Anatole Galetsky presents GaveKal’s perspective in Here Comes the Whale that Northern Rock is the large problem that needs bailing out in order to pass through the financial liquidity imbalance that has accrued during the past few years.
… on past experience, the long-awaited appearance of the whale – Continental Illinois, Chrysler, Brazil, Drexel Burnham, Kidder Peabody, Mexico, LTCM/Russia, Enron/MCI/Argentina – would announce the beginning of the end of the liquidity crunch. …
… because we started thinking in the middle of 2006 that our whale was overdue for an appearance, but it never quite turned up. In February we finally realised what species of a fish we were looking out for – a mortgage lender, with a specialty in high-risk loans – but still the damn creature refused to show. But this weekend, a whale finally surfaced, though somewhere totally unexpected. Until last week, almost nobody in the markets had heard of Northern Rock PLC. And even on Friday – when Britain’s fifth-biggest mortgage lender was officially “rescued” by the Bank of England in its first lender-of-last-resort operation for 34 years – most people in the markets saw this event as “a little local difficulty” compared with the mess in the US sub-prime market or German state banks.
Time will tell how history views these events and and Northern Rock’s place in history, but other “whales” where well known and media savvy before the crisis, this one was not. It can be said, however, that Northern Rock is contributing to the evidence that a rebalancing of the price of liquidity is taking place.