When I was a boy…

…it was the 1970s. This was a time of great fun, space hoppers, Parka coats and later on Doctor Martin Boots if you weren’t rough enough for Punk. There was other …

By
19th September 2007 at 11:04 am

…it was the 1970s. This was a time of great fun, space hoppers, Parka coats and later on Doctor Martin Boots if you weren’t rough enough for Punk. There was other stuff going on too, of course.

Like queueing.

I remember very well having to queue with my mother in the shops because someone had spotted a bag of sugar in the local supermarket. This was big news at the time because there was a sugar shortage. Well, I say shortage; what I mean is a perfectly adequate supply of sugar accompanied by some idiot spreading rumours that the sugar mines or whatever were going to run out, so we all started stocking up. One Internet correspondent tells me that when his granny died in the mid-1990s they found she still had a bag of unused sugar in her cupboard she’d hoarded since the seventies.

It wasn’t just sugar. In the early seventies (forget the Winter of Discontent, we had power cuts interrupting Doctor Who when he was fighting Sea Devils and that’s when you’ve got it tough) there were, equally, ‘shortages’ of bread and of flour. People queued, hoarded the stuff and the prophecy became self-fulfilling; there wasn’t a shortage as long as everyone didn’t want more than they could actually store in their homes.

So what’s all this retro waffle about, you’re wondering? Actually no you’re not, you know perfectly well I’m going to start drawing parallels with the Northern Rock situation, but first another comparison: the Wall Street Crash in the 1930s. I studied this for history ‘O’ level (younger readers might want to know that ‘O’ level is Elizabethan English for GCSE). At the time the dollar and the pound were on something called the Gold Standard. That meant that for every piece of paper money in circulation the bank was supposed to have gold, and you could if you wished go and hand over your paper cash and demand gold at a branch.

Until someone did it, found the bank didn’t have the gold and the whole system collapsed through lack of confidence overnight. I imagine that was simplified for the school kids’ attention span but I remember it 26 years later so I learned something.

So to Northern Rock. Many businesses as well as individuals will have had money with Northern Rock and for all I know they were among the people queueing up for their cash over the last couple of days. I can only hope this will have gone away by now. Because here’s a secret: the money was never in any danger, and the Government’s promise to underwrite existing savings is as close as you’ll get to proof of that. There’s no way they’d have offered to stump up significant amounts of money if they thought there was a serious chance they’d actually need to pay it.  What they needed to do was to restore the confidence and stop the queueing.  Only when there was a run on the money and a perceived crisis was there actually any danger something might go wrong.

And now Northern Rock’s share price has been recovering. Based on what I’m not sure; it went down when it had secured a loan against its mortgage lending and it went up when it has a loan plus a bit of underwriting from another third party, in this case the Government. At no stage did the price reflect what was actually going on inside the bank or the competence of its managers – the Stock Exchange, which I’ve always thought of as a posh betting shop anyway, simply thought it would stand a better chance of recovery with the new underpinning. This is only temporary relief, though. The trading position hasn’t changed and NR will still make the recovery I believe it was always going to. What’s changed is the confidence.

So if anything happens in any related way over the next few weeks and months; if any other bank looks as though it’s going to have to borrow money for its business (which loads of other businesses do anyway), if anyone starts to feel like queueing visibly and attracting the inevitable headlines, just try to remember where some of the real damage to economies has actually happened in the past.

Guy Clapperton

Guy Clapperton is a freelance journalist who specialises in small business issues and has written for the likes of The Guardian, the FT and the Daily Mirror. Guy has written about finance and franchising for SmallBizPod. http://www.guyclapperton.co.uk

Commenting Is Easy

Do you agree with this blog post? Disagree? Have something to add that others might find helpful? Then please leave a comment in the box below.

If you'd like to have your image included next to your comments here, then you can set yourself up with an avatar in just a couple of clicks.

Leave a comment

Photostream

Listen to the sales podcast for SMEs Subscribe to the podcast on iTunes

PARTNER PROMOTIONS

If looking to boost your businesses performance with promotional marketing, travel incentives or incentive schemes get it touch with NDL Group