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What you have percieved from the interview is symptomatic of every area of Government legislation - We will put in the over-arching framework of what is to be done, and the minutiae can be worked out at a later date when we've actually worked out the deficiencies with the system we've put in, and how we want to fine tune it. It happened with FSMA 2000 (how many FSMA regulations are there which were never formally approved in Parliament?) and it happens frequently in the tax system. It is legislation by Government Dictat. It works, but is it fair? Is it sound? Most of all, is it safe? What happens in a nightmare scenario of a megalomaniac dictator Prime Minister, who rules by his own will? Do we want to be that exposed as a nation to his whim, or do we want rules and regulation - and most of all powerful safeguards (eg. a strong constitutaional House of Lords and Monarch) to curtail his/her power?

Do we really trust our government, present and future, that much so as to give them this sort of unbridled power?

"2) How would the authorities distinguish between banks that run out of money due to their own ineptitude and banks that suffer in a general liquidity crisis?"

Forgive my ignorance here, but surely this is an almost impossible call to make? After all, we've just had an example of a bank effectively collapsing (Monty Python, parrot nailed to perch) because of both their own risky practices and the effects of a liquidity crunch.

Yes, I can understand how an individual bank can fall foul of itself during times of normal liquidity, and at that point the distinction is clear. However, it strikes me that these proposals have got absolutely nothing to with "normality", and everything to do with now.

I think this is a "run it up the flagpole" idea. Darling is floating this idea to see if people violently object.

He knows he needs to do something or appear to be doing something going forward. I would expect this to be the first of a number of suggestions as to how to move banking regulation forward.

This has all the hallmarks of a "Royal commission in waiting". Expect a grand committee to look into this and report back.

Like pensions reforms (Lord Turner) and NHS reforms (Derek Wanless, now where have I heard that name before!) this is a Gordon Brown idea to delay making difficult decisions.

Expect comments like, "we need to get this right" and other standard prevarications to put off having to make difficult decisions. After all we are now only 28 months at the most from the next General Election.

Interesting comments indeed, Robert. As you suggest at the end, I'm still none the wiser as to why NR shareholders seemed to believe that it was entirely unjustified for them to lose money as a result of the blatant irresponsibility of the company they invested in. Since when did owning shares mean that you could capitalise on all of the positive outcomes of a company's decisions (i.e. short term profit-making) but be immune from any negative outcomes (i.e. naked greed at any price). Surely that's why vehicles such as ethical investments exist - they force you to look beyond the bottom line and weigh up the (other) implications of your investment.

Ah well, a fool is soon parted from his money.

'In any future financial crisis, the Chancellor would be firmly in charge'

We are doomed then.

If Eddie George had had his way, and banks continued to be Regulated by the Old Lady, Northern Rock simply would not have been allowed to get into this mess.
The Chairman would have been summoned to the Governor's office and, while the Governor sipped his coffee, his chief adviser would have asked, 'and do you think your business model is a prudent way to run a bank?' Mr Darling cannot admit the Government got it wrong. Mr George should have resigned over such a vital issue.

What you have percieved from the interview is symptomatic of every area of Government legislation - We will put in the over-arching framework of what is to be done, and the minutiae can be worked out at a later date when we've actually worked out the deficiencies with the system we've put in, and how we want to fine tune it. It happened with FSMA 2000 (how many FSMA regulations are there which were never formally approved in Parliament?) and it happens frequently in the tax system. It is legislation by Government Dictat. It works, but is it fair? Is it sound? Most of all, is it safe? What happens in a nightmare scenario of a megalomaniac dictator Prime Minister, who rules by his own will? Do we want to be that exposed as a nation to his whim, or do we want rules and regulation - and most of all powerful safeguards (eg. a strong constitutaional House of Lords and Monarch) to curtail his/her power?

Do we really trust our government, present and future, that much so as to give them this sort of unbridled power?

Patching up holes in the Titanic.

