

The "livid" top bankers clearly have a very special view of market forces. it's fine for the banks to make the market decision not to extend credit to NR (a perfecly sensible decision) - but when WE scum make the same decision with regard to NR, this is some kind of outrage which "tarnishes the industry's reputation".

Queues of people are so, so, unsightly, after all.

King should continue to stand fast, and resist calls from the banks and Government to cut interest rates. If they try to twist his arm on this, let him go public with his disgust and resign: there'll be another big queue, of people outside the Bank of England queuing to buy him a drink!

Mervyn King and most here fail to understand the world they live in. We do not live in a world of supply and demand economics where moral hazard is of prime
concern. We no longer let women and children starve just to teach banks a lesson. H Hoover and King have the same
puritanical attitude it would seem and we all know how the Great Depression was
caused by and perpetuated by such ideas.

If we want to stop banks acting irrationally we meddle- we just tell them what they can do and what they can not. Frothing at the mouth hoping that one of them will go bust to teach them a lesson just will not do

One cannot help but think that British savers are just too naively trusting, dangerously so. Certainly banks should be prudent in their lending practices but the debt fuelled profligacy of the British public is no dark secret. Surely for the thrifty this should be a warning sign.

It is a great pity that NR didn't go to the wall, if it became insolvent,just like any other business, and the government insurance could have been tested. This would have had a more spine stiffening effect on the other bankers and consumers. The longer we postpone the day of judgment the more horrific the results will be.

Absolutely no sympathy with the banks. The whole system seems like an opaque game of poker played with complex financial instruments. Mervyn King was right.

Would anybody like to hear the views of somebody who's just an ordinary depositer who queued up and withdrew funds over 拢35k and also left money in NR?

I'm one of those who queued 5 hours on Saturday and didn't get into a branch. So I got up early on Monday and was sat outside the Moorgate branch by 4.30am. At 5.00am I was joined by an 80 year old gentleman who'd flown back from abroad to get his money out.

Yet again the people in the queues were predominantly aged 50+ or were there to act on behalf of elderly parents. We are NOT people with poor credit histories seeking risky mortages. We are people with a long-standing history of saving and are "prime depositers" i.e. we want a safe home for long term capital and would like a choice which goes beyond NS&I and gilts.

Who do I think is responsible? how about:
1) The people who don't take responsibility for the way they communicate change and news
2) The people who ignore older people as a matter of routine. We are unable to regenerate what cash we have and consequently will always minimise risk and be very cautious about accepting anybody's assurances.
3) The Governor of the Bank of England for treating shareholders, bondholders and savings account holders in exactly the same way
4) Whoever thought that depositers could share the same level of risk but not receive the same level of information
5) Whoever thought it was OK to pour abuse on pensioners for queuing while ignoring the fact the corporate funds and shareholders had deserted the ship a lot earlier via electronic means
6) Whoever thought it wasn't a good idea to look at how people of pensionable and near-pensionable age deposit their money (Where and how much)
7) The Government and the FSA for having a financial compensation scheme which is totally out of touch with reality. Try moving personal pension funds and life savings around and keeping under 拢35,000 across all accounts of all companies in one group. It's very difficult to get easy access to confirm which companies are in which group. And yet we are all expected by the Governor to be well-informed.........

Now that we have had a 'run' on a bank, here's what I'd suggest is required to prevent it happening again:
1) good quality information which is published openly (websites / branches / all forms) and very easy to access which tells the ordinary man in the street which companies/institutions belong to which group - and thus enable him or her to check the planned spread of investments against the compensation scheme limit for each group. I'm sure it's not beyond the wit of somebody to come up with a neat interactive database which will throw up alerts.
2) commercial banks which ONLY offer products which ONLY cater for 50+ people with money to deposit and offer guarantees better than the normal compensation scheme. In other words banks which recognise what 'AAA' class savers and investors we are. No other customers or corporate investment allowed.
3) a regulator who watches out for the ordinary man in the street who has believed for a very long time that if you put your money on deposit at a bank that it is safe.
4) independent acceditation of a bank system and performance which works. The system DID NOT WORK - regulators exposed a lot of elderly people to a very big fright.
5) some sort of system which is the reverse of bankers bonuses - a system which imposes penalties and/or bans on all bank managers and analysts who fail to manage risk effectively. Penalties to be proportionate to the adverse impact on those who could not be expected to know everything!

Now I wonder how many CEOs and other senior managers in the banking sector would think twice about climbing the banking league table if they knew they ran the risk of getting a red card and/or a total ban?

