91Èȱ¬

The media were probably to blame for the run on Northern Rock. They stoked up the fears that made people go out and queue.

I can imagine the joy of reporters like yourself when the idea of a Bank Run emerged. You lot love to flog a story to death.

We may as well be living in China as, despite freedom of speech, our once highly esteemed 91Èȱ¬ reporters repeatedly talk utter drivel.

Robert

I used to take you seriously. Sadly it is clear from your recent grand-standing performances that you have more faces than the town hall clock.

I think you're too harsh on Mervyn.
I could not agree more with him.

The ultimate cost of "moral hazar" is larger than anything else.

And still your onslaught on Mervyn King continues...is this the third or fourth active blog to try and persuade us the Governor is responsible for this cock-up? Fortunately, it appears the majority of respondents are as well-informed as you but don't have to pander to the kind of consumer-oriented sensationalism that passes for financial journalism at the 91Èȱ¬ these days, so I imagine this attempt is as doomed to failure as all your others have been so far.

Where is your blog on the subject of Callum McCarthy and the FSA whose job is to ensure banks are adequately liquid?

Where is your blog on the Consumer Association, Motley Fool and all the others who've turned Britain into a nation of rate tarts,pursuing the highest saving rates and the lowest borrowing rates without ever stopping to wonder why these differentials existed?

Why do you persist in this endless focus on an individual and an institution whose banking oversight role was removed by the government but who nevertheless used every opportunity given to him to warn bankers and politicians alike that this was an accident waiting to happen?

It's too easy for the lazy Select Committee MPs to criticise Merv and the BoE (as if they would do better).

But Merv, and all the other key players in the BoE, the Treasury, the FSA etc, have had to deal with the first GB bank run in living memory.

And let's remember the cause of the run. It was poor management at Northern Rock - NR was making some fundamental banking mistakes.

And is the outcome really so bad? No NR investor who left their deposits in NR has lost money. Those punished have been the complacent "No Plan B" NR management and shareholders of NR who should understand the risks of holding the stock.

Another good outcome is that the rules on investor protection will be improved as a result.

On the downside, there were embarassing pictures of queues outside banks. The poor CEOs of the other big UK banks have had their amazing reputations tarnished (sorry while I puke)

Now let's watch them all try to lay the blame on each other.

But I'm backing Merv - he did a good job under extremely difficult circumstances

Robert - are you being deliberately obtuse?!

There is no reason to believe that Mervyn King doesn't think the same way as Eddie George (he nearly resigned over the issue) - i.e. that the "tripartite" arrangement was (and is) a bad idea. He's just been too polite to say so. And if ignoramuses like George Mudie (his quality of questioning was simply embarrassing) push him a little further perhaps - I hope - he will become a little less polite.

Did you actually see his performance to judge for yourself, or are you too busy talking to your anonymous "sources". All of whom appear to be spinning against King like mad. And none of whom have vested interests of course!

PS - the management of Northern Rock have not been "naughty". They have been reckless.

Forgot to mention - John Humphreys should personally shoulder some of the blame for sending an army of pensioners to queue outside branches.

His display of total ignorance in his Today programme interview (on morning after the announcement of the emergency liquidity line from BoE) was shocking, and I am certain put the wind up a lot of listeners.

How do you think a bank run starts Humphreys? Ignorance and fear - both of which you have in abundance when it comes to banking

The Bank of England has had a tough time, the FSA too. No doubt they could have done better with hindsight. But that applies to everyone else.

With hindsight we know Northern Rock's problems arose because the commercial money markets dried up. Attempts by monetary authorities in Europe and the US to kickstart the markets failed, issuance in the commercial paper market is still very low, so it's unlikely the Bank of England could have done anything different.

But narrowing it down to one man is simplistic. King is no savvy media man, able to employ spinners, to sweettalk columnists and reports. No wonder he's taking the flak.

But the Bank of England's stance so far has been intellectually, morally and practically correct. What else could have been done?

Mervin has given the banks the sound thrashing they deserve.

Had it not been for the regulation he could have overseen a covert takeover. Then the Northern Rock shareholders and management would have received the sound thrashing they deserve with no risk for savers.

So who’s responsible for the regulation that prevented him from doing this?

Time to give them a sound thrashing at the ballot box me thinks.

The BoE let it be known that the prop-up loan to NR was provided, this started it all, good job they kept stum about the two other bankc for whom they provided a credit facility.
Hey no press agency would ignore this little gem....

Mervyn is simply being diplomatic. Fault lies with the Treasury for allowing the debt mountain to build up to the extent that financial institutions such as NR were left as exposed to the money markets as they were.

We all know who was Chancellor for ten years, and Mervyn does not need to spell it out to us.

Mr Peston, sir, you have colluded, knowingly or otherwise, in a despicable case of 'big banks bash small upstart rival' and/or 'City of London shows those upstart Northerners who's boss'.

The media certainly have a lot more to answer for than the Governor of the Bank of England.

the old adage if you owe the bank a little money you have a problem, if you owe the bank a lot of money the bank has a problem applies. Clearly the young woman had not borrowed enough. Despite great talk of moral hazard, banks are a special case and cannot be allowed to fail. And when the crunch came moral hazard disappeared out the window, and in that context the governors comments seem hypocritical and patronising. Which is why banks are regulated in the first place and why the Bank of England is a lender of last resort (not, before now, guarantor of last resolt!) If selling off the Northern Rock (like Barings) or acting as lender of last resort (the B of E's sole purpose of visit) was not allowed by legisalation why did they not work this out before last weekend.

I incline to the view that the FSA are not getting nearly enough of the blame here. Is it not the FSA's job to make sure that the banks are lending responsibly? Surely if they knew that Northern Rock was bingeing on cheap money-market cash like a drunken stag party they had a duty to say to them "if there are problems in the money markets, you're going to be in trouble."?

