Friday, September 14, 2007

A run on the bank

We sometimes have to question what we are told. The fact is that government spokespeople and the like tell us what they think is good for us.

They won't shout fire in a theatre- if they think by doing so more people will be hurt in the panic than as a result of a small fire.

We all know this - and it explains the queues outside Northern Rock branches today
, and the sharp drop in its share price.

Now it may be an excellent chance pick up under valued shares, if you have the stomach for the risk - I certainly don't know, and have re-bought shares in the energy sector instead after selling last Friday.

But I can tell you that my money would be out of the Northern Rock bank by now - if I had any there. Why have your money in an institution under threat when you can walk across the street to one who will give you the same interest rate without the risk. If Northern Rock is serious and wants to stop these withdrawals then it should increase its interest rates to benefit its loyal customers for the risk they are taking - you can be sure that other banks think that way. They only want the general public not to panic - everyone else wants paying for that sort of faith.

Its a matter of trust. How much do you trust what the government is telling you ? Fire .. Fire ?

Or let me put it another way - if lending money to Northern Rock is such a great idea ( which is in effect what you would be doing to keep your savings there ) why is only the Bank of England willing to do it at punitive rates and with the best mortgages as collateral ?

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