成人论坛

Come back, Steady Eddie, All is forgiven !!

Since the story is still unfolding it is impossible to predict the outcome, but the effect of the belated intervention by the BOE was to turn a crisis into a catastrophe for NR. The sight of a run on the bank in one of the world's best performing economies was truly unsettling (from an investment perspective). Cast your eye over the other indices (besides the FTSE100) and there are many financials feeling a chill wind. Did the BOE's dithering and inconsistency contribute to investment fright and increase liquidiy worries? If the judgement is 'yes', i would presuem the Governor will know what to do.

I think a lot of the criticisms against Mr King miss one very important point: in acting how he did he sent a strong message to the banks that he dissaproved of their behaviour and that they should look at their methods of financing. The subsequent u-turn can be looked at in the context of a parent punshing a child. The banks were made to sweat for a while, then when there was a real danger he saved them and sorted them out. The run itself stemmed from hysterical media coverage and a lack of comprehension on the part of many savers, in fact it could be argued that in the context of moral hazard this was the perfect object lesson. And it might be worth pointing out that the massive injections of liquidity by the ECB didn't stop banks from going under (that one in germany, what was it called?) and so was probably no more effective at staving off the liquidity crisis then the BOE approach. Still, like a child, the big banks will be upset about their telling off.

So what you are saying is that the Bank of England should act to protect individual banks rather than the system as a whole?

The furore around this supposed 'flip-flop' by Mervyn King is overdone.

In the end, the savers at Northern Rock have not lost any money.

And, Northern Rock has been punished by the market for bad lending - it will be sold at a massive discount.

Surely these are both the right outcomes?

I suspect that the targeting of Merv "the Swerve" is more about saving face for politicians such as Brown and Darling.

So what you are saying is that the Bank of England should act to protect individual banks rather than the economy as a whole?

Why should the bank subsidise Lloyds TSB?

Your readers, it seems, are very perceptive. King had a clear position, the government flapped and Darling/Brown rail roaded King into a climb down. Same old same old from the government.

The furore around this supposed 'flip-flop' by Mervyn King is overdone.

In the end, the savers at Northern Rock have not lost any money.

And, Northern Rock has been punished by the market for bad lending - it will be sold at a massive discount.

Surely these are both the right outcomes?

I suspect that the targeting of Merv "the Swerve" is more about saving face for politicians such as Brown and Darling.

So what you are saying is that the Bank of England should act to protect individual banks rather than the system as a whole?

I think King was correct but as an Economist was probably not very pragmatic, however how does one balance out between profit making for shareholders for a bank using risky investments and the stability of the financial system (which would affect all of us)

I think a lot of the criticisms against Mr King miss one very important point: in acting how he did he sent a strong message to the banks that he dissaproved of their behaviour and that they should look at their methods of financing. The subsequent u-turn can be looked at in the context of a parent punshing a child. The banks were made to sweat for a while, then when there was a real danger he saved them and sorted them out. The run itself stemmed from hysterical media coverage and a lack of comprehension on the part of many savers, in fact it could be argued that in the context of moral hazard this was the perfect object lesson. And it might be worth pointing out that the massive injections of liquidity by the ECB didn't stop banks from going under (that one in germany, what was it called?) and so was probably no more effective at staving off the liquidity crisis then the BOE approach. Still, like children, the big banks will be upset about their telling off.

So what you are saying is that the Bank of England should act to protect individual banks rather than the system as a whole?

Surely what is at issue is not the Bank of England, but John Humphrys continued ability to wind up the British public - have Today learnt nothing from the Dr Kelly affair? Perhaps Today could find some of the customers of Northern Rock who withdrew their money, and work out how much money they lost when they were panicked by Today and the rest of the media.

So what you are saying is that the Bank of England should act to protect individual banks rather than the system as a whole?

It seems to me that the B of E hasn't learnt the lessons of '87/88, the dot comm bust of 2000 etc. Central Banks need to intervene in exceptional circumstances. The Fed and the ECB pumped money in to stabilise the credit crunch, why not the B of E. Ok there is a medium to longer term hazard to this approach but what would have happened to the global financial system if the Fed hadn't intervened in the LTCM debacle at the end of the nineties. The Nelson blind eye approach and "moral hazard" mantra by the B of E has to change. We live in an interconnected and fast moving world. The NR debacle is a good test lesson.

It seems to me that the B of E hasn't learnt the lessons of '87/88, the dot comm bust of 2000 etc. Central Banks need to intervene in exceptional circumstances. The Fed and the ECB pumped money in to stabilise the credit crunch, why not the B of E. Ok there is a medium to longer term hazard to this approach but what would have happened to the global financial system if the Fed hadn't intervened in the LTCM debacle at the end of the nineties. The Nelson blind eye approach and "moral hazard" mantra by the B of E has to change. We live in an interconnected and fast moving world. The NR debacle is a good test lesson.

I think Mervyn King is pure dead brilliant - if he had unsettled the wider market by acting precipitately, or let the panic continue by refusing to bend subsequently, just think how things could have turned out...........

Lots of folks (including me) are losing their jobs or having contracts cut short because of the Northern Rock crisis. King has failed on 3 counts, failure to anticipate the problem, failure to take early steps before the bank run to ease (but not end) the liquidity problem, and now worst, by not just giving in to the demands for an overly generous guarantee to depositors but by injecting yet further liquidity into the system - he should have quit. Between King and Bernanke's actions we will get a short-lived recovery at the expense of a complete collapse in credibility. Normally I'm an economic dove favoring lower rates to spur improved economic activity but in this case instead of showering money from helicopters we have the delivery of vanloads to the executive suites of the banks.

It is a shame that those who are (rather than claim to be) prudent will pay the price of this insane profligacy to those who have no need for it.

Some savers have lost money. ie the sensible people who closed their postal fixed rate bonds early and incurred early exit penalties.

If Mr King does go, could teddy be th next governor please ? He is a wonderful 'bear' and has my full support.

Who would you trust with your money?

Mervyn King or Gordon "where's my pension gone" Brown and his acolyte Alistair "Railtrack" Darling?

My money is with the man from Treadneedle Street not the two jokers in Downing Street!

I think Mike has summed it up very neatly but no doubt in keeping with the New Labour style Mr King will be required to stand in front of the cameras and say he will be taking the positives from the events - a bit like the England football, rugby and cricket players.

I don't think having these new 3 month money arrangements in place 3 weeks ago would have made any difference to Northern Rock, because they would have been limited to a lot less than 拢10 billion (拢1.5 billion max when they needed 拢5-拢8 billion in one article I read). But Northern Rock management would say everything would have been all right if the BoE had acted earlier, wouldn't they?

The basic fact is that Northern Rock ran into trouble when their source of finacne dried up - and that was because the other banks who would have lent them the money had decided that everybody else was hiding big losses and wouldn't be able to repay the loans.

That's not Mr King's fault, that's the banking industry's fault.

Mr King is being made a scapegoat for the failings of the banking industry, because he won't bail them out with cheap money, and because he did his best to frustrate the weak-kneed policies of short-term expediency emanating from Downing Street and the FSA.

I think Mike has summed it up very neatly but no doubt in keeping with the New Labour style Mr King will be required to stand in front of the cameras and say he will be taking the positives from the events - a bit like the England football, rugby and cricket players.

One more for the Mervyn King fan club.

* The banking industry seems worried about the supposed loss of reputation and the NR run.

* The government seems worried that the British public stop spending and put their hard-earned under the floor boards.

* The media had a great story with the classic shots of worried savers queing through the night and got a bit carried away.

As far as I can see King has done nothing wrong. Why should he bail out poorly managed businesses, bank-roll take overs, prevent Brown/Darling from getting red faced or calm the media? The whole idea of giving the BoE responsibility for interest rates was to take the politics out of economic stratergy. If I remember right, that was Brown's idea in the first place...

Robert,

Sorry, but now you're just trying to justify your bizarre volte-face in going along with the scapegoating of King. Do you seriously think that he should have underwritten NR's debt in a HSBC takeover. How much moral hazard would that have created? If NR wasn't worth 拢2 because of the risk, the solution was a lower price, not a BOE guarantee. The shareholders and executives should lose out for their risky business model, not the depositors or taxpayers.

You seem to be taking this purely from the angle of 'how could we have prevented the bank run'. But that is to accept that the only role of the BOE is to avoid bad news stories for the government and banks. If the bank run had been prevented, the real problems would still be there and would be getting worse until an even bigger bank got themselves into this kind of mess.

At least this may end up being some kind of wake-up call for the industry. But it won't be if the end of the story is the scapegoating of King and continued government underwriting of outrageous risk in the banking sector.

There is no way that the BOE should be accepting mortgage-backed paper as security on 3-month loans, and if Darling put pressure on King to do that, then Darling is the one who should resign.

(Incidentally one or two people yesterday claimed that Northern Rock had a business model that was sound, and were just hurt by unforeseen events. That's like saying a car without brakes is perfectly sound, until it has to stop...)

