成人论坛

Fine words but what about the irresponsible way in which this "scoop" story was spun into the public domain?

AAAArrrrrrrgggggghhhhhh

NR business model worked, it's the same as other lenders (who are probably equally at risk) in that while house prices continue to move up, the loans made are secure....
BoE needs to ensure this continues to be the case...the lack of funds may be an indication that other lenders are getting a little cautious about the sustainability of the housing market and its own run on double didgit inflation... they may sense a slow down to a point where the loans are no longer secure!

I am an old and confused Economics graduate. How exactly does the Bank of England pump money into the system? They must be buying Treasury Bonds for cash. Where does the cash come from?

Why do they not let incompetent bankers go to the wall? We all know that Directors of our banks pay themselves vast salaries and benefits, paid for out of the pockets of their customers. If they fail, they should suffer, not the Treasurer of the tax-payers' money

Glad to see responsibility resting nearer where it deserves - with Northern Rock management, then the FSA, then the BoE - last week the City was trying to stir up a 'lynch King' frenzy to divert attention from their own shortcomings. However, where does the Government (responsible for the Tripartite system) or the Banking sector (still not coming clean on their own losses - hence the collapse in liquidity) figure in this analysis? Having watched last weeks Treasury Select Ctte I am not confident that the posturing and preening MPs enjoying their 5 minutes of fame are equipped temperamentally or intellectually to really get to the bottom of this - while John Gieve did not cover himself in glory berating a man for going to his mother's funeral is shabby in the extreme.

Has it occurred to nobody yet that the govt.s "guarantee" is worthless? How could the govt possibly afford to bail out one of these banks, never mind several?

My understanding is that Northern Rock would have had to pay out more than 拢20bn if the runs had kept up.

Northern Rock is a "tiddly" bank compared to Lloyds, RBS and Barclays. If a run started on one of those, how would our cash-strapped govt bail out such a run? Would it have a couple of hundred billion to hand? I think not.

Why has no reporter even asked the question of ministers?

Robert, the key point in your comments is the failure of the tripartite system of governance and it is this that needs to be addressed.

The Bank of England's main failure here has been its reluctance to exercise its independence regardless of the political consequences. Was it also hamstrung by the differing of the FSA - as a banking regulator they have failed totally in their objective to maintain confidence in the banking system.

It is my belief that the only solution is to put banking supervision back where it belongs with the central banker so that they have full control over regulation, supervision and market operation.

Three way splits never work.

You are right to put the Bank's management at the top of your list for blame. It is significant that Northern Rock is a Bank that converted from a Building Society, and its problems may stem from lack of experience as well as lack of judgement. Northern Rock's attitude to risk must have been at the least incautious and at the worst, stupid.

NR's basket case status will surely be fully reflected when the markets open tomorrow and the bottom trawlers realise that the real bottom was actually under the sub-basement gold vaults below Threadneedle St.(Now empty of course)

However, the really big losers may well be British tax-payers who stand poised to sign massive blank cheques thus allowing the Big Banks to sit comfortably on their hands with the crisis averted, looking forward to picking up the tasty bits of NR for next to nothing.

This is a regulatory disaster of catastrophic dimensions and the unregulated bandits who masquerade as our bankers are galloping off into the sunset yet again without a wanted poster in sight.

The blog said "incurring a potential liability to the public purse on a mind-boggling scale."

NR has a liability of around 拢100 and around 拢103bn of asset, which may fetch less, maybe like 95p in a pound in a fire sale.

State subsidy is wrong, but really, the worse case would cost the state a couple bn 拢, relative to what the government waste (consultants, wars etc), it is peanuts, rather than mind boggling...

Who to blame ? Long,long list.
1.Keynes.Economics that some still try to follow mechanically for want of a better understanding of markets and people.

2.Govts. See above.

3.Central banks see above.

4.Bank management for being too rational in trying to achieve their competitive goals without sufficient thought for their shareholders/investor/depositors and boy's lie to yourelves by all means ,but don't expect to be believed.

5.Regulatory authorities for having an overabundance of textbook intelligence completely divorced from any knowledge of how markets and people function and therefore what to look for. That's being kind because we could just say they care so little they are asleep most of the time waiting for their pensions which might be equally applicable.

6.Every commonman whotried to be too rational in getting what he wasn't entitled to by either, lying on his mortgage ,or deciding to chase yield without understanding actually what he was buying, greed on both counts probably with an element of ignorance thrown in.

Who wasn't to blame..anyone who took reasonably prudent action ,but got caught up in the mess and actually I think that's a shorter list than the above.

although i am not involved in any aspect of the financial community a good result from a outsider view is that because of the current debacle as you intimate other of our unworthy finanacial institutions might thank their lucky stars it was not them and might reign in their greedy asperations lions lead by donkeys springs to mind

Mr Peston,

You're extremely quick to review the "technical" reasons things went wrong and apportion blame.

But where is the examination of the sensationalist reporting of the media, of which you were a prime mover, and the whipping up of panic among depositors - who were never in any real danger in the first place?

One of the major influences in the whole debacle was the media response but your silence is deafening.

Funny that.

Not only would it seem that Northern Rock failed to properly risk assess its business model, it would also appear that the tripartite regulatory model put into place by Mr Brown in 1997 of the Bank, the FSA & The Treasury was also not effectively risk assessed to ensure that the legislation would be effective in all circumstances.

This leads me to two secondary points:

Just what do all these hard working regulators actually do during the day?

Does the audit trail for such a critical omission track back to the original decison made by the very clever Mr. Brown in 1997?

Given that we now have had the first run on a bank in 141 years just ten years after a major regulatory reorganisation suggests to me that the new system was botched.

All financial institutions carry large amounts of liquidity to cover systemic funding issues. The failure of the Bank of England to implement similar measures than those of the ECB and Federal reserve left the UK money markets at a severe disadvantage to the rest of European and American markets. Over 140 years ago the Bank of England learnt to act as Lender of Last Resort and to accept a wider range of collateral in order to manage a market stress event. During the implementation of the current framework the Bank were asked numerous times to relax the criteria on its eligible collateral and it refused. The Bank should have known the impact the current crisis was having and acted sooner. If it had it could have avoided the Northern Rock issue entirely.

Oh My God...

Ladies and Gents...