I think that the BoE took the right line. That is, support strong banking integrity and make an example of the foolish high risk takers such as Northern Rock. However the FSA club and it's creator, Gordon Brown forced King's hand. King probably feels that he had no choice, to resign would have created further panic.

We now appear to be accepting sub prime security as collateral for BoE loans to our major high street banks. The BoE are being forced to mop up all the dodgy credit. Where does that place the integrity of the BoE?

It is the FSA and friend Gordon that are the villains of the piece, not the Bank.

Rip-off Britain again. Not only do we have to suffer years of high house price inflation, fuelled by reckless lending from banks and building societies, we now have to pay - through our taxes - to bail out those who can't afford to pay and to bail out those fat cats who made millions on bonuses for hitting their lending numbers.

Moral hazard must be avoided. Banks making billions on the upside of a bubble, cannot be bailed out on the slope back down. If this does happen it just means that it is worse next time (as King said).

Furthermore, the BoE was made independant for a reason. To make painful short-term decisions to ensure that this did not cause worse problems in the long run.

Cuts in interest rates, to bail-out banks, will hit the population in the pocket through inflation. However most of the population will not realise this and will see it as a good thing (reducing mortgages). I fear King will be made into a scapegoat for the crisis.

I urge you all to write to King, as I have done, to back him in his fight against moral hazard (and all those with vested interests).

Northern Rock has a well publicised policy of giving 5% of its gross profits to "charity". Has anyone checked to see who these charities comprise? Speculation has it that some of that money has been donated to good friends of Gordon Brown/Labour party. Cash for BoE bail-out anyone?

Glad to see moral hazard well under way with banks off to flying start livid and looking to blame the Governor. In truth the Governor along with the overwhelming majority is livid with banks so a spot of naming and shaming shouldn't go astray in place of mea culpa. Moral hazard is generally well treated with central bank revision.

Part of the problem for banks lending to each other is the fear of CDOs. So is this not the BOE treating banks mortgage assests as a CDO? Is the BOE not essentially treating these as AAA rated? I'm confused.

What we really need is some new banks and preferably regional ones.

Someone suggest sometime back that here in Scotland in particular we should have at least one regional bank preferably owned by the local authorities but not (heaven forbid) managed by them. If this happened I think customers and particularly small companies would flock to it.

The big banks - and two of them are supposedly Scottish - have got too big and too self interested. One at least is more concerned with buying up other banks than it is in what's happening on its doorstep.

Time to let them go and create new ones who will work in our interest.

Puhleeze! 'Top British bankers' worried about their industry 'tarnished'! Who do they think holds the banking industry in such high regard? Charges for this, charges for that, bad service, high bonuses etc etc....what's good about the banking industry? Wake up and smell the coffee indeed!

NR had a flawed strategy in lending long term and borrowing shorter term. Despite criticisms of its lending criteria it had a lower default rate than other banks. NR itself was not an investor in packaged subprime product.

If NR had gone wallop and taken my deposit with it, I would have been in a similar situation. I have an asset (my house which is worth 50% more than the mortgage) but I also have a large payment due next week for landscaping being done to my garden. Although my house, net of the mortgage, is worth a lot more than the landscaping, I wouldn't have had any money to pay the gardener. I would have been facing my own liquidity crisis. If the bank refused to extend me an overdraft, what would have happened?

I generally run my finances well but was I imprudent in allowing myself to run up the bill for landscaping without paying some of it off first by taking money out of my NR account?

When the NR crisis occurred sterling dropped like a stone against the euro and has not yet recovered. What now is the BoE policy on the value of the currency?

Its important to note that Darling did not offer to bail out NR in its entirety should it go bust, only the depositors (so thats 24bn not 113bn). That could in theory be through nationalisation, but I would hazard a guess that the Govt would not want 113bn of mortgages on its books. Also politically a govt repossessing houses, which is what lenders have to do would be suicide.

I would imagine that any bailout would take the form of ring fencing assets to cover the depositors funds. NR had about 9-10bn of assets out with mortgages. Also the Govt would probably invoke some clause which would make it the preferred creditor in any collapse. Thus it would gain from the sale of anything before anyone else.

Also assuming NR is essentially profitable if the govt did nationalise it, it would probably be quite a bargain. I doubt they would actually inject any funds immediately, but only pay out if and when there was absolutely no cash or assets to sell. Hence the risk to them is probably quite small.

Which economy was it whose leaders prided themselves on the advantages of its low degree of regulation of the economy?
Surely it is time for the terms of reference of the FSA to be rewritten. Instead of acting in line with conventional financial wisdom it needs a strong consumer input, and should be subject to enquiry by House of Commons Select Committees.

