Was Northern Rock driving on the wrong side of the road?
September 17th, 2007 by 
admin
Alistair Darling has said on the BBC 's programme:
The problem hit Northern Rock because of its particular business model.
It seems that this bank has grown by borrowing short-term in order to lend long-term, to put it simply. Sounds risky, doesn't it? A in today's Times:
If anyone on one of my [training] courses had suggested that one could finance mortgage lending by borrowing on the money market at three months they would have been ridiculed as a financial illiterate. It is similar to overtaking a long queue of traffic of the outside of a bend; everyone knows it works (for a time), but only fools or the inexperienced would attempt it.
Many of the customers queueing to take out their money will be wondering how this "strategy" was ever allowed. One "old-fashioned banker" suggests on the same letters page that:
The Bank of England, by funding Northern Rock, is ... setting an example to others that imprudent lending will be tolerated.
There is something seriously wrong here. Another financial scandal ... and once again, "ordinary" people pay the price.
Posted in Financial Services | 