This smacks of scapegoating. There's been a scandal and Mervyn King risks paying the price of trying to play by the rules.

It's the retail and investment bankers who wanted easy money, to force the Bank of England to accept dodgy collateral. It's the Northern Rock management who kept quiet for ages whilst the wholesale markets were shut with no RNS announcements: they were waiting for light at the end of the tunnel for far too long only to find the light in the distance was the oncoming Insolvency Express train. It's the politicians who've put taxpayers money on standby, and whose legislation meant this was impossible under the new Companies Act 2006 and the Takeover Code. And it's the FSA just said econometric models wouldn't have predicted the problem, odd since many had sold NRK short for a long time and saw this coming.

In short, everyone is to blame here and trying to kick King when he's down is a sorry spectacle. It's like mob rule by the chattering classes.

I no longer have faith in Britain's banks, FSA and Bank of England. The banks and FSA are the most un professional industry I can think of. Are any of the people in them really accredited ? As for Mervin King and co. they should have moved the lending rate up long ago to prevent this monster credit/debt problem.

A.Nicholson, Clekheaton

A travesty is about to unfold as Mervyn King will/has been made the scapegoat for the fundamental failings (greed) of the banks, the self-serving collusion of the politicians and a failing regulatory authority, the FSA.

Anyone else notice the commonality between the Enron failure, the Northern Rock debacle and the UK Government's Public-Private partnerships (PPI)? ... the extremely dangerous practice of "laying off" debt, or losses, to other "vehicles" and then pretending that the debt/loss has gone away. The trouble with vehicles is that they have a tendency to crash into each other! (sorry).

And, as we know, Mervyn King orginally decided that the banks should pay for their collective and individual greed by not bailing them out with Bank of England cash. Now we have a reversal of that policy because it has become clear, as it always was with the banks, that other banks are in serious trouble. The pack of cards is wobbling.

Question is, which bank, other than Northern Rock, is in trouble? The answer might exist in two slips of the tongue made by the Chancellor over the last few days when, during interviews, he referred to "the Royal..." before correcting himself and saying "Northern Rock". One slip-up is of no note; two may suggest the Chancellor has bigger, smellier, fish on his mind.

I no longer have faith in Britain's banks, FSA and Bank of England. The banks and FSA are the most un professional industry I can think of. Are any of the people in them really accredited ? As for Mervin King and co. they should have moved the lending rate up long ago to prevent this monster credit/debt problem.

A.Nicholson, Clekheaton

Another example of the tabloid press type of journalism currently employed by the 成人论坛 and its disingenious reporting on this affair.They create the "doubts" concerning King's position who has acted throughout in the measured professional way which exemplifies his running of the Bank of England and which has played a substantial part in the economic stability of UK overall. Assist Lloyds to takeover Northern Rock -indeed! what nonsense - his decision absolutely correct.Interested to hear how many members of the bank's "court" Peston spoke to- more misleading comment?!

All the kings horses and men cant save humpty, the dollar has fallen off the wall.
There is nothing to do. Mr Paulsons visit was because the US and the EU were spooked by people asking for their money back from a bank. Not unreasonable really. But the money at NR wasn鈥檛 kept in the safe, it had been lent to unemployed Ford workers who walk past boarded up houses. They could perhaps be accused of Mortgage laundering.
Gold will start to make a move soon. The French and Spanish governments are doing a Gordon and are selling it like mad.
Indian women with a gold bracelet are already richer than the Westerners who have debts.
Who bails out broken banks in Euro land? The European bank or individual countries/states? Are German tax payers happy to bail out banks in other countries/states?
If you know the answer to that one you can apply for the top job at a well known bank.

Paulson: "This is far and away the strongest global economy I've seen in my business lifetime.鈥�
.
Taken from a newspaper, (my favourite cutting)
The Bank of England deliberately stoked the consumer boom that has led to record house prices and personal debt in order to avert a recession, the former Bank Governor Eddie George admitted yesterday.
Lord George said he and his colleagues on the Monetary Policy Committee " did not have much of a choice" as they battled to prevent the UK being dragged into a worldwide economic slump by slashing interest rates. And he said his legacy to the current MPC was to "sort out" the problems he had caused.
Lord George, who headed the Bank for a decade from 1993, revealed to MPs on the Treasury Select Committee that he knew the approach was not sustainable. "In the environment of global economic weakness at the beginning of this decade... external demand was declining and related to that, business investment was declining," he said. "We only had two alternative ways of sustaining demand and keeping the economy moving forward - one was public spending and the other was consumption.
"We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term. But for the time being, if we had not done that, the UK economy would have gone into recession just as the United States did."
He said he was "very conscious" that stimulating consumer demand could give rise to problems in the future. "My legacy to the MPC, if you like, has been 'sort that out'," he said. Under Lord George's governorship, rates were slashed from 6 per cent in 2001 to 3.5 per cent in 2003, pushing house price inflation above 25 per cent and high street spending growth to its highest since the late-Eighties boom.
鈥︹�︹��..perhaps Mr Brown knew about it too. Sort it out Mr King.

What the banks have done collectively is to lend money that they have not got using money they have not got as collateral. The world's central banks are now busy trying to fill the enormous hole that has resulted. The music has now stopped for this financial merry go round and there are not enough chairs.

Mervyn King is entirely right, the crooks and idiots who perpetuated this scheme should be the ones who pay; not the tax payer.
I use the word "crooks" advisedly.
If the originator of a dodgy loan no longer carries the default risk, it is very obvious that a great deal of fraud has been carried out in order to make the "investments" look attractive.
Chopping loans up in such a way that they were unrecognisable was obviously entirely deliberate.

So it transpires that the Lloyds TSB deal couldn't go ahead because of EU banking laws, not because the BOE stopped it.

Peter Preston, I do hope you will apologise to Mervin King.

Mervyn King is a very capable man and has done great things for this country's economy. Mr King has acted wisely in the face of Northern Rock's (self-inflicted) crisis and now he is being used as a scapegoat by the politicians and law-makers who should have prevented the crisis from occurring in the first place. I, for one, give Mr King my total support.

as done great things for this country's economy. Mr King has acted wisely in the face of Northern Rock's (self-inflicted) crisis and now he is being used as a scapegoat by the politicians and law-makers who should have prevented the crisis from occurring in the first place. I, for one, give Mr King my total support.

Once again the MPs and press are going for the wrong target. It is the FCA,s job to control the banks other financial institutions and stop them from adopting policies that can destabalise the finacial system. They have clearly failed. The BOE needs to be given back the power to control banks liquidity. King should be proud of what he has done given his limited powers. King for PM yes please. We might get less rash government spending , less waste and more value for our taxes.

On the basis of the information we have seen so far, I think making Mervyn King the scapegoat is wrong.

I believe he was correct in refusing to help Northern Rock: including supporting any takeover deal that may have prevented the crisis.

The moral hazard has been discussed at length already on this forum - and I think stands. The Northern Rock executive inability to effectively manage risk is the key component here - and they have been rightly punished by their customers for their behaviour.

However, King was forced to move from his principled when the crisis started to spread to other banks. Remember, this was only after Northern Rock and the Treasury had offered assurances to the public with no impact whatsoever.

He was not being inconsistent of flip-flopping, as the front of the FT suggests today: but reacting to circumstances that had changed significantly. Could he have risked the run on Northern Rock moving to other banks? Of course not: so he had to act.

Northern Rock 'would say that, wouldn't they' - I think King has done the right thing and is being hounded by bankers eager to escape the consequences of their own actions. Funny how the FSA only decided that Northern Rock's business model was 'extreme' - after - the crisis broke. I thought King handled the difficult questions from a rather hostile and hectoring Treasury Select Ctte with poise and patience. I look forward to the FSA going through the same process.

Once again the MPs and press are going for the wrong target. It is the FCA,s job to control the banks other financial institutions and stop them from adopting policies that can destabalise the finacial system. They have clearly failed. The BOE needs to be given back the power to control banks liquidity. King should be proud of what he has done given his limited powers. King for PM yes please. We might get less rash government spending , less waste and more value for our taxes.

I support Mervyn King - the cage needed to be rattled but not broken to encourage more transparency in future behaviour.

A lot of central banks pumped a lot of money into their financial systems some while ago. Financial systems are closely linked so if a UK bank had needed to borrow money there "should" have been enough liquidity for them to do so. But there wasn't which means one of two things - either their actions made no difference (so why blame the BOE for not following the same useless route?) or it wasn't enough (in which case when it does get withdrawn there will be one heck of a squeeze)

Northern Rock 'would say that, wouldn't they' - I think King has done the right thing and is being hounded by bankers eager to escape the consequences of their own actions. Funny how the FSA only decided that Northern Rock's business model was 'extreme' - after - the crisis broke. I thought King handled the difficult questions from a rather hostile and hectoring Treasury Select Ctte with poise and patience. I look forward to the FSA going through the same process.

