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By Dr. Ellen Brown - "Bank Run or Stealth Bailout: Global Credit Crisis hits Main Street"
In July 2007, the global credit crisis hit Wall Street. In September 2007, it hit Main Street, in what has been called the worst bank run since the 1970s.
Northern Rock, Britain's fifth-largest mortgage lender, was besieged at branches across the country, as thousands of worried customers queued for hours in hopes of getting their money out before the doors closed. Bank officials feared that as much as half the bank's deposit base could be withdrawn before the run was over. By September 14, 2007, Northern Rock's share price had dropped 30 percent, and on September 17 it dropped another 35 percent. According to one official, "If the run on deposits looks out of control, Northern Rock would effectively be nationalised and put into administration so it could be wound down."1i The bloodletting slowed after the government issued an emergency pledge to Northern Rock's worried savers that their money was safe, but analysts said the credit crisis was here to stay.
As BBC News explained the problem: "Northern Rock has struggled since money markets seized up over the summer. The bank is not short of assets, but they are tied up in loans to home owners. Because of the global credit crunch it has found it difficult to borrow the cash to run its day-to-day operations."2 The problem reflects a fundamental flaw in the modern banking system: it is built on a confidence trick. The same money that is supposedly being "saved" by depositors is also being "lent" many times over in the form of long-term mortgage commitments.
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While Northern Rock was being stampeded by angry depositors, Countrywide Financial, the largest U.S. mortgage lender, managed to fend off bankruptcy, at least for the time being, with $12 billion in new-found financing. Financing found where? It is an interesting question. Peter Ralter observed in LeMetropoleCafe.com on September 16, 2007:
Northern Rock, Britain's fifth-largest mortgage lender, was besieged at branches across the country, as thousands of worried customers queued for hours in hopes of getting their money out before the doors closed. Bank officials feared that as much as half the bank's deposit base could be withdrawn before the run was over. By September 14, 2007, Northern Rock's share price had dropped 30 percent, and on September 17 it dropped another 35 percent. According to one official, "If the run on deposits looks out of control, Northern Rock would effectively be nationalised and put into administration so it could be wound down."1i The bloodletting slowed after the government issued an emergency pledge to Northern Rock's worried savers that their money was safe, but analysts said the credit crisis was here to stay.
As BBC News explained the problem: "Northern Rock has struggled since money markets seized up over the summer. The bank is not short of assets, but they are tied up in loans to home owners. Because of the global credit crunch it has found it difficult to borrow the cash to run its day-to-day operations."2 The problem reflects a fundamental flaw in the modern banking system: it is built on a confidence trick. The same money that is supposedly being "saved" by depositors is also being "lent" many times over in the form of long-term mortgage commitments.
.
.
.
While Northern Rock was being stampeded by angry depositors, Countrywide Financial, the largest U.S. mortgage lender, managed to fend off bankruptcy, at least for the time being, with $12 billion in new-found financing. Financing found where? It is an interesting question. Peter Ralter observed in LeMetropoleCafe.com on September 16, 2007:
[W]hy is it that the $2 billion investment by Bank of America in Countrywide was front page news in August while the company's new $12 billion financing is buried on the business pages? Isn't it funny, too, that Countrywide didn't specify who is providing all that money, saying only that it comes from "new or existing credit lines." There was no comment, either, on the credit or interest terms—this for $12 billion! It makes me suspect that Countrywide's new angel isn't the B of A, but rather the B of B; the Bank of Bernanke.