Northern Rock – use it to set up a Post Bank, or sell it to Tesco?

The government nationalised the ailing bank, formerly a building society, but only after many months of foot-dragging. And only on a temporary basis, natch.

Word is, Northern Rock could be sold to Tesco, handing the supermarket even greater power in the economy. Given that a majority of shareholders voted against plans to improve workers’ rights at the company, we know that Tesco isn’t very socially-responsible – so why give them a stake in the banking sector?

There’s a better alternative, as Louise Nousratpour reports:

A coalition of unions and businesses will step up their campaign for a “post bank” tomorrow with proposals that government-owned Northern Rock be used to offer services via post offices.

The group will publish plans arguing that their proposal would give a boost to the Post Office network and provide a vital community service.

A Post Bank would “revive and protect” post offices, support local communities and help smaller firms, especially as the banking system was still in “disarray,” they argue.

The report Delivering the post bank outlines four options the government could follow to establish the post bank. These range from using Northern Rock as a foundation for a mutually structured people’s bank to buying out the current relationship between the Post Office and Bank of Ireland.

Support for the idea of a post bank is growing within all three main political parties as well as among a range of campaign groups.

Postal workers union CWU leader Billy Hayes urged Business Secretary Lord Mandelson, who has been pushing for the part-privatisation of Royal Mail, to endorse this “vote-winning” initiative.

“We have met the challenge to create a workable model for the creation of a post bank,” he said.

“Our new report builds upon the conceptual idea and provides practical blueprints that will appeal to the general public who are disillusioned with the old, tired banking model.”

Federation of Small Businesses chairman John Wright said: “Northern Rock presents the government with a considerable opportunity and it should not consider selling it off privately, but instead should use it to establish a post bank and invest in the long-term future of the Post Office.”

Finance union Unite national officer Paul Reuter argued that the ambition should be to “secure the future of the workers in Northern Rock as well as securing the Post Office network while, at the same time, resolving the problem of financial exclusion and meeting the needs of small businesses.”

Dot Gibson of the National Pensioners Convention added: “Ministers need to rise to the challenge and secure a future for the post office network that serves local communities rather than pander to those who want to run it down and sell it off.”

How to get credit flowing? Nationalise the banking sector, say Tories

(Only kidding about the Tories bit! The rest of it is true, but please, stay with me…)

Wonko, for one, is not happy. No wonder: Paul Mason noted that on Friday

Wrekin Construction – a business with £50m of orders reportedly on its books – went into administration. It told the press that RBS had refused to extend an overdraft: it needed £3m. Now 600 civil engineering and railway construction jobs are at risk – and we’re supposed to be in the middle of a government-driven civil engineering boom.

It was partly Paul Mason’s insightful post that made me pen the following comment atDuncan’s Economic blog

Arguably the best way to get credit flowing again is for the banks to be nationalised. I think this worked in Sweden quite well and here’s why:

Commercial decisions will still be made on who to lend to and at what cost to the lender – but public ownership will get around the one big obstacle, which is that the people running banks are looking to provide returns to the owners and so make decisions on lending in a different way. Instead of being cautious about lending because they are mindful that their job is to give a return to investors, they will be more eager to lend, but nonetheless mindful of risks, etc. We can see the government has reversed its previous policy with Northern Rock.

With public ownership it’s not about the sectional interest of shareholders (or even, the government as shareholder) but about the interest of the whole of our economy in the long term – ensuring that productive enterprises get the financing they need.

The big problem with all of this will be the EU’s rules on these matters. Sweden’s banking crisis and it’s recovery happened prior to the country becoming a member of the European Union. The political right likes to paint the EU as some kind of warmed-up Soviet Union, but in fact EU institutions would probably oppose nationalisation of the private banking sector on several grounds (competition rules, the rights of shareholders, etc.).

Now, it’s the kind of measure that might need EU approval, and might take a damaging length of time (look at the govt assistance to our car manufacturers – it was held up while the European Commission vetted it). But the government will have to be tough and say it will take the consequences from the Commission.

As to the future ownership in the banking sector, I think we would be wise to learn the lessons of this crisis: the shareholder-as-owner has proven dangerous.

Which financial institutions have been responsible and have not needed public money to bail them out? The building societies, owned by their customers: no one expects from building societies anything other than boring banking – no financial wizardry. Indeed, many of the failed institutions were once owned by their customers – Bradford and Bingley, Halifax, Northern Rock, etc.

As a customer and member of a building society, I don’t ask much more than a good service, either as a lender or saver; I certainly don’t demand of the people running it that they come up with more ways of making money. Now it might be argued that this kind of old-fashioned high-street banking doesn’t apply to the financing of bigger businesses – but my question would be, why not?

We need a state bank to lend to businesses, says John McFall

From the Morning Star:

Labour MP calls for a state bank
(Friday 09 January 2009)

THE government should seriously consider establishing a state bank so that businesses are able to obtain credit during the recession, Labour MP John McFall said on Friday.

The Treasury select committee chairman suggested that the Post Office transform itself into a full provider of financial services.