You can hardly blame Marvyn King for the current blow-up, he has been set an impossible task. His job is to keep the CPI (a wierd measure of inflation that strips out everything inflating!) at below 2%, when real inflation, as measured by the RPI or the more accurate Dynamic Price Index has been between about 5-8% per annum over the past decade. In effect borrowing rates have been kept below inflation, incentivising any rational person to spend and borrow every penny they can get immediately. Inevitably, creating a society with no savings and maxed out on credit will eventually lead to a credit crunch and banks going bust. This is not a problem of the past week, but a decade long culmination. Blame the Iron Chancellor, he set silly target years ago!

A travesty is about to unfold as Mervyn King will/has been made the scapegoat for the fundamental failings (greed) of the banks, the self-serving collusion of the politicians and a failing regulatory authority, the FSA.

Anyone else notice the commonality between the Enron failure, the Northern Rock debacle and the UK Government's Public-Private partnerships (PPI)? ... the extremely dangerous practice of "laying off" debt, or losses, to other "vehicles" and then pretending that the debt/loss has gone away. The trouble with vehicles is that they have a tendency to crash into each other! (sorry).

And, as we know, Mervyn King orginally decided that the banks should pay for their collective and individual greed by not bailing them out with Bank of England cash. Now we have a reversal of that policy because it has become clear, as it always was with the banks, that other banks are in serious trouble. The pack of cards is wobbling.

Question is, which bank, other than Northern Rock, is in trouble? The answer might exist in two slips of the tongue made by the Chancellor over the last few days when, during interviews, he referred to "the Royal..." before correcting himself and saying "Northern Rock". One slip-up is of no note; two may suggest the Chancellor has bigger, smellier, fish on his mind.

Not only Mr King should be up before the HOC select committee, but also the media who first created mischief then mislead NR savers, then cause a run on the bank. All for a headline and a picture, and to satisfy radio and television presentors egos.

On the basis of the information we have seen so far, I think making Mervyn King the scapegoat is wrong.

I believe he was correct in refusing to help Northern Rock: including supporting any takeover deal that may have prevented the crisis.

The moral hazard has been discussed at length already on this forum - and I think stands. The Northern Rock executive inability to effectively manage risk is the key component here - and they have been rightly punished by their customers for their behaviour.

However, King was forced to move from his principled when the crisis started to spread to other banks. Remember, this was only after Northern Rock and the Treasury had offered assurances to the public with no impact whatsoever.

He was not being inconsistent of flip-flopping, as the front of the FT suggests today: but reacting to circumstances that had changed significantly. Could he have risked the run on Northern Rock moving to other banks? Of course not: so he had to act.

For years we've heard that the financial sector has to be left alone. We were told that bankers know best how to create wealth, and their unique wisdom is what makes them worth every penny of their fabulous incomes. Now it turns out that the fault for what has happened is supposed to be with the regulating authorities, for not doing enough.

I don't think we can accuse Mervyn King of dithering, he has simply been pressured by the politicians.

Gordon Brown gave the Bank of England its independence in his first months as Chancellor and Alistair Darling has taken it back at the opening of his own tenure.

I for one would much rather have Mervyn King in charge than Alistair Darling who's role in Railtrack people may have forgotten.

I have not doubt the same pressures will cause the BofE to lower interest rates next time they meet and we will pay the price later on.

Pure politics, in my view.

On the basis of the information we have seen so far, I think making Mervyn King the scapegoat is wrong.

I believe he was correct in refusing to help Northern Rock: including supporting any takeover deal that may have prevented the crisis.

The moral hazard has been discussed at length already on this forum - and I think stands. The Northern Rock executive inability to effectively manage risk is the key component here - and they have been rightly punished by their customers for their behaviour.

However, King was forced to move from his principled when the crisis started to spread to other banks. Remember, this was only after Northern Rock and the Treasury had offered assurances to the public with no impact whatsoever.

He was not being inconsistent of flip-flopping, as the front of the FT suggests today: but reacting to circumstances that had changed significantly. Could he have risked the run on Northern Rock moving to other banks? Of course not: so he had to act.

I don't think we can accuse Mervyn King of dithering, he has simply been pressured by the politicians.

Gordon Brown gave the Bank of England its independence in his first months as Chancellor and Alistair Darling has taken it back at the opening of his own tenure.

I for one would much rather have Mervyn King in charge than Alistair Darling who's role in Railtrack people may have forgotten.

I have not doubt the same pressures will cause the BofE to lower interest rates next time they meet and we will pay the price later on.

Pure politics, in my view.

For years we've heard that the financial sector has to be left alone. We were told that bankers know best how to create wealth, and their unique wisdom is what makes them worth every penny of their fabulous incomes. Now it turns out that the fault for what has happened is supposed to be with the regulating authorities, for not doing enough.

Though the BoE may be slightly disingenuous, it does not change the fact that the vast majority of customer choose a bank on the assumption of stability and safety.
People do not expect their bank to be playing financial shenanigans to fund growth as Northern Rock has done consistently. Bankers are viewed as models of prudency, not City finance-house whizkids taking risks for huge gains.
It's definitely time for more strict controls both on how banks fund their lending and on the dubious finance packaging practices.

Totally agree with #3 and others - if MK had done any less the banks would have taken it as the green light to edge even closer to the precipice.

As it is, they probably (unfortunately) think they're on amber rather than red and some chancers will continue to take unacceptable risks knowing they will, in the limit, be bailed out.

Robert,

Sorry, but now you're just trying to justify your bizarre volte-face in going along with the scapegoating of King. Do you seriously think that he should have underwritten NR's debt in a HSBC takeover. How much moral hazard would that have created? If NR wasn't worth 拢2 because of the risk, the solution was a lower price, not a BOE guarantee. The shareholders and executives should lose out for their risky business model, not the depositors or taxpayers.

You seem to be taking this purely from the angle of 'how could we have prevented the bank run'. But that is to accept that the only role of the BOE is to avoid bad news stories for the government and banks. If the bank run had been prevented, the real problems would still be there and would be getting worse until an even bigger bank got themselves into this kind of mess.

At least this may end up being some kind of wake-up call for the industry. But it won't be if the end of the story is the scapegoating of King and continued government underwriting of outrageous risk in the banking sector.

There is no way that the BOE should be accepting mortgage-backed paper as security on 3-month loans, and if Darling put pressure on King to do that, then Darling is the one who should resign.

(Incidentally one or two people yesterday claimed that Northern Rock had a business model that was sound, and were just hurt by unforeseen events. That's like saying a car

Poor Merve King....another sacrifical lamb to the slaughter, just to save face, like poor David Kelly. ALL of the media, and ALL the other banks are to blame......but those who first encouraged buy now pay who knows when....including Maggie, Reagan and Co ('remember 'greed is good' in the 190's? ANN RAND was the gormless moron who wrote it. Ronnie and Maggie repeated it like a pair of parrots) Then 'New' (?) Labour shifted the political ground to the right, and hey presto, now are guilty of the same immoral behaviour.
Not many people over 50 approve of it, now do they? So how come Merve is 'wrong'? Exactly WHAT is he supposed to have done instead....financed unbridled greed? Why can't the big banks be made to pay a fair price, or simply nationalise it....sorry, I sound like Harold Now....and we wouldn't want Joe Public to have a share in the profits, now would we? Its not King who should be on the carpet...but Brown. fat chance.

Northern Rock 'would say that, wouldn't they' - I think King has done the right thing and is being hounded by bankers eager to escape the consequences of their own actions. Funny how the FSA only decided that Northern Rock's business model was 'extreme' - after - the crisis broke. I thought King handled the difficult questions from a rather hostile and hectoring Treasury Select Ctte with poise and patience. I look forward to the FSA going through the same process.

It is pretty much of a U turn that Mr Preston has done on this issue, prevoiusly being in support of the BOEs Bagehot stance as lender of last resort as banks rightfully upped the interest rates between themselves for dodgy lending practices, which has been the real problem for Northern rock.

Obvoiusly this doesn't help the image of the 成人论坛 being the Brown Broadcasting corporation readly to fall behind the poltical axe of the cabinet.

Another issue that Mr Preston might have pointed out is that of Northern Rocks 拢132 bln in Assets - 50-60% are based on loose lending standards to borrowers who could not get loans otherwise - thats LTV's above 90%, and all sorts of even risker lending standards, which is at odds at the off-citied 'good quality' of Northern Rocks loan book.

Mervyn King is a very astute man and I think he is the best man for the job at the Bank of England to temper the 'let's always pay later' excesses of the current Government.

But not even his brilliance can mask the fact that the post gold standard nature of money that now exists in all the nations of the world is fraudulent - in effect it is a series of national counterfeiting operations.

What we glibly refer to as money today, isn't money with its own intrinsic value at all (like a precious metal coin). No, it is credit. It is an IOU that may or may not be ultimately be paid back, depending on the character and standing of the entity you've lent to.