If the FSA didn't know about NR's exposure to the money markets, then they are guilty of being asleep at the wheel.

If the FSA did know but said nothing to NR, they are guilty of complacency, which is the very last virtue you want to see in a financial regulator. Part of the regulator's job is to think up gloomy scenarios and work out how to protect us and the banks against them.

If they did know, said something to NR, but NR did nothing, and the FSA did not press the point, then the FSA is a paper tiger. Financial institutions will feel free to ignore its advice in future.

That MK didn't want to implicate other public servants is no surprise, they all seem to want to close ranks in times of trouble. What did surprise me was the analogy and how inappropriate it was the young woman was in debt, NR was not it simply ran out of money I once read a statistic from the ICAEW that suggested that 68% of businesses that went bust did so in profit and just ran out of cash. The only difference here was the importance of NR that the government wouldn’t let it go to the wall. What know will HMT stand as guarantor for my mortgage?

"Never mind the facts, what about the story" appears depressingly to apply once again by the speculative rumour-driving journalists. Puns, as expected have also reached an all time low.

For example, recently, Peston wrote: "... the governor was embarrassed..." by WHOM? If you can't substantiate hearsay DON'T say it.

Also, "People are saying..." is the biggest cop-out going.

Making decisions about the economy require substantial knowledge about Fiscal knowledge, Legislation, Economics.

If you report in a HELLO! format then you can't be taken seriously.

"Journalists shipwrecked on the Rocks"

It seems, sensibly enough, that the electorate do generally support Mr King. Very rightly so too. Now let the other bank managers chastise themselves for being so quite inadequate in performance. The majority of the electorate cannot be wrong! Watch your step New Labour!

I think that all of those who are after the head of Mervyn King should ask themselves one little question.

Is the middle of a banking crisis a good time to unload the Governor of the Bank of England?

This credit-crunch has not yet run its course. Will more instability be the way to manage our affairs?

I notice there's a "Complain about this post" link. Can you put a "Complain about this blogger" link on this page? I think he's lost the plot!

Mervyn King: Independent
Treasury: Political pressures
FSA: Pals in the city
Mr Peston: Anonymous sources (pals in the city and politicians)

Which one would you trust?

Robert,

Over the past few weeks I have found your blog here and very many of the comments extremely helpful in understanding exactly what has been going on. So thank you.

I agree with the vast majority who think that Mervyn King has done fine. It is impossible to deal with 'moral hazard' simply by setting out a set of very strict principles or rules to the game and then being entirely predictable in implementing them. The players (the banks) would beat this approach every time, acting in their own self interest, and would indeed eventually bring a whole economy down. So while I agree with your view that the Bank seems to have changed its mind about injecting money now, I think that is OK, given the constraints put on him by others, and the result that we have now - that the team at the top of a large UK building society has suffered both career wise and financially for their aggressive strategy, that no depositors have lost money, and that all other lenders are now pulling back and reappraising risk, is surely a good one.

And why does Mervyn have so much support?

I do detect that after 10 years now the Brits are starting to feel a bit protective of their central bank...... quite Germanic, don't you think?

I must say that the Bank of England wont tell the uk public that we are heading for a recession. Well look at the way the usa heading for a recession and the uk is following the usa into a recession.

Dear Mr Peston,

What happenned to your theory about "toxic waste"? Do you expect the BoE to accept this rubbish as collateral, when fellow banks would't even touch with a barge pole.Everyone knows why there is a " U" turn. Now, shall we focus on the housing crash pls!

The banks and financial services industry is regulated by the FSA.

The extent of this regulation is such that Banks and associated institutions are legally allowed to trade in inherently risky complex financial products.

Based on the assumption that FSA is responsible to the Government, and the Government to the electorate, and the electorate to themselves.

The buck presumably stops with the poor old dears clutching their pass books outside the Northern Rock.

Mervyn thought he faced a moral hazard, he didn’t, the moral hazard had already been considered by the FSA and Government in allowing the risk of trading in complex financial products, and they had decided that such was fine.

Whether Mervyn’s moral hazard was bailing out the average Joe or the bankers, is irrelevant.

Ultimately Mervyn had no choice but to start bailing, because the average Joe is what keeps the country going, lose them, and you risk civil disobedience.

What success are you likely to have taking Mr & Mrs Bloggs to court for non payment of council tax, when the ‘regulated’ bank they intended to pay it from is either failed or frozen.

And Mr & Mrs Bloggs won’t go to work, if their company’s bank has failed and there is no means of paying them.

Ultimately, there are an awful lot more voters than bankers, although it would appear that the bankers seem to have the edge on influencing the Government.

No Mr Peston, Mervyn King is quite right - the current situation is not the fault of the BoE, the FSA or the Treasury. Sweden has a very similar regulatory system, and the four major Swedish banks all have a similar business model to Northern Rock (its the only way to stay independent and expand if you have a limited number of depositors). So why are there no similar problems in Sweden? Could it be that Northern Rock and other UK lenders have been less than honest about the quality of the loans they have made? Could it be that the real reason Lloyds TSB wanted a guarantee from the BoE for taking over NR was that they realised they didn't have the cash to cover the true (and unstated) risks both within their own business and within NR? Instead of shooting the messenger, perhaps Mr Peston and the Select Committee should be asking awkward questions of NR and the other UK banks...

"Mervyn's stock is far from it's all-time high in the city"? Is that true Robert? How can you tell- it's not quoted on Bloomberg.

I work in the trading business of a large bank in the city and that's not what I hear. Your credibility is looking pretty low though.

