Monday, 17 September 2007
Should the government offer a guarantee to deposit holders in Northern Rock? Generally I take it as a good rule that Government's intervene in markets at their peril. However, in this case, they may have bigger fish to fry. Many NR investors are likely to be labour voters but, more importantly there is a risk that the wave of hysteria out there at the moment may spread to other banks. One individual on the BBC, concerned about her life savings, said that even 'the Titanic sank'. True, but it sank because it hit an iceberg and was holed below the waterline. With Northern Rock, there was no iceberg and the only hole was the one made by the frenzied crew trying to get out!