I recall both the collapse of the Bank of International Credit & Commerce about 15 years ago and of the County Bank in the early '70s. Both are within living memory.

Neither case is the same as the Northern Rock. BICC & County were truly bust, whereas Northern Rock has been pushed into difficulty because other British Banks unexpectedly and without any cause by Northern Rock just discontinued lending money as they had previously.

It's like being cut off by a vital supplier who also publishes a notice to that effect. That's not a run-on-a-bank.

It is a rather contentious issue to deal with, unfortunately seeming to lack a middle option in between looking to nurture irresponsible banking, and allowing embarrassing and hazardous situations such as this to take place. I think in the long term King's decision may prove the right one though.
A sense of embarrassment on behalf of the banking community should perhaps be felt. After all, the sub-prime fiasco has on the scale of things been a relatively minor market hazard, if our well-prided banking industry can not ride waves such as these, then what hope do we have when waters get really rough? That is when the BoE should act as a cash cow - not when bad decisions back fire.
Hopefully these events will encourage our Banks to take more responsible and prudent actions in the future.

Can I just say how much I enjoyed Post#139

Of course it is written from the banker-centric view of the universe (albeit the banking is hell variety) but it is well written and entertaining

Rather than point the finger at Mervyn King for this crisis, the 主播大秀's business editor should be taking a close look in the mirror and asking himself about the part he played in panicking depositors queueing at Northern Rock branches.

It was an important business story, clearly, but making it the top story on the 10 o'clock news when it was clear the company was solvent and that deposits were not at risk, almost guaranteed a panic reaction.

Just as the bank has responsibilities to its customers, the 主播大秀 has responsibilities too.

Surely the problem lies with the FSA. They should have identified that granting mortgages on borrowed money, albeit from other banks etc., was going to lead to problems.

All part of the credit availability that has been such a difficulty for all.

King's mistake was to not act quickly enough in creating the necessary liquidity in the markets for Banks to operate and lend to each other.

Real damage will have been done to the economy because anyone planning to run a project involving some debt will have found it difficult or impossible to get some if not all the borrowing required. If the liquidity had been facilitated by the BoE then there would be enough money in the credit system to avert such problems, including the Northern Rock crisis.

Whilst these projects may have been put on hold and may in the future go ahead there will be a major loss of economic output that will be felt.

Another major issue is the loss of confidence in the economy by the wider public, resulting in reduced consumer spending and a fall in house prices that is purely the result of media driven speculation/scare mongering that the housing market would crash that is total nonsense when considering the actual fundamentals of our economy, which are strong.

If King had acted sooner then we would not be speculating on whether he needed to moralise over how they have bailed out the 'cap in hand' Northern Rock because they would not have had to if the system was working properly.

Robert, surely the bigger story here is that Whitehalls string pulling and interference behind the scenes prove that The Bank of England is not as independent as we are lead to believe?

Would you also like to shed some light on the rather interesting relationships between the directors and trustees of Northern Rock, various North Eastern England quangos and The Labour Party please?

I feel "Crash Gordon" bears some responsibility for allowing the debt mountain to build up in the first place. Remember, he discouraged savers by replacing TESSAs and PEPs with less generous ISAs, then allowed those to deteriorate in real terms. The savings ratio has struggled to recover ever since.

Remember the Labour election posters a few years ago boasting about the lowest mortgage rates for a generation?

I am sure that the tax payer should not be asked to bail out banks who make mistakes on behalf of their shareholders (moral hazard is a big deal), what I have an issue with is a saver losing all her savings because of the greed of shareholders and the pressure they put on bank's to make money for them any which way they can.

A saver who has deposited her money in a bank, perhaps money saved over a long period should not be the one to pay the price of the greed of a few rich people...

Michael

It is striking how many of your commentators are so ready to attribute praise and blame in this situation. Personally I am more reticent since I am struck by the complexity of the financial situation. To be specific: first, there is the international financial situation in which huge surpluses in China and other emerging economies find their way back into the US financial sector. These funds must find potential outlets in order to generate incomes to encourage further savings/investments. Second, there is the creation of dubious financial instruments inadequately or even spuriously securitised and operating at the high risk end of the market, but again designed to attract further savers/investors. It is this area, if any, that requires tighter regulation. Second, in the torrid climate of moral indignation there often seems to be a conflation of those so-called investors who are shareholders and those investors who are merely savers. The former deserve to suffer any losses that arise from high risk policies pursued by cavalier CEOs and Boards. After all shareholders have an opportunity to exert control over the Board through the AGM. On the other hand, savers who place their savings with a bank do, in my opinion, deserve the fullest protection; for, after all, they do not have the same rights and responsibilities as shareholders. In all probability given that the NR is a legally incorporated bank they understandably were encouraged by an attractive rate of interest and assumed, as would most of us, that their money is safe in a bank. MKs actions appear to be designed rightly to discourage reckless banking practice but unfortunately the BoE is only one agent with a limited area of control in a highly complex and volatile international financial system lead by the US and an administration that has created the largest budget deficit in history heavily dependent on international borrowing.

