Northern Rock -how to buy a bank
Northern Rock’s monetary woes seemed more than just a little suspicious to me. One day, news was leaked out that Northern Rock had applied for emergency guarantees from the Bank of England and the British Government. The ensuing 40% slump in the share value of Northern Rock would have enabled any hawkish buyers to take over the bank with one simple press release.
Mass panic gripped the Great Indignant British Public who demanded to know why they were made to wait in line to withdraw all of their savings . It seemed to pass many Northern Rock customers by that their own stupidity and panic made the news story into a self-fulfilling prophecy because by collectively withdrawing $5 billion in cash, they destabilised the bank’s lending and investment capacity by a further $145 billion.
It is a counter-intuitive symptom of the international financial system, that perception and thin air count for more than assets and sensible monetary practice. A huge PLC with a turnover much greater than many countries can go bust overnight if people believe that it will. Even Richard Branson laments that the fickle and myopic behaviour of the City can bring a successful and viable company down over a minor cash-flow problem.
The answer? Only invest in limited companies or building societies. Failing that, grow your own food in time for a second stock market crash.
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The overwhelming impression here was that people simply did not believe what the politicians, Alistair Darling, Gordon Brown, or the head of the Bank of England or the head of Northern Rock were saying.
It was not so much a self-fulfilling prophecy, more a case of They Always Lie So Why Should I Listen Today…
And who can blame mostly pensioners who queued to regain their life savings, on the grounds that they would only get 90% of the first £35K and then lose the rest…
Further, other banks were offering better interest, above the penalty draw-out-clause-amount taken by N Rock.
Northern Rock was, as indeed was Halifax, a building society. I think you are right, grow your own food, prepare yourselves, the bad times are a’comin’ and you will need heat, light, food… we can do most of that in the dales.
The Northern Rock chaos is very reminiscent of the South Sea Bubble of the 18th century - plus ca change, plus c’est le meme chose…
J/M