Aren't you aware that when you put money into a bank they are NOT "holding the money for you", or "looking after it for you".

When you put money into a bank, they OWN the money. It becomes their money. You are just a lender to the bank and there is risk associated with that.

This underwriting of the banks liability to depositors is a truly massive public subsidy of the banking sector. They basically now will have free reign to blow everything on champagne, personal jets and Bentleys and we get to pay for it. How can they possibly lose now? They can't even go bankrupt!

I think I need to leave this mad house, I can't take it any more. The insanity simply grows year after year...

There is an unfortunate tendency for those who rely on computer information to see their computer screen as reality.
They lose sight of the assumptions which were made, the time lag between events and updating of the computer picture, and what was left out when the computer model was generated. As an example, an off balance sheet liability is unlikely to feature in most computer models, as are assumptions about the valuation and liquidity of assets such as mortgage backed securities.
Anybody who cares to think about it will discover that a mortgage is actually pretty unattractive as an investment; once the related security ceases to have liquidity it has very little asset value. The term is too long, the cash income is low, and the procedures for recovery of money in the event of default are expensive, prolonged and complex.
I cannot help feeling that in the old days a CDO was called an I.O.U. and any banker who started to trade in them and regard them as an asset would have been regarded as most unwise.
Another point is that one of the problems inherent in paying staff outrageous sums of money is that it discourages the humility which comes with the necessary readiness to test assumptions, ask awkward questions and listen to advice. There were plenty of warnings about debt, risk, and the toxic waste incorporated into some CDOs from many people (including Mervyn King) but everyone thought they knew better because "I must be really clever and intelligent otherwise they wouldn't pay me so much money."
What is clear too is that effectively speaking the money for these outrageous salaries and bonuses was effectively borrowed, although the borrowing occurred a long way back in the transaction chain.
The City does not generate money, it takes it from other people and borrows it from the future. Every time a share goes up and a profit is made, or an enormous fee is earned, the question to ask is "Where did that money come from and who has lost to fund my gain?"

Over-regulation of the wrong kind is weakening the banking system. Just a small example - money laundering compliance has become a huge industry with hundreds of thousands employed in banks accross the globe. The real money launderers always have perfect documentation while little old ladies struggle with the forms to open a new bank account. Ill advised and over complicated banking and accounting regulations encouraged banks to move risks off their balance sheets. While we can look at Mervyn King and Northern Rock as the recent players, we should look further and longer and ask if the whole system should be repaired - with less, simpler and more effective regulation.

Mervyn ing's explanation of why the Bank was forced to do what it did raises fundamental questions about its competence. He says that the legal advice was that the EU Markets Directive bans covert assistance in such cases.
If this is true ( and the Commission says it isn't) why did the UK sign up to it? Did the Bank spot the problem and if not why not? And having agreed to the directive, why did the Bank enter the crisis the crisis so ill-informed that it is only late in the day that lawyers seem to have told the Governor the Bank could do nothing.
Similarly, the Takeover Coder has been around for many years. If it prevents a quick takeover to save a bank, why was there no demand from the Bank before the the rules be changed for the special circumsances of the banking industry?
It is extraordinary that no forethought seems to have been applied to these problems. The only other interpretation is that the Bank panicked and did not realise its freedom of manoeuvre was much greater than King said. In Germany, a consortium of banks was able to get together over the weekend to bail out IBK. If the banks in London were not prepared to do the same thing, it is wrong of the Governor to hide behind false problems.

Mervyn King's explanation of why the Bank was forced to do what it did raises fundamental questions about its competence. He says that the legal advice was that the EU Markets Directive bans covert assistance in such cases.
If this is true ( and the Commission says it isn't) why did the UK sign up to it? Did the Bank spot the problem and if not why not? And having agreed to the directive, why did the Bank enter the crisis the crisis so ill-informed that it is only late in the day that lawyers seem to have told the Governor the Bank could do nothing.
Similarly, the Takeover Coder has been around for many years. If it prevents a quick takeover to save a bank, why was there no demand from the Bank before the the rules be changed for the special circumsances of the banking industry?
It is extraordinary that no forethought seems to have been applied to these problems. The only other interpretation is that the Bank panicked and did not realise its freedom of manoeuvre was much greater than King said. In Germany, a consortium of banks was able to get together over the weekend to bail out IBK. If the banks in London were not prepared to do the same thing, it is wrong of the Governor to hide behind false problems.

The blame for what happened at Northern Rock lies with Northern Rock, and no-one else. To blame anyone else would much the same as blaming the NHS for allowing a 40-a-day smoker to die of lung cancer.

You forgot
f) The press that ramped this into a disaster.

And you still haven't stopped, comparing this to an entire city collapsing. You have been using extremely emotive language about this form the start, that has helped to panic the public.

Time for a little restraint, methinks?

The way that this story was 'broken' by Peston in my view led directly to the furore which gripped the financial markets on Friday 17th Sept, the run on the bank, the fall in NR's share price and now the very real threat to 6,500 jobs. I hope Peston thinks that this was worth it as he opens his Xmas bonus. Personally I think he should lose his job and the 成人论坛 should take a much more socially responsible attitude than this sensationalist headline grabbing that Peston indulges in. Should somebody not be saying 'Hang on a minute, it may be news but what will the fallout from this be'

Remember 6,500 jobs !

This is no different to the action that other Central European banks take in times of liquidity freezes. It's only Peston's sensationalist style and wish to further his own career that has led to this situation.

He should be sacked.

A much better post today Robert. It looks to me as though you have perhaps reflected a little on the chorus of criticism of your previous few posts and realised that, whatever errors may have been made by the BOE, it is wrong to blame Mervyn King without also pointing to the errors made by the FSA and Northern Rock (and other bankers). You're correct here to place NR and the FSA above King in your list.

I think those blaming the media for creating the hysteria are being a bit silly. Should the media stay quiet about systemic problems and trust the establishment to sort them out behind the scenes? If anything, the media should have been more hysterical about the outrageous escalation of risk in the financial sector over the last few years. Something like this was bound to happen sooner or later, and the media staying quiet about Northern Rock would only have made the eventual crisis worse.

