It is that dreaded bank run, but this one happened to be a mortgage company in England. We find this a bit weird to see in a country like England. The Bank of England stepped in with a direct loan to bail out Northern Rock. And lucky for us, the Fed stepped in behind the scene by lowering the rate at the discount window and allowing U.S. banks to push capital through to their affiliates. Was there some wisdom behind Glass Steagall Act after '29? (Glass Steagall Act post)
Happily, we don’t have these pictures all over our news. The US consumer can chalk it up to a foreign issue. That is why the confidence numbers where so important last week. If we see a major bank failure in the US, we are in for some serious rough waters.
As we continue to pound into the heads of the people in internet land, who read this site, banks are the oil that allow the machine to keep grinding. Consumers (corp, govt, private) are the fuel, which provides power to the machine. Without either, you are at a dead stop. Just to continue the analogy a bit further: The machine will simply stop without fuel. No real worries, you can put more in and may have to bleed a line or two, but it will run again. If you don’t have oil (banking), the machine breaks down and quits working.
If you look back to '29, the bank failures and runs internationally and domestically put us into a much worse situation and caused the depression to be alot more severe than it would have otherwise been. We have to double check, but I believe the bank collapses in 1929 started on the other side of the pond first. Remember, 1928 was a credit bubble that popped in '29.
Check this link out to really get your fear level up: