The Northern Rock conundrum
Observation on the so-called grilling that BoE governor, Mervyn King, received from the Select
Banking Committee last week, first drafted on Sept. 24, 2007
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In our mind a thorough post-game analysis of the BoE’s handling of the Northern Rock crisis would not be
complete if two questions were not to be addressed that the Select Banking Committee failed to raise last week.
These two questions pertain first to the co-responsibility that depositors in Northern Rock have for having left
their money in the bank when it became clear, that the company was following a very risky growth strategy. And
the second focuses on the implicit assumption, that orderly market condition could not have been preserved in
the UK, if the BoE had not provided a lender of last resort guarantee to Northern Rock. For too little does it
appear to us, as if a collapse of Northern Rock had inevitably led to a general run on banks, that we could now
see it as a given, that the BoE had to intervene in any case.
No, if we want to be honest here, with have to admit that we are by no means certain, that an inaction by the BoE
had in deed caused the wide-spread destablisation that everyone seems to take for granted now. And so we
cannot easily condone the bail-out strategy that has been applied here. For too singularly risky has been the
Northern Rock approach, that one could now still believe that the wider public would not have grasped this fact.
No, no, if we do want to the public justice here, we have to maintain, that the need for the BoE guarantee wan’t
crystal clear. And so we cannot help but blame depositors as well. For too little have they previously done, to
question the viability of the Northern Rock yields that they could now expect others, to naturally help them out.
Given however that this is by no means an easy call to make, it is understandable that the BoE has preferred to
err on the side of reasonable doubt. For too dramatic (just) might consequences otherwise have been, that one
could now still have contemplated risking them easily.
Observation on the so-called grilling that BoE governor, Mervyn King, received from the Select
Banking Committee last week, first drafted on Sept. 24, 2007
----------------------------------------------------------------------------------------------------------------------------------------
In our mind a thorough post-game analysis of the BoE’s handling of the Northern Rock crisis would not be
complete if two questions were not to be addressed that the Select Banking Committee failed to raise last week.
These two questions pertain first to the co-responsibility that depositors in Northern Rock have for having left
their money in the bank when it became clear, that the company was following a very risky growth strategy. And
the second focuses on the implicit assumption, that orderly market condition could not have been preserved in
the UK, if the BoE had not provided a lender of last resort guarantee to Northern Rock. For too little does it
appear to us, as if a collapse of Northern Rock had inevitably led to a general run on banks, that we could now
see it as a given, that the BoE had to intervene in any case.
No, if we want to be honest here, with have to admit that we are by no means certain, that an inaction by the BoE
had in deed caused the wide-spread destablisation that everyone seems to take for granted now. And so we
cannot easily condone the bail-out strategy that has been applied here. For too singularly risky has been the
Northern Rock approach, that one could now still believe that the wider public would not have grasped this fact.
No, no, if we do want to the public justice here, we have to maintain, that the need for the BoE guarantee wan’t
crystal clear. And so we cannot help but blame depositors as well. For too little have they previously done, to
question the viability of the Northern Rock yields that they could now expect others, to naturally help them out.
Given however that this is by no means an easy call to make, it is understandable that the BoE has preferred to
err on the side of reasonable doubt. For too dramatic (just) might consequences otherwise have been, that one
could now still have contemplated risking them easily.
| © Landei Selbstverlag, owned by Wilhelm ("Wil") Leonards, Gerolstein, Germany. All rights reserved. Reminder: Noah denkt™ is a project of Wilhelm ("Wil") Leonards and his Landei Selbstverlag (WL & his LSV). Consequently, all rights to the texts that have been published under the Noah denkt™brand name are reserved by WL & his LSV. The commentary and the reasoning that was provided on this page is for informational and/or educational purposes only and it is not intended to provide tax, legal or investment advice. It should therefore not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security or any issuer by WL & his LSV or its Noah denkt™ Project. In fact, WL & his LSV encourage the user to understand that he alone is responsible for determining whether any investment, security or strategy is appropriate or suitable for him. And to leave no doubt as to what this means we urge our user to also note our extended Legal Notice. |
| Conflict of Interest Statement with respect to Northern Rock Q: Does Wil Leonards hold shares in Northern Rock? A: No Q: Has Wil Leonards done consulting work for Northern Rock? A: No Q: Does he intend to develop a commercial relationship with Northern Rock? A: No Q: Do members of Wil Leonards' family hold shares in Northern Rock? A: No Q: Have members of Wil Leonards' family done consulting work for Northern Rock? A: No Q: Does a member of his family intend to develop a commercial relationship with Northern Rock? A: No |
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Project for Philosophical Evaluations of the Economy |