The Liberal Democrats have accused Chancellor Alistair Darling of being complicit in irresponsible lending by using taxpayers' money to underwrite Northern Rock.
Responding to a statement given by the Chancellor yesterday, in which he said he would extend deposit guarantees to new accounts opened with Northern Rock, Liberal Democrat Shadow Chancellor, Vince Cable, said the Government’s attitude ‘reeks of complacency’.
He says the Government’s reasons that the problem lies with turbulent international financial markets are not consistent with the fact savers in the US, France and Germany have not been queuing up to withdraw their savings.
“There has been financial turbulence for most of the last century, so why is this the first time that we have seen a run on a bank since 1866?” asks Cable.
He said he understood the Chancellor's reasons for providing a guarantee to existing savers, namely to end the bank run, but said the choice to extend the guarantee to new deposits was encouraging further reckless lending from Northern Rock.
He adds: “Northern Rock’s business model, which had led to it doubling its mortgage lending in six months this year, was based on very aggressive, reckless expansion. It was an accident waiting to happen.”
Cable says the event is a major scandal and claims the Government is pretending all is now well in order to shield the ‘pillars of the City establishment’.
Meanwhile, Northern Rock's share price has seesawed over the past week as rumours of a takeover offer continue.
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