I remember as a kid, my parents, both children of the Great Depression, telling me of bank runs. And, of course, like everyone else, I've seen a run on a bank dramatized in "It's a Wonderful Life," but I never expected to see one in the 21st century, and especially just a few blocks away from my apartment.
As I've noted in my last few columns, I'm temporarily living in London working on a book. And so, despite all odds, this Silicon Valley suburban boy found himself in Westminster, first walking through the crowds at Victoria Station trying to crowd onto buses during the subway "tube" strike, and then, against all odds, watching long lines form in front of Northern Rock offices in a classic bank run.
In case you missed the story, a week ago, Northern Rock, one of Britain's biggest mortgage banks, found itself short on funds and forced to go begging at the Bank of England for backup funds. Once word got out, depositors panicked — within hours long lines were queuing up in front of Northern Rock branches all over the United Kingdom.
That night, the TV news led with the story, creating even more hysteria. And, of course, the various media pontificators cast about for a scapegoat — settling, as usual, upon Europe's favorite bete noire, the United States. In this case, poor Northern Rock was yet one more victim of the growing worldwide banking crisis brought on by those greedy Americans and their addiction to subprime loans.
Whatever. You learn very quickly over here that the United States is, in the eyes of much of the world, trapped in a house of mirrors of contradictions from which we can never escape in their eyes: We are both philistines and much too dominant in cultural matters, too conformist but too free, a threat to the world but everyone's last resort as savior, an economic catastrophe but also with too much control over the world's economy.
Blah blah blah…
And, of course, the fact that you probably didn't even hear about the Northern Rock bank run, while they know all about a bus crash in Winnemucca, Nev., makes Brits absolutely crazy.
So, do you need to care about the Northern Rock bank run? Naah, probably not.
It was basically over the next day, when Northern Rock announced that, backed by the Bank of England, it was covering all deposits. By then, an estimated 75,000 depositors, out of a total of 1.5 million depositors, had managed to close their Northern Rock accounts.
Then, three days ago, the chancellor of the Exchequer (the equivalent of our Treasury secretary) announced that the Treasury would cover all accounts reopened at the bank by midnight Wednesday night. With that news, Northern Rock shares, which had been in free fall from the prerun price of 2 pounds, finally leveled off at 1.76 and then quickly climbed back to 1.98.
So everything was looking good … until this morning, when the government announced that while it would still back existing accounts at Northern Rock, it would not offer the same guarantees to new accounts. This is basically the kiss of death.
As the markets opened in England this morning, Northern Rock shares were again plummeting — and there's growing talk of the bank being bought by Lloyd's Bank, assuming the Bank of England gives its OK. The Northern Rock Web site is carrying a brave note from the chairman: "We will prevail!" But nobody believes it.