In the 1970s and 1980s we moved from a highly regulated financial environment, which bankers claimed curtailed their freedom to generate wealth for the world, to the present situation which now is found to be inadequate to protect banks from their mistakes. Both approaches can't apply at once. Bankers can't claim the freedom to decide priorities, but then expect governments to step in when they fail.

You are too harsh on the Bank. Given the lousy set of options that the authorities as a whole had to choose from, they didnt do too badly. These situations once they arise are always lesser of evils scenarios. The Bank was opting for highlighting of moral hazard - a worthy aim. Eventually we ended up with a more general banking crisis. Then the priority changed.

A key point is your c) "more imagination" in BoE funding to the markets. By attaching higher interest rates and lower collateral values, the Bank might well have allowed NR to survive in the short run. However, if the problem is not just short run liquidity, but about long run liquidity and possibly about the business model viability, the situation might turn out much worse. The Bank was clearly worried about this - and possibly with good reason. NR is reported to be finding it difficult to find a buyer. Ex ante the BoE needs to be seen as being tough on moral hazard. Now that the government has "guaranteed" deposits and everyone knows there is risk about, ex post the BoE can add liquidity. There is nothing illogical or contradictory in these actions. The FSA, institutions and markets will now add some, long overdue, oversight to the risks in the sector. Neither should this be seen as a criticism of the FSA - within the constraints of our regulatory framework and macroeconomic situation, they have striven for stability. More work is needed on bank capital adequacy. Basle II is looking iffier to me by the day.

"A banking crisis was transformed into the national humiliation of the first run on a British bank for 141 years."

Being pedantic, wouldn't the collapse of the Bank of Credit and Commerce International fall into this category ?

This article is more balanced, but it will be useful to see how much coverage the FSA visit to the Treasury Select Committee gets. Although oddly enough, the Deputy at the BoE is also a board member of the FSA - so maybe the blame allocation is not 'cut and dried'.

The truth is out there somewhere, but it is proving rather difficult to pin down..

Please stop blaming Mr. King! All your recent posts and broadcast comments hinge on the theme of banks and the City losing confidence in Mr. King. Of course they would say that, won't they? They have been asking to be bailed out but as the guardian of public purse (ie, your money and mine) the Bank of England chairman rightly said no. I can't see what is wrong with that?

Media often look for a victim for any crisis, while it is often systemic failures that cause the crisis. The politicians have their machinery to defend themselves and the banks will sing praises of 'their men' at the FSA. The hapless BoE governor has none of these and the media finds him an easy prey.

I hope the lessons learned in this debacle is NOT for the BoE to automatically intervene in the short term money markets in any future liquidity crisis.

Otherwise, future NRs would be more reckless in the pursuit of even more profit and why not, the BoE would always rescue them when they get into trouble.

NO FINANCIAL CORPORATE WELFARE.

Whilst I go along with the article, I remain amazed at the lack of commentary on the following:
1. Gordon Brown designed the system and is our Prime Minister but, following previous form, disappeared from the scene when the going got tough. The first bank run in 150 years and Gordon Brown comes out into the open to talk about...the NHS! Why is everyone so accepting of this.

2. Why is Northern Bank any different from Farepak and Equitable Life? It would seem the difference between this Government acting and not acting is whether forms queued on the high street. Again, why is everyone so accepting of this cycnical politics?

A further thought - David Cameron has never had a better opportunity to attack Gordon Brown and be seen as a principled politician and leader yet has similarly been nowhere to be seen. What has happened to the Opposition?

Ian (comment #2). I'm afraid you're wrong. Not all banks have the same business model - far from it.

NR's was a monoline business model (house mortgages) with an imperfect funding structure.

The answer to RP's question, lies with the management. If you do want to look further then, to a lesser degree the FSA who oversee banks. But we've got to stop blaming the BOE, whose job may be to protect investors, but is certainly not to protect the shareholders who, after all, are responsible for appointing management!

It's welcome that you seem to have finally accepted that the BoE Governor not the main villain of the peace here. Some more criticism of Northern Rock's management and the FSA would be welcome to balance up your previous thoroughly biased reports.

Sadly one of the main consequences of the Northern Rock affair has been the descent of the 成人论坛 into the kind of journalistic standards I associate with the tabloid press.

The Governor, the FSA and the Chancellor will all have their grilling by the Select Committee. But will the media have to answer for its part in creating the queues outside Northern Rock branches ? Or for the quality and balance of its journalism ?

I suspect not.

3 comments:

Why is it acceptable for Gordon Brown, the designer of the system and our Prime Minister, to be so absent from the scene during this first bank run in 150 years?

Why is it acceptable for Northern Rock to be bailed out but not Farepak or Equitable Life. It would seem the only difference is people queuing on the street and that should not be the basis for political decision-making.

David Cameron has not had, and probably will not have again before the election, a better opportunity to show himself as a leader ad land a punch on Brown. He too has been absent. What is going on?

We have a system in which countless billions if not trillions of dollars of debt are out of control because nobody knows who owes what to whom. A system in which bankers are free to move any amount of capital around, to buy and sell giant corporations. Interest rates are set by governments in response to what the markets do. Control of the world economy is with the financial industry, not governments. Not even the US or Chinese governments could guarantee the banking system 100%. This system is what bankers demanded and got after the 1970s. Since they are free to do whatever they want, the responsibility for their actions and errors is with them.

Where's Northern Rock getting the 拢59 million to pay an interim dividend of 14.2p per share next month? Certainly not from "profits" ...

We have a system in which countless billions if not trillions of dollars of debt are out of control because nobody knows who owes what to whom. A system in which bankers are free to move any amount of capital around, to buy and sell giant corporations. Interest rates are set by governments in response to what the markets do. Control of the world economy is with the financial industry, not governments. Not even the US or Chinese governments could guarantee the banking system 100%. This system is what bankers demanded and got after the 1970s. Since they are free to do whatever they want, the responsibility for their actions and errors is with them.

You forgot to mention (f) The propensity , in this deregulated world, for financial institutions to play fast and loose with other peoples' money in order to maximise profits and bonuses.
The fundamental problem for Northern Rock was that they borrowed short and lent long. Something that would never have happened in more prudent times.
It really is about time that the FSA amd treasury took a good look at the ever more complex financial products which are now being offered to investors, many of which appear to have high levels of skillfully concealed risk.

