Monday, September 17, 2007

Fianancial Woes in the UK

A leading mortgage lender, Northern Rock is in trouble here and there has been a run on the bank. Apparently something like this hasn't happened for 100 years or so so it is big news. Northern Rock specialises in mortgages, but it does offer bank accounts and it is the holders of these accounts who are panicking.

But it's not as bad as people are thinking it is. It's a pity the average British consumer isn't particularly interested in financial issues and current affairs or they could have saved themselves a lot of worry.

Northern Rock asked the Bank of England for help and the Bank of England gave them an unlimited guarantee or something like that which basically says they they will shore them up to maintain the level of liquidity they need. Sadly this didn't stop the run. The bank is solvent - they still have substantial assets but none of this swayed the public.

Plus the insurance on deposits by law says that your first £2,000 is guaranteed and up to £30k more you get 90p out of each pound. This still wasn't enough.

It's likely that the bank will be bought by another - in that case things won't change for the worse for depositors.

So today, the Chancellor Alistair Darling said in plain English - we the government will guarantee every penny of your money. If you want to take it out you can - if you want to leave it you can.

Perhaps the message will get through now?

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