Surely the fault lies in a system that allows Northern Rock and others to get into this predicament in the first place. Mr King is quite right to consider their greed and lack of foresight should not be rewarded but how many savers realised the risk to their savings? A building society cheque is regarded as one of the safest methods of accepting payment in a private sale - the man in the street could be forgiven for assuming his investment was equally safe. Where was the FSA when greed began to exceed good business practice and common sense.

1. Mervyn King is right on two counts: in seeking to avoid both moral hazard and the inflationary effect of indiscriminately boosting liquidity.

2. The ex-investment bankers turned bureaucrats at the FSA appear to have allowed the Northern Rock situation to fester since at least early August when the bank's funding difficulties were first aired in the financial press.

3. The Chancellor's public utterances reveal a surprising naivety about the nature of financial panics.

4. The tripartite arrangement (BoE,FSA, Treasury) for supervising the financial system is long on process and short on practicality. It dilutes reponsibility and encourages back covering.

5. The best way to deal with an illiquid or insolvent bank and not cause panic is to give a single competent party the discretion to sort matters out quickly and privately. This was the situation under the previous regime where the Bank of England was able to act early and decisively to forestall or solve many situations far more serious than Northern Rock.

The excellent articles by the 主播大秀s financial, business and economics big hitters have generated further excellent comments.

I would like to know what can be learned from this NR situation, it must never happen again.

How can the small time saver, like myself, be protected and the big time speculators be isolated when investing in financial institutions?

Ordinary citizen savers have been panicked by the trash media, thus extending the NR problem, could this be repeated?

Is it right for journalists to go headhunting for blame rather than encourage confidence in the future?

It is not 'good politic' at present to scrutinise the performance of NR in the public domain, but isn't this one of the key events?

In the arty-crafty world of the financial institutions there are indeed many very clever men but they seem pre-occupied with the cause rather than the effect of issues.

I suggest the future effects of NR are a much more difficult to predict or contain and a rewarding challenge will be to establish new controls for the future to prevent a re-occurrance.

The representatives of the FSA, BoE, NR and Government I saw on TV recently appeared to be 'shaken to incompetence' by this issue. A good start in my opinion would be to put someone in charge that does inspire confidence with an eye on the future.

Fully agree with Richard #15.
If the banks are so unhappy with the Bank of England for not lending to Northern Rock when they themselves have stepped aside,why then can they not resume earlier procedures now that BoE has made funds available?

Last Week Northern Rock issued a statement that it was not involved in the "Sub-prime" market

Did they issue that statement before or after they removed the "Open For Sub-Prime Business" Banner advert on their website?

Check out the Specialist Lending section of the Northern Rock website - they offer a full range of sub-prime mortgages, including ones for recent bankrupts

To Andrew (Post 190)

Firstly, thanks. ;-)

Secondly, if you don't believe what I said, may I suggest you watch the excellent (5-star) documentary available on Google Video and elsewhere, entitled The Money Masters: How International Bankers Gained Control Of America. It will change your life. May I also suggest some reading matter:

A History Of Money And Banking In The USA by (the late) Murray Rothbard (formerly of the Mises Institute) (available online)

The Creature Of Jekyll Island by G. Edward Griffin

Secrets Of The Federal Reserve by Eustace Mullins (available online)

The Money Changers by Patrick Carmack (available online)

There are lots of others, but those are good for starters.

And may I also quote some notables in history, who were in a position to know what was going on:

鈥淪ome people think the Federal Reserve Banks are the United States government鈥檚 institutions. They are not government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign swindlers鈥� 鈥� Congressional Record 12595-12603 鈥� Louis T. McFadden, Chairman of the Committee on Banking and Currency (12 years) June 10, 1932.

"A great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men who, even if their action be honest and intended for the public interest, are necessarily concentrated upon the great undertakings in which their own money is involved and who necessarily, by very reason of their own limitations, chill and check and destroy genuine economic freedom.

We have restricted credit, we have restricted opportunity, we have controlled development, and we have come to be one of the worst ruled, one of the most completely controlled and dominated, governments in the civilized world--no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and the duress of small groups of dominant men." - Ex President Woodrow Wilson, (taken from Wilson, Woodrow. The New Freedom: A Call For the Emancipation of the Generous Energies of a People.)