I wonder if the Chancellor accepts that being "firmly in charge" of any future financial emergency means being "firmly responsible" for the ensuing catastrophe ? It always struck me that the in NR debacle that each governmental department had two others to blame for any shortcomings, and that this quite suited both Mr Darling and Mr Sainz. That said, if Mr Darling's proposals are carried through, we should end up with a much more efficient crisis management team. We shall see.....

Rob, as far as I am aware no one has had to give 拢2000 to anyone - so perhaps your 拢2000 went to a phisher or 419'r?

> How would the authorities
> distinguish between banks that
> run out of money due to their
> own ineptitude and banks that
> suffer in a general liquidity
> crisis?

The first to go broke are the most inept because they have allowed little margin for error.

Those that can cling on the longest are the least inept because they have the reserves to carry on.

By those standards, NR are the worst, so one could say that their owners have been the most reckless. The problem now is to make sure we taxpayers get a good uplift from this to pay for the stress and trouble caused. So far, I havn鈥檛 seen a plan to get our share of the takings.

But what Alistair Darling really needs to explain is why the FSA deserves to receive more powers. Arguably if it had exercised its existing responsibilities in a more rigorous way, Northern Rock would never have been allowed to lend so much money underpinned by so little capital...

And in the final paragraph you actually manage to focus on the fundamental issue. As ever, prevention is better than cure, but had the FSA regulated the actions of the mortgage lenders to prevent them from over-lending and from providing cheap credit (as they really should have done) we would not have seen the economic "boom" that we have had since the turn of the millennium. Instead we would have seen stagnation or possibly a recession, which really wouldn't have chimed very well with the new "Things can only get better" anthem.

But then again, New Labour always seem to want to have their cake and eat it. Tax and spend without economic consequences? Just can't happen.

To Dave,

In banking NR was the 'ethical' investment. Shareholders and customers appreciated their policy of keeping jobs in the North East and being the most charitable company in the FTSE 100 (giving 5% of pre tax profits to the NR foundation instead of re-distributing to share holders). Surely the 'naked greed' model would advocate using cheap labour in India and re-distributing all profits to share holders- as most other banks do-no?

Re Dave at 01.14pm.
The shareholders? After Greenspan invented the 'financial assets put'...and Brown has been I sense more influenced by Greenspan than others.

The Darling gambit as described by Peston is still a 'we'll close the stable door after we find the horse has bolted' rather than a well thought out approach to rigoously regulating financial services firms. Moreover it is the taxpayer tht will be paying for not just unwise or greedy depositors but in Northern Rock's case what looks like a political Labour Party vote/face saving exercise- When did Brown pull the planned 'Autumn Election'?

The Labour Government has run a system that transfers savers's wealth to credit junkies and property speculators, the prices of houses have been spectacularly economically unsustainable. Time for a credit crunch and as in the early 1970s interest rates should be allowed to find their equilibrium level - last thing we need is an extension o the welfare state to shore up house prices as Greenspan has been wondering about in the USA.

How does the FSA really intend to determine the split between "good" and "bad" banks, and how on earth would they have the skill or manpower to administer this, not least if it occurs in several banks at the same time? This is just a recipe for more heavy-handed regulation, which will kill off the financial sector for good.

The government is pussyfooting around the main issue, which is that badly-run financial institutions should be allowed to fail. Shareholders should lose all their investment, and depositors too should lose their funds over and above clearly communicated and insured limits.

It is well worth recalling that Eddie George came close to resigning in 1997, when Gordon Brown stripped the Bank of England of its regulatory role with UK banks.

After many years as a bank regulator, Eddie had, in addition, been able to steer a way through several big crises in the recent past, including that of the BCCI. Eddie George knew a thing or two about the ways of avoiding banking problems, but Flash Gordon, control freak that he is, wanted to cut down the Bank's power in favour of a new quango that would be manned and run by his socialist henchmen. Eddie George realised that, without experience and in the absence of a bank regulation culture, the new body would have little chance of working well.

The same holds true today.

We've seen the serial ineptitude of successive, failed versions of the FSA, post 1997 (leading to chaos with pension regulation) and paid its massive cost. Now, as a further consequence of Flash Gordon's obsession with control we shall be given a prescriptively-conceived bank regulation authority, costing many times that of the old B of E, that won't work a fraction as well.

the FSA's "light touch" regime has failed utterly - giving it more power would be a disaster.

We are now heading for a severe recession. The latest distasterous US employment figures clearly shows where we are heading.

Band aid... All banks are inherently insolvent. It's the nature of the fractional reserve system. Go on, slap some more sticking plasters on top.

Wouldn't it be great if we all built bridges and houses this way. First pick a nice plot of sand...

There are all kinds of problems here with Darling's proposal. But perhaps the most significant is that it appears to represent the end of a proper lender of last resort function.

The old lender of last resort function was supposed to enable banks to get through momentary liquidity problems so that business could thereafter progress much as usual. But under Darling's concept banks won't request emergency funding unless the shareholders have given up all hope of getting any money out of the institution. Indeed, in many situations it would appear plausible that the shareholders might prefer to liquidate the institution rather than to seek emergency funding. Is that really what he wants to achieve?

Some commentators here seem to forget the fact that NR is not the only bank to go to a central bank for emergency funding. Numerous others had to do so too- but as they
(unlike NR) are not wholly UK-based- could go elsewhere and no song and dance was made of it. So, following the logic of some folks arguing here-all banks that went to ANY central bank for emergency funding are 'bad' banks and the share holders and depositors ought to be wiped out for their stupidity? Do you know whether YOUR bank has arranged such a facility with the ECB for example? If not, why not?

Re: #5 Dave

As you suggest at the end, I'm still none the wiser as to why NR shareholders seemed to believe that it was entirely unjustified for them to lose money as a result of the blatant irresponsibility of the company they invested in.

The answer to your question is that they had invested in a company that was heavily regulated. However, the regulator failed in its duty to prevent the company from over-lending. Since the business model was therefore implicitly approved by the regulator, the Bank of England, in its role as lender of last resort, had a duty to support the company in its time of crisis. As previously noted, it all comes back to the FSA failing to regulate properly Northern Rock's business model (and no doubt a few other financial institutions).

Still, I'm confident it will all turn out fine in the fullness of time if politicians can refrain from interfering in the situation: doing so will inevitably make it considerably worse rather than make it any better.

It seems to me that there are three questions that are at least as important as the ones you raise:-

1. What effect would Darling's proposed changes have on the attitude towards investment in bank stocks? For better or for worse, the current situation is that bank shareholders/bondholders retain considerable power even in the event of the bank becoming insolvent. If this power is to be removed, wouldn't it make it more difficult for banks to maintain capital structures that are adequate enough to allow them to trade?

2. Is it correct for the current difficulties of banks to be attributed to poor decision-making by the management of the individual banks? Is there no currency to the view that these managements were effecively under force majeure to adopt high risk/high return policies, during the recent period of low volatility, if they were to avoid being booted out in favour of those more prepared to take advantage of the greater immediate returns available from medium- and long-term imprudence?

It's no doubt something that Darling and the Treasury hope will not become common understanding, but isn't it the responsibility of governing authorities to set boundaries of business practice, so that competent managements are not forced for their own survival to follow the thought-lite policies that manufacture short-term gain by the sole device of under-representing medium- and long-term risk?

3. Is not what Darling is suggesting yet another step away from Intellectia, a land where decisions are made cerebrally, towards Sentimentia, where decisions are made on the basis of mass-popularity, as embodied in elected representatives? Important though it is, democracy cannot possibly work unless the important structures of society are protected from having to be responsive to popular ignorance and illogicality.