But he said that if a new state financial institution was required to deliver much-needed lending, then “so be it.”

Mr McFall said that credit lines to cash-strapped businesses were “drying up” and the chances that bank lending would soon return to 2007 levels were slim. The most trusted institutions now resided in the public sector, he pointed out.

“We have seen savers flock to trusted, publicly owned institutions such as Northern Rock, the Post Office and NS&I, as well as mutual organisations,” said Mr McFall. “The government is well aware of the level of public trust that exists for these institutions.”

He added: “The Post Office, having secured a vote of confidence from the government with the renewed Card Account contract, now needs to transform itself into a full provider of financial services.

“What better way to set it on this route than to provide it with responsibility for realising the government’s lending ambitions? However, if it takes a new state financial institution to deliver this much-needed lending, then so be it.

“A year ago such a demand from a left-wing politician would have provoked a ‘loony left’ response. But no more – after the extraordinary self-induced implosion of the financial system, the future of the market system now rests in the hands of governments.”

For a democratic banking sector!

Gerry Bates writes on the national debt in the AWL’s Solidarity:

Sack the bank bosses! Bring finance under democratic social control

Bank of England and government support for the banks so far totals something like the equivalent of £18,000 for every child, woman, and man in the UK.

The Bank of England’s Financial Stability Report of 27 October 2008 gives the figures: a total of £1107 billion.

It can’t be right? After all, the average household in the UK is about 2.4 people. That average household doesn’t have £43,000 (£18,000 times 2.4) to give to the banks, even if it wanted to.

Indeed, the Government and the Bank of England have not been packing up £1107 billion in banknotes to hand over to the banks. The entire total of bank notes and coins in the UK is much less than that, about £50 billion.

The Government has been extending credit and guarantees to the banks. Across the system, a lot of the dodgy assets “cancel out”, so not all the £1107 billion in guarantees can be called in.

That is why the figures for Government guarantees to banks are so huge; yet still may be not enough. But there is more to it all than the huge notional figures.

As Anatole Kaletsky put it in The Times: “The provision of £100 billion of state guarantees to a grossly mismanaged and insolvent mortgage bank [is] a gross insult to the hundreds of thousands of workers in businesses from coal, steel and textiles to performance cars and advanced electronics whose jobs could have been saved with Government guarantees or ‘temporary’ nationalisations costing one-tenth or even one-hundredth of the £100 billion”.

Also, in real money the bail-out policies mean a much increased total debt from Government to the public, and therefore, as Marx put it in another context, “with it, pressure of taxes, the rise of the vilest financial aristocracy…”

£200 billion increase in the national debt looks likely. Assume the rate of interest the Government pays on that debt is about 5%. That is £10 billion a year extra in interest payments — equal, for example, to one-quarter of the Government’s total schools budget.

Meanwhile Government-supported or even Government-owned banks are run in just the same way, by the same people or the same sort of people, as the pre-crash privately-owned banks.

Ron Sandler, put in by the Government to run Northern Rock, gets £90,000 per month — £1,080,000 per year — more than the £690,000 basic salary of Northern Rock’s previous chief executive, Adam Applegarth.

Northern Rock workers are losing their jobs, and Northern Rock mortgage-holders are being evicted from their homes.

The Government does no more than plead and cajole with the banks to continue lending and to hold off on evictions.

The vast guarantees for the bank bosses, without anything in return, are indeed an insult; and, with jobs bleeding away and evictions mounting, an insult we can’t afford.

The labour movement should demand that the Government:

• nationalise all the big banks and high finance, without compensation for the big shareholders;

• sack the bank bosses;

• reorganise high finance as a public banking, mortgage, and pension service, under democratic and workers’ control;

• organise the allocation of credit, under democratic control, to safeguard jobs and homes, and to expand public services.

Why the City’s not scared of the publicly-owned mega-bank

Auntie’s economics wonk Robert Peston explains the motives behind the world’s newest banking group, UKFI plc:

The great fear in the City about the Treasury taking stakes in three of our biggest banks is that this partial nationalisation will turn them into non-commercial public services.

No bad thing, some might say.

But it’s not what the chancellor and prime minister want.

So they are putting the shares that will be acquired for taxpayers in Royal Bank of Scotland, HBOS and Lloyds TSB into a new company that will be owned by the Treasury, but will be managed at arms length.

That company will be chaired by a former finance director of Lloyds TSB, Sir Philip Hampton, who is currently chairman of the supermarket group Sainsbury.

So Sir Phil’s an Establishment figure, and he figures that he’ll be able to both increase cheaper lending to business AND quickly return money given by taxpayers.

No doubt New Labour wants to help the banksters get back to their normal business of fleecing workers, consumers, and small businesspeople.

But that promise of helping out the local businesses that provide so much employment has been made loudly and repeatedly.

Since Sir Phil is likely to side with the City over this issue rather than with the general public, New Labour are delaying a conflict – just as Brown’s policy of the credit bubble was designed to stall industrial conflict.

Robert Peston goes on to say,

And there’s a further risk in its decision to create the vehicle for owning the bank stakes as a formal Companies Act company.

How so?