Hypocrisy.
Robert Peston's irresponsible reporting was part of the problem.

Northern Rock was essentially solvent. The danger came from people thinking they had to withdraw. This becomes self-fulfilling.

We have a system in which countless billions if not trillions of dollars of debt are out of control because nobody knows who owes what to whom. A system in which bankers are free to move any amount of capital around, to buy and sell giant corporations. Interest rates are set by governments in response to what the markets do. Control of the world economy is with the financial industry, not governments. Not even the US or Chinese governments could guarantee the banking system 100%. This system is what bankers demanded and got after the 1970s. Since they are free to do virtually anything they want, the responsibility for their actions and errors is with them.

Hypocrisy.
Robert Peston's irresponsible reporting was part of the problem.

Northern Rock was essentially solvent. The danger came from people thinking they had to withdraw. This becomes self-fulfilling.

Perhaps there's an obvious answer to the question, but why aren't the media included in this search for whose to blame?

You forgot to mention (f) The propensity , in this deregulated world, for financial institutions to play fast and loose with other peoples' money in order to maximise profits and bonuses.
The fundamental problem for Northern Rock was that they borrowed short and lent long. Something that would never have happened in more prudent times.
It really is about time that the FSA amd treasury took a good look at the ever more complex financial products which are now being offered to investors, many of which appear to have high levels of skillfully concealed risk.

We have a system in which countless billions if not trillions of dollars of debt are out of control because nobody knows who owes what to whom. A system in which bankers are free to move any amount of capital around, to buy and sell giant corporations. Interest rates are set by governments in response to what the markets do. Control of the world economy is with the financial industry, not governments. Not even the US or Chinese governments could guarantee the banking system 100%. This system is what bankers demanded and got after the 1970s. Since they are free to do whatever they want, the responsibility for their actions and errors is with them.

I enjoyed reading the aspects of this post which explained to mere financial bumpkin like myself how it all works.

I only really have one observation. It's typical of what's wrong in this country. Blame? It doesn't matter who's at fault - just get the darn problem fixed.

Then when it's fixed, make sure it doesn't happen again.

Too often this country focuses on where the blame lies, and not where the problem lies. Can we please - for once - just ensure that the risk is minimised and worry about hanging someone out to dry much, much later?

You write:-

"again, if the underlying cause was Northern Rock's shaky business model, it is reasonable to ask whether the laudable aim of the City watchdog, the Financial Services Authority, to provide freedom for banks to innovate and flourish went too far in this case"

and herein lies the basic problem with this situation. It is NOT the FSA's purpose to provide freedoms for banks. It's purpose is to ensure that banks operate within a framework of legal, ethical and sustainable business practices. It is certainly arguable that, left to their own devices, banks will "innovate" purely to create profit-making opportunities out of activities with fewer and fewer obvious social or economic benefits.

It's a huge assumption, and in my view an invalid one, that what's good for the City is automatically good for the economy as a whole. Let the burden of proof be with the City. Let them be required to show that their self-enrichment is merely a by-product of activities that generate prosperity for us all.

Oh dear Northern Rocks problems were all down to Peston's spinning of the story. Reality check please. The Sunday Times reports on its front page today that one of its journalists was able to secure from Northern Rock an offer for a negative equity mortgage worth 117% of the value of the propery he claimed to be interested in buying. Taxpayers please take note because the Rock is allegedly making such offers using the funds which you are providing via Invisible Browns generosity. Should the housing market go further South I guess taxpayers will be the losers but Gordon is no stranger to wasting our money just take a look at the new contracts for dentists and doctors. The sticking plaster has now been applied in the form of taxpayers loans to Northern Rock in the hope that business will get back to normal in the inter-bank credit markets. What if it does not? Northern Rock is still trying to expand its mortgage book using a 拢3 billion credit facility from the Old Lady. This is the economics of the mad house and no wonder. We have a goverment which has indebted future generations on a heroic scale so another few billions or might it end up tens of billions for a bank with a failed business model is just a drop in the pond.

When it comes to apportioning blame for the NR affair it seems most unlikely that any mud will stick to Sir John Gieve: none did following revelations of financial mismanagement at the Home Office on his watch as permanent secretary.

As in almost all strands in this affair one name appears far too frequently - the current occupant of No 10.

Who鈥檚 to blame, it depends on how far you go back.

Government - The housing market is hugely overvalued, if the government (US and UK) had taken measures (read taxes on 2nd homes) to prevent speculative investment and the whole buy-to-let market, we wouldn't be in this situation. Houses should be for living in, not investments.

Banks - Anyway, that didn鈥檛 happen, so the mortgage companies freely lent all the money they could to feed the consumer demand, driven by shareholders lust for ever increasing profits. NR lent above their means and remember that a lot of the mortgages arranged recently will still be over 90% LTV. If the housing market starts retracting, these loans will become worthless as the loan is greater than the value of the house.

BoE - NR ran out of money to continue lending, I support M.Kings actions. Any well run bank shouldn鈥檛 be run on the edge, it should be able to withstand finance shocks/pressures. The credit market has worked so well in the good years, yet when there is a small crisis everyone expects handouts? The central bank is a bank of last resort, no-one seems to be able to grasp this.

Media - So M.King publicly gave NR 拢3bn, he told everyone what had happened. Good, surely as a share holder or depositor you have a right to know that it requires a huge sum of money to keepday to day operations running. This wouldn't have been too much of an issue hadn't the media blown it out of proportions.

So what now? Who knows, what bank wants to buy a load of mortgages that could become worthless should our housing market follows the downward spiral trodden by Spain, Ireland and the US. Many commentators expect this to get worse before it gets better.

I for one expect a large number of mortgage lenders to cut back on how much they lend, this will mean people can鈥檛 afford to remortgage and means they鈥檒l have to sell there house or pay a mortgage at the SVR, which at about 7.75% is unaffordable for most FTB鈥檚. This together with fewer speculative buyers will help force the market down and then once it鈥檚 on the downward slope, only a US style interest rate cut will stop it!

Debt is good for the economy, after all that鈥檚 what money is, but when you get into the situation where no-one can afford to pay it back only one thing will happen!