I've just watched the mind-numbingly simplistic analysis of this on the Ten O'Clock news - absolutely no coverage, no mention WHAT SO EVER of the Financial Services Authority !!!

Anyone watching this would still think the Bank Of England had NEVER relinquished their role as Banking Regulator and it is about time you corrected this serious oversight in your reporting !

Why is the FSA and Callum McCarthy being allowed off the hook here ? Why is Mervyn having to carry 100% of the coverage with not a mention of Derek Wanless, who looks after Risk Mgt at Northern Rock ?

A lot of your blog posts on this have been excellent - but this level of detail just ain't there on the Ten.

And another thing ! You mention that senior bankers are describing Mervyn in language that can't be broadcast. Well, they bl**dy would, wouldn't they ! They are hardly an impartial unbiased source.

It is their greed and lack of risk management that is largely the cause of this - so it is completely understandable that they want to use Mervyn King as a scapegoat - and rather conveniently that aligns with the needs of the Government to find a 'Fall Guy'.

Come on, Robert, you can, and have, done a lot better than this in your reports.

Well, it was a slick performance by Mervyn King.

Remember, though, when Tony Blair said that blaming the behaviour of the media was like blaming the weather? Mervyn King seems happy to blame the legislative framework. I guess that, rather than carry an umbrella, he just lets his suit get ruined when it rains in the City. As an MP asked him this morning - "What on earth were you going to do?" - the question is what he could have done that would have worked. Frankly, saying: "What I wanted to do..." is pathetic. What I wanted to do was be a top Premiership footballer and a multi-millionnaire by 30, but as I'm not a talented sportsman, I have had to come up with other ideas.

Both the Fed and the ECB are operating under similar constraints to the BoE, such as not being able to provide covert support to a particular bank and/or mediate backroom takeover deals. They appear to have realised that the only way to aid illiquid banks and at the same time avoid panic and possible bank runs, was to do what the BoE has now realised it must also do. Auctioning funds anonymously will result in at least some dosh finding its way to the banks that really need it. If the BoE had done this a couple of weeks ago Rock would still have been "punished" - by having to pay a high rate for the money - but not wiped out. And there would have been no queues of pensioners in the streets.

I suspect King's obsession with "moral hazard" will have deeper consequences than we have yet realised. Even more than before the Rock fiasco, mortgages are now rapidly becoming more expensive and difficult to obtain. Instead of an orderly cooling of the housing market (surely a BoE policy imperative?) it is now likely to come to a shuddering halt. And once prices start to drop, falls will become self-sustaining. There are positive feedbacks in the system. For example, overstretched BTL speculators will charge for the exit as confidence evaporates. Yes, young first-time buyers, you have to be "punished" with negative equity to reduce the moral hazard in the future.

It ain't over till its over, watch and wait, this thing will run untill the true extent of uk 'sub prime' is exposed. A time bomb...

The press are jumping on the bandwagon to find a scapegoat and they are getting it spectacularly wrong. Mervyn King acted swiftly and decisively to bring stability to the UK's banking system once it was clear that the run on Northern Rock could not be contained and threatened contagion to Britain's other financial institutions. The timing was perfect for had Mervyn acted earlier in a pre-emptive move he would have bailed out the financial system, covered over insufficient banking regulation, and spared Northern Rock's shareholders the consequences of the banks aggressive lending and poor balance sheet management.

Northern Rock has shown astounding returns on equity and high growth over the past 5 years by aggressively lending at high LTVs and running insufficient capitalisation for such an undiversified business. This strategy results in higher risk for equity investors, and for those that chose to lend Northern Rock their money. It is the management of Northern Rock who played this dangerous game, and it is the management who should and will face the consequences. They took substantial funding and credit risk, and lost. Buyer Beware.

Another silly anti-Mervyn King post.

He's the BOE governor. Do you really think he's going to start pointing out the shortcomings of the FSA and Treasury in some kind of blamestorm?

You've got this issue seriously wrong, and you're losing a lot of credibility. I thought your performance on the news tonight was very poor, because you completely failed to mention the factors that had led up to this credit crunch, and simply aligned yourself with bleating 'senior bankers' who want to be bailed out ad infinitum, regardless of the foolishness of their prior behaviour.

Mervyn King 1 Robert Peston 0

I totally agree with Post 14 from Electric Dragon and Post 28 Bedd Gelert.

The FSA seem to be being ignored for their (NON) part in this crisis, while you Robert Peston report on "unintended consequences".
Well, of course they were unintended consequences but could they have been foreseen ? Yes they could be seen !!
Why have a Regulator with blinkers on if it does not think about the 'What if a disaster strikes ?'.

Over the last few years the FSA has issued guidance about 'disaster recovery' and also stating they were going to concentrate on large firms because if a problem occured it would affect more people.

The FSA is not properly regulating the financial systems in the UK (and the EU are coming !). They are too busy issuing mountains of paperwork and having consultations (check out their website to see how busy they are with chopping down forests !)about how they can manipulate the financial marketplace. The financial industry and the employees of the FSA are drowning in the levels of red tape !. They should not be trying to manipulate - they should stick to regulate the financial markets.

"Unintended consequences" !! -- sounds more like an excuse for not thinking it through -- Politicians and Civil Servants seem to be very good at that -- All of us in the real world would put our hands up and admit we made a mistake !!

It really is difficult not to believe that the protestations of the banks and FSA are nothing more than a smokescreen to protect their own failings.
The FSA should have regulated for more visibility of the debt products at the root of this whoile affair.
Similarly, the senior bankers should prioritize prudence before profit.
Mervyn King knows this full well and has been warning of the issue for months.

I think you are a little out of touch with general opinion on this one Robert - let's see some original journalism and criticism of the FSA/Banks rather than joining the blame-train please.

