Northern Rock – the crumbling financial system
The Northern Rock crisis has caused significant repercussions in the UK financial system. It may continue to do so as the various groups bidding to take over the beleaguered bank try to persuade the government to write off the interest owed on the money borrowed in the run-up to the crisis. In the Guardian article below the build-up to the crisis is considered in detail, while in the other article Anatole Kaletsky argues that central banks need to stand firm against pressure from financiers.
City war game that ended in a battle to save Northern Rock Guardian (14/11/07)
Hey, Guv, can you spare us £30 billion quid? Times Online (8/11/07)
Questions
| 1. | Explain what is meant by the term ‘moral hazard’. |
| 2. | Examine the main factors that led up to the Northern Rock crisis. |
| 3. | Summarise the main reasons why Anatole Kaletsky argues that central banks need to stand firm when pressurised by City financiers. |
| 4. | Assess the likely impact of the Northern Rock crisis on the performance of the UK economy over the next year. |