How does the BofE inject new 'money'? It asks one of its cabals of banks, standing ever so close, to create a deposit and lend it to the BofE. The bank then will pay interest on it, but in the meantime the BofE can spend the capital. And so through the system this 'money' travels, easing pain like more morphine injected to a terminal patient. It is an inflationary policy that remortgages the nation.

The burden of paying back the capital and interest on this credit falls to us the taxpayers, or if you Mr Brown can get away with it, to tax payers yet to be born or yet to vote. It's all on done on the never-never.

Meanwhile the additional 'money' injected to the system, as sure as eggs is eggs, competes for goods and services with your or my very limited supplies of personal 'money', leading to price inflation. The cabal of bankers who are 'oh, so close' see the all of this new credit first and some sticks to their sticky fingers, so we have seen rampant inflation of yachts, coastal property and the finer things in life, but it will just as surely creep into the basics over time, food staples, services, energy, clothes and medical provision. That's what must happen.

In the long run this system must collapse. The Emperor has no clothes. Not even Mervyn can stop us all from seeing this truth at the point that the public's our confidence in the system finally evaporates.

What the banks have done collectively is to lend money that they have not got using money they have not got as collateral. The world's central banks are now busy trying to fill the enormous hole that has resulted. The music has now stopped for this financial merry go round and there are not enough chairs.

Mervyn King is entirely right, the crooks and idiots who perpetuated this scheme should be the ones who pay; not the tax payer.
I use the word "crooks" advisedly.
If the originator of a dodgy loan no longer carries the default risk, it is very obvious that a great deal of fraud has been carried out in order to make the "investments" look attractive.
Chopping loans up in such a way that they were unrecognisable was obviously entirely deliberate.

Whilst I hope (?) this does not apply to you, Robert, am I alone in finding the number of press articles and reporters this morning citing "senior Whitehall" bods with quote clearly designed to put the focus on and undermine Mr King as a pretty good indication that Mr Brown's people are doing their spinning best to deflect any critcism of them onto the Governor -and the press, as ever, is letting them away with it. I'd rather have Mervyn running just about anything than Brown, Darling et al...

The BOE's main role in life is to keep inflation within the Govt's set target. King has done this fairly well.

However given that Brown decided to exclude house price inflation from the RPI figure this has meant that King has been only able to do half the job.

The consequence of not being able to adjust the base rate to cool off the housing bubble is what we see now.

Brown is the guilty one not King.

Mike (3) has it right.

Personally I wouldn鈥檛 call it moral hazard; I would describe it as tough love. It seems ridiculous to me that one of today鈥檚 broadsheets should describe King as 鈥榗linging to his own rhetoric of 鈥渕oral hazard鈥濃��, 鈥榩uritanical鈥� and refer to his 鈥榟air-shirt policy鈥�. To me his whole philosophy seems positively Darwinian.

My prediction 鈥�
American banks get away with their risky and irresponsible behaviour.
English banks get a slap on the wrist.
History repeats itself (courtesy of lower interest rates America picks up its sub-prime habit again).
This time we鈥檙e slightly wiser and politely decline their offers of toxic junk CDO鈥檚.
English banks sitting pretty, American banks 鈥� up Enron creek without a paddle.

Hail to the King!

Mervyn King is a decent and honourable man who made two cardinal errors: 1) He didn't roll over when the banks asked him to; and 2) He caused his political masters embarassment by allowing the media to run pictures of pensioners queueing outside Northern Rock in a desperate bid to get their savings out.

Hence the whispering campaign against him, which Peston seems eager to contribute to.

The end game here is that King will be out and Brown will put a ringer who can be relied to keep things 'on message' in charge of the 'independet' Bank of England .

Northern Rock's overlending their capital base necessitated their inter-bank borrowing - a state of business that should not have been allowed to develop had the BoE supervision done a proper job. As a consequence the BoE had the responsibility of saving Northern Rock or face an acusation of their failure to supervise.

Unfortunately Mr. King is an academic and our of touch with the economic pusle and has to rely on historic data in order to make any decision. He will always be too late to take any action and will need to adjust his actions by later opposite actions.

People are talking about the Rock being punished for bad lending or a bad business model.
The model has been open to scrutiny for as long as the Rock has been a bank. The FSA, its regulator, and the BoE could have mentioned their qualms about the model or the lending (nearly all prime, low default, very tight criteria) at any time over the last ten years. Others have lent less carefully.
The Rock has also pumped five percent of its profits into good causes for the last ten years, is seen as a very good employer and as a responsible and well-run company. It has also been the most cost-efficient lender for some time.
Is this really a Bank that needs to be punished, and, effectively, to be singled out for punishment?

My support goes to Melvyn King and the BOE.
The other party-goers are playing pass the parcel with the world finance system.
When the music stops, there will be nothing in the expensively wrapped box.
And guess who gets stuck with the empty box ... the poor working taxpayers of the world ...

The BOE's main role in life is to keep inflation within the Govt's set target. King has done this fairly well.

However given that Brown decided to excluse house price inflation from the RPI figure this has meant that King has been only able to do half the job.

The consequence of not being able to adjust the base rate to cool off the housing bubble is what we see now.

Brown is the guilty one not King.

Dumping the Governor of the Bank of England in the middle of a banking crisis would be a very foolish thing to do. So why are some suggesting it?

It does seem that Mervyn King is being lined up to be a scapegoat - but the BoE does not have direct control over the banks and the ability to get them to lend to each other (the UK start of the banks confidence problems). So, playing Devil's Advocate, why did the FSA not force the banks to disclose their exposure to the sub-prime lending saga? - in that way the banks would be able to assess the credit-worthyness of each other more accurately and so get the system moving

Robert,

I like your writing but you are a very frustrating speaker to listen to. It sounded like you hadn't prepared at all on the Today programme this morning (or you were trying to read an autocue from 30 feet away). I've felt the same way on a previous occasion.

Please take this as constructive criticism.

Cheers

R.

Though the BoE may be slightly disingenuous, it does not change the fact that the vast majority of customer choose a bank on the assumption of stability and safety.
People do not expect their bank to be playing financial shenanigans to fund growth as Northern Rock has done consistently. Bankers are viewed as models of prudency, not City finance-house whizkids taking risks for huge gains.
It's definitely time for more strict controls both on how banks fund their lending and on the dubious finance packaging practices.

Big up Mervyn King.....

Robert Peston, I've lot a lot of respect for you over your reporting of this whole affair.

I think in the long run Mr King's reputation will increase, yours however is going in the same direction as Northern Rock's share price!

The Bank of England's task is NOT to print money willy nilly to whoever messed up, nor is it to become a mortgage lender by accepting mortgage poison in return / as guarantee for liquidity.
The bank should have let NR collapse or be sold. The Governor definitely is not independent in his decisions and must have had pressure all over him from other people and politicians.
If other banks deemed risky to lend money to NR, why should the BofE do so ? Why should tax payers bail NR ? Why should the BofE print money to bail irresponsible bankers ?
Tomorrow when another bank finds itself in the same situation, who's going to bail it out ? Who's going to ultimately pay for all this ? Isn't it Joe in the street that ends up paying for the mess of others.
Yesterday we suddenly hear that inflation went down, what a coincidence ! Try inclusind house inflation in that and see what numbers you come up with.
The solution is not printing more money and stoking up inflation. The solution is to let NR and any other foolish bank pay the price in the same way as they were let to profiteer from the system.
Capitalism allows companies to make money and it also allows them to lose it. Let them reap the rewards of their stupid decisions, why bail them out ?

Mortgage lending by lenders using the wholesale market for funding as a concept is flawed, driven by greedy lenders lending more than they own, "borrowed petrol on the fire". It has contributed to a property market in the UK that is is inflated by wholsale funding not deposits. This was an accident waiting to happen and the pain will be felt by borrowers when margin over base increases because funding will not be available from anywhere unless the wholesale market recovers and when it does it will be more expensive. So to avoid this problem the bank will have to support the wholesale market for a long time to come. I think your comment about The BOE focussed on the short term, not the fundermentals.

Lets put things into perspective. The NR bank like any other banks were involved in the US Subprime business. NR was more vulnerable to the liquidity crisis due to its business model. So it went to the BOE for help. The BOE (with the advice of FSA) assured the NR that it would provide all help necessary. So where did the BOE go wrong? The BOE didn't ask the banks to irresponsibly invest in stock markets and put millions of retail savers into misery. Also its the bank's problem if they are lending money to subprime borrowers, certainly not BOE'S.

Queues at the Rock were seen round the world to the long term detriment of the City's reputation upon which so many depend. These scenes of mass financial hysteria happened on King's watch. He really has to look to his position. Today he hid behind "faulty" legislation and problems with tripartite financial management when, as Governor, he ought to have been leading everyone to the most realistic solution.

