Northern Rock and the picture of modern Britain

I've found it!

The picture that sums up the state of Britain in 2007.

I'd always thought football was the universal metaphor, what with Leeds United trying to buy success with money they couldn't pay back before being found out and relegated, calling in the administrators and having points docked. But that's old news.

Here is the picture that says it all about the current mess we're in...

It's a pint.

Well, no it's not a pint. It's supposed to be a pint but it isn't. It's the kind of short-measure that we're being served these days in almost every walk of life.

There are vague guidelines in place for the acceptable amount of head on a pint and bar staff are urged to fill the glass with good nature if the customer asks for a top up.

It's not illegal but it's pretty unsavoury to short measure a pint and the publicans and brewers blithely line their pockets while the customers are left paying something for nothing.

In this case, we asked for a top up and were told in eastern European to 'zxyx off'.

Since the Government interfered with the pub trade with a smoking ban that ruled out even designated smoking pubs, if you lift the lid on the average pub around here now, there's nothing there. Everyone's outside on the street, smoking, while the insides are merely hollow versions of what they used to be.

Lift the lid on the events unfolding at Northern Rock and you'll see something very similar. Where's the substance Adam Applegarth (chief executive of Northern Rock)? The business model was flawed. The bank has been lending money it basically doesn't have to people who are increasingly likely to be unable to pay it back.

A 100% loan at up to five times salary is a pretty short measure by any standards if the housing market collapses and the 'homeowner' faces a decade of negative equity.

The customers are outside on the streets, fuming, emptying the bank before the seemingly inevitable happens. They don't trust it. 

The Government has stepped in with a promise of a bail out with taxpayers' money. It had to. But will it step in to ban the sharp practices of the greedy morons who pressure the gullible and ignorant to take loans they cannot afford? Like hell. Expect some urgent vague guidelines coming to a bank near you very soon.

If you can't trust your local pub, it's a pretty sorry state of affairs.

If you can't trust your bank, we're zxyz-ed.

Richard Browning, This is Money

The Northern Rock Crisis
Northern Rock share prices
Chancellor guarantees Northern Rock cash
Chancellor kicks City watchdog
Housing market 'is heading for a fall'
Savers' Q&A: The Northern Rock fallout
Best savings rates
Northern Rock reaped what it had sown
So who is Adam Applegarth? (pictured below)

The credit crunch chronicles

Negative equity: it's back, it's instant and we're heading for a property slump

The Northern Rock loan for 80 year olds with a job

Northern Rock and the Picture of Modern Britain

Listen now: 'We're heading for a property slump'

Comments

[JCErnharth]

Isn't it the nature of ALL banks to not have but a fraction of customer demand deposits (e.g. cash that is not tied up by contract that customers expect to have fully liquid at any moment) available at any time?

That is the very definition of fractional reserve banking that dominates the globe, allowing banks to legally lend out and earn interest on such deposits. It relies on the faith that depositors will not all simultaneously withdraw their money, and hence what is functionally a fraud will never be realized.

In the case of Northern Rock, the fraud is being exposed, but the powers that be pretend it is no such thing while they set in motion policies that will force U.K. citizens and holders of the pound to pay for that fraud through inflation and taxes.

[Geoffrey Briggs]

Would somebody spare a thought for the staff of Northern Rock, especially those dealing directly with customers. This must have been a nightmare time for them and their efforts seem to have been overlooked amidst the general furore. Well done I would say.

[Colin McNulty]

JCErnharth is entirely correct. All banks loan out money they don't have, because they know that everyone won't want to withdraw it at the same time.

The media is at fault for causing the run on Northern Rock, by coming up with inflammatory turns of phrase to invent a crisis where there wasn't one. Northern Rock didn't even borrow any money from the Bank on England, they just setup an overdraft facility basically, but didn't actually use it.

This was described by the News as "An emergency loan to shore up the bank!"

To say "The bank has been lending money it basically doesn't have" is to describe every bank in every country in the World. It's sad to see ThisIsMoney descending into tabloid style sensationalism and contributing to the problem, rather than the solution.

[Richard Browning]

To blame the media is to accept the irresponsible excesses, cover-ups and spin from the finance houses, which are gradually being revealed as having created - to play it down as much as possible - a little bit of a mess.

It's the media's job to rummage through verbal garbage and spell it out in terms that people not familiar with banking vernacular can understand.

For example, Angela Knight, chief executive of the British Bankers' Association, said the other day: 'This isn't about solvency, this is about a short-term problem that the Northern Rock has in getting liquidity - that is, getting some cash from the normal interbank lending market.'

My gran's not familiar with liquidity and the normal interbank lending market.

She does, however, understand that if your fundamental business is lending money to customers at one rate that you've borrowed from someone else at a cheaper rate but that someone else now refuses to lend you any more, you're in trouble. Why? Because you're basically in the business of lending money that you haven't got any more, however temporary that might be.

This wasn't about cash withdrawals it was about bad business practice that is now being underwritten by the taxpayer.

And for what? Well, that's still to come out in the wash.
It was interesting to see former Chancellor Ken Clarke on Channel 4 News last night admitting that even he had no idea what was going on with the latest Bank of England/Northern Rock shenanigans. Maybe Britain is bankrupt? Who knows? Now that would be sensational. Needless to say we'll do our best to find out.

[Mr P,]

Northern Rock have over the years contributed to a number of charities, helped countless people get on the property ladder and set a benchmark for others in the lending industry to keep their products competitive and their rates low. Whilst they have clearly been over reliant on the wholesale markets their are many in the banking industry who have envied their business model.

Isn't it time to start supporting the firm, nay, fighter that is down on the ropes, Didn't we all cheer when Rocky Balboa fought back from inpending defeat. I hope they claw their way back and emerge stronger - they just need their home crowd to get behind them. Get up Rocky... You can do it, Rocky, Rocky, Rocky!...

[Tom]

The comments in the previous post offer a textbook case study of how the perception of adopting corporate social responsibility can be severely abused. The Northern Rock has indeed contributed to a large number of charitable causes, however what is less commonly known is that whilst it has been supporting charitable causes, and has been very keen to be seen doing so, it has also chosen not to pay out a very large number of claims in relation to the mis-selling of endowment schemes.

Knowledge of this raises the simple question as to the purpose of the Northern Rock's charitable giving, i.e. if the Northern Rock has demonstrated such callousness with its own customers, then clearly the ethos of Corporate Social Responsibility has not been a shared value throughout the organisation and so the purpose of charitable giving in this instance has simply been what critics of Corporate Social Responsibility have long suspected, that it is no more than a promotional tool to be wheeled out as and when appropriate.

Therefore once we recognise that the charitable giving was driven by the need for image management, then the case for charitable giving would have to have been supported by a business case that in turn would require funding from "somewhere" within the business. This "somewhere" may have been in large part made up of the contingency funds that other building societies had set aside to deal with unsettled claims for mis-sold endowments. Rocky has simply robbed Peter to pay Paul and maybe the best ending would be if he were to get out of the ring and leave the arena quietly?