Robert

Sometimes even a journalist has to accept that he has to tell it as it really is and risk upsetting his "sources" rather than continue on a path that is plainly wrong, witness all the support for Mervyn King and none for the Dark Lord, Alastair Darling, the Banks and the FSA.

Just another point - before all the investors in Northern Rock start bleating to their lawyers about their losses, they should note from your blog "Fans Love King" that Lloyds TSB was only prepared to offer £2 a share for the Northern Rock and that was BEFORE the run on the bank started - although all the recent shorting of Northern Rock shares means that some people clearly knew what was coming and smacks of a huge insider trading scandal.

Gordon Brown's performance has been cowardly during this fiasco as he has tried to keep his hands clean. I did not see him comment over the weekend leaving King, Darling (a new inexperienced Chanancellor) and the FSA to try and control the situation. He then gives a message of support once it looks as if the worst is over and tries to divert attention to Mugabe. He is the first to be in the headlines when it suits him. A deeply unimpressive leader and Prime Minister.

Mervyn King must resign, asap.
His every decision was wrong, until his last, which should never have been required.
Had the european and american central bankers acted as King did, we would be having a financial meltdown.
To defend that man is absurd; he was the cause of a run on a bank that could easily have spread to others, in a country that is trying to sell itself as the financial capital of the world.
King's blunders render him unfit to head a central bank of a major world player.
( If a careless smoker causes an overcrowded building to be set ablaze, our hero would consider, at length, whether putting out the blaze might not send the wrong lesson to smokers, that old moral hazard problem. )
Go Mr. King, go quickly, and with no more excuses for your failures.

Chris Carter - couldn't agree with you more on your comment re: George Mudie's ill-informed, rude, embarrassing, bolshy, amateurish questioning at the Treasury Select Committee's attempted lynch-mob yesterday.
Unfortunately, his attitude (along with most of the rest of the TSC), and those of Mr Peston and the rest of the sensationalist mainstream media, fit more easily with the general public who naturally aren't interested in the intricacies of financial services regulation. The media's continuing treatment of this situation as a "them-and-us"/"honest hardworking people -vs- incompetent, greedy, nasty finance types" is a farce, and is undoubtedly partly responsible for the bank-run on Northern Rock.
Whilst pictures of longs queues of pensioners trying to withdraw their savings from NR (naturally portrayed as honest, exploited pensioners -vs- greedy negligent bankers) undoubtedly sells papers, I can't understand why the 91Èȱ¬ is also falling into this style of lazy journalism.
Not long ago the press was praising King for his handling of the crisis, citing the ineffectiveness of the liquidity injections by the ECB and the Fed. How can they now so quickly turn their back on those opinions, and put so much effort into tarring King's reputation? Anyone who listened properly to King's testimony at the TSC yesterday would have understood that his decisions were rational and driven by sound economic theory. Neither he nor his colleagues could have known that panic would have set in, that the public wouldn't trust the guarantees of the BoE, and that the critical mass required to start a bank-run would have been reached so quickly.
It's time the media started to act more responsibly here, and actually report the news in an objective, well informed way. Lets leave the Punch-and-Judy journalism to the red-tops.

Hmm I have a Masters in economics and I would have done exactly the same as Mr King. The role of the Bank of England is not to use the taxpayers to bail out poorly managed financial institutions. If required it will act as the Lender of Last Resort, which is what it did. By sending out a strong signal of intent by sticking to Moral principles, Mr King has warned the banks to be more responsible with their lending and borrowing. You'd hope that the government will now stop borrowing money to fritter it away, but I doubt it. Also Robert you have fallen way down in my esteem, proving yourself to be no more than yet another Labour crony eager to jump on anyone differing from the labour party line.

With its share price so low now there must be scope for Northern Rock parachuting one or two serious turnaround guys in to steer them through. Strong regional support remains and the mortgage book is apparently fine. It has worked before, look only at Paragon Group rising phoenix like from the ashes of NHL in the early nineties.

Moral hazard is a red herring.

The siezing up of the money market was a systemic problem with impacts on institutions both prudent and reckless. The real punishment for banks who made reckless investments or unwise loans comes when those assets crash taking the share price and managers' bonuses with them.

Mr. Preston, you have done a U-turn. I have read your previous blogs which seem to criticise the banks for their practices that have lead to the current financial stress. Now you are harshly criticising Mr. King, largely because the people who are the in control of those same said banks are upset with him for saying they must accept the responsibilities of their position.

You have lost credibility as a reporter.

your blog confirms that the banks have better PR than the BoE...again self-interested commercial lobby of private banks not wanting to reduce their multi-billion profits/bonuses wins over essentially correct but difficult, thankless, bonusless & brave solitary decisions by public servants...

i think everyone is missing the point. the run on NR did nothing for anyone. the moral high ground has cost everyone and has been of benefit to few.
effectively mervyn king has made everyone in the country poorer and damaged the confidence in the banking system. this has been the cost of the moral high ground and king should recognise that he has achieved very little through his actions.

Regardless of who is to blame - and I thought MK performed an admirable job of steering a course through the choppy waters of blame yesterday (when I think we all know who's really at fault eh Gord?) - could anyone explain why Northern Rocks depositors are deemed worthy of bailing out when countless other people have lost huge chunks of their life savings over the last 10 years?

Of course I'm referring to Equitable Life, Fairpack, and the one we will all notice sooner or later - the great pensions heist of the 20th century. In all these cases some vulnerable and elderly people collectively lost vast sums of money while no-one at the Treasury/FSA/BOE batted an eyelid.

Could it be that the timing of the Northern Rock crisis was politically inexpedient? After all GB's honeymoon would be well and truly over if a banking run occured and exposed the sandy foundations of debt that our countries recent financial success was built on

Robert

You have sold yourself and your credibility is on the floor. Was it worth it?