The Bank of England's task is NOT to print money willy nilly to whoever messed up, nor is it to become a mortgage lender by accepting mortgage poison in return / as guarantee for liquidity.
The bank should have let NR collapse or be sold. The Governor definitely is not independent in his decisions and must have had pressure all over him from other people and politicians.
If other banks deemed risky to lend money to NR, why should the BofE do so ? Why should tax payers bail NR ? Why should the BofE print money to bail irresponsible bankers ?
Tomorrow when another bank finds itself in the same situation, who's going to bail it out ? Who's going to ultimately pay for all this ? Isn't it Joe in the street that ends up paying for the mess of others.
We suddenly hear that inflation went down, what a coincidence ! Try including house inflation in that and see what numbers you come up with.
The solution is not printing more money and stoking up inflation. The solution is to let NR and any other foolish bank pay the price in the same way as they were let to profiteer from the system.
Capitalism allows companies to make money and it also allows them to lose it. Let them reap the rewards of their stupid decisions, why bail them out ?

The Governor is right in his actions all along. Shame he had to print more money in the end.

I am a shareholder in Northern Rock. I bought the shares because the experts said "buy". I am happy to take the responsibility for this purchase.

I believe that Northern Rock was being run sensibly within the rules as they stand. Still do.

Someone will make a lot of money from this and it will not be me. So please layoff the small investor.

We need to stand back and have a long look at the system so that it is more robust.

There is risk in all markets. I believe, however, that we need to calm down and ACTUALLY learn the lessons so that we may have a more efficient and secure market.

You have overlooked the obvious. King wanted to preserve the integrity of the BoE. The politicians and their lackies, FSA have forced King to undermine that integrity by making the BoE accept more risky collateral from the dodgy banks.

The Bank's are playing a dangerous game and have caught a bad case of rotton credit. The BoE is now being forcibly contaminated with the same malaise.

Better one bank goes down as an example to the other bad boys to clean up their act, rather than risk the BoE itself going down to teach us all the lesson never to trust those fraudulently seeking obscene amounts of profit at our expense.

The bank's are using Consolidated Debt Obligations (CDO's) as collateral between their interbank lending. They know it is hollow, so as soon as an ill wind blows they stop accepting it as collateral and so stop making loans to each other.

CDO's are at best, born out of fraud. Consider a consumer with a 拢20,000 bank debt. He loses his job and defaults. The bank decides to sell the debt and receives 拢2,000 for it from a debt collector. The bank then uses the remaining 拢18,000 as a loss and posts to the profit and loss account, reducing their tax liability. The debt collector writes off the 拢2,000, claims his lesser tax concession and that is the end of the debt as far as HMRC are concerned. The debt collector then sues the consumer for 拢20,000 and yes, the courts support the debt collector's claim and in effect recreate the debt. The debt collector then bundles this certified (by the courts, no less) 拢20,000 with thousands of others and a security is made of it all with very large numbers. That, simply, is what CDOs are made of and the banks buy them cheap and use them at a much higher face value as collateral to borrow real money. It is a fraudulent scam, the debt is used once to write off as a loss and get a tax refund and secondly to create highly suspect hollow securities based on debt whose origin can no longer be traced. The banks and debt collectors are in collusion over this scam and it is a thorough disgrace.

The BoE are absolutely right to resist becoming involved in this monumental scandal and King was absolutely right to wave the 'moral hazard' flag. It is to this government's shame that they overruled him. King knows that a lot more is to be exposed when the veil is finally lifted.

The Bank of England's task is NOT to print money willy nilly to whoever messed up, nor is it to become a mortgage lender by accepting mortgage poison in return / as guarantee for liquidity.
The bank should have let NR collapse or be sold. The Governor definitely is not independent in his decisions and must have had pressure all over him from other people and politicians.
If other banks deemed risky to lend money to NR, why should the BofE do so ? Why should tax payers bail NR ? Why should the BofE print money to bail irresponsible bankers ?
Tomorrow when another bank finds itself in the same situation, who's going to bail it out ? Who's going to ultimately pay for all this ? Isn't it Joe in the street that ends up paying for the mess of others.
We suddenly hear that inflation went down, what a coincidence ! Try including house inflation in that and see what numbers you come up with.
The solution is not printing more money and stoking up inflation. The solution is to let NR and any other foolish bank pay the price in the same way as they were let to profiteer from the system.
Capitalism allows companies to make money and it also allows them to lose it. Let them reap the rewards of their stupid decisions, why bail them out ?

The Governor is right in his actions all along. Shame he had to print more money in the end.

It now appears that the Bank of England were willing to lend to Northern Rock covertly but were prevented from doing so by the inter-action of a number of pieces of legislation on which legal opinion had to be obtained in the middle of the crisis. Going forward they wish to avoid this problem by amending certain laws etc. Why was this problem not anticipated and remedied?

As I predicted a few days ago ... the Northern Rock 'is bust'. It's just a matter of how 'an expert' describes it. Today's share price collapse confirms it. That the BoE and Mervyn King should be held accountable is a travesty of justice. The monitoring agency is the FSA and they have had at least two years to 'watch and think'. Now as the lender of last resort the BoE is an investor in 'junk bonds'with no 'real' buyer. Alister Darling says its OK as he has lots of taxpayers money ... any by the way ... who says the BoE acts independently. If Mr King had had his way and been allowed to remain 'independent' ... the 'Rock' would simply have sunk.

I think the lightweight 成人论坛 journalist Peston should cease his uninformed speculations and rumour mongering.

I hold the 成人论坛 and Peston in particular responsible for triggering the customer's run on Northern Rock by his prime slot on the evening 成人论坛 announcing NR's use of the BoE's 'emergency' funding facility.

Peston failed to adequately draw the distinction between the problems in the US where lenders may not get their money back because of reckless lending - and NR's problems of liquidity which the BoE's actions were designed to address.

Peston, please ignore your journo instincts for sensationalism. Your supercilious attitude and clear enjoyment of trouble making in your moment in the spotlight was less than edifying.

Why are we so focused on Mr King and the role of the BoE. I believe he has acted in a prudent fashion within the environment that current legislation affords him.
What I don't get is the role of the FSA in all this.
They regulate the Rock and its activities and saw no reason to censure it for its business practices. That the Rock then found itself floundering because of its business model says to me that it is the FSA that has to be put upon the rack by the TSC over why it had not intervened sooner?
Just what was the FSA and Sir Sir Callum McCarthy doing while all of this was building up during the previous weeks.
The BoE can only react to market conditions and not provide guidance to the appropriateness of individual company actions which is the role of the FSA.
The biggest issue here is not one of blame but a system that is not cohesive in its attitudes and roles of responsibility

Mervyn King performed exceptionally well at the Treasury Select Committee this morning - while most of the members appeared completely ignorant of the relevant legislation which they themselves had passed!

Robert Peston - the 成人论坛's apparent attacks on Mervyn King do both him and the 成人论坛 itself a disservice.
Yesterday evening's news headlines "Bank accused" etc. were a disgrace to objective reporting.

There are still quite a few people confusing 2 sets of risks: dodgy lending and "liquidity risk". We all understand that banks are accountable for the former, but there is no evidence that the Rock has made an undue number of risky loans.

Rock's problem, as I understand it, has been that they have been unable to borrow as normal against mortgages they've written, however prime they are or whatever discount they offer to the book value of the collateral. Note that, for Rock, borrowing against mortgages is a second, fallback or temporary source of funding to securitising and selling mortgages on (which isn't happening much at present because of the US "sub-prime" crisis). Rock were not reliant on just one form of funding, as has been claimed. As Mervyn King put it this morning: "their assets suddenly became illiquid." The BoE also pointed out that Rock were unlucky with the timing.

What I don't know though is whether Rock was following the rules for capital ratios (i.e. the rules as to the amounts of capital of different liquidity which they must have on their books)? If they were then I don't see why they shouldn't have been able to reasonably expect the BoE to ensure the money markets were sufficiently liquid to keep them in business. What I also don't understand is why the BoE sets a base interest rate, and intervenes to keep the overnight rate close to it, but has allowed the 3 month interbank money market to get out of control. What's the point in setting a base rate if another rate that really matters is allowed to get out of step? Surely, also, liquidity is collective - a property of markets - and not just a feature of individual assets (an asset has zero liquidity if no-one will buy or borrow it). Why isn't it then the responsibility of the BoE to manage 3 month and not just overnight liquidity? The Fed and the ECB seem to be doing this.

Rob, you're the expert, perhaps you can answer these questions.

Ever since the 成人论坛 started reporting on the issues that are impacting the liquidity of the inter-bank markets, we have witnessed some of the least responsible, ill-informed reporting for years. Many 成人论坛 reporters clearly had no idea what they were reporting on and merely described the panic that the were fueling with flowery language. Why a publicly funded body with a mission to Educate and Inform has used intemperate language, half truths and tabloid headlines in the midst of a crisis of confidence is a mystery. Freedom of speech does not give anybody the right to shout "fire!" in a full cinema, least of all the cinema operator. With a few exceptions, the 成人论坛 should be ashamed of its weak coverage of the whole affair and should try training its reporters before things happen, not during them.

