Wednesday, 21 November 2007

Paragon - two down, many more to go.

I spoke to a couple of colleagues today about the inevitable demise of Paragon. The reaction was universal - "it takes no deposits, therefore let it fail". No doubt, it will fail.

Following Northern Rock, the Bank of England, FSA and HM Treasury almost certainly learnt something about trying to bail out financial institutions who have speculated in a housing bubble. It is better to let them drown quickly, rather than trying to save them. When Paragon's credit lines finally dry up, there will be no one there to throw them a line.

However, will Paragon be the end of the UK's banking crisis. Financial markets don't have much confidence that bank failures will end here. Yesterday, Barclays fell 4.55 per cent at 493p, and HBOS and Lloyds TSB both slipped. Alliance & Leicester dropped 4.5 per cent to 566.5p on fears that it may be exposed to financing difficulties. And what about Bradford and Bingley. All of them look very ropey indeed. The problem appears to be universal; too many mortgages given out to buyers who entered overly inflated markets.

Paragon is not the end, it is not even the beginning of the end. In the great UK banking crisis of 2007-8, we are still at the beginning. In the long run, the failure of Paragon will appear to be a very minor event indeed, when other bigger financial institutions start dropping. Perhaps my colleagues ae right; Paragon really is "no biggie".

1 comment:

Anonymous said...

Paragon of virture.