There’s £8bn more loans from the government to Northern Rock to let them lend it to all of you. On top of that there’s another £4bn of liquidity arrangements.
This takes the loan that had gone down to £15bn back up to £27bn, which will take “around a decade to pay off”, says the Rock’s chief executive.
My initial read on this is that the government is providing the funding for the Rock that it would otherwise raise from the dreaded wholesale markets that brought its downfall.
In fact Mr Hoffman told me that “in due course” the Rock would be returning to those same securitisation markets, “but in a simpler form”. So not quite Adam Applegarth Redux.
More concerned City voices will suggest that this massive loan is to deal with some horrible mortgage delinquencies amongst Northern Rock’s high loan-to-value borrowers. We will find out the figures next week.
All this raises a huge issue about the proper role of government. I had already pointed out that much of the bizarre mini-housing boom we appear to be enjoying in the middle of a record recession is the direct result of government sponsorship. Today’s extra loan is a more direct manifestation of that than even I had expected.
Northern Rock is now a tool of government pump priming. That may well be a good thing, and a fattened balance sheet might get a higher price from Tesco, or Virgin, or JC Flowers. But is it definitively the best use of scarce government resources?
And why on earth did the government spend the best part of last year pursuing precisely the opposite strategy with Northern Rock, destroying credit to cut the taxpayer loans to the Rock.
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Once again I am grateful to Faisal for his take on this Northern Rock development. Most other commentators miss out all the negative parts.This is why some of us are so cynical about anything we’re told – this government has taught us to beware of news management and baleful influence of Alastair Campbell & Co.who still seem to be with us.
Please read my blog on Northern Rock Address is :
whyworktoday.spaces.live.com/blog/
Brendan Caffrey
Please visit this site for the truth on Northern Rock.
http://tinyurl.com/m7mtj4
It all seems to be a political scam to have shown that what the government did was correct. i.e. a dramatic bailout that saved Northern Rock and put them back in business where they were making profits and quickly paying the tax payer back.What a con!! In fact the government have in reality not received a penny back and it now seems will not do so for many years to come .Yet more sleight of hand from Gordon
To answer your concluding paragraph,because they are easily convinced by the self serving advisors (The same city luminaries who endorsed innumerable buy notes on NRK at 750p) who they consult through lack of any intellectual confidence/common sense.So long as enough experts (god give me strentgh !) convince them things are better,then that must be the case, right ?!
The Chancellor, Alistair Darling, is not opposed to mutuality. But Treasury civil servants want the £14.5 billion of tax payers money returned to the government soon. 100 Members of Parliament support mutualisation of Northern Rock.
Who will win; and why does it matter?
Supporters would gain a lot. Savers would feel that their money was more secure in a mutual building society than in a bank; or a building society that had also become a bank; or in a high street bank with or without more risky investments in hedge funds etc.. More jobs could be created in the North East of England. Existing jobs in Northern Rock would be more secure. There would be more choice and competition with the few mutuals left, specifically the largest Nationwide. Mortgages might become easier to get; if not cheaper.
Critics of mutualisation would also gain. In particular, the good reputation of British banking, as measured by indices in America, would be enhanced. This is important as their have been rumours that one index might reduce it’s rating for Britain. This undermines international confidence in Britain and its banks; indeed in the whole economy.
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