You forgot to mention (f) The propensity , in this deregulated world, for financial institutions to play fast and loose with other peoples' money in order to maximise profits and bonuses.
The fundamental problem for Northern Rock was that they borrowed short and lent long. Something that would never have happened in more prudent times.
It really is about time that the FSA amd treasury took a good look at the ever more complex financial products which are now being offered to investors, many of which appear to have high levels of skillfully concealed risk.

"Where was Gordon Brown in all this?".

Strange, I seem to recall not too long ago, people were extremely critical of the then Prime Minister for being too "presidential" and poking his nose in, making speeches, wresting control and issuing edicts when there were people reporting to him (e.g. Chancellor of Exchequer) whose sole job was to look after the issue at hand.

Sounds like those people are missing Tony more than they would like to admit.

I think key to this issue is separating the action of an apparent bail-out of a single bank caught out at the sharp end of a global lock-down of lending, which is very much not the job of the government or central bank, and the broader issues this action also broached: a) safeguarding the likely losers of institutional meltdown (which the government will take an active role in, depending on who those people are and how numerous) and b) trying to stamp on an unnecessary panic which risks destabilising more banks (which the central bank will have an interest in doing).

In your undoubtedly erudite analysis of the culpability of the various players in the financial establishment, you have conspicuously omitted the proximate cause of the Northern Rock debacle.

Namely the 成人论坛's (specifically your) irresponsible and sensationalist reporting, which triggered a run on the bank.

Bedazzled by your "scoop", the 成人论坛's first reports of the granting of the BofE facility to Northern Rock used words like "emergency", "crisis", "bailout". Then you followed this folly up with vox pops in the queues.

Is it any wonder that financially unsophisticated members of the public panicked, and worried about the security of their money? The blame for that lies squarely at your door.

How about blaming those who added fuel to the fire?

Yes the NR management helped to put the bank into that position. However who knew that the secondary debt market would dry up? Did you or the financial whizkids in the media?

The BoE knew and should have acted earlier. They have not come out of this well, having blamed everyone else inluding Brussels. Their lack of leadership only spun the crisis out.

The government also contributed by their lack of foresight and action. This goes right up to the PM. They left it too late to reassure savers and investors.

Then we have the media. They fuelled the flames and kept adding fuel by preying on people's fears. Even the Victoria Derbyshire show kept denying the media's part and then kept calling it a crisis.

Even when experts told people that NR had more assets than debts no one would listen. There is a basic lack of trust in "experts", the media, regulators and government.

However none of them will accept blame for their part in this sorry episode.

Dear Mr Peston,
Have just heard you piece on Mr King. Grudgingly on his side when you should have been pointing the finger at the real culprit. I will append what I emailed yesterday to a friend who has been abroad for the past two weeks:
While you have been away the Northern Rock (formerly a Building Society, now a bank of sorts 鈥� in the way that Thames Valley Polytechnic is now a University - has all but crashed. Now I have little against the NR, indeed I once knew one of its managers and have considered their monthly income accounts before now. However I did not realise that since they demutualised they had been using ever-increasing amounts of wholesale money (about 80%) based on all sorts of strange devices that few until now knew were 鈥榓sset backed鈥� by such very dodgy mortgages. I heard one story this week of the mid-west janitor, who bought his property not realising the repayments at month 2 were three times month one. Well he is a stonking pratt but the scheme itself was a scam and this has been at the back of a great deal of these supposedly high yielding securitised bonds. Thus the NR has got no one but its self to blame when these things suddenly don鈥檛 perform, no one really knows who owns what of these poisoned chalices and inter bank liquidity suddenly (well over about a year if you read the press) dried up leaving the likes of NR stuffed. Well it should have gone into administration and been sold off, or forcibly broken up and sold piecemeal to other institutions, possibly with discrete Bank of England supervision and the depositors get back what there was, perhaps 70p in the pound at the end of the day, plus the directors barred for five year at Plcs and ten years from banking operations. However The Bof E cannot now, seemingly, due to EU inspired legislation do 鈥榙iscrete鈥� forcibly and it seems and quite properly said No to bailing them out, until forced into a howling U-turn by a corrupt and utterly panicked Prime Minister/Chancellor Darling - who is about as effective as Mr Darling in Peter Pan.

Why corrupt? Because firstly the NR is based in Newcastle (remember Poulson the corrupt, and jailed architect/town planner/developer, and that hard-bastard Shepherd family who own the soccer club up there?). It is the very heartland of the Labour party, and guess what? The Smith Institute (currently under fire from the charity Commission) which is in effect a part-taxpayer funded Gordon Brown private think tank and Opinion Poll producer of pro-Brown polls, is lead by Deborah Mattinson, who happens to advise the NR on corporate responsibility, and has squeezed about half a million out of the NR into the IPPR, which is another Labour think tank. Moreover Sir Derek Wanless, (one time chairman of Nat West, dumped when they got into a mess and were taken over by RBS) who advises Gordon on the NHS (all that extra money to so little effect), sits on the NR board, and, wait for it, and chairs their Risk Management Committee!!! When belatedly the government got wind of trouble at NR they realised this would be Very Bad For Labour, and used the taxpayer to bail them out, adding they would do the same for anyone else - giving cart blanche to ballsy 鈥榚mployed鈥� directors and fund managers, and devaluing the probity of the currency and the independence and probity of the BofE at a stroke. What an abuse of power!!!!!!!! And have we heard a bat-squeak of protest from the opposition, or the press; they have as one swallowed the spin that was all the fault of the BoE not keeping its eye on the ball and the Governor is to blame! It鈥檚 an OUTRAGE and no one says boo. Even the HoC committee this week (labour led) ineffectively grilled the Governor and did not press him in his 24 hour 180 degree u-turn.

A very good appraisal of the fiasco so far,just a couple of question though. Ever since personal debt broke through the one trillion pound barrier several economists have warned that a financial disaster was in the making. Why couldnt Gordon Brown, in his capacity as chancellor, see the danager and take steps to deter irresponsible lending by the banks? If I remember correctly he was too busy telling us how well the economy was doing and how important finacial services were to the economy. If, as is it has been claimed, the problem has been caused by unforseeable events in the world markets why are all banks around the world not suffering the same demise as NR?

try looking in your own backyard and you will get an answer as to who is chiefly responsible for creating a problem into a full blown crisis!!

