The ideology of "panic"

Don't think of a rhinoceros.
One aspect of Northern Rock's troubles hasn't gotten the attention it deserves - that is shows the psychological naivete of the mangerial class, and that ordinary people can be smeared and stigmatized even when it's the managerial class itself that should be under challenge.
For the last two days, the FSA, BBA and Northern Rock itself have been running round telling everyone that the bank is solvent and they should carry on as usual, much as Corporal Jones would run round telling everyone: "Don't panic!"
In both cases, the words have had exactly the opposite effect to that intended. This is for the same reason you've thought of a rhinoceros because I've told you not to. It's the power of counter-suggestion.
In this sense, Northern Rock's crisis highlights the failings of managerialism. First, Adam Applegarth thinks he has found a low-risk strategy for expanding the business when in fact he hasn't -  though in fairness the stock market has long been sceptical. And then he and the rest of the managerialist class think their spin can have the effect they intend - that their will-power can solve problems - in contradiction of basic psychology.
And here's the queer thing. The media's reaction to the affair has not been to question the ideology of the ruling class, but rather to accuse ordinary people of panicking, thus feeding the managerialists' illusion that they are not fit to manage thir own affairs.
The truth is, though, that it's perfectly rational to take one's money out of Northern Rock. Why keep cash in a bank with a tiny risk of default when you can put it into one with no risk? It's not as if Northern Rock pay better rates. And even if they did, it'd do little use, as the whole point of having cash in the bank is to have peace of mind and easy access to it - purposes undermined by the risk of default.
So, what we've seen in the past few days is irrationality in the managerial class, and rationality amongst ordinary people. And yet the media has given the impression that the opposite is the case.
Isn't it amazing how many mechanisms there are for defending managerialist ideology?

Comments

[Dipper]

I sense the ghost of Equitable Life hanging over this. Investors were told not to panic, and then when they took this advise they lost their pensions. Never again!

[michael webster]

Even Charles Ponzi knew how to deal with a run on the bank - stand at the door and hand out buckets of money. Never run, stop taking deposits, and keep shoveling money out the door. (Of course he planned to help himself to some collateral from a bank that he was a shareholder in.)

[jameshigham]

...that is shows the psychological naivete of the mangerial class...

I was wondering, you know, how you were going to weave this into it.

[MatGB]

Ah, but is it rational to withdraw your cash now and incur a default fee?

One of the people interviewed on a Radio 4 feature would be charged £700 (ish) for the withdrawal at zero notice. I can't recall how much he had invested, but that's surely a little excessive on the cost/benefit scale?

[Monjo]

Not if he has over £30,000
However, since NR has been assured of liquidity from the BoE, AND since it will continue to receive payments on £113 billion worth of mortgages - it is not as if keeping your money at NR is a bad idea. What would be a better idea would be to go in and negotiate a higher interest rate on your savings.

NR will be eventually sold to a big bank with a smaller mortgage portfolio - possibly HSBC. With most of the £24 billion in assets stripped by the end of next week, HSBC can afford to take over the £113 billion of liabilities against its own £440 billion of cash.

Since it is NR's mortgage business which is most profitable and not its savings business, then I think in the long-term NR's profitability and earning as a factor of its share price will jump. It will be a good investment in 2-3 months once the market settles.

[Dr Samuel Johnson]

"One aspect of Northern Rock's troubles hasn't gotten the attention it deserves"? No, Sir, one aspect of your use of British English hasn't GOT the attention it deserves.

[Mark Wadsworth]

What Dipper says. One lady who posts on my blog got stiffed by the Equitable Life and she has a load of savings at NR. Lightening does strike twice.

[Dave]

"Lightening does strike twice."

yeah, they call it yoyo dieting. Cripes, learn to spell. Also understand the difference between investments and cash deposits.

[Arthur Clewley]

thus I suppose this is why airlines never use the advertising slogan 'fly with us, we never crash'

[d]

"No, Sir, one aspect of your use of British English hasn't GOT the attention it deserves."

Hasn't HAD the attention it deserves, surely?

[The Pedant's Apprentice.]

Dr Sam, I used to complain about it too, and then realised that the naughty little imp only does it to tease. Leave him to his boyish pleasures.

[dreamingspire]

Back in the spring I did think of selling my mother's shares in Bradford & Bingley, as it was clear they were on the same sort of binge as I now know Northern Rock has been indulging in. But she only has the few that she was given when they floated, so it wasn't really a priority item - one can gain some satisfaction from holding a few shares (thus receiving some regular info about the company) and just waiting for the the bank's Directors' much larger loss of personal wealth when the crash comes. (My brother and I manage Mum's affairs under POA.)