Another twist in the Northern Rock tail, with this Guardian exclusive:
Fresh doubts emerged last night about Northern Rock’s ability to repay the £23bn of taxpayers’ money it has been lent by the Bank of England.
A Guardian examination of Northern Rock’s books has found that £53bn of mortgages – over 70% of its mortgage portfolio – is not owned by the beleaguered bank, but by a separate offshore company. […]
The mortgages are now owned by a Jersey-based trust company and have been used to underpin a series of bond issues to raise cash for Northern Rock. It means the pool of assets available to provide collateral for Northern Rock’s creditors, including the Bank of England, is dramatically reduced, calling into question government claims that taxpayers’ money is safe.
The day before that story broke, The Economist came out with a call for nationalisation:
This newspaper has, to put it mildly, never been a fan of nationalisation. But with Northern Rock this increasingly looks like the least bad option from a taxpayer’s point of view (unless a credible buyer appears). And, in any case, the damage is half-done: in effect the state already owns a chunk of it.
[…] State control, with a view not to running the bank (a terrifying thought) but to running it down, would allow value to be extracted for taxpayers through the orderly sale of assets. Bankers could take some comfort from the government’s ability to pace disposals according to the mood of the markets. And nationalisation would let the state retain any future gains by going slowly—or even entering into a private-sector partnership—in the somewhat unlikely event that credit markets, house prices and Northern Rock’s reputation recovered soon.
To be sure, nationalisation would be messy. Shareholders might well sue. The lesson from other crises (France, Mexico, Sweden, Japan and so on) is that emergency state ownership should be brief and at arm’s length; Mr Darling might meddle, keeping unprofitable parts of the business open to safeguard jobs in the relatively poor (and Labour-voting) north-east. Nevertheless, nationalisation looks the best choice of a bad lot, for it aligns risks and rewards most closely and keeps control in the hands of those who have most invested. But there should be no illusions that it is anything but a mercy killing.
Ah, but could it even be a killing? There will be a conflict of interest, as The Economist notes: Labour needs to keep it’s heartlands sweet and the North East of England – where the Rock is based – is one such heartland. In ten years of New Labour government, the party has lost millions of voters and will lose many more because of Datagate scandal. A nationalisation of Northern Rock would be seen in this light, and that’s why so many New Labour MPs fear it taking place.
And finally, Comrade Galloway calls for Northern Rock’s nationalisation in The Morning Star:
THREE weeks on from the general election that should have been, Gordon Brown’s government is not so much sinking into despond but plummeting.
His indecisiveness last month over calling the election had already resurrected the ghost of Jim Callaghan, whose failure to call a general election in the autumn of 1978 had the catastrophic consequence of allowing Margaret Thatcher to win, six months later, on the back of the winter of discontent.
To the spectre of Callaghan, we can add a touch of the John Majors this week, following the loss of 20 million pieces of personal data. A great stain of incompetence is spreading across the government’s front benches. And it is lapping at the Prime Minister himself.
More and more people are pointing out what the Civil Service unions had already predicted – that the discs debacle is the likely consequence of cutting the number of staff, increasing their workload and contracting out such vital services as couriering sensitive government documents.
All these policies, of course, have Gordon Brown stamped all over them. If all that there was to this turn of events was discomfort in Downing Street, then there would be little to trouble most people other than concern that the Tories may benefit.
But a lot more is at stake than that. For at the centre of Brown’s travails is the collapse of the Northern Rock bank, something that cannot be dismissed as a fevered spat in the Westminster village.
The Northern Rock collapse will, in my view, rapidly come to symbolise a breaking point in the credit-fuelled, neoliberal consensus that has dominated policy discussion for a generation. It is not an aberration, but is itself a product of the shattering collapse of the high-risk, or subprime, mortgage market in the US.
There’s a tendency for discussion of economics to invoke rarefied language, even euphemisms, which obscure the real impact of the movement of points on a graph.
What the housing crisis in the US means is millions of families – overwhelmingly poor families – facing homelessness, turfed out into the trailer park, humiliated, their lives crushed, whole communities torn apart and drowned in a wave of sickening uncertainty.
Northern Rock is the first indication of that kind of slowdown and financial crisis spreading to this country. The Bank of England is predicting hard times next year. Anecdotal evidence, including from my own constituency, shows that they are already here for many.
And, with the first whiff of such economic difficulties, the nostrums of neoliberalism are found wanting. Aren’t we supposed to have moved on from the days when the state would move in to prop up lame-duck companies, throwing good taxpayers’ money after bad management decisions?
That’s what car workers in Birmingham were told, wasn’t it? It’s what thousands of Bangladeshi people, many in Tower Hamlets, were told when the First Solution money-transfer business went belly up, leaving them out of pocket.
The Treasury Minister Kitty Ussher explained to me and a delegation who had lost money that there would be “moral hazard” in the government stepping in to ensure that people did not lose out from that collapse.
But now we find that the government is prepared to throw tens of billions of pounds – £23 billion and rising – into propping up Northern Rock, only to discover that the assets that it was meant to be securing are not actually there. It seems that 70 per cent of the mortgages that the bank is meant to own are actually registered to a Jersey-based company.
The policy appears to be to provide an almost limitless line of credit to shore up the bank and make it attractive for another group of bankers to take over.
Well, I’m no economics expert, but shouldn’t the answer in fact be for the Bank of England to take over Northern Rock entirely? After all, it’s already forking out good money for it.
It would be an advantage for the Bank of England to have a branch on every High Street providing mortgages, not with an eye to unwarranted profits by selling on the debt half-way round the world but with a social responsibility to lend cheaply and use the surplus to invest in council housing.
In other words, the obvious answer is to nationalise Northern Rock – and to renationalise policy making at the Bank of England while we’re at it.
We on the left should not fear that such policies might be described as old-fashioned, outlandish or unworkable. I detect a widening sympathy for them.
Of course, they need to be fleshed out and we need to develop socialist policies to combat the onset of economic slowdown, ensuring that those who are already suffering do not get hit.
I think that it’s time for the left and progressive movement to start refining those policies and translating them into bite-sized chunks that we can agitate around and force onto the political stage. Something like this was attempted with the alternative economic strategy in the 1970s and I think that this kind of approach is needed again.
It would come about through the collaborative and pluralist approach that informed the Respect Renewal conference last weekend.
With millions of people already fearing a bitter first few months next year, we have no time to lose in advancing answers from the left.
Lastly, best wishes today to those people taking to the streets of Manchester in support of sacked nurse Karen Reissmann and her striking colleagues. Her treatment and that of fellow UNISON activist Michael Gavan at the hands of Newham Council in east London is an outrage.
Both these sackings should become a cause celebre throughout the movement.