It is important to remember that every bank borrows money to fund its business. Savings deposits alone do not provide enough capital for a bank to carry on business.

On this basis, whilst Northern Rock has been hit badly by the 'crisis' other banks will be hurting too. If this was not the case why has no bank seen the mortgage business of Northern Rock as an attractive proposition? Simple, none can afford to or borrow money on the markets.

try looking in your own backyard and you will get an answer as to who is chiefly responsible for turing a money market problem into a full blown banking crisis!!

If it is indeed true that Northern Rock has had to borrow 拢3bn from the Bank of England, and that it is having to pay a premium of around 1% on this borrowing, then its costs will presumably have increased by around 拢8m for 2007 (and 拢30m in a full year).

It is therefore presumably still making a profit, and will continue to do so next year, especially as it has reportedly reined back its new lending and as more of its mortgages move from introductory rates to the full interest rate. I am therefore finding it a bit difficult to understand the pressure on its share price, or how, in these circumstances, it would be possible for it to be sold off at a discount.

Gordon Brown is clearly to blame for the current fiasco. If he had included house price inflation in the RPI thing then the BoE would have put interest rates up to 15% and killed it off.

Going further back though it's really Thatcher's fault. She deregulated the City and it's interesting to note if you're an economics geek that the rate of increase in the trade deficit increased quite quickly after that as the City turned inwards, isolated itself from the rest of the economy and invented hedge funds, CDOs and of course the dreaded private equity company.

Taking stock of Peston

I am sorry to say Mr. Peston that your coverage of this story has been poor. I say this as a former fan. First you rightly applaud King's firm stance and then you bash him for taking the stance because he was forced into a U turn.

The reality is the situation on the ground got much worse(thanks in part to you and your ilk sensationalizing it) and King had to make the U turn to keep the ship from toppling over. He rightly avoided moral hazard as far as he could till NR and the press screwed up. Good show Mr. King! Poor reporting Mr. Peston.

I was very disappointed listening to your profile of Mervyn King on radio 4 on Saturday evening.

It does not strike me as impartial to describe his concern with moral hazard - the behaviour of Northern Rock's management embodying the concept to perfection - as an "obsession", which you did several times.

There appears a general acceptance that the run on Nortehrn Rock itself (not withstanding imprudent lending and poor baking regulation) was magnified by a crisis of confidence, often with smaller investors under the FSCS 拢35k figure most worried (anyone with more than 100k in one deposit account deserves what they get for their own stupidity). However embarassment for this country could have been avoided if information was made available (as many advsiers requested) so that tehy coudl reassure certain groups of clients sooner.
After Ailistair Darling made his statement, I waited for the FSA to send their usual "regulatory news" email, thinking there would be something on this subject sent to ALL authorised and regulated firms, but nothing EVER appeared. I also checked religiouslt the FSA, Treasury and BofE Websites for a statement detailing the "GUARANTEE" actually given, but this was not released to teh press until Thursday 20th and hence I did not find it on teh Treasury website until the morning of Friday 21st. To late for any of us at teh colaface to make use of it in reassuring clients or setting the record straight!
If in today's Web based world, the media can move that fast, Government and teh executive needs to be moving as fast if not faster. They have the ability to do it as they have the contact details for every FSA authorised firm and yet they daly so long the crisis that never was becomes an excuse for change in rules when change in attitudes and actions was what was needed.
I would however say that the FSCS limit for deposit taking should be increased to between 50k and 100k and the banks should pay a levy this year and re-imburse the Government (for teh first time in Banks cases), my firm pays enough in FSCS levies, time the banks paid something for this debacle.

Have the recent storm of criticism regarding your about face on Mervyn King made you doubt your own work?

I hope not as you are still an excellent reporter and I'm still a fan of your work.

Cheers.

So when is Northern Rock going to become a nationalised bank, run by the government? If the share price drops to nowt it would be a good bit of business.

We will never get accurate reporting on the Northern Rock fiasco from the 成人论坛. Only this morning in the final minutes of the Today programme, some prat was allowed to claim that nobody lost any money from the Northern Rock troubles. Just what is 3 days or so interest on 2 billion quid? And how much did the penalty charges come to, for people who withdrew early from fixed time deposits?

The Today interviewer let the no money lost claim go by without comment; she probably didn't want to go down the road that would lead to the 成人论坛's role in the "Great Northern Rock Panic of 2007" - which I am sure this little saga will become known as.

Can anyone tell me, if there were no underlying financial problems with Northern Rock, why there has not been a queue of potential buyers? We have a stream of reports saying that fundamentally there is nothing wrong with the business yet we also hear there are no bids.

Robert,

Could you do a blog, which goes into detail on the NRs business model, and the associated risks. Could you make a serious attempt to look at where the bank would be today after having secured the loan from the BoE (your option c, but applied to individual institutions rather than to the market as a whole), if media reports had initially emphasised the normality of the situation (other banks having already used this type of assistance from the BoE), The role of the BoE to help institutions as provider of the last resort during exceptional times in the markets - explained more as an insurance policy than a "crisis" policy, and therefore not inducing a run on the bank.

I have a suspicion that we would be looking a bank which would probably be looking to change its funding principals, possibly adjusting it risk exposure to a more conseravative model in the short term. Possibly making a smaller profit next year than projected, but profit none the less.

BTW A Punter - your comment about the dividend and profit is unsubstantiated by the article you linked as it only mentions the loan and not the profitability of the company - If I borrow 拢3Bn pay interest of 拢210M, but use that to generate revenue of 拢500M, then I have made 拢290M profit!

When investing your money, either in savings or bricks and mortar you need to trust that your investment is safe and the lender does not over-stretch whilst lending or investing.
Northern Rock, currently and over the recent years has spent a terrific amount of money in the region to provide 'state of the art' accomodation for it's HQ and staff that could be perceived as being less than prudent.
Back to the matter of trust, Adam Applegarth, born and raised in Sunderland is now a Newcastle Utd supporter, this does not sit well and would not sit well if the reverse were true.

There is a great deal of bleating about using taxpayers money to guarantee deposits.

Firstly - your deposits can be threatened by other things than mismanagement by the banks. An otherwise solvent bank can easily fail as a result of a systemic run (withness recent events). And unless deposits are guaranteed, runs are almost certain to happen.

