Rock rescue rip-off

“PFI in reverse”

…That’s how Channel Four News’ economics correspondent Faisal Islam put it the other night.

Here’s the view from the Star:

Northern Rock stitch-up: we pay, they profit

(Monday 21 January 2008)
Taxpayers to shoulder risks as City cashes in on bank's rescue.

LABOUR MPs called on the government to stop “feather-bedding the financial sector” and nationalise Northern Rock on Monday after the Treasury backed a “private-sector solution” which passes the risks to the taxpayer.
Chancellor Alistair Darling confirmed plans to support a private-sector rescue of the troubled bank through the sale of government-guaranteed bonds to pay off its £24 billion debts.

The Treasury’s financial advisers have drawn up the bond scheme with investment bank Goldman Sachs.

But Mr Darling told MPs that it would be “irresponsible” to rule out temporary nationalisation of Northern Rock as he outlined the government’s favoured rescue plan.

He admitted that it had proved impossible for Northern Rock to find a “purely commercial solution” and there was “no chance” of striking a deal backed entirely by private finance in the near future.

Therefore, temporary public ownership, remained an option and legislation to deal with the possibility was being prepared, he said.

Great Grimsby MP Austin Mitchell said: “Mr Darling’s plans are a mistake. The bank should be brought into public ownership.

“This scheme will enable the private sector to make a huge profit at public expense,” Mr Mitchell predicted.

“It would be far more straightforward to nationalise it, as we did with failed privateer Railtrack.”

Hayes and Harlington MP John McDonnell accused the government of “feather-bedding the financial sector.”

Mr McDonnell pointed out that the proposal “will enable speculators such as Richard Branson to exploit this deal to the full and make massive profits at taxpayers’ expense.

“Public ownership makes most sense in the short and the long term, as it would give the government the ability to achieve long-term stability in the sector,” Mr McDonnell observed.

The new Treasury proposals will see the Newcastle-based lender sell a pool of its mortgages to a financing company, which will then sell the government-backed bonds in money markets.

Nottingham South Labour MP Alan Simpson insisted: “You can’t ask the taxpayer to bail out speculators.

“I can think of a thousand good reasons to set up a bond issue for schemes that the public genuinely needs, but no good reasons to use bonds as a way for the City to pay off its gambling debts.

“The people that are responsible for this cock-up are now walking away with colossal bonuses,” Mr Simpson fumed.

Respect London mayoral candidate Lindsey German asked: “Why should taxpayers’ money be spent on bailing out a bank when the beneficiaries will be businessmen and shareholders?”

Ms German observed that Mr Brown had “freed the City to gamble without restriction.

“Now, the chickens have come home to roost and ordinary people are being asked to bail out multimillion-pound businesses,” she stormed.

However, general union Unite, which organises banking staff, welcomed the plans.

Deputy general secretary Graham Goddard called the scheme “a creative way of resolving the current logjam to possibly enable a private-sector solution to go ahead and retain as many jobs as possible.”

Three private-sector teams are vying to buy Northern Rock – a Virgin-led consortium, investment group Olivant and the bank’s own management.

Communist Party of Britain general secretary Rob Griffiths said that Northern Rock should be nationalised “as a first step to rebuilding a socialised banking sector in Britain to ensure that working people and their families are no longer at the mercy of the private banks.”

Former Lloyd’s of London chief executive Ron Sandler has been lined up by the government to head the group if it was nationalised.

But Mr Griffiths said: “Any new model of public ownership must learn the lessons of the past – the people running any nationalised enterprise must be people who believe that society as a whole should benefit from public ownership.”