Tell It Like It Is Willem!

Let Northern Rock go bust:

If by now the Treasury, the Bank of England and the FSA have not figured out a way of swiftly repaying Northern Rock’s depositors when the bank gets put into administration, all those involved should be taken out and shot after a fair trial.

9 thoughts on “Tell It Like It Is Willem!”

  1. “It is a shame it was not allowed to go bust 4 months ago.”

    And for people to lose their deposits would what? Make everyone shit scared about their savings in banks and the run would be a contagion.

    They should have stepped in and assumed the liabilities for the depositors, become a creditor, and then put the whole thing into administration. The Government and bond holders would get whatever (maybe even 100p in the £), and shareholders the remains. All above board and a fire-break against contagion.

  2. And for people to lose their deposits would what?

    The vast majority of people would not have lost their deposits, would they? Or at least not all of them – the guarantee scheem was 30k or something like that at 95%.

  3. As many people have said before, the biggest issue of going into administration was the freezing of depositors accounts. As Willem points out this should be trivial to resolve. Probably not requiring capital punishment;)
    I still can’t understand why NR caught the FSA, BoE and the government by surprise.

  4. The main thing is to take the role of protecting banks out of government and put the insurance into the private sector. What the government did was to provide insurance regardless of the way it managed its liquidity.

    Northern Rock managed their business in a way that neither the large banks don’t, and the building societies can’t (building societies can only get half their lending from the commercial markets).

    Private underwriting of Northern Rock would also have probably prevented them from getting into this mess in the first place.

  5. @ Tim A – that’s absurdly complacent. Given that all the large banks were happy to take S&P’s word that a SPV of sub-prime mortgage loans was a top-notch investment-grade security, why the hell do you think private insurers would have stopped the Rock from doing the same thing?

  6. john b,

    Did S&P have a financial stake in the investments made in sub-prime? No, they advised other people. People putting up their own cash tend to think a bit harder in my experience.

    In the end, though, it doesn’t really matter. I’d rather a private insurer were paying out for the Northern Rock situation. For one thing, they’d learn from their mistakes quickly and adjust to the situation – something that government has repeatedly shown itself to be poor at.

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