Preston Out!!

Robert,
I can't get my head around your apparent volte-face on this issue. Several weeks ago you made some excellent posts here to explain what brought about this credit crunch, that perhaps some banks have behaved pretty carelessly and so should desrvingly get their fingers burnt. When the ECB and the US Fed were pumping hundreds(!) of billions into the banking system you thought it commendable that MK was having none of it. Now it seems you've joined the city cabal in attempting to scapegoat the govenor. I'm delighted to see the overwhelming majority of posts in support of MK. Lets wait and see if the select committe has the nerve to really take it to the spineless FSA. What have they been doing over there? "light-touch" regulation? dont make me laugh, its an old boys tie up and sooner its powers are returned to the BoE the better.

@ steve M post4

what are you on about? as consumers in a free market it is our right and duty to ensure we are getting the best deal/provision of service. people who leave money dormant in accounts well below the standard interest rate are kidding themselves and allowing companies to take us for granted. carrying out one's own research into a financial institution coupled with effective regulation by the authorities we elect should in the 21st century provide sufficient security for our savings and investments.

Banks should not be let off the hook on this. Global markets/economies are way too interconnected to allow for such a lack of accountability anymore. We now have the pointing of the finger at Mr King, if only to ward off the finger pointing at banks themselves. Banks know that nothing benefits them like causing confusion. They know too that should anything like transparency come into play, the mere suggestion of negligence, or worse, would sweep up a/the lot of them. And given avoiding a global recession, that would be more than worth it.

Here's a story that Mr Peston should read:

It appears that Northern Rock turned down a J P Morgan deal that would have saved the company from the bank run. It seems they preferred to take the risk on holding out for a better deal, hoping that the BOE would bail them out one way or another.

This is the definition of moral hazard and makes absolutely clear why Mervyn King didn't want to bail them out unless it was absolutely necessary.

Rather than blaming Mr King, perhaps Mr Peston should be pointing the finger of blame at the Northern Rock bosses who, out of greed and a belief that they had to be bailed out of their own cock-up, declined a deal that would have prevented this whole fiasco. Even the HSBC deal seems to have foundered more because NR wouldn't take a low enough offer to justify HSBC taking on the huge risks they had created.

And please stop quoting your friendly 'senior bankers' as though their word is God. These are the idiots who created this mess in the first place with their insouciant, irresponsible greed.

The recent anti-King piling-on has a bizarre mirror in the US where Bernanke self congratulary love-in is in full swing even as he tells the US Congress that the US sub-prime mess is even worse than the most pessimistic forecasts.

So keep your seatbelts fastened because the financial turbulence is not over yet.

The authorities look very foolish but King and even the BOE are little more to blame than the Treasury and FSA, or the very poor decision to remove the role of banking supervision from BOE to FSA, an issue over which Eddie George almost resigned.
The staggering levels of financial ignorance shown by the media and some MPs is deeply worrying. The anti business bias of the 91Èȱ¬ is on full display at times like this and almost feels like a really deep refusal to try to understand, let alone explain, how these things come to pass. And I agree that the run was vastly stoked by journalistic scaremongering, the empowered and biased terrifying the ignorant, fearful and innocent.

I'm with the majority of posters here who support MK.

Don't the bankers realise we're not *that* stupid and that their reputation is being sullied still further (if it were possible) by the cynical way that MK is being set up here?

The Economist recently had an Economics Focus which effectively accused the Fed of inflating the bubble in the first place.

Issues being ignored whilst MK is being scapegoated:
- no-one believes the Govt: Macavity has disappeared again, whilst the Chancellor has suggested to banks they need to lend responsibly (5 years too late!)
- FSA has gone into stealth mode
- MK's moral hazard has come into being, as the Bankers have shown they are too big to fail, no matter how bad their behaviour.

Seems like we're sleep-walking as a Country into rank mediocrity in all areas, when will people wake up!?

I've gone numb with it all.

For anyone interested in how our banking system works, I reccommend the following:

it illustrates just what a sham (or should that be scam) the whole banking industry has become.

Poor Mervyn is just playing the game.

Robert Peston's reporting of this story changed as soon as a specialised financial issue suddenly hit the real economy and became story No.1 in the news agenda. When it was a pure financial story, you did an excellent job of unravelling the jargon and complexities into a way that made it easy for the man in the street to follow. But, as soon as it became clear that this was something that would have political ramifications, your emphasis changed. Out went the very sensible thrust that individual banks had been behaving ridiculously and suddenly found their business models were unsustainable, and in came a curious need to pin the blame on Mervyn King. Unfortunately for you, your Labour peer granddad and your political masters, the responses to your blogs have shown that we will not be hoodwinked into accepting King as a fall-guy. Yesterday's committee was far from the bloodbath the anti-King spin machine was hoping for. He was no David Kelly -- instead, he came across as being 100% in charge of his brief. Frankly, it was probably the most accomplished performance at a select committee I have ever seen. To maintain one's composure in the face of John McFall and Mudie's childish, naive, aggression signals to me that King knows he has right on his side. Even McFall soon realised King was not going to crumble no matter how hard he tried to play the Glesga hard man act, and he was forced to tone it down and concentrate on the real issues -- as King clearly wanted to do. What did emerge was just how weak the FSA side of things has been. Sir John Gieve was utterly out of his depth and THAT is where your attention should be. And, Mr Peston, maybe it's time to finally examine Gordon Brown's role in all this. I know it must be hard, what with all the connections and whatnot, but just try. Eddie George is already on record as saying that stimulating the housing market and so consumer spending was a government policy in the late 90s. The real problem is that Brown became hooked on this, and did not know when to apply the brakes. He is the real culprit, and you know it.

