Word: rocks
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...ways, London has become the world's leading financial center. With finance a global growth industry, this is a great strength to have. But it is a uniquely mobile industry, and one in which reputation is particularly important. So the still unresolved failure of the U.K. mortgage bank, Northern Rock, is more damaging for Britain than a similar disaster would be for any other country...
...bank supervision from the Bank of England and entrust it to the agency responsible for the regulation of U.K. financial markets - perhaps under the erroneous belief that financial regulation and bank supervision were much the same thing. In fact, they are fundamentally different. In any event, although Northern Rock was pursuing a conspicuously high-risk business strategy, which enabled it to increase its share of the mortgage market very substantially, the new regulator proved to be asleep on the job, and the danger was completely overlooked until crisis overtook the bank last September. As a result...
...Matthey Bankers collapsed in 1984, while I was Chancellor of the Exchequer. After a few days of abortive attempts to find a genuine private-sector rescue, I authorized the Bank of England to take over JMB, close the business, and sort out the mess, which it duly did. Northern Rock is a larger and more complex case, but the principles are the same. Instead, Brown and his Chancellor, Alistair Darling, spent five months unsuccessfully trying to find a private-sector solution, which was never in any genuine sense going to be possible, least of all amid the turmoil of today...
...government has very belatedly concluded that a state takeover of Northern Rock is the only option. But even that has been badly mishandled. What should have been done was to put in a management with a remit to close the bank to new business, to stop all future lending, and to confine itself to managing the existing loan book and selling it off piecemeal to private-sector buyers as market conditions improve. After all, by one estimate, there is now some $200 billion of taxpayers' exposure to protect. Nor, of course, is the survival of Northern Rock of any strategic...
...longer-term political cost to the government is likely to be very severe. Governments, like financial centers, need to be jealous of their reputation. The U.K.'s reputation as a financial center is sufficiently soundly based for it to recover from the blow inflicted by the Northern Rock affair. Whether the government's reputation can recover is far more doubtful...