"From the time I took office as Chancellor of the Exchequer I began to learn that the State held, in the face of the Bank and the City, an essentially false position as to finance. The Government was not to be the substantive power, but was to leave the Money Power supreme and unquestioned." - Chancellor of the Exchequor William Gladstone, 1852

"The international bankers swept statesmen, journalists, and jurists all on one side and issued their orders with the imperiousness of absolute monarchs." - Lloyd George, talking about the Versailles Peace Conference after the First World War

"I am afraid that the ordinary citizen will not like to be told that the banks or the Bank of England can create or destroy money... The amount of money in existence varies only with the action of the banks on increasing or diminishing deposits." - Reginald McKenna, erstwhile Chairman of the Midland Bank and Chancellor of the Exchequer

"The warning of Theodore Roosevelt has much timeliness today, for the real menace of our republic is this invisible government which like a giant octopus sprawls its slimy length over city, state, and nation... It seizes in its long and powerful tentacles our executive officers, our legislative bodies, our schools, our courts, our newspapers, and every agency created for the public protection... To depart from mere generalizations, let me say that at the head of this octopus are the Rockefeller - Standard Oil interests and a small group of powerful banking houses generally referred to as the international bankers. The little coterie of powerful international bankers virtually run the United States government for their own selfish purposes. They practically control both parties, write political platforms, make catspaws of party leaders, use the leading men of private organisations, and resort to every device to place in nomination for high public office only such candidates as will be amenable to the dictates of corrupt big business... These international bankers and Rockefeller-Standard Oil interests control the majority of newspapers and magazines in this country." - John Hylan, Mayor of New York, NYT, Mar 26 1922

"The Federal Reserve definitely caused the Great depression by contracting the amount of currency in circulation by one-third from 1929 to 1933." - Milton Friedman, Nobel Prize winning economist, 1996

"The stock of money, prices and output was decidedly more unstable after the establishment of the Reserve System than before. The most dramatic period of instability in output was, of course, the period between the two wars, which includes the severe (monetary) contractions of 1920-21, 1929-33 and 1937-38. No other period in American history contains as many as three such severe contractions.This evidence persuades me that at least a third of the price rise during and just after World War 1 is attributable to the establishment of the Federal Reserve System... and that the severity of each of the major contractions - 1920-21, 1929-33, and 1937-38 - is directly attributable to acts of commission and omission by the Reserve Authorities... Any system which gives so much power and so much discretion to a few men, (so) that mistakes - excusable or not - can have such far reaching effects, is a bad system. It is a bad system to believers in freedom just because it gives a few men such power without any effective check by the body politic - this is the key political argument against an independent central bank... To paraphrase Clemenceau, money is much too serious a matter to be left to the central bankers." - Milton Friedman

Etc. I hope you get the picture by now... :-)

King is right all the way, and no amount of political or JOURNALISTIC spin can alter the fact he is a man of integrity who the public can trust. Unfortunately the bankers, who stand to lose most, cannot stand to see someone stand up & do the right thing.

Good on you Merv.

After all the interesting comments previously noted I still seek reassurance. Although investors have now been assured that all of their deposit will be safe, it is not clear whether in the case of a fixed term Bond, for instance, if this will also include any accrued interest. Does anyone know for sure ?

what a load of rubbish - king is about the only sensible person in this whole mess, including the 主播大秀 and its laughable economic 'analysis'.

its just a shame he was forced into doing something that will harm the economy in the long to save a reckless bank(s) - forced by gordon brown obviously.

i wouldn't be surprised to see king resign soon, especially if he is told to reduce interest rates (lets not pretend the BoE are actually independent - any fool can see it isn't).

I agree with Mervin King's approach to moral hazard.
I suspect he's had his arm twisted by a Scottish megalomaniac.
I'm now in Swiss Francs awaiting the devaluation of Sterling.

Mervin King publicly stated he was against moral hazard.
I suspect he's had his arm twisted.
It's a good time to be in foreign currencies.

Mervyn was right, and will be proven so. Mass liquidity was pumped in by the ecb but that did not ease the euro 3m rate. Only open and full disclosure of who owns what will do this. The fed slashing rates may provide temporary relief but does not fix what is fundamentally broken. After darling's guarantee to use taxpayers money to bail out imprudent banks, it should come as no surprise that Abbey has entered the 125% LTV market. Moral hazard, anyone?

It appears the 'independant' Bank of England is anything but.

So before the NR went to the BOE as lender of last resort they'd already been turned down by all those other banks who lent in good times but not in bad.

