World Economic News

Bank of England Bailout; Run on Northern Rock

Sept. 14 (EIRNS)—Few things strike more fear in the hearts of bankers than the specter of a run on the bank, and that fear is now a reality at Britain's Northern Rock, the mortgage bank just bailed out by the Bank of England. News reports and photos from Britain show long lines of frightened depositors at Northern Rock branches, hoping to get their money out before the bank collapses.

Officials and the media poodles are trying to calm the waters, insisting that all is well and advising people not to panic, but the talk is often counterproductive to a frightened public, which understand they are being lied to even if they don't know the details.

The bailout of Northern Rock, Britain's third-largest mortgage lender, is the first bank bailout undertaken by the Bank of England since 1973.

Although the BoE is claiming it is not a bailout, no one believes it, and "Northern Wreck's" shares collapsed by 24% within minutes of the opening of trading today—on top of a prior 46% fall—driving down other bank shares from 2 to 6 percent. The news also drove the pound sterling down to a 14-month low against the euro. With 113 billion pounds ($226 billion) assets and 800,000 mortgage holders, Northern Rock has been at the center of Britain's enormous mortgage bubble.

No one has revealed how much the BoE lent Northern Rock, but Northern Rock said that the BoE will provide it with as much funding "as may be necessary." The credit will be at the so-called penalty rate, which is one percentage point more than the 5.75 base rate.

Sweden Valiantly Acts To Prolong Market Putrefaction

Sept. 14 (EIRNS)—The Swedish Office of State Debt (OSD) issued new government bonds, and directed the proceeds of the sale straight into private banks as a cash liquidity injection—all in the name of avoiding "panic in the markets." These interventions for stabilizing the interest rate are supposed to be made by the Central Bank, but to everyone's surprise, the office of State Debt has done it instead. The head of the office, Bo Lundgren, revealed on Sept. 5 that the massive interventions on the bond market have been taking place since middle of July. The OSD has issued 50 billion Swedish crowns (5 billion euros) worth of bonds every night since that time. This was confirmed in a televised statement Sept. 12 by the official responsible for bond issues, Thomas Olofsson.

"If these interventions had not been done, there would have been panic in the market," Olofsson stated. The demand for Swedish state bonds has been so great that the market would have disappeared but for these interventions, and the interest rate would have plunged. As there have not been enough bonds available, the State Debt office have issued bonds on the account of the [private] banks."

OECD Report Calls for Scrapping Biofuel Subsidies

Sept. 11 (EIRNS)—A new report by the Organization for Economic Cooperation and Development (OECD) calls on governments to scrap subsidies for biofuels, given the harmful impact bio-energy production is having in pushing up farm commodity and food prices, and on the environment. The report is under discussion in Paris, at a forum on "sustainable" development, attended by government ministers from a dozen nations, including the United States. A record 20%-plus of the current U.S. corn crop is going to ethanol.

"The current push to expand the use of biofuels is creating unsustainable tensions that will disrupt markets without generating significant environmental benefits," says the study, copies of which were obtained in advance by the World Bank, the Financial Times, and other media.

The OECD recommendation for ending biofuels subsidies runs counter to the target set in February by the European Union, for achieving a 10% share of all EU transportation energy to come from biofuels by 2020. Soaring food prices internationally have called this into question. The OECD states it: "To harness the real potential of bio-energy and biofuels, an important shift in current expectations and policies is necessary."

However, the OECD, while noting the damage from large-scale grain-for-ethanol, sticks to biofoolish thinking of all kinds, instead of turning to the obvious modern solution—nuclear power.