While I cannot claim to understand the details and circumstances that have led to the current position, I seem to have noticed a number of matters that ought not to have been ignored for so long.
1.0 The Daily Telegraph and the 成人论坛 have been reporting on the Sub Prime problem for over a year now. Presumably US journalists were doing the same. One wonders why the US authorities just seemed to 'let it happen'.
2.0 The price of housing in the UK, and concomitant Mortgages, have been jumping almost out of control for a very long time it seems. Anecdotally at any rate, I have been hearing of enormous, unsustainable mortgages being issued by some companies. Why have the authorites not acted to curb these types of loans?. The largest amount I was allowed on my first mortgage was twice my salary. Even then (1971) we struggled a bit.
3.0 I cannot help thinking that if the reporting of the Northern Rock malarkey had been done much more modestly , discreetly and quietly, that it might have been managed with much less damage than we have seen.

Both Dorte and Andrew Lilico are quite right. This is surely an example of modelling the remedy for future catastrophes too closely on the current crisis - and of treating symptoms rather than solving the underlying problem.

The systems described solve the problems of how to help the taxpayer get his money back when he has put billions at the disposal of a bank whose shareholders who are not disposed to accept any of the proffered remedies and also the problem of how to achieve a unified regulatory system in the event of a crisis.

The first of these is the solution to a situation in which the Chancellor should never have been in the first place and the second is plain daft - once a financial crisis has hit, of course you form the appropriate shaped unified committee incorporating all the people necessary to solve the problem and of course the Chancellor, as the person with ultimate responsibility, must chair it.

That is not a new policy announcement, that is a statement of what has happened since the crisis hit. Doing so is part of the job.

The real challenge for the Chancellor is to come up with a system that prevents the crisis from happening in the first place. The measures outlined in this statement do nothing to prevent problems, and indeed, by requiring that shareholders relinquish rights as the condition of assistance, they may make troubled banks still more reluctant to come forward earlier and thus make big crises more rather than less likely.

It seems to me that an incompetent government is rewarding an incompetent regulator.

This is to be expected in an environment in which competence is neither recognised nor understood.

Once again it is not about standards but what you can get away with. Spivs: the lot of them!

re #20:

While I agree the shareholders have to be at risk, putting depositors at risk is not acceptable. Banks must be felt to be 100% secure for the ordinary person in the High Street.

If depositors are at the same risk as shareholders, they should get the same rewards - in effect they would be shareholders and suddenly all the banks have become mutuals to at least some degree. I do not see how this could work.

I would like to explore a different plan. Simply rule that all named depositors get the highest priority in the event of liquidation for the first 拢1 million of their total accounts. This to be a matter of law and even the tax man would take second place to them. After the depositors have got their first 拢1 milion each, then you pay the tax man, then you work down the existing order of precedence.

This would change the market in the way banks issue corporate bonds, in that other companies would simply put their first 拢1 million in a deposit account rather than buy a bond, but I don't think that would be too disrupting.

Even that effect could be minimised by phasing this limit in at 拢100,000 per year over 10 years. And if inflation has devalued that 拢1 million too much by then, just keep increasing it year by year until the limit is enough.

So Northern Rock will end up costing us all 拢2,000. Well the good news is that we're all far "richer" now than those poor Americans, Germans and the French - although they appear to be able to buy more with their smaller amount of money (eh?).

Is it any wonder we end up in this mess, when we're so befuddled by 'spin' that we can no longer tell left from right, up from down, day from night?

Truth is, the banks must all be laughing their heads off. Poor old 'industry' is being bled dry through extortionate LIBOR-linked debt, whilst the banks pay investors on base rates - they're recovering their incompetence from all of us, and paying out their bonuses to boot.

Darling should not have intervened on Northern Rock, and taught everyone a lesson - a salutory lesson for all of us shareholders to better understand what the managers of our businesses are doing with our capital. The regulatory net would have worked (in the long term if not short) if he hadn't decided to be so clever...

