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Northern Rock rescue highlights rifts in Establishment

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19/09/2007

Sectors of the financial Establishment – the Financial Services Authority (FSA) and the Bank of England (BoE) – have been confronting each other over the last-ditch rescue of Northern Rock, the Financial Times has reported.

According to the paper, FSA officials had made the BoE aware of the necessity of providing Northern Rock with an emergency loan weeks before the crisis became headline news, as they saw it was over-exposed to squeezed credit markets.

The BoE had initially refused to bail out Northern Rock after it ran out of affordable short-term money on the money markets to fund its own lending in the mortgage market, reasoning that it would “send out the wrong signals”

But the FSA and others have said that more should have been done to engineer a sale of Northern Rock once it was apparent it was in trouble.

Ex-Tory Chancellor Ken Clarke told the BBC: “I did not expect to see the Government ever having to reassure worried savers with money guaranteed by the taxpayer.

“The response should have been clearer and quicker.”

ED’S COMMENT

Of course the complexities of the currency markets are important in this story and the high-level organisations squaring up to each other in the City will inflict some pretty potent blows on each other. But the truly powerful images – and the ones that probably persuaded Alistair Darling to rescue Northern Rock – were of anxious savers, many of them pensioners, queuing in various high streets to withdraw what in many cases were life savings. If any of these middle class, middle-Englanders had been deprived (some would argue ‘swindled’ is too strong a word) of their nest eggs then the ordure would have hit the political fan in a very big way indeed and Darling would doubtless have walked. Thus it is that the little people brought the big people to heel and who cares who gets hurt in the fight over who the latter feel is to blame?

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