The real estate bubble is bursting and it's not pretty. Just as the GOP has some explaining to do concerning their blatant disregard for basic economic fundamentals, the British Labour government and Gordon Brown ought to explain why they thought "easy money" was such a good idea now that everything is falling apart so quickly and violently. Considering how connected banking has become in recent years it has been obvious that problems in one country, especially a country as large as the US, could trigger problems in other countries.
Branches of Northern Rock were besieged by savers yesterday as fears grew in the City that the Bank of England rescue package for Britain's fifth-biggest mortgage lender could herald a slide in house prices and further financial collapses.
Amid news that property prices were already falling sharply before the Bank's first use of its lender-of-last-resort facility in more than 30 years, the Newcastle-based Northern Rock was forced to keep branches open late to allow savers access to their money. By last night it was reported a total of £1bn had been withdrawn.
Customers ignored reassurances from the chancellor, Alistair Darling, the British Bankers Association and Northern Rock itself that funds were safe.
In the first real test of internet banking, websites at Northern Rock and many other banks crashed as savers tried to access their accounts. Police had to be called to a branch in Cheltenham, Gloucestershire, when a couple barricaded the manager in her office when she refused to let them withdraw their £1m savings.
Shares in Northern Rock fell more than 30% yesterday, dragging the stock market down. With speculation other mortgage lenders were at risk, the FTSE 100 index closed down more than 1%. A sharp drop in shares of buy-to-let lender Paragon Mortgages made it issue a statement that it had no need to resort to the Bank of England, while Bradford & Bingley and Alliance & Leicester denied they had problems.
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