Of course, we'd have to be smart enough to work out that we're not better off merely becuase we have more pound notes in our pocket...

While he's at it, the chancellor should legislate to force the remaining(!) banks to declare how much sub-prime rubbish they are still involved with. I still haven't a clue and we've been waiting months now to find out, following the Northern Rock bankruptcy.

Have you ever tried getting the FSA to move against the cartel? I did over charges in incoming EUR, and discovered they're part of it. About the only possible good thing will be that if NR's nationalised, there'll be a strong argument for them to cancel all charging, and become a National Bank of last resort - for customers who've got ticked off with the rest of the retail sector. 碌拢At least we'll get something for our two thousand quid then...

"Darling should not have intervened on Northern Rock, and taught everyone a lesson - a salutory lesson for all of us shareholders to better understand what the managers of our businesses are doing with our capital." #32 Peapop

Agreed and depositers who exceeded current garantees (as #21 says) should have lost too. Why taxpayers (#31) should pay for the convienience/laziness of depoisters is beyond me.

If you want to keep more then 拢30000 or whatever the limit is in one instition then do so at your own risk.

egss basket etc.

"Northern Rock would never have been allowed to lend so much money underpinned by so little capital."

Lets be clear that Northern Rock had no problems with capital adequacy. It had a funding liquidity problem.

If a certain Gordon Brown had not altered the system in the first place,maybe we would not have had the Northern Rock fiasco.But of coarse,with this government it is always somebody elses fault.

#32 So Northern Rock will end up costing us all 拢2,000. Well the good news is that we're all far "richer" now than those poor Americans, Germans and the French - although they appear to be able to buy more with their smaller amount of money (eh?).

Actually it will only cost us 拢2000 if the company goes to the wall. But as there are two companies wanting to take over it looks like this will not happen and it will not cost us taxpayers anything.

The loan that NR has taken out with BoE will be repaid with interest i.e. THE BoE WILL GET BACK MORE THAN IT BORROWED!! so where are the taxpayers asking for a refund when this interest is paid??

As for all the posts stating that NR should be allowed to go under, what do you think would happen if it did? It would not just affect NR and the 4000 employees, but it would have a big effect on the housing market. This could bring other banks into the picture together with house sales, and how many people do you think could be involved then. It is not just bank employees, but also estate agents, bricklayers, carpenters, electricians, plumbers etc.
Can anybody remember the early 90's?

For Alastair Ditherer Darling to assume the FSA will handle matters better than the bank of England establishes beyond any reasonable doubt that this Government has totally lost the plot.
For choice seeing the hopeless manner the FSA handled the Northern Rock fiasco establishes beyond any reasonable doubt that the blind are trully leading the blind - No disrespect to visually impaired people.
The problem with the FSA, decent folk as some of them are, is that they have no experience between them and never look outside their box so anyone who does walks away scot free.
We can only hope that with a maximum 2 years to go Labour will go quietly exit into the wilderness of obscurity and let sense return.
We don't need more change as the Prime Minister keeps on saying or looking fo the long term, how long does he need and what have they been doing for the last 10 years?
We need people to do the jobs they were paid to do nothing more, nothing less.

Almost certainly the New Labour deal meant stripping regulation and supervision out of the banking industry. The banking industry viewed regulation and supervision as a kind of totalitarian regime. Transparency, they say, is for whimps. Getting rid of that meddlesome, patronising supervision in particular was a kind of emancipation, and having only to adhere to a 'lite' version of the requirements, both courtesy of the new toothless tiger, the FSA, meant no more pain-in-the-neck auditors running around telling them what to do.

Now that NR has imploded, government is worried it will happen again and is forced onto the back foot. The trouble is supervision was an activity developed over many years, with its own variety of mechanisms which successfuly kept the market in check over many years. Safety net or disaster recovery plan it might be, but by itself it can't compensate for good old fashion balance sheet, behaviour and policy audit from without. If Mr Darling is going to invest any added regulatory power to the FSA, this DRP is a good carrot, but supervision must be encouraged, otherwise the sector itself is not secure.