Robert Peston's comments are usually well-placed and to the point. Unfortunately, this week he
has fallen off this pedestal, by adopting the usual 91Èȱ¬ approach which blames those who are trying to clear up the mess left by the imprudent actions of others. Let's be clear on this, responsibilty lies with the directors of Northern Rock for theirpolicy of borrowing short and lending long, and with the FSA for not taking recognition of the wider risks this could pose. They are the preople who should be held to account over this. Mr King in reality had very little room for manoeuvre. What should be worrying us all is the lack of understanding shown by the Chancellor and those who have political repsonsibility.

Mr Preston I think if you could plot a share chart depicting your own city value vs Mr Kings, it would look a little like plotting Alliance and Leicester against Northern Rock. His may not be at its all time high, but its riding a storm - I think yours has crashed in the last couple of days as your bloging has moved from the sensibly considered and balanced (see Northern Rock the numbers) to the tabloid style we have come to expect from many journalist who get a sniff of their own importance and try to create the facts instead of report them (Paxman a prime example).

I was just wondering if there was an update from Jasper who told us on the 17th of September that he was buying shares in Northern Rock as his pension?

I think he quoted "be fearful when others are greedy and be greedy when others are fearful"

Maybe he should have thought about eggs and baskets....

Mervyn's position was entirely consistent and considered.

It was the politicians who had no understanding or grip on the situation, preferring instead to make cheap shots and failing to understand the ultimate root cause, ie poor target setting by the Government and an allowance of the credit markets to get out of control.

While this debate rumbles on some things are becoming very clear.

Mr Preston either doesn't understand the basics of the recent NR run or he's got a very personal agenda against MK.

Yesterday the Governor of the BoE made it very clear that his responsibility is to the system and not the regulation of any one company, that is the clear remit of the FSA.

He acted when he thought that the system was going to suffer because of the actions of NR customers. What was Callum McCarthy doing for the previous months that this credit squeeze has been upon us?

The treasury in all of this has also been slow to act, as far as I can see either liaising between the two parties or providing leadership. Where was their leadership in all of this, after all isn't that what government is for?

That's why we vote!

So Mr Preston what is it personal or otherwise?

I listened to Mervyn King's rubbish for half an hour before I gave up in disgust. I suspect that most of the commenters here didn't. He didn't have a clue what was going on at Northern Rock. That wasn't his job, he said. That was for underlings. I doubt it. I don't believe that anyone at the B of E had a clue that there was a problem until the NR directors, after risking depositors' and shareholders money so that they could pay themselves enormous bonuses, came whining to the B of E for rescue. What a bunch of parasitic chancers. The taxpayer bears the cost of the whole debacle. Mervyn King fans, use your brains.

Robert, the error of judgement was on behalf of the media. I believe that this is the third or fourth blog you have started lambasting King, but the informed well-reasoned comments make you look ridiculous. As for your friends in the City, the only City folk who seem to be griping about King are cash equity traders, and everybody knows that they "ride the short bus". The FX market has figured it out, the bond market has figured it out, the commodities market has figured it out. Equities yet still seem to levitate.....

Looks like you've jumped the shark on this one Robert.

It's strange how Brown and Co always like to take credit for the economy when things are looking rosy. Now things have started to come off the rails its someone elses fault.

I think its absolutely disgusting the way the government led by Browns economic policies have stoked up an unsustainable boom based on a credit bubble and then called it 'growth'. Even worse is that the regulators who should have stopped this (i.e the FSA) didn't have the guts or sense to do anything about the transfer of these huge amounts of debt off of the balance sheets of banks.

But the icing on the cake is that now they are both trying to stitch up the Bank of England who, altough not entirely innocent, were trying to make to best of a bad job left to them by these other monkeys.

The 91Èȱ¬ and Robert Peston should be ashamed of themselves for towing this obviously political line. No independent reporting here I am afraid.

People would do well to read Sir Andrew Large's final speech as Deputy Governor of the Bank of England on Financial Stability delivered in November 2005 entitled "Financial Stability: Managing Liquidity Risk in a Global System." It can be found at

How his words must be ringing around the halls at the Bank of England, the FSA and, indeed The Treasury!

I blame the 91Èȱ¬ for starting the NR run. You consistently described the BoE credit arrangement as an "emergency bail-out loan" when there was no emergency, no loan, and NR wasn't sinking.

To continue the nautical theme ISTM the BoE gave NR a safe anchorage until the money market tide turns.

The City traders want competitative growth so the share price was re-evaluated, but you presented that as evidence of NR going bust, which it wasn't, just mooring.

In a year's time we'll look back on this as some very necessary "bad medicine". In particular, we'll note the following outcomes:

1. No cost to the tax payer.
2. The banks have learnt a lesson after years of throwing money at borrowers
3. Shareholders of poorly managed banks have lost money, but shareholders of well managed banks have done fine.
4. This incident stopped further rises to UK bank base rates, saving the economy from recession.
5. The FSA supervision of banks will be returned to the Bank of England.

Most importantly, Mervyn did a good job of clearing up a mess created by other people.

If a million Equitable pension holders had not lost their money there would now be some trust in the FSA, the Bank of England and the government.

Mr King doesn't stand a chance. He sets interest rates but has no control over inflation because the government is increasing money supply.

Mr Brown sold the family gold and got my pension - thats all hes getting from me.

Quote:

( If a careless smoker causes an overcrowded building to be set ablaze, our hero would consider, at length, whether putting out the blaze might not send the wrong lesson to smokers, that old moral hazard problem. )

Wake up, this is not the same moral hazard! Once losses have been made in a bubble, someone has to pay for these mistakes. There is no simple solution. It's just a matter of who pays.