As others have said to blame the BOE for their own sins is breathtaking in its arrogance and conceit.

But only time will tell if this is truely a passing crisis of confidence or they really do need to hoard all the cash they can. That they appear not to know themselves and will not lend to each other in the meantime does more damage to the reputation of banking.

Blame may stick to the BOE, FSA, Treasury and politicians but foremost must be the banks and other financial institutions who build a pyramid of debt and loans between them. Only seeing the commission on the next deal.

Maybe something good could come out of all this.

There is a chance that the FSA will be able to introduce a 100% deposit guarantee scheme for retail depositors, backed by a compulsory levy on deposit-taking banks.

It seems to me that this would be clearly beneficial for the community of savers who underpin the banking system, and hence ultimately for the banking system as a whole.

But just imagine the outcry there would have been this had been proposed three months ago, when nobody seriously believed that a bank run might happen in Britain. It would have been spun as yet another example of the Nanny State tying the hands of British Business with pointless over-regulation.

I doubt the banks will be making that argument now.

It seems to me that the large number of level-headed people who have posted comments here, who clearly understand the essential difference between investors and depositors, have the potential to achieve something really worthwhile if they campaign for the introduction of such a scheme in their comments on this and other web sites and don't let up until the FSA has acted.

You say "as of this moment, no depositor has actually lost any money"
May I point out that, "as of this moment" I am losing around 拢100 per week in interest as I strive to set up new accounts for the savings that I withdrew from Northern Rock in the early hours of last Friday morning.
As these banks seem inundated with savers like me, this is taking a lot longer than normal.
As for the idea that, as a depositor, I should share in the risks that a bank takes if I deposit more than 拢2,000, this is just preposterous. It's also not mentioned in any fine print that I have seen as I plough through the terms and conditions for alternative savings accounts.

Mr Peston, Mervyn King faced no moral hazard, or choice for that matter, he had to increase liquidity.

The moral hazard of allowing complex financial deals along with borrowing short and lending long, had already been faced and a decision made many years ago.

Ultimately if you regulate a banking industry, and your regulation fails, you have to sort out the problem.

Mervyn King鈥檚 mistake was to fail to appreciate that without a stable banking structure, there is no stability in the country in which it resides. I have business, if the bank fails, how will I pay my employees, how will they pay their bills.

Ultimately the problem rests with the regulators, chosen by the Government, that were elected by the people. In short we鈥檝e got we elected to have.

Am I the only one on here not happy with the 主播大秀 reporting of this issue. I seem to remember a lot about the Northern Rock being in trouble, in the early days, but not that much about it being very solvent. Also I was rather disappointed at the interview last night on 主播大秀 News 24 where the business editor laughed about it. I was a contented saver with NR, and would still be if the scaremongering had not happened.
Irresponisible media reporting does not help anyone anywhere

I am disgusted with the government and the 主播大秀. It seems to me that the 主播大秀 are trying to sway public opinion into believing if the financial system falls apart, Merv King will be the one to take the fall. I don't believe the public are that daft to believe the government is not controlling the BoE and 主播大秀. I have alot of respect for Mr.King and do not want to see him become a scapegoat, therefore I would not blame him if he resigned. It's a shame that the general consensus is Mr King should resign because he has morals, just goes to show that the public have accepted that the government is corrupt. Shouldn't we want people Like Merv to be in government? I think Northern Rock deserved to be embarressed. What cheek to blame the BoE for not bailing them out sooner. My Message to Merv: Get out while you can with your reputation intact...before it all blows up.

The way I see it, the only person who ISN'T responsible for this crisis is Mervyn King. The actions of the Nothern Rock senior management are the ONLY people that got Nothern Rock into trouble. The run on their bank was entirely justified, they had a business model that failed if there was a significant change in interest rates. The FSA should have seen this and forced them to change practices. Now the banks know that they are effectively Government backed, the same as National Savings only without the restrictions and their saving and lending practises are likely to change in light of this new behaviour by the Government, FSA and the Bank of England.

The simple fact remains, that if a bank starts to fail it should be allowed to fail. When my business struggles because of my poor management choices I deserve to go under.

And to see the 主播大秀 pointing the finger of blame squarely at the Bank of England rather than the fat cat bankers is frankly a joke and makes me think that Mervyn King isn't the one who should be losing his job.

So what can the average Joe on the street learn from this debacle?

