Northern Rock

[northwind]

Good old fashioned bank run! Like in the Depression. Bank gets into mild difficulty. Hundreds of thousands of investors withdraw all their savings overnight. And now, the bank's in more difficulty because of the panic withdrawals than because of the initial shortfall.

It's the exact same as panic buying. "o noes! There's going to be a water shortage! Quick, everyone buy lots of bottled water!" Shops sell out of water. "AAARGH! There's a water shortage! Just as well we bought all this water eh?"

That's the trouble with the markets, at the end of the day it's like any other mob, it's exactly as clever as it's most stupid member.

Northy...So perfectly put,nice one.

[northwind]

I said much the same thing at work today, and got back "I don't think the banks should be lending out people's money. They should always have to have enough in reserve so that if everyone wants to take out their money, they can." To which the only possible response was, GOOD LORD! YOU WORK IN A BANK!

I think they said on the radio that NR have much greater assets than the cash people have invested in them anyway. It's more of a cash flow problem.

Originally Posted by northwind

That's the trouble with the markets, at the end of the day it's like any other mob, it's exactly as clever as it's most stupid member.

...of which there seems to be a depressingly high number.

I wonder how many of those people grabbing their handful of savings, would have headed straight to a stock broker and had a punt on NR shares? It had to be a good option in my mind with an upward trend the more likely option?

Even a short term holding could deliver a nice little return.

NR shares up 10% when I looked earlier.

...and now we have the government guaranteeing deposits - every deposit, not simply private depositors. I think they will end up regretting it. Who else are they going to bail out? I object to the use of my taxes in this way.

Ed you surprise me with your comment. The government has taken an unprecedented step in order to back the expert opinion that no real crisis exists,apart from that being created by misinformed and worried savers not wishing their hard earned cash to be lost and making desperate withdrawals,(interesting though that some reports are bveginning to mention people actually making deposits once again with NR). How many more times...this is a question of liquidity not asset value of NR. It is a display of confidance and a PR exercise no more by the government.

Other banks are already hovering like vultures with a view to a take over if things deteriorated but the real chance of that happening I believe is very small.

Furthermore the actual bailing out of savers with your taxes is extremely unlikely to happen. I am sure you would not need to think for too long to find other alternatives where perhaps your taxes have been used more "frivolously" by succesive governments?

Originally Posted by Ed

With the BofE loan - whose money is this - is it taxpayers' money, and when is the loan repaid?

Gordon Brown doesn't think it's tax payers money, he thinks it's his. I can imagine him spending his saturday nights counting penies...

Pedro - I agree that this is really a window dressing exercise. The frivolous waste of our money happens every day. What I'm really concerned about are two points:

1. They should have guaranteed consumer deposits only - it's fair to protect consumers but not to protect those sufficiently informed to look after themselves and make an informed decision. Given the window-dressing because of NR's apparent solvency this of course isn't really an issue for now.
2. It's the future precedent. Will the government guarantee other banks which turn out not to be solvent? And who else will receive this sort of support? If you read the signals and timed your share purchase correctly, some investors will have profited hugely from the fact that the government was so panicked. I can't honestly think why, with such huge swings in the share price, dealings in NR shares weren't suspended. Perhaps this partly explains the timing of the government announcement.