Mr King is just trying to at least target some of the pain towards those that caused the mess so they will learn for next time.

A better analogy would be:

Your next-door neighbour was carelessley smoking and accidentally set his house on fire. He then tries to cover it up, but unfortunately that means it spreads to you house too. Mr King comes along with the fire-engine but can only save either:

1. All of your house, and none of his
or
2. Half of both your houses

Which do you think is fairest??

> it turned out that no one was seriously at fault.

Oh come on Mr Peston, it's clear someone was at fault and they are of course... Northern Rock.

Not to mention all the other banks. Here's a phrase I bet you won't hear again often in the next 50 years; "Financial derivatives help maintain the stability of the markets by spreading risk"!

Northern Rock caused this to happen, not Mervyn King, not the FSA, not the government. They all might have helped reduce the impact but yet this is still Northern Rock's own mess.

Talk about moral hazard... how about the hazard of assigning blame to third parties for the actions of irresponsible lenders. This is what we are getting into now.

Northern Rock has illustrated how there are still punters who fall for the nonsense that it was the media watdunnit. No way. It was a gamble by senior management on a business model which has come unstuck. The Chancellors approval of a rescue using taxpayers funds was given without consulting the media. What does seem clear is that Gordon Browns decision to split resposibilites between the Old Lady and the FSA has not worked. Mr King should not take the rap for another New Labour foul up. An economy built on massive public sector deficits and a mountain of personal debt is an accident waiting to happen. Saving the architects backside is now the name of the game. Invisible Brown will be keeping a very low profile in days to come. Robert you have done a great job.

The 91Èȱ¬ are being so harsh on Mr King in every report I've seen. Which is sad. Mr King's analogy of the person who'd borrowed too much is good... This man knows a lot more than most when it comes to banking... so I wish journalists would stop using persuasive language against this man who, as pointed out above, is not able to recruit an army of spinners to support him.

Wow. Your "blogs linking here" section is a study in selection and bias. Is it just coincidence that no one has found room to mention, just as examples, the Guido Fawkes and Biased 91Èȱ¬ threads lambasting your woeful attempts to pin the blame on Mervyn King? I pay your wages, pal, and I'm starting to get angry.

Of 73 posts:

King 68 - Peston 5

Actually, make that 69 of 74 now.

If this were rugby, it'd be called a drubbing.

I'm extremely surprised to see this attempt to pin the blame on Mervyn King. He is one of the few people who have tried to act with integrity in this whole shambles.

The fact that he has been pressured into a u-turn is clearly not to his own liking, and it is Northern Rock management and the government that must take responsibility for this crisis.

Northern Rock for their short-sighted business plan, and the government for allowing such weak regulation of banks that the situation was possible. Not to mention the pressure they have put on the Bank of England to make it bail Northern Rock out.

The Bank of England wouldn't have stepped in and bailed me out if I'd borrowed more than I owed, why should it bail out a company that has failed to exercise due diligence in its own budgeting?

Or would the government apply pressure on the bank to bail me out only if it feels my bankruptcy might cause unpleasant television pictures?

The government lost its head, leave Mervyn alone.

It's worth linking to Robert's story of Sept 12th to demonstrate what an utter volte-face he has made here, one reason that there is so much anger expressed in the comments above.

/blogs/thereporters/robertpeston/2007/09/mervyn_spanks_banks_1.html

Mr Peston, you were broadly right on Sept 12th, now you are peddling the government line. You should be ashamed of yourself.

A comment on another blog slating your treatment of King points out that you are the son of a Labour peer. I am sure this isn't any part of your decision to go along with the government's attempt to scapegoat Mervyn King, but if you want to prove that, maybe you need to spend some more time now focusing on the role of the Treasury, banks and FSA. Mr King has at least admitted he might have got the balance slightly wrong, which is a damn sight more than any of the other, far more guilty parties have done. And NR's failure to work out deals with HSBC or J P Morgan is yet more proof that they paid the price for their own greed and hubris.

Having been investing in stocks for over 45 years.Equity brings risk .

The depositors in the banks should be protected and thanks to King they were.

King has done a wonderful job in keeping inflation under control.
I thank him for that.

KING 72 PESTON 5.

I have read many of his writings since he was at the Investors Chronicle he his a fine writer.

The bankers act in the interests of themselves and their shareholders. They wish to take risks for higher yields, yet demand that the taxpayer bails them out if these risks turn sour.

Gordon Brown's policies have led to massive, unprecedented & unsustainable levels personal debt. He will continue to act in his own short-term political interests

Alistair Darling serves the interests of Gordon Brown.

Mervyn King is the only player to have acted with the longer term interests of the UK economy in mind. As such, he represents the interests of the general UK population.

Mervyn has my vote.

Mortgage lending is only possible by borrowing short to lend long and is therefore only sustainable if the source of the borrowing - whether it is retail savings or corporate deposits or inter-bank lending - is stable and sustainable.

The economic conditions that allow such a situation to be the norm are outside of the control of individual mortgage lenders, so any of them could be vulnerable to the sort of seismic shift in sentiment in the inter-bank lending market that took place on August 9. It is obvious that there must be others out there currently experiencing the same difficulties. I'm sure they must be thanking their lucky stars that Northern Rock was slightly ahead of them in the queue at the Bank of England.

Northern Rock seems to have weathered the worst that the market could throw at it and it is now clear that there never was any real risk to savers' money. If there had been, you can be sure that the Government would never have given a guarantee!

If I had been one of those who incurred a penalty to withdraw funds during the media-fuelled panic, I think I would now be aiming to get the money re-invested in the only bank that can currently boast such a guarantee, so that I could benefit from their apparent willingness to cancel the penalties.

we should commend Mervin King of having the courage to bail NB after his insistence to not do so shortly before the crises.