As consumers, we have become complacent. We have been lulled into trusting an independent body (the FSA) to stand between us and the complex and cut throat world of the financial services arena (and the institutions that operate here). It's them, not the BOE in whom the consumers trust. That's not an excuse to exonerate oneself of all responsibility though.
If you enter into any kind of transaction with a bank, building society or investment company, even if it's just opening an account, you are provided with their terms of business. The terms of business are issued for a reason - they are the contract between you and the institution and they explain the obligations you and the bank have to each other, and what happens if it all goes wrong.
Do you know anyone who actually reads these though?
I'm as much at fault as the next person, but the thing is, if we had read them , we would have known about the 拢35K capped guarantee. And, to be perfectly frank, if you're depositing your life savings in one place, who elses responsibility should it be to check these things out? If i'd taken out any other kind of contract, I think general concensus would be that it would be my responsibility to understand what I was getting myself in to. Ignorance of the terms and conditions is no excuse.

So, if nothing else, maybe this jolt was thoroughly necessary to remind us that we are and should be responsible for ourselves, not automatically assume that we'll be bailed out when things don't quite pan out as we'd expected.

Secondly, how many people understand the principal of risk-reward payoff? Maybe it's about time we informed ourselves, and then we'd understand why a National Savings bond pays less interest on the principal than a bond provided by a high street bank.

Finally, as a voting population, we should be using sufrage as our one way of letting Brown and his cronies know that they cannot pull the wool over the eyes of the members of the British public, and that we will not tolerate corruption and underhanded levelling of the blame with the most publicly recognised fall guy, purely to ensure their own return to power.
Trust me, a cast iron guarantee was not given with your best interests at heart. It has a lot more to do with an impending election and greed for power and status.
Come on Britain, lets show that some of us still stand for the principals of honesty, integrity, and honourability even when the chips are down!

I do hope Mr King has read all the comments on this blog - if nothing else it's proof that even those of us hated City banker types know that he did what he thought was right, and that occasionally we all need to be brought into line.

And Mr King, if you are reading this, my mother always says "every dog has it's day" - hang on in there, it may be a rough ride, but I have a feeling your day is still to come.

#139 and #204 Mr. Bauer, do we know each other?

Regardless, I detest your misrepresentation of my family's legacy.

We have sacrificed everything so that we may be bring a stable monetary system to all of the world. This is the noblest of endeavors and what do we have to show for it but your ignorant blathering.

What would there be in this world if it wasn't for central bankers? Chaos? Endless War? Genocide?

We are the glue that holds together the best surveillance / police / welfare / warfare states.

God bless the (central) banker, who on a yearly basis, takes only a small to medium percentage of all the world's wealth. How else would serfs such as yourself deal with one another in trade and commerce if it was not for our guidance and trickery?

In one of Robert Peston's first online articles about this Northern Rock situation, late on Thursday night, he interpreted the assurances of some authority (chairman of the FSA?) as meaning that people with mortgages and current account holders with the Northern Rock had nothing to worry about. Based on that piece I thought: Why aren't savings accounts being mentioned? ... and that was what tipped me into panic mode, so at 9.55pm I withdrew 拢300,000. It wasn't me and people like me who caused the 'run', but people like Robert Peston and people like the chairman of the FSA, and people like the Northern Rock's directors, who didn't appreciate that all the depositors were hanging on every word (of the "Don't panic" variety) and nuance, and on every missing phrase, and coming to entirely logical conclusions.

Like another contributor above, I haven't appreciated Robert's breathlessly excited style on TV. He shouldn't be seen to be enjoying the crisis as much as he is, (even if he is.)

To #221 Lord Rothschild.

You could say, my great-great-grandson, that we know OF each other... ;-)

But your sarcasm does our family's legacy proud and is entirely in keeping with the kind of people we are. :-)

I feel I must recount a tale to you. I wriggled with pleasure in my grave when I heard that it was estimated by some economists that our line now controls upwards of 60% of all the world's wealth. Much of the credit for this undoubtably goes to my son, your great-grandfather, Nathan who in 1815 caused a stock market crash whilst secretly buying everything he could lay his hands on for a fraction of its worth, and ended up controlling the already privately-owned Bank of England.

I am proud to say I taught him everything he knew, for I embezzled the 拢600,000 ($3 million, a vast sum in those days) given to me for safe-keeping by William IX, Landgrave of Hesse-Cassel in 1806 when he fled from Napoleon to Denmark. This is, incidentally, recounted in the Jewish Encyclopedia, 1905 edition, Volume 10, p. 494 for your edification. By a strange quirk of fate William himself had embezzled the money from the British government who had given the Landgrave to pay his soldiers for their services in suppressing the American revolution; the money was therefore morally the soldiers money and not William's. So it could be said that part of the basis of our vast fortune was money twice embezzled! :-) This money I sent to Nathan in London, who, in 5 years after the 1815 crash increased it's value to around $7,500,000,000.