Well as the chairman of a proper company, Sir Philip could not be formally directed to take this or that action by ministers.

So that promise of helping out small businesses was just that – a promise and no more…

Which begs the question, will the promise to ensure that public money isn’t used to fund lavish pay-offs?

At a time when ordinary people are being asked to show restraint and businesses across the land are preparing lay-offs, the inability of the government to keep these promises could be as haunting as the 10p tax affair.

That’s to say nothing of the HBOS/Lloyds job losses and the future of the Scottish Labour party…

And to think it all started with a former building society called Northern Rock.

No, Minister: why Yvette Cooper and Phil Woolas are hypocrites

First, Yvette Cooper:

Banks will face new curbs on home repossessions to prevent families from being evicted when they fall into financial difficulties, the Chief Secretary to the Treasury has promised. […]

‘We need a more responsible approach to repossessions,’ Cooper said in the interview. ‘What we are looking at is something looking much more widely at all of the banks, because I think repossession needs to be lot rarer. We need to do everything that we can to keep people in their own homes.’

But what is the publicly-owned but privately controlled Northern Rock doing?

Credit Action said that the nationalised bank was twice as likely as other lenders to repossess a home if borrowers fell behind with their mortgage repayments. Chris Tapp, director of the charity, said its eagerness to repay the government meant it was treating struggling customers harshly.

More than 19,000 homes were repossessed in the first half of this year, 4,000 of which were seized by Northern Rock.

That’s saying nothing of the 1500 workers sacked by the Rock…

Onto Phil Woolas:

In his first public statement in his new position, Phil Woolas conceded that immigration became an “extremely thorny” issue during an economic downturn when people already living in this country were losing their jobs. He also pledged the Government would respond by making it even harder for non-European Union nationals to come to Britain to work and live.

Let’s decode this. Non-EU nationals will be limited; EU nationals will not…

So we can see this is not about limiting immigration at all, but about Woolas trying to boost his career with some prejudice. A quota for migrants from outside the EU (largely people of colour) but not for those within the single labour market of the EU (who are mostly white).

Migration controls as such are not racist – but these are clearly racist. Woolas has form, remember.

Tory Story: stop me if you’ve heard this one

Turns out some of these short-sellers that have been speculating against banks are donors to the Tories. As well as those hedge fund types

As Bradford & Bingley, the last of the independent former building societies, is shared between Santander and the state, the Tories have been attacking New Labour – whose economic policies (light-touch regulation, privatisation of public services) they have supported.

[On that B&B bail-out, the BBC’s economic correspondent Robert Peston notes that “For taxpayers to lose a penny Bradford and Bingley’s future losses would have to be unthinkably huge.” That doesn’t mean that it’s a good move, mind…]

Why it’s conference season, and the Tories are in Birmigham – and they’re not complacent, honest.

Aside from promises to stand Tory candidates in the six counties (AKA Northern Ireland), carry on state harrassment and demonisation of Muslims, and cut council services, we have an overture to Blue Labour ministers:

Senior Blairites could be offered jobs under a David Cameron government in the ‘national interest’ […] in a bid to poach some of Labour’s brightest talents and split the party.

Michael Gove, the shadow children’s secretary, singled out Schools Minister Lord Adonis, but also warmly praised current cabinet ministers James Purnell and the ‘outstanding’ Hazel Blears.

As for the Tories economic proposals, Green leader Caroline Lucas says we need more people power, not quangoes:

“We are in the middle of a financial crisis caused by a lack of democratic control of the economy, and the Tory response is to marginalise democracy even further. It’s what they call ‘disaster capitalism’ – seizing on an emergency as an excuse to drive through a hard-right ideological agenda.

“The Tories want to outsource oversight of government fiances to a quango they call the Office of Budget Responsibility. But we already have an Office of Budget Responsibility. It’s called Parliament.

“We don’t need another quango, filled with the same corporate bosses that got us into this mess, with a few Tory donors and ultra-right think-tank wonks for good measure. We need real democratic control of the economy, with power returned from multinationals to parliament and, most importantly, to ordinary people.

“The Tories want to outsource the handling of failed banks, too. When a bank has to be nationalised, it should be dealt with for the benefit of ordinary savers and borrowers, but George Osbourne wants banks handed over to the Bank of England for another dose of the insular City thinking that caused the problem in the first place.

“Under a Green New Deal, banks that failed would be restructured into more, smaller companies, so that any problems they have in the future can be contained without putting the whole economy at risk. High-street banking would be separated from high finance to improve the security of people’s savings and mortgages. We would restore some of our lost building societies, which added much-needed stability to the market. We would get finance, and the economy as a whole, working for people rather than distant corporations.

“The Tories want to cut public investment just at the time we need it most. Their attitude is ‘you’re on your own’. A Green New Deal means government doing its job: investing in keeping our economy healthy and building a sustainable economy for the future.

“By borrowing from the people through local bonds, government can create a secure investment for savers. That would allow us to revamp our public transport, energy supplies and housing, generating jobs, revitalising money flows, loosening ties to unreliable oil markets and cutting carbon emissions.”