Tuesday, September 18, 2007

Under the mattress

Economics again. On a bigger scale. Sorry, but it is the main story on the news. Yet for various reasons (not all cricket related) I haven't actually watched the news much recently. So a little question that I haven't seen answered despite all those stories...

Fuelled by tabloid hysteria, long queues of people have just withdrawn billions of pounds from Northern Rock; how have they actually done that?

Presumably some have walked out with bucketloads of cash. But there would surely be physical money supply problems there. And I'm not aware of a big spike in shop sales.

Others must have transferred money to other banks. But no bank is safe. How did they choose where to go? Not everyone has easy access to government bonds and similar products.

Anyway, the reason that money was in the bank rather than in stocks or property or investment funds was presumably because it was meant to be fairly stable and safe - not for the pathetic interest rates there.

So what could be safer than a bank? Certainly not cash. That could be lost or stolen. You could try to insure the cash. But if your bank had a poor credit rating, what about your insurer ...


Ann said...

Best to be poor really.

But I bet you're not: http://www.globalrichlist.com/index.php

Even I'm rich.

RNB said...

Oh I know that I'm rich :)

The criteria for most people to get rich are screwed up though. Inheritance, exploitation, etc.

And although many choose to ignore reality, comparative wealth does matter too - because some resource is effectively limited.

But this note was about the banking system ;)