I wouldn't be at all surprised to see the BofE now underwriting the sale of NRK to another bank; after all, it's done everything else it steadfastly said it wouldn't do! The BofE has totally underestimated the economic, financial & political situation & is back tracking at a rate of knots. At the end of the day, if the government has brought pressure on the BofE to save NRK, it should have recognised the political landscape beforehand & acted accordingly. Mervyn King should go, if only for not sticking to his guns.

Robert,

Sorry, but now you're just trying to justify your bizarre volte-face in going along with the scapegoating of King. Do you seriously think that he should have underwritten NR's debt in a HSBC takeover. How much moral hazard would that have created? If NR wasn't worth 拢2 because of the risk, the solution was a lower price, not a BOE guarantee. The shareholders and executives should lose out for their risky business model, not the depositors or taxpayers.

You seem to be taking this purely from the angle of 'how could we have prevented the bank run'. But that is to accept that the only role of the BOE is to avoid bad news stories for the government and banks. If the bank run had been prevented, the real problems would still be there and would be getting worse until an even bigger bank got themselves into this kind of mess.

At least this may end up being some kind of wake-up call for the industry. But it won't be if the end of the story is the scapegoating of King and continued government underwriting of outrageous risk in the banking sector.

There is no way that the BOE should be accepting mortgage-backed paper as security on 3-month loans, and if Darling put pressure on King to do that, then Darling is the one who should resign.

(Incidentally one or two people yesterday claimed that Northern Rock had a business model that was sound, and were just hurt by unforeseen events. That's like saying a car without brakes is perfectly sound, until it has to stop...)

"I was really struck yesterday at the torrent of support for Mervyn King from readers of my blog"

I have read a few of those and the smell very strongly of envy with few positive sentiments and often a complete misunderstanding of the credit situation. As I am sure you realise in NR's case it was not risky loans but short term borrowing for long term committments.

Please Richard give careful thought before you "break" stories.

Most people would agree that you bring out the umbrella when it starts to rain. That is what Mr King did.

Northern Rock should have stopped lending money they didn't have. They could have just raised their rates to a level where they were not competative and borrowers would have gone elsewhere.Their profits would have taken a hit but their business would have survived. Their error in judgement will mean they will probably not survive.

Hm. I don't "love King", but I certainly did feel compelled to respond to your post yesterday, because it struck me as an extraordinary attack on an individual public servant. To be honest, my reaction on reading it was "Who the hell do you think you are, Robert Peston?". This was an unnecessary bank run, as the original HMT/BoE/FSA statement should have reassured the public that their savings were safe - but it didn't because the public don't trust the authorities. Why? Because the media portray the authorities (and especially politicians) as a bunch of crooks out to hoodwink the public. They're not, and by making your attack a personal one I think you're perpetuating that erosion of public trust.

Agree with #3.

#80's point is all very well assuming there would never be a 'next time'.

The whole point of the exercise, surely, was the need to drive home to the banks that there _is_ a downside to being imprudent, just the same as with any of their customers.

The people in the banks pointing fingers at MK should take a long look in the mirror.

i think it is very narrow minded to say that northrn rocks business plan was flawed. every bank borrows short to lend long and the bank showed initiative to take risks to grow more rapidly. had others not lend imprudently and bought rotten bonds, northern rock would have prospered. the fact is that the bank of england has fatally wound a perfectly solvent bank without reason. King's job is to protect englands financial well being and by not preventing a run on one of the bigger banks it has failed in one of it most basic tasks. Kings failure highlights his lack of real world experience. HE SHOULD RESIGN

M. King handled the situation very well. Politicaly it might not be acceptable, because people in politics prefer to give empty promises and to encourage irresponsible behaviour (this is their business).
Big support for M. King. Do not encourage moral hazard and irresponsible behaviour. And please do not cite ECB and Trichet as a good example. They are not and this will be clear in the long run.

Frankly many of the people posting here are relying on their own knowledge about the subject, you seem to be relying, as so many 成人论坛 journos do, on briefings "from sources close to..."

Well wake up and smell the coffee, such lazy journalism allows the government to cover up its appalling management and legislation skills.

The line "its God's Will or somebody Else's fault was funny in MASH the movie. Its not funny when its being repeated parrot fashion by 成人论坛 correspondents at prime time on behalf of an incompetent Government.

Mr King has throughout acted quite properly in the circumstances. Hindsight is a wonderful thing but as is frequently mentioned 'events dear boy, events'and his attempts to manage the 鈥渕oral hazard鈥� issue was and is quite right. No doubt those bankers that have been shouting the loudest are those that seek to divert attention from their own reckless and inappropriate historic action. Unfortunately I expect as a result of the greed of the banks, that it will be the British public as customers of those banks that will suffer.

When you say the bank will be punished, its more likely the ordinary workers and not the Directors (who gave themselves big bonuses just before the crisis) who will lose out because of the fall in Northern Rocks share price.

成人论坛 reporting on this has been poor and Robert Preston particularly so. Mervyn King's handling of this affair has been superb.

Why should the Bank of England use our money to underwrite the assets of one bank during a takeover? That would have been a disgraceful thing to do. If Lloyds wants to buy Northern Rock let them take the risky assets onto their balance sheet and be done with it.

Mr D it is clear you don't know what you are talking about.

Firstly not every bank borrows short to lend long. In fact to do so is suicidal as this sort of scenario has shown. The probles up to 80% of the Northern Rock's mortgages are backed by commercial money rahter than savers funds.

Northern Rock had grown phenomenally over the last ten years since demutualisation and has profited very handsomely from a perfect wind of rapidly rising prices and low interest rates.

Northern Rock initiated mortgages that exceeded 100% of the value of the property and have lent up to 125% of value. This relies on both the property price continuing to rise and mortgagees continuing ability to repay.

If either falls down then you can be left with a large amount of loans that far exceed the value of the property it is secured on.

The run on the Northern Rock was caused as it had to roll over its borrowings on the commercial market. They have not been able to get as much money as they wanted and what they have been able to get has been at significantly increased rates to those obtained this time last year or two years ago when many of the 110% and 125% mortgages were taken out.

If you have taken out a mortgage that exceeds the value of your property common sense says you borrow at a fixed rate so you know what your repayments are.

Put simply two years ago NR was able to borrow commercially at 4.5% on 3 month LIBOR (in other words it paid 4.5% and had to renew every three months) and was lending that out on fixed rate deals at 5.5 to 6% 2 years deals. Now 3 month LIBOR was up to 6.9% as of the 12th September as per the British Bankers Association. On this basis you soon have commercial meltdown.

To paraphrase Dickens to borrow at 4.5% and lend out at 5.5% result happiness. Borrow at 6.9% and only get back 5.5% result bankruptcy!

Mervyn King is in the right. It is the biard of Northern Rock that should resign. No doubt though when they get bought out they will all go with big payoffs unlike the branch staff who have faced the wrath of customers.

All the kings horses and men cant save humpty, the dollar has fallen off the wall.
There is nothing to do. Mr Paulsons visit was because the US and the EU were spooked by people asking for their money back from a bank. Not unreasonable really. But the money at NR wasn鈥檛 kept in the safe, it had been lent to unemployed Ford workers who walk past boarded up houses. They could perhaps be accused of Mortgage laundering.
Gold will start to make a move soon. The French and Spanish governments are doing a Gordon and are selling it like mad.
Indian women with a gold bracelet are already richer than the Westerners who have debts.
Who bails out broken banks in Euro land? The European bank or individual countries/states? Are German tax payers happy to bail out banks in other countries/states?
If you know the answer to that one you can apply for the top job at a well known bank.

Paulson: "This is far and away the strongest global economy I've seen in my business lifetime.鈥�
.
Taken from a newspaper, (my favourite cutting)
The Bank of England deliberately stoked the consumer boom that has led to record house prices and personal debt in order to avert a recession, the former Bank Governor Eddie George admitted yesterday.
Lord George said he and his colleagues on the Monetary Policy Committee " did not have much of a choice" as they battled to prevent the UK being dragged into a worldwide economic slump by slashing interest rates. And he said his legacy to the current MPC was to "sort out" the problems he had caused.
Lord George, who headed the Bank for a decade from 1993, revealed to MPs on the Treasury Select Committee that he knew the approach was not sustainable. "In the environment of global economic weakness at the beginning of this decade... external demand was declining and related to that, business investment was declining," he said. "We only had two alternative ways of sustaining demand and keeping the economy moving forward - one was public spending and the other was consumption.
"We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term. But for the time being, if we had not done that, the UK economy would have gone into recession just as the United States did."
He said he was "very conscious" that stimulating consumer demand could give rise to problems in the future. "My legacy to the MPC, if you like, has been 'sort that out'," he said. Under Lord George's governorship, rates were slashed from 6 per cent in 2001 to 3.5 per cent in 2003, pushing house price inflation above 25 per cent and high street spending growth to its highest since the late-Eighties boom.
鈥︹�︹��..perhaps Mr Brown knew about it too. Sort it out Mr King.