If the Treasury is to have the ultimate say in sorting out banking disasters, how till it know when one has occurred since the FSA failed to notify the Bank of England when problems became obvious at Northern Rock. Anyone who has had anything to do with the banking regulators at the FSA would know that they are not up to the job.

If the Treasury is to have the ultimate say in sorting out banking disasters, how till it know when one has occurred since the FSA failed to notify the Bank of England when problems became obvious at Northern Rock. Anyone who has had anything to do with the banking regulators at the FSA would know that they are not up to the job.

#38, IT obviously doesn't understand loans. The taxpayer has lent to NR at base rate. The rate a bank can borrow at was one point above base. Lets assume NR could borrow at that rate - it couldn't and that's how this crisis happened but lets pretend - that means simple interest it should have collected on 57bn is 3.705 bn, the interest it will have collected is 3.135bn so it is costing the taxpayer 600million a year at least to prop up Northern Rock asssuming no default. It has been over three months so that is already a cost of 150million.

"I'm making a profit because interest is being paid" is how this how crisis came about. You need to factor in a proper credit premium which the Treasury failed to do.

Carol Kirkwood #26, if that is the case that the bank cannot be allowed to go bankrupt then the shareholders should be forced to pay back any returns including dividends above what the base rate pays. It is called "risk premium", if you cannot be bothered to check your investment you can't complain when it goes to the wall. Note people were wary of NR's business model long before the crisis hit thats why its share price started sliding in July.

Re: #44 Danny

Carol Kirkwood #26, if that is the case that the bank cannot be allowed to go bankrupt then the shareholders should be forced to pay back any returns including dividends above what the base rate pays.

Your statement is a non sequitur.

Northern Rock was hit by force majeure (the international money markets seizing up). The problems were not caused by NR motgage customers not making their repayments but by NR suddenly not being able to borrow money to cover the loans it had made. The Bank of England was therefore obliged to fulfil its role as Lender of Last Resort.

It's really not that difficult a concept to grasp yet you (and quite a few others) seem to fail dismally to do so.

Repeatedly...

45 YCK
Get a grip. It's all very well continuously banging on about how NR was hard done by. The fact is that they were caught short.
An analogy would be a taxi driver who drives around with little fuel on board.
The taxi uses less fuel that way. The taxi driver finds the service stations out of fuel despite his passenger being able to pay. And then to rub salt into their blistered feet they find that others have meanwhile bought all the fuel at all the service stations. Not an exact analogy I admit but close enough.
Even if NR's business model had been good the fact is that conditions have changed.
They are now in the poo.
Get over it..

Re: #46 Rude Boy

It's all very well continuously banging on about how NR was hard done by. The fact is that they were caught short.

The fact is that the regulator is supposed to PREVENT them from being able to get into that situation...

I don't think anyone is trying to deny that Northern Rock is having problems funding its lending (that's pretty much defined by the fact that they have sought emergency loans from the Bank of England).

What is your point???

47 YCK

My point is that NR were the architects of their own demise. They did not properly do stress testing. They had a journalist as a chairman. They obviously went to some trouble to persuade the regulators that their business model was OK.
They just hoped for the best and carried on lending.

Continuing the taxi analogy.
The taxi driver drives recklessly, but technically not over the speed limit, and overtakes other taxis. That way he can pick up more fares and make more money.
One day he skids off the road and ends up wrecked.
According to your logic he should blame the police for not stopping him earlier.

The taxi driver and NR might not have been the only ones that were pushing their luck but they were the ones that got caught out.
Happens.

Re: #48 Rude Boy

My point is that NR were the architects of their own demise.

Indeed they were, and the Regulator did nothing to stop them... which is one of their roles. Hector Sants (Chief Executive of the FSA) himself apologised only yesterday (27th Feb) for the FSA's failure in its responsibility in this saga. This rather begs the question "if the Regulator is not going to regulate, what is the point of having a Regulator?"

