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The truths they don't want you to read....

Monday, January 21, 2008

Northern Rock

Northern Rock and Government incompetenceJust when you think it can't get any worse; handled more badly; or cost us as taxpayers any more; along comes Alasdair Darling to dig a hole and throw some more of our money into it.

  • The bank had a lot of good debts that it used to borrow more money
  • The good debts it had were long term loans
  • The money it borrowed was repayable short-term
  • The money it borrowed was put into higher risk investments to get the best return
  • The shareholders loved the dividend increases, which gave them a good return
  • The shareholders loved the increase in the share price, which went up six fold in six years
  • Short term borrowing dried up
  • The high risk investments proved to be more risk than return
  • The shareholders look to have lost out

So far so much like any other business. Until the Government have tried to manage an orderly sale by pumping in billions of our pounds to keep the bank solvent, and then to manage the disposal.

It might work, if only the Government weren't so desperately incompetent.

No-one can afford to buy the bank and repay the money to the Government. Europe won't allow the Government to give continuing support. The amount put in by Government continues to grow.

And no-one can seem to take any decisive action.

The interests of the shareholders seem to be paramount, but they get the biggest rewards when things go well; and they must take the ultimate risk when it goes belly-up.

Nationalisation was the only option, and remains the only option, as Europe will not allow the level of support that Darling hopes, and turning the loan into Bonds will simply lumber the now terminal bank with debt it won't be able to repay, whilst the taxpayers now take the shareholders risk but without the return.

It is the indecision and inability to be brutal that is prologuing the death of a once great institution and giving the shareholders false hope. Pull the plug, and pass it to the Bank of England asap, and then try to sell the loan book at some time in the future.

Or is Nationalisation now such a dirty word in the Labour Party?


Anonymous said...

At the weekend BBC Scotland's political pundit John Knox used the Peter Pan theme when referring to 'Wendy and the Lost Boys' at Holyrood and it seems that the PM and his advisors have lost the plot too at Westminster!

Anonymous said...

Yes and shares at Northern Rock went up 46% on the news today. No doubt those that bought shares at their lowest point will have cashed them in already. I wonder if Alastair Darling bought a few?

Anonymous said...

What a pity Richard Branson couldn't take an interest in a few Highlands and Islands post offices. All that has to be done is to make them branches of the Northern Rock, I bet most Scottish Post offices would be a lot more careful about who they gave a mortgage to.
Labour, helping the money men but closing post offices.

Anonymous said...

second anon: doubtless (but only when he knew they reached their lowest - if he hasn't yet they've probably got a way to fall) Wee Basa thats a suprisingly good idea! anyone want to pick holes?

Anonymous said...

To anon 1.52pm

Looks like even the Labour lovies find the PO closures indefensible.......