To all those who claim that Northern Rock had a viable business model and was betrayed by the dastardly Mr King at the Bank of England I have one question. Why had Northern Rocks share price dropped by nearly 50% from over 拢12 to nearly 拢6 in the 6 months prior to the current crisis ? Clearly some people in the City already had considerable doubts about the bank's strategy and its exposure to the interbank lending market. This was an accident waiting to happen.

Once a crisis of this magnitude would have caused politicians to resign but not under this government. Isn't it strange that Brown gets all the praise for economic stability but when problems arise, it's a civil servants fault? Lets get real, it's Brown's fault.

Maybe you should resign! Yes you, Robert Peston.

I would still like to know what Northern Rock have done wrong ? According to their website they only lend to 'Prime Only' Customers and are still predicting a 拢500 - 拢540 Million profit for this year. Does anyone have proof that they're being less than honest ?

Malignant human greed and stupidity is the cause of the current problem. Mervyn King has worked within his remit to the best of his ability. I would rather the Bank of England be charged with appropriate control of real inflation indices than the manipulated nonsense that is CPI.
I have watched house prices soar out of reach for the last 7 years or so whilst being told by the media and government that we have a strong economy and good growth. It's meaningless. If anyone should be hatcheted, it should be the vested interests who have destroyed the futures of the younger generations of this country.

It will end with mass emigration or violent revolution.

mr D wrote: every bank borrows short to lend long and the bank showed initiative to take risk to grow more rapidly.

Have you been paying attention? That strategy only work if banks are willing to lend cheaply to each other. Banks must have an exit strategy once the cheap credit dries up.
For most banks, this exit strategy is to hoard credit so that it can continue to operate.
It seems like NR had no such credit to hoard so they must be prepared to pay the ultimate business price.

King did the wise thing by not reducing this risk of failure. Otherwise the banks would engage in ever more riskier behaviour until the next credit crunch when the BoE's intervention would not make a difference.

The current economy, like that of the US is currently based upon a Lysenkoist Ponzi scheme of the most obscene order.

Let's have inflation indices which reflect the true costs of living, including housing, and let interest rates be presided over by men of integrity like King.

I am a bit uncertain whether I am missing something here, but it seems to me that there is a bit of confusion regarding the role of the BOE in supporting a faltering bank vs. its role to safeguard the country's banking system.

The BOE shouldn't offer support to any financial institution except when such support is necessary to avert "systemic" effects on the banking system as a whole.

NR is not one of the main UK banks and its claim to fame & significance is a direct result of its aggressive and, as events have shown, reckless mortgage lending and the ways it raised its funds to support such activity. This type of banking and financial practice is at the heart of the credit problems facing us today. They have also contributed to the artificial inflation of house prices and the mountain of debt that this country is burdened with.

These practices unfortunately were condoned by the government for obvious political advantages.

The "moral hazard" argument is very valid and the time has come to stop the scam of lax lending, artificial house price inflation and the unfounded feel good factor.

However, it is the shortage of legislative protection of savings which turned a possible fall of a reckless bank into a threat of general panic and loss of faith in the country's banking system as a whole. Had savings been protected by the appropriate laws the queues outside NR buildings wouldn鈥檛 have built up and the fear of 鈥渃ontagion鈥� would not have been necessary.

This would not be the only time where the government鈥檚 lack of action and inertia posed a difficulty for the BOE. It is the lack of adequate legislation which allows the land & housing market to run unchecked and the financial markets to get away with quasi-criminal practices. This leaves the BOE to deal with the mess utilising its few crude tools including interest rates.

Mervyn King has tried to do absolutely the right the thing. This will not make him popular.

I contacted the FSA two days ago to ask them what percentage of Northern Rock's lending was sub-prime. They did not know. Then I asked them whether they had a definition for sub-prime lending. They did not. The FSA are not fit for purpose.

I support Mervyn King. He stood up to the banks in the interest of economic stability, and the short-termist banks and their lackeys have turned on him. Disgraceful.

Businessmen like me demand stability and an end to the reckless lending practices of the banks.

Some of the comments in this platform are absolutely staggering.
Essentially, we have a lot of people clamouring and campaigning NOT to have information provided to them!
Further, they even want to have a law made so nobody ( like Robert Peston )is allowed to report events the manipulators want kept in the dark!
Robert Peston is a precious tiny dim light in the blackness of the political banking system we now have, as are the 成人论坛.
You're all having this much needed healthy debate because of them!
Otherwise some of you would still be just munching the long grass you have your head stuck in while reading the sun, watching 'reality?' rubbish and blowing your cash after midnight phoning in to win a pound on the other electronic toilet channels.
Some of you woolies need to wake up and get your head out the grass because you're heading towards 10 miles of pure sand pasture and moaning about one of the few people attempting to give you the chance of changing direction!!!

The blame game is only to be expected. It is definitely the Dad's Army approach to crisis management at which we excel in Britain: we've had the "Don't Panic! Don't Panic!" and "We're doomed, I tell you, doomed." phases and now all of the players are calling each other "Stupid boy!".

I suppose that, in the other great British tradition, we shall muddle through in the end.

# 97 said that every bank borrows short to lend long is true, however the issue here is where the responsibility for the system and individual companies lies.

The fact is that the three organisations all have differing remits and responsibilities which means that there is no cohesive management in place at times like this and each of the institutions undertook actions to fulfil their obligations.

I come back to the role of the FSA, the run was on a single regulated company and the regulator should have done considerably more to inform the HMT of the situation and asked for intervention from the BoE if it felt it was needed. It is the role of the FSA to be aware of the trading situation of these organisations and surely that is where the problem arose?

The issue of banking liquidity and the Rocks ability to function as far as I can see lays fairly at the door of the FSA.

If I鈥檓 wrong I鈥檓 sure you put me right

Post 109, I think I agree.

The reporting of this issue was appalling in its description to the public which then caused viewers to 'rationally panic'. At the minimum, Peston should be suspended until his role in the affair has been investigated.

By the way I had noticed that from today, Evan Davies seems to be taking the lead on this story now. Perhaps there are concerns at the 成人论坛 about Peston's conduct in reporting this affair.

Still support Mr King, its mad to except the bank to guarantee 拢113bn. We have to stop this level of irresponisble lendinding. Should have let NR do down then could have used the assets and if needed tax payers money to pay the depositors. It will be good in the long run.

Mr Preston,

Why are bothering to report on something as trivial as the collapse of Northern Rock. Surely the crisis afflicting Blue Peter with regard to the naming of the cat should be taking precedent? It is after all one of the leading items on all the other 成人论坛 news channels and feeds. Priorities please.

Just heard your attempted stitch-up of Mervyn King on Radio 4 Robert. You are a disgrace to misrepresent the facts so blatantly. King was effortless in defending his actions to the gang of idiots assembled to try him. It was crystal clear that they had no knowledge of banking or basic economics yet they indulged in mud slinging and abusive disrespect towards Mr King. I wonder who could have put them up to it?

The blame for the crisis lies squarely at the door of Northern Rock management, Gordon Brown and the FSA for indulging the financial system for the past 6 years in creating an economy built on a mountain of debt that may well prove to be unrepayable in coming years.

Why must the British tax payer fork out and pay a PRIVATE company's dividend via the BOE loan facility to Northern Rock (14.2p per share x 421million shares) payable on the 26th October 2007??

Don't know about Peston leaving, but one thing is for sure: King for PM!

"Lloyds TSB offered 拢2 a share, which Rock鈥檚 board was minded to accept. And according to a senior, well-placed banker, Lloyds TSB believed initially that the Bank of England had signalled it would be prepared to provide some kind of guarantee of funding for Rock鈥檚 拢113bn assets. Then the Bank changed its mind and said it could not be seen to be subsidising the deal."

Sorry but I fail to see why this scene need have involved anyone other than representatives of Northern Rock and the bidders. Since when is the Bank of England a second-hand bank dealership? If NR didn't like 拢2 a share then tough- did they try offering Lloyds 拢1.50 before they went crying to nanny?

If the government had have just stood back as King suggested then nobody would have lost their house or their savings and there would have been no "crisis". The "Rock" would just have been bought out at the *market value* of the business. That value is for the market to decide, not the government. The board and shareholders would have lost money, sure, but that's because they gambled on a risky business model and lost. Such are the consequences of screwing up in the real world- or at least they are for the rest of us.

And now the Bank is accepting mortgages as collateral? What next, an IOU on a beer mat? If this collateral is so valuable then they can raise funds with it on the open market and pay the market rate of interest like everyone else. I don't believe that King accepted this cave-in without pressure from No 10; the Bank is meant to be the lender of last resort, not the mug of last resort. I detect shades of clunking fist in all this.

The people writing on your blog support King's stance because we are ordinary, hard working people who maybe run a small business or have some savings and who understand and accept capitalism, free markets and the meritocracy that these are meant to represent. We also understand that wealth has to be earned and we do not welcome the value of the pound in our pocket and the very substantial taxes levied from us being doled out as corporate welfare for spiv bankers, over-hyped hedge fund managers and blow-hard estate agents.

