He had a point. Northern Rock is a bank that likes to borrow short-term on the money markets and lend long-term to people who want to buy homes. That's fine, as long as you can borrow money, but when the sub prime market collapsed in America, the banks over here suddenly got wary and would not lend money to institutions like Northern Rock.
The Bank of England decided to help by promising that it would lend it some money, and Government Ministers told us relax -- everything is fine. Well that's as reassuring as an American President saying he has every confidence in his Defense Secretary.
And yes, you've guessed, the next morning the bank's share price collapsed and investors started showing up to get their money out. The evening news showed pictures of the lines and there was PANIC all over the country. Old people spent the day queuing in the streets outside the Bank's branches, and loads of them were still there at closing time.
Our entire financial structure trembled. In the end, the Treasury Secretary, a man who is called Darling, was forced to promise that the Government would guarantee every single penny of every single deposit in the bank.
Well, darling, that's quite a lot of money. But the gamble paid off, and the panic went away. When your Fed cut interest rates by half a percent, the cure was complete. Up went everyone's shares, and we all lived happily ever after. But will we?
We now have a government which says to financial institutions which get themselves into trouble -- don't worry, we'll bail you out.
And you have a system which encourages you to run up huge debts with the rest of the world, then cuts the interest rate so you can borrow even more. I don't quite see how that makes any sense in the long run, but not to worry. As a Government spokesman might say, I have every confidence in those who run the world's economy.
By Peter Allen