Professor Tim Congdon was clearly outraged at the behaviour of the Bank of England over Northern Rock. He argued that the Bank of England is meant to be and has long been the lender of last resort. That is how the system has worked. For many years it has saved banks but it has done so in a way that does not damage a free society. What it has done is lend aggressively and expensively to banks that have had need of cash but whose assets have exceeded their liabilities.
He said that in the case of Northern Rock, Lloyds TSB offered to buy Northern Rock but wanted the Bank of England to promise to back it up with cash if need be. Congdon said that normally the Bank would have said yes. He claimed the previous Bank governor, Eddie George, would have said yes. But the current governor, Mervyn King, said no. He is outraged by this and argues that this made our current crisis worse than it need have been. He says the Northern Rock had net assets (assets larger than its liabilities) and that even after the fall in house values, this remains the case. He said, if I recall, that 97 per cent of its mortgages are being paid off in the normal way.
More recently, again the Bank of England has not kept to its usual role of lending aggressively and expensively. Instead the government has only lent on conditions and, I would add, one major condition has been the taking large stakes in several major banks. The freedom, independence and perhaps international competitiveness of banks has been undermined and the crisis has been made worse than it need have been.
Sounds about right to me (althopugh do remember that I'm not a banking economist, only an interested amateur in the subject).