Either we have free markets or we don't, or is it like Martin Luther King said and real capitalism only exists for the little guy? The other King was 100% right last week and if you don't get it then too bad because many of us out here do.

Northern Rock according to the experts is worth 拢2.00 per share.
Any sensible person, not a politician, looking at the housing and lending market will realise that it is lucky to be worth two pence per share. It is valueless.There is nothing to put your money into.
If you do not have shareholders you cannot have a business.
Housing is a "busted flush", the great driver of economies drives no more.

Its the banks and financial institutions, supported by the FSA and the Goverment, who created the credit crises. So why is it now Mr King's fault, if any other business had made such reckless financial decisions they would have been left to their own fate. I appreciate the need to support the banking system but how can this be done without sending out the wrong message to everyone else in the country? I am sure Mr Brown and Mr Darling will tell us when they eventualy come out of their bunkers.

comment 114 by Dave is excellent, pay attention and read it!! Because it succinctly states the problem that has been accelerated by Brown over the last ten years.
Principly, so he could stay in long enough, to get 'the job'!
Nice to see him get his picture taken with the woman who started it all, to keep the job!
I predict that picture will be one the historic icons of 21st century economic history, the start and finish of a modern mississippi bubble. Come to think of wasn't John Law from much the same area as Brown!
Maybe they're related!

I wholeheartedly agree with the majority of the posters on this thread. Mr. King has a solid and sensible perspective on risk, as he has consistently proved with his statements on the housing market and support for pre-emptive raising of interest rates (often in the face of opposition from those in the City and others on the MPC). That some banks are in trouble as a result of their irresponsible mortage lending is not in dispute - but the blame lies squarely on their own shoulders. A less principled chairman would be pumping even more money into the system and cutting interest rates - just look at the US. At least our governer has shown reluctance to cover up for the bankers imprudence. I'd make him Prime Minister.

1. Mr Peston has been an excellent, probing journalist - as in many other situations where 'economy with the truth' has been served up officially to independent people who have some understanding of an area and are left suspecting deeper machinations. Truth-telling (and pragmatic judgement) are ultimately all that confidence can be built on.

2. The Peston volte face is indeed even more interesting than King's. The BofE's spin doctors will be as nothing to those of the FSA and especially the Downing Street dwellers.

3. The rump of the other functions of the BofE remained unclear and untested. The Brown changes to the system are now confirmed as deeply flawed as many said at the time and lacking in practical understanding.
Maybe Mervyn's failing was excessive gratitude for MPC independence; a hard test of the rump functions had to wait till the real thing.
Even MPC independence was limited and it was not clear how the MPC would handle the monetary effects of emergency measures. The economic climate had not been very testing; they supported government policies as expected and accepted the trade imbalance.
What of the BofE Board ?
The FSA has been wanting.

4. Good that all this has been flushed out now. The FSA chairman did end his Newsnight interview a couple of days ago with words to the effect that there may be worse to come..

5. Would shareholders in a troubled bank be ungrateful for quiet, covert intelligent support at the right moment ? - not to mention their liquid bank competitors in London. It does seem eccentric to call that manipulating markets.

6. Bankers need to be left to hang out to dry for a while..., now and then. They must love the prospect of nationalisation on the (New)Labour agenda. Maybe best to hand back in the last few bonuses ?

How else will the widespread sloppy handling and slow completion of the legal contractual detail of the exotic derivative contracts be disciplined ? Doesn't this still underly much of the wholesale market's worries, and the inability to ascertain the extent and nature of banking liabilities ?

It is no wonder most of the bankers are saying King should have acted sooner because it is their bad investments that have caused this mess. It is not for King, the B of E or the government to bail out companies for bad business. What needs to be addressed is the insurance scheme to protect individuals.

Teddy has just woken up and so we've been reading the comments.
Teddy particularly enjoyed 122.
I enjoyed 116. But on a more serious note, comments 106, 111 and 114 struck me as making the most economic sense.
Well, we're off to bed again now.
Good night.

King acted to the situations as they occurred. He was there at the time and place with the power to act.

We were not.

We can only look on with the benefit of a few hours hindsight at best, and a few days/weeks at worst.

Is it any wonder that we see things differently from how he did? Perhaps he secretly wished he acted differently now, but the full picture had not arrived and he did the best he could.

The full picture has sill not arrived and it may be years before it does - so until then we (and King) just have to do the best we can with the information we have.

It's about time the banks came clean on their exposure to sub-prime debt - do we really believe they don't have a clear picture now?

I don't

Since he is responsible for overseeing the running of the BoE (our money)Mervyn King acted responsibly and with caution as is expected of someone in that position.

If comercial banks wish to operate in a "free market" then they should be held accountable for their own actions.

Mervyn King and the BoE did not tell these free marketing banks to stop offering credit to Northern Rock or amongst themselves, they did that.

Having witnessed the "interview" of Mr King by the committee of MPs, I must say that my prefernce would be for the MPs to resign, and Mervyn King to be honoured.

The MPs appear to want to find a fall-guy for injudicious lending by some banks. But even that is no excuse for being unpleasant in their attitude to him.

It appears you can't win, can you Mr King? Or can you? Hang in there!

Had fall guy Mervyn King acted earlier, the greed and recklessness that caused the Northern Rock crises would never have come to light. The FSA is supposed to advise the Government, the Banks and the 鈥楤ank of England鈥� 鈥� but apparently its excuse is that it cannot keep track of lending between banks around the world or account for money invested outside the UK.

Isn鈥檛 it ironic that it is reported, that the FSA is now critical of Mr Kings own rhetoric over 鈥渕oral hazard鈥� and decision not to rescue Northern Rock before it got into trouble, especially when, (supposedly set up to monitor the financial markets and banking system and charged with responsibility and authority to put in place sufficient safe guards that would guarantee accountability and transparency so not to allow such crises to occur), the FSA in the eventuality of such crises, whether or not anticipate, it would appear, was negligent. The Northern Rock incident has certainly demonstrated how the FSA, the Bank of England and the treasury pass the parcel in a time of crises. The question is, who will be made to suffer the next time from irresponsibe lending in the USA sub-prime.

Denis Horner

Belfast

A monkey without any knowledge of economics saw the northern rock crisis developing,mervyn king could have collapsed the whole banking system in europe and lost millions upon millons for millons of ordinary people and savers in england and across europe.
it is incredible that this went on,was multi millionaire king too busy drinking his brandy and port in one of his mansions in surrey?
we bet this cretin with his fortune no doubt in safe securities would not have suffered one penny if the whole system had collapsed as it nearly did.
it is disgusting that these home county tories can get paid fortunes and be incompetent fools.

Northern Rock is not a real 'Bank' It is a highly specialised finance house that took extra-ordinary risks with it's balance sheet. The quality of it's lending, Ninjas etc, is demonstrated by the lack of any bank prepared to take over NR ie. the only asset, a 拢100bn+ mortgage book. Is it not time that there was some recognition that 'banks' have diversity of risk. To try and adjust the whole banking system on the back of NR is just the type of moral hazard the Mr King is striving prevent.

Andy in post #46 is right. The economic targets set by Brown as Chancellor are the root cause of this mess, and now the inevitable results of Brown's policies are starting to bite his Government is looking for a scapegoat. Too bad that journalist Robert Peston with his New Labour connections is merely regurgitating the Government's spin.

"Northern Rock itself is absolutely persuaded that if these auctions had been available a few weeks ago, there would never have been the liquidity crisis which prompted it to go cap in hand to the bank for emergency help."

In view of events, and my view that the NR was the architect of its own disaster, to me the views of NR in this context are not worth the energy used to publicise them. I see this as pure 'denial'.

"And according to a senior, well-placed banker, Lloyds TSB believed initially that the Bank of England had signalled it would be prepared to provide some kind of guarantee of funding for Rock鈥檚 拢113bn assets."

Unless you can name names, and provide collateral evidence, this is the sort of 'nudge-nudge-wink-wink' that a cold and dispassionate examination of this affair does not need. I am sure that there were senior personell at Lloyds that believed in that scenario, but I will not myself believe that King gave them any grounds for that belief. If Lloyds' management is that far in denial, then the run on that bank is going to be next.

The same banks that look to scapegoat the BoE and/or the FSA are those now cynically hanging around like vultures waiting to get the remains of NR at the tastiest price possible; that which gives them the largest profit.

Finally, RP would do us great service if he were able to provide any light on persistent rumours that the NR default rate was 'fudged'. It is being alleged to me that borrowers were required to take on NR current accounts from which the repayments were debited; and that the mortgage payments were then taken from that current account with complete disregard for its balance and any overdraft limit applying to it. If true, this would have had the effect of moving defaults away from the mortgage book and onto the banking book, keeping the former nicely 'clean'. For for all we know, some of the borrowers now have both mortgages they cannot sustain and large overdrafts ditto. What will those overdrafts fetch at dscount when NR is finally "bought"?