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The UK economic collapse : lesson two

One of the main factors in the ongoing demise of the UK economy, and the worldwide situation, has been the fact that many financial institutions around the world were chasing a smaller and smaller profit pool and taking more and more risks. Sub-prime mortgage deals in the US were the spark which set the fire under economies around the world but in reality economies such as the UK already had their own risky mortgage exposure.

Once the US credit crunch had taken hold, and money market finance effectively evaporated overnight, this exposed the UK mortgage sector to serious funding issues. The first consequence of this change in the money market environment was the collapse of Northern Rock which depended almost wholly on the wholesale money markets for finance. While this policy has been criticised after the event, the regulatory bodies in the UK were well aware of how the operation was structured and did nothing to change that as the business grew into one of the largest mortgage operations in the UK.

It will be very difficult for the UK authorities to minimise financial risk in the future as well as operating a free-market policy on which the UK economy has been based for decades.

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