Nobody bought NR because they couldn't borrow the money to do so
In a market, which I would hope the stock market is, by definition, the price of something is the highest amount which someone is willing and able to pay for it. If nobody can afford to buy Northern Rock despite wanting to in principle, then Northern Rock is overvalued, and the share price should have been allowed to continue falling until someone could buy it.
the inter-bank lending just isn't working properly at the moment
'Working' is a rather subjective term. It isn't happening very much, certainly. Risk was being aggressively repriced upwards. The central banks would have done well to let this run its course rather than messing around with it. If I bet on a horse and it loses, it doesn't mean "the bookies isn't working", it means I've lost. Similarly, if no bookie wants to give me odds of ten to one on Chelsea winning, that doesn't mean the betting market isn't working, it means my expectations need to be revised in line with current market conditions.
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Date: 2007-09-19 12:30 pm (UTC)In a market, which I would hope the stock market is, by definition, the price of something is the highest amount which someone is willing and able to pay for it. If nobody can afford to buy Northern Rock despite wanting to in principle, then Northern Rock is overvalued, and the share price should have been allowed to continue falling until someone could buy it.
the inter-bank lending just isn't working properly at the moment
'Working' is a rather subjective term. It isn't happening very much, certainly. Risk was being aggressively repriced upwards. The central banks would have done well to let this run its course rather than messing around with it. If I bet on a horse and it loses, it doesn't mean "the bookies isn't working", it means I've lost. Similarly, if no bookie wants to give me odds of ten to one on Chelsea winning, that doesn't mean the betting market isn't working, it means my expectations need to be revised in line with current market conditions.