In reply to comment 56, my blog links here and I would hardly describe it as biased. I am actually surprised the connection has not been deleted.

&
Our government (and the nefarious entities who actually control it) want the the banking system next, just as they want domination over all our lives and that of our children. Watch America's economy collapse, it was always destined.

Money is not everything, we are just reared to believe that. Can you not pull your heads out of the wishing well and take a look ahead in time.

Perhaps you find it all too disturbing?

cheers

Gone a bit quiet, Robert. Or are you down at the Bridge working up your next blog? Let me get you started:

"Chelsea fans have turned their anger over the weekend towards the under-fire Mervyn King, accusing him of putting shareholders' interests ahead of season ticket holders. The sight of the most successful manager in English football being turfed out of his job has caused embarrassment in the upper echelons of the Premier League and in Downing Street and the Governor's purist "hands-off" approach has left those who walk the corridors of power seething. "It's no good King pointing the finger at Russian oligarchs and washing his hands of it" said one of my senior contacts, "King should recognise he has a wider responsibility. This would never have happened in Eddie George's day".

There you go, Robert, I'll let you finish it off.

Although I agree with the "Moral Hazard" point that Mr King mentioned, there got to be a better way of dealing with this matter.

Afterall it is not those who make the mistake receive the ultimate punishment, it is the shareholders of Northern Rock who has seen their paper becoming worthless.

Another group of innocent people who receive this unnecessary punishment are Northern Rock's employees. A redundancy will happen when Northern Rock has been taken over. Many of these people take no part in encouaging Northern Rockin to take excessive risk in running its business.

Mr King cannot gurrantee the right people will be punished and that no innocent is hurt. Killing an innocent person is as bad as freeing a criminal.

Philip Martin - tried to follow your link, but it no longer works - I do wonder if the Bank have removed it, to spare some blushes ?

I wonder if anyone has a copy that can be shared with the blogosphere ?

Chris King - You appeared to have read King's 'not my problem' incorrectly - he is quite rightly pointing out that as the FSA have picked up 'bank regulation' he is no longer holding that baby..

Mr King, Remember we are a Nation in debt. People are in debt, Banks are in debt, NHS is debt and last but least the GOVT is in debt. I am not saying the BANKS are right. But it's your JOB to keep the economy in check. This is NOT the time to TEACH A LESSON to BANKS and drive the economy to an resession. Let the FSA and chancellor sort out these BANKS with a poor record later. FOR GOODNESS sake don't lead this country to an resession.

Get off King's back, he's the good guy. The NR fiasco is just a symptom of the whole mess we are in. The only way out of this financial mess is a good old recession with lots of repossessions, bankruptcies and real economic pain for all those who borrowed and lent too much. Then we can pick up the pieces and build a Britain on sound economic fundamentals. The longer this is put off by proping up the system the worse the result will finally be.

Please stop blaming Mr. King! All your recent posts and broadcast comments hinge on the theme of banks losing confidence in Mr. King. Of course they would say that, won't they? They have been asking to be bailed out but as the guardian of public purse (ie, your money and mine) the Bank of England chairman rightly said no. I can't see what is wrong with that?

Media often look for a victim for any crisis, while it is often systemic failures that cause the crisis. The politicians have their machinery to defend themselves and the banks will sing praises of 'their men' at the FSA. The hapless BoE governor has none of these and the media finds him an easy prey.

Sir Andrew Large's prescient speeches can be found here:

The most recent one on stability and the one on accounting are well worth reading, as it explains some of the Enron-like accounting that allows Wall Street banks to hide from their predicted losses.

I join in the overwhelming support for Mervyn King and suggest an unlikely, though possible, explanation for his actions: he felt that BoE warnings were being ignored and engineered just enough of a crisis to sound a warning shot that could not be ignored by the complacent politicians and bankers, along with the implicit threat that if he is forced to resign there will be a major sterling crisis.

Mark, there is no overwhelming support for Mr. King amongst those I know, in fact, not much support at all.
The question is not what the economic textbooks say, not who was at fault, not ' moral hazard', nor any of the other nonsense that some of my fellow contributors think, it is about confidence in the banking system of the western world.
How bizarre that the American and european central bankers understood, as did those of Canada, Australia etc, and Mr. King, didn't.
Those who support Mr. King are left in the position of 'everyone is out of step but our Mervyn '.

Mr Peston,

I think Evan Davis presented the events in a much more considered and objective manner on this subject.

Your presentation of events appears so extreme that many (as evidenced above) will doubt its objectivity.

Mr King appears to have acted in the way he felt best for the economy using the tools available to him.

It is clear that there might have been a moral hazard in intervening sooner.

To be honest I find your blog most entertaining.

However my pet hamster could write a better column than your recent dirgeful splodges...and dear fluffy has been dead for the last 16 years!

Please continue with "Preston's Comedy Column", it brightens my days.

It must be comforting for George Bush to know that there is someone in the world as off the mark with regards to current financial affairs as he is.

Since David Stevens has been allowed a second post on this topic, perhaps I will be allowed to point out to him that there has been overwhelming support for Mr. King on Mr. Peston's blogs, and also in comments on articles by other journalists that have tried to attack Mr. King - e.g. in The Times. I can only conclude that Mr. Stevens hopes to be bailed out by the BoE as either someone working for a bank under threat due to its own over-indulgent lending, or perhaps in the Labour party who are hoping that the bubble can be prolonged sufficiently to allow them to be re-elected before the ugly truth of its deflation becomes clear to voters. I think that Gordon Brown's endorsement of Mr. King is a recognition of the reality that forcing Mr. King from office would have serious consequences for the pound, inflation, interest rates and the economy.