Whilst my insistence that there never be any public accounting of our holdings has been honoured to this day, it was estimated that at the time of my death in 1812 I was the richest man who had ever lived. It was also estimated in 1925 that our family wealth totalled around $300,000,000,000 and that that figure had grown to around $500,000,000,000 by 1940; this is, of course, not counting the vast profits we made from WWII, the "Cold War" and the various conflicts since, most of which we instigated for that very purpose.

And the press agencies which our fortune bought have carried out their instructions admirably over the years. As the present discourse demonstrates they have been very effective in diverting the attention of the blinkered masses from the true cause of all their woes.

:-D

#223, Mr. Bauer,

I thought I recognized you. It seems you are well, even if you are dead.

Mighty accommodating chaps the press are. They twiddle about over issues that have nothing to do with source of real power and do us the favor confusing the sheep beyond all hope. God bless the shepherds of the sheeple who keep guiding them down our road to serfdom.

I do worry about this chap though :

www.youtube.com/watch?v=bxLXaiWmFB4

If he were to awaken too many of those gun toting barbarians in the U.S. we may have a problem.

How dare he speak to comrade Bernanke in that manner.

Cheers,
Rothschild

To #224 Lord Rothschild:

Indeed, if his (Dr. Ron Paul's) popularity continues to grow I "would not be surprised" (nudge nudge, wink wink) if he met the same fate as JFK and Lincoln, both of whom challenged our American branch of operations, known to the world as the Federal Reserve System. I feel sure you will need no reminding that Kennedy issued Executive Order 11110 just months before his execution, in an attempt to take back to the government the authority to issue currency; this EO has not been rescinded to this day and yet very few even know of its existence - another testament to the sterling work done by our mass media organisations.

And of course, EVERYONE surely by now knows that Lincoln's big mistake was challenging the "money power":

"I have two great enemies, the southern army in front of me and the financial institutions in the rear. Of the two, the one in my rear is the greater foe. The Government should create, issue, and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers. The privelege of creating and issuing money is not only the supreme prerogative of government, but it is the government's greatest creative opportunity. By the adoption of these principles... the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity. Democracy will rise superior to the money power".

Don't forget also the untimely end met by Congressman Louis T. McFadden in 1936 (after several attempts!), who had the unholy TEMERITY to bring impeachment charges against the Federal Reserve board, and who in 1934 said on the Floor of the House of Representatives:

"Mr. Chairman, we have in this Country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks, hereinafter called the Fed. The Fed has cheated the Government of these United States and the people of the United States out of enough money to pay the Nation's debt. The depredations and iniquities of the Fed has cost enough money to pay the National debt several times over."

So it would behoove Dr. Paul to be wary, for we will not tolerate upstarts who attempt to alert the masses to our schemes. Aside from anything else, we would not want the people of Great Britain to become aware of the (and let us be forthright here!) iniquities and outright usury of a privately-owned central banking system by having these facts become public knowledge in the United States. The truth is of course known to those in our controlled media and education institutions:

"The truth is well known among our principal men now engaged in forming an imperialism of capital to govern the world. While they are doing this the people must be kept in a condition of antagonism. By thus dividing the voters we can get them to expend their energies in fighting over questions of no importance to us, except as teachers to lead the common herd. Thus by discreet actions we can secure all that has been so generously planned and successfully accomplished." - The Bankers鈥� Magazine, USA, 1892

...but as John Sherman, one of our prot茅g茅s, said in a letter on June 25, 1863 to New York Bankers Morton and Gould, in support of the then-proposed National Banking Act:

"The few who understand the system will either be so interested in its profits, or so dependent on its favors that there will be no opposition from that class, while on the other hand the great body of people, mentally incapable of comprehending the tremendous advantages... will bear its burden without complaint, and perhaps without suspecting that the system is inimical to their best interests..."

Correction:

Lincoln did not challenge the Federal Reserve (which did not come into existence until 1913). However he did upset our plans by issuing his debt-free "Greenbacks" after refusing our offers of loans at interest rates of between 24 and 36%. After his re-election in 1865 he pledged to challenge our power once the Civil War was over, but sadly (nudge nudge, wink wink) he was assassinated 9 days after the end of that war. Immediately after his death we triggered a depression by reducing the currency in circulation from $1.8 billion in 1866 (or $50.46 per capita) to $605 million in 1876 ($14.60 per capita), and eventually to $6.67 per capita by 1886, representing a 760% loss in buying power.

Yes, we central bankers aren't called "*ankers" for no reason...!!! :-D