As I said, rants should be directed at the FSA for allowing this situation to occur as it is precisely their job to prevent it.

(BTW, you may have noticed that I have ignored all of your analogies. When trying to argue a point, using an analogy is a very bad idea as the analogy invariably becomes the focus of the argument, rather than the actual point being argued.)

#49 Yummy Carol Kirkwood

I was quite proud of my analogies:-)
The next trip for the taxi was to be down Lombard or King Street skidding across the Quayside and into the river.

The regulators can only do so much. Moral Hazard has to be the ultimate decider.
This government has made it clear that competition is to be the driving force of the economy. Stephen Byers banged on about it enough in 2000. The government does not practice what it preaches of course but that is another matter.
I suspect we will have lawyer upon lawyer trotting out in the next few months complaining about unfair competition. If the regulators were to have leant on NR harder than other banks then I am sure there would have been complaints concerning restraint of trade.
NR was an outlier and in hindsight was an obvious disaster waiting to happen.
Perhaps if its board had conducted itself with a bit more diligence then it would not have failed. It would of course not have expanded as it did. Perhaps another bank would have failed.
Companies, including banks, should not have it both ways. If they have the freedom to compete then we in turn should not be expected to bail them out if they get it wrong.
If the regulators were to keep all banks under close scrutiny and effectively not allow them to compete against each other then they would complain that the market was not allowed to work.

Re: #50 Rude Boy

The point is that the financial sector is a special case: it needs strict regulation in order to avoid destabilising the country. Businesses, by their nature, attempt to grow, and Northern Rock was particularly aggressive in pursuing this. You can't fault NR for wanting to do so, and it was circumstances beyond their control which led to their downfall. But the bottom line is that the Regulator is responsibile for preventing this from happening.

I note that yesterday the British Bankers Association, in its rejection of the new proposals on depositors' protection, seem to be arguing for more rigorous regulation:

"And it argued that the best way to protect savers would be to stop another Northern Rock-style near-collapse happening in the first place.

"That would involve deeper supervision of the banking industry by the Financial Services Authority and the Bank of England."

(see

So, now that a number of high-level bodies have come out and pointed accusing fingers at the Regulator, are you still trying to maintain the argument that they were not at fault???

Comment 51 : Yummy Carol Kirkwood

"The point is that the financial sector is a special case: it needs strict regulation in order to avoid destabilising the country."

Yes. The actions of the Financial Sector have the potential to have major consequences far outside this particular sector. Unlike, say, carpet manufacturing, where poor decision-making is likely only to cause limited cross-sector contamination

"Businesses, by their nature, attempt to grow, and Northern Rock was particularly aggressive in pursuing this. You can't fault NR for wanting to do so, and it was circumstances beyond their control which led to their downfall."

I don't agree that NR's failure was due to circumstances beyond their control. They adopted an ultra-aggressive strategy that was entirely dependent on being able to obtain cheap funding for their more-and-more competitive lending. Many other mortgage institutions had the same opportunity to do this, but none of them chose to do so - at least not to anything like the same extent. Why not? Because they were too timid to follow NR's full exploitation of the flood of cheap money? Or because they foresaw that such a course of action was unsustainable beyond the short to medium term, and that NR was recklessly plunging headlong down the road to nowhere?

There's a myth going round that human intellect is not very good at predicting outcomes, and that the great wealth creators are those who are most willing to pursue trial and error. This is cobblers. The great wealth creators are the thinkers and the calculators, not the gamblers.

But the bottom line is that the Regulator is responsibile for preventing this from happening.

This is, I think, to expect too much from regulation. What I think the regulator should be tasked with is to ensure that intellectual good sense always has a rope to cling on to. Somehow we must put in place a structure which allows the realists to avoid being forcibly sucked into the maelstroms of nonsense that the dreamworld continues to create.