Problem Solver Bank of England

Problem Solver edge of EnglandOn September the 14th a preferably unusual scenario for our times took place - thousands of anxious customers in a queue waiting (mostly patiently) in front of the branches, to take capital out of Northern Rock (The Economist, 2007 2).

Northern Rock is the one-fifth biggest mortgage bank in the UK and has been observed critically these days. The extension institution has blundered into a crisis due to turbulences in the US legitimate estate market. Roughly 25 cardinal pounds adjudge been gainful to Northern Rock as emergency financing from the Bank of England. Alistair Darling, Chancellor of the Exchequer, has guaranteed all the savers that they ?will not loose a penny ? (Article: Brown Atacked over Northern Rock 3) and their savings will be secure. Why exactly this bank ran into raise up and whether the government intervention was appropriate will be discussed in the fol first gearing paragraphs.

In June of 2003 the prime rate was lowered by Alan Greenspan to one percent. With the prime rate being so low many people started to take up mortgages, without considering that they would have to pass higher mortgage interest rates in content of a climbing prime rate. In the past 2 years banks have given out mortgages worth 3200 billion dollar US - 20% of these mortgages to people with little pecuniary security.



(Der Spiegel,2007 4)Climbing interest rates and falling prices for real estate have made it impossible for many house owners to pay their mortgages. in particular in the sector of sub prime mortgages many defaulted on their mortgage payments. Since many European banks have high put on the line in the US real estate market, it is a convoluted situation regarding these banks? liquidities.

The problem that Northern rock faces these days is a result of its ?racy business model? as...

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