Guaranteeing the *liquidity* of these deposits (the banks ability to pay them on demand) has very little to do with paying for the banks losses, and does not result in a loss to the taxpayer. The Bank of England does not need to use Treasury money, for the simple reason that they can print the money they need. And no, this does not give rise to inflation, as you are simply exchanging one form of liquid money (deposits) for another (cash), you are not increasing the money supply. The bank is no better off after this, because their cheap funding (deposits) has been replaced by more expensive one (BoE loan). What's more, the mere guarantee that you will provide the cash on demand means you are very unlikely to have to in a liquidity crisis.

Secondly, in cases where deposits are threatened by solvency (rather than liquidity) issues. It is insane to require retail savers to attempt to calculate the risk to their deposits and "punish" banks by demanding higher interest rates. They are not in a position to assess this risk, let alone to diversify against it. If they lose, they lose it all - life time savings. Nor can they renegotiate interest rates when there is a whiff of trouble. It is a binary situation - 100% risk free deposits or no deposits at all.

However, there IS a mechanism for ensuring that these deposits are risk free - it is called solvency regulation. This requires banks and other financial institutions to have sufficient solvency capital to cover their liabilities in all but the most extreme scenarios. It puts restrictions on what kind of loans or investments they can count as assets.

Here is the rub: Capital costs money, as all those pesky shareholders demand a return on capital. This is why guaranteed retail deposits are NOT free money. With the guarantee comes a hefty solvency requirement, to make sure that the guarantee against loss (not liquidity) is only needed in the most extreme cases.

There is a great deal of bleating about using taxpayers money to guarantee deposits.

Firstly - your deposits can be threatened by other things than mismanagement by the banks. An otherwise solvent bank can easily fail as a result of a systemic run (withness recent events). And unless deposits are guaranteed, runs are almost certain to happen.

Guaranteeing the *liquidity* of these deposits (the banks ability to pay them on demand) has very little to do with paying for the banks losses, and does not result in a loss to the taxpayer. The Bank of England does not need to use Treasury money, for the simple reason that they can print the money they need. And no, this does not give rise to inflation, as you are simply exchanging one form of liquid money (deposits) for another (cash), you are not increasing the money supply. The bank is no better off after this, because their cheap funding (deposits) has been replaced by more expensive one (BoE loan). What's more, the mere guarantee that you will provide the cash on demand means you are very unlikely to have to in a liquidity crisis.

Secondly, in cases where deposits are threatened by solvency (rather than liquidity) issues. It is insane to require retail savers to attempt to calculate the risk to their deposits and "punish" banks by demanding higher interest rates. They are not in a position to assess this risk, let alone to diversify against it. If they lose, they lose it all - life time savings. Nor can they renegotiate interest rates when there is a whiff of trouble. It is a binary situation - 100% risk free deposits or no deposits at all.

However, there IS a mechanism for ensuring that these deposits are risk free - it is called solvency regulation. This requires banks and other financial institutions to have sufficient solvency capital to cover their liabilities in all but the most extreme scenarios. It puts restrictions on what kind of loans or investments they can count as assets.

Here is the rub: Capital costs money, as all those pesky shareholders demand a return on capital. This is why guaranteed retail deposits are NOT free money. With the guarantee comes a hefty solvency requirement, to make sure that the guarantee against loss (not liquidity) is only needed in the most extreme cases.

To all the people claiming the media are in part to blame for "sensationalist" reporting, I say WAKE UP! On the Thursday night, long before, this story made the main news bulletins, I and many others, predicted queues at the bank in the morning. It seemed unbelievable even then, but anyone with a basic knowledge of pscyhology should know that people were always going to behave this way when their money seemed at risk. As has since been confirmed, it was a perfectly rational reaction, since the FSCS scheme would have been hopelessly under-resourced to respond. Even the full government "guarantee" would take months to roll out, so getting one's hands on one's money was always sensible. But the big issue is that the media hasn't been conscientious ENOUGH in reporting this story. People are being led to believe the problem has been solved and all is OK again in Brown's Britain. It is not. Northern Rock was just the opening chapter in a long and painful decline ahead.

One thing that we haven't heard about is the quality of the loans; sorry I mean mortgages handed out by Northern Rock.

My understanding is that the business model for NR involved using IFA's as it was a cheap method of getting customers.

I just wonder what the lo...; I mean mortgages were used for and on what multiple of what was the criteria for the size of the loan.
I suspect that there is more to this than we presently are being told. If so what is the value of the loan book and is this why other banks are reluctant to get involved?
Which poses the question: What is the maximum liability to the taxpayer that Alistair Darling has so generously volunteered on the basis of a back of a fag-packet calculation?

Robert, a question.

Were you jilted at the altar by a Northern Rock employee or just refused a mortgage?

Whatever your gripe is with Northern Rock you are now into day 10 of a "crisis" you helped to engineer, caused by, shock horror, a bank borrowing cash from another bank.

How about a little unbiased and not so sensationlist reporting tommorrow? Go on, just try it for one day. You might like it! It might also go a little way to repairing some of the distate many people felt regarding your smug breaking news piece on News At Ten that kicked all of this off.

On another note, Post 56 is quite possibly the most insane rant I have read regarding this whole affair. Thanks for the chuckle!

Even thought about looking in your own backyard as to who is chiefly responsible for turing a money market problem into a full blown crisis!!!

Firstly, my admiration for (nearly) all contributors to these blogs from Liars' Loans onwards. Regardless of viewpoint, the standard of both argumentation and articulation on a difficult subject has been quite outstanding in my view. Clearly some see the NR debacle as opening the seacocks of the British banking system and all who sail in her, but I would suggest that if the level of insight and intelligence from contributors (the vast majority of whom I guess are UK citizens)is any measure of the nation's capacity to think about complex problems and formulate solutions, then Britain has little to fear from the future.
And a word to those who want to place the blame for recent events solely at Mr Peston's feet. Agreed, it is a fair challenge to describe his reporting style as occasionally tendentious, but that said, it has to be recognized that he was the messenger and did not weave this story out of thin air. If he hadn't reported it first, someone else would have. And let's face it, there are plenty of taste-for-the-jugular journos in the UK looking for opportunities to sensationalise in ways that would make the Beeb's Mr Peston look positively staid in comparison. So maybe the scoop fell to the right man, all things considered?
Niels, Denmark

Re post number 69 I imagine the reason why no one has come in to buy just yet is they know that next week the price will be lower and the terms better.

