Bruce, an AWL comrade and a Northern Rock saver, has also written on the crisis here.
When you think of the wheels of international finance capital, you would not generally have thought of Northern Rock, the Gosforth-based former building society just two or three weeks ago. However, it has hit the headlines in the last weeks over the Bank of England’s decision to extend it a line of credit. The Bank, which is the “lender of last resort”, stepped in when the Northern Rock found its existing lines of credit had disappeared after the collapse of the US Sub-prime market and banks were too nervous to lend to each other. The news lead to widespread panic amongst Northern Rock savers, who withdrew £4 billion in savings.
The reason why the Northern Rock found itself in such trouble because of the US market is a good example of the truly globalised nature of capitalism today. When the US sub-prime lending market (i.e. lending to people with poor credit histories) took a dip, the previously confident banks stopped lending to each other. The Northern Rock relied upon borrowing from other banks to finance it’s lending in the forms of loans and mortgages, and, unlike other former building societies like Halifax and Alliance & Leicester who fund their lending through customer savings, NR built their lending business around their ability to borrow from other institutional lenders. Most of these lenders were not UK-based, and primarily American. So, when the “credit crunch” started to hit, NR’s lines of credit dried up, and it was forced to go cap-in-hand to the Bank of England.
