Prudent financier:
Chancellor, are you not concerned that by authorising the effective bail-out of Northern Rock Building Society you will be seen to be tacitly endorsing the reckless lending and off balance sheet shenanigans that many in the UK’s banking sector have been engaging in?

Chancellor of the Exchequer:
We must be absolutely clear about this, and I would be quite frank with you. The plain fact of the matter is that at the end of the day it is the right, no the duty, of the elected government in the House of Commons to ensure that government policy, the policies on which we were elected and for which we have a mandate, the policies after all for which the people voted, are the policies which finally when the national cake has been divided up, and may I remind you we as a nation don't have unlimited wealth, so we can't pay ourselves more than we've earned, are the policies... I'm sorry, what was the question again?

(With thanks to Yes, Minister circa 1982)

And so it begins. Were the BoE and Mervyn King serious about moral hazard earlier this week?

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  1. "Cassandra" // 9/17/2007 08:48:00 PM

    Surely you do not mean to suggest that there is something imprudent with a plain Vanilla, interest-only, 100% mortgage following on the heels of an effective trebling of capital values, do you? North Rock has been positively conservative by obtaining information about whom they are lending to, lending to people WITH actual jobs as opposed to fictitious ones, in a currency that has more or less depreciated continuously since its inception (where across the pond, they've temporarily vacillated between interest rate pleasure and pain).

    Yes you Brits should be proud of North Rock for her restraint: and should spare no expense in helping her - she eats what cooks, has no CDOs, no curve risk, no inverse-floaters, no teaser rate ballooning jumbos...just good old fashioned stupid lending upon monstrously overvalued assets!

  2. RJH Adams // 9/17/2007 11:07:00 PM

    NRK's products might be (sort of) prudent plain vanilla (I'm not saying they are though) when measured against the generalised lending mayhem of a bubble property market; but her "unique" wholesale borrowing business model isn't and is as much a myopic product of an easy money era as conduits, SIVs, CDOs and so on.

    It really ought not to be treated as a special case. But, obviously, the BoE/HMT have taken fright and are principally concerned not with the merits of preserving NRK but with stopping a chain reaction and enusing money panic.

    Not to mention PM Brown's desire for his own mandate via an early general election (ie this autumn). That, it's probably safe to say, has just been put on the back burner pending credit market salvation.

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