Reading all the above and particularly SC with his aside about Keynes etc I was dwelling that for all its faults the BoE and Mr King, it and he, are a little like President Franklin D Roosevelt in the 1930's in that he saved Capitalism for the Capitalists and they never forgave hime for it!!

Why no mention of the reports that Nueva Rumasa have written to NR with a view to taking over the company?

Perhaps it goes against the grain too much.

We KNOW that NR are 'having a turbulent ride' as your business page is still shouting.

Reading all the above and particularly SC with his aside about Keynes etc I was dwelling that for all its faults the BoE and Mr King, it and he, are a little like President Franklin D Roosevelt in the 1930's in that he saved Capitalism for the Capitalists and they never forgave hime for it!!

The differentiating factor between Northern Rock and many of its larger brethren was its dependence upon funding from the commercial paper markets. With two-thirds of its funding coming from this sector it was particularly at risk to a failure of the CP market. However, it is not the only British bank to be exposed in this way. So, the question remains, why NR and not some of the others?

The differentiating factor between Northern Rock and many of its larger brethren was its dependence upon funding from the commercial paper markets. With two-thirds of its funding coming from this sector it was particularly at risk to a failure of the CP market. However, it is not the only British bank to be exposed in this way. So, the question remains, why NR and not some of the others?

if norther rock are considered to be sound are they going to honour mortgage applications that fees have been paid for and inspections already made - wonder how long it will take for them to communicate with their clients. more information is needed for their clients.

Poor Peston. Shooting the messenger comes to mind.

What is the press to do? Stay silent because of the potential loss of jobs and British banking confidence?

I am a NR saver and for me the problem went back some months when the website was NEVER satisfactory being mostly difficult to access. Once in it was OK.

NR response was to treat me like a prat even though I pointed out that my other internet accounts worked just fine.

So when I wanted to move some money for a business transaction and could not having tried for many days, nor could I raise any sort of telephone banking, nor could I talk to ANYONE what I am supposed to think.

So I joined the queue outside NR. It was my only option.

NR staff came round with forms to carry out customers instructions. Good idea so I filled this in with the instruction to make a CHAPS payment since I was already late in making the transfer.

'Cannot do CHAPS' said the NR lady. Big backlog so we would prefer to post you a cheque in a few days.

What bank works like that?

Finally I could not get in to the bank that evening and returned home to the computer.

Warnings about slow site, letter from the boss etc etc and after a few attempts of going through their system and being told to come back later as they were very busy (same as the previous five days) I realised that the pattern was always the same.

If I stayed on the 'Piss off' screen and did a right mouse refresh then bingo I was through very quickly.

I made the transfer, requested CHAPS and the money was in my other account the next day as it should be.

Thank you for giving an accurate message about a failing bank Mr. Peston.

I agree with most of your points. NR had a bad business model and bad managment. Mr Preston and the media gang then helped create a panic (this was not a case of just 'reporting the facts', it was angled to create sensation - and it worked), FSA and Mr King are looped into the blame circle in terms of prevention and cure.

NR customers generally feel the bank should be left to the wolves. I'd probably agree but for one small matter:I have a NR mortgage offset by money in a flexi savings pot. A letter from NR today assures me that HM Treasury's guarantee to protet my savings 'will remain in place during the current instability in the financial markets'. Personally I would have preferred something a little more tangible; 6 months; 12 months; the life of my policy, but no, I have a guarantee which is completely open to interpetation and assures me of nothing beyond today.
So all you financial wizzes out there, what would you do if you were me; weather the storm or bail out?

For all his mistakes I am left with some admiration for the CEO of Northern Rock. When the chips were down, he led from the front. Assured the depositors that their money was theirs and they could withdraw at any time. Made sure the Branches were open much longer hours. Praised his staff. Thanked the customers for their patience. Made sure they had warm drinks etc whilst they waited. He borrowed short and lent long - like all Building Societies do - but more so. If the Regulators had not prevaricated things would have been better handled I feel. Julian Pilcher.

To all of you out there who did not have faith in the Northern Rock Bank..Shame on you!!! You want to think about all the 6,500 staff who are working around the clock to try and clear all this mess up, they have had to endure rude customers and the phones being slammed down on them..
I have watched with disgust customers actually clapping there hands in approval, when they have received there funds!!! what way is that to behave...and the fact that one manager was actually locked in his own branch by a deranged customer, what did this customer think the bank was going to do with his money, there was after all a guarantee by the chancellor that all funds were deemded 100% safe however that still is not sufficient for some folk. As usual the media has played the biggest part, with all the negative and sometimes unwanted attention!!!
People out there want to think about all the charities that Northern Rock support and all the other good causes that are supported through the Northern Rock Foundation..where is all the GOOD media on this!!!
I am also a customer with Northern Rock, who has invested well, and i will continue to offer my support through these troubled times.

"Can anyone tell me, if there were no underlying financial problems with Northern Rock, why there has not been a queue of potential buyers? We have a stream of reports saying that fundamentally there is nothing wrong with the business yet we also hear there are no bids." by Jeremy Beatty

Enough said. All the defenders of NR are making irrational arguments, not talking about the details of their biz model, which sucks and is much more riskier than their competitors such as Alliance etc.

It's nice to see you are spreading the blame for the recent events at Northern Rock - in this article alone you have blamed the Bank of England, the FSA, the Treasury, Northern Rock's executives, Northern Rock's non-executive directors and the Chancellor!
But where is the acknowledgement that the vultures that are the 成人论坛 made this situation ten times worse by reporting it with your panic-inducing headlines? Time to take some responsibility for your actions...

Northern Rock borrowed short and lent long. Building societies that rely more on retail deposits rarely require long terms ~ 25 years, so they borrow short, the model is similar but less affected by lack of confidence in money markets.
There's so much paper money and credit flying about these days it's just what you can expect....bring back the gold standard. If you have an economy that is built on credit and a housing boom you are asking for trouble regardless how hard you may try to keep the bubble going at the price of homelessness. The only real asset of the country is invented by demand and fuelled by credit. A rethink is long overdue.