Monday, February 18, 2008

Northern Rock nationalised

Cranmer is not going to bore his readers and communicants with allusions to the wise man who built his bank on a rock and the unwise man who built his bank on sand, but the decision to nationalise Northern Rock does demand a little analysis beyond that presently being served up by the mainstream media. This is, after all, the first nationalisation of an industry since the 1970s, since those heady days when the likes of British Leyland, British Aerospace, or Rolls Royce were in public ownership so that profits may be shared ‘for the benefit of all’. It is the first since New Labour ditched the Clause 4 of Old Labour, and the first since the universal adoption of the Thatcherite ‘small state’ doctrine which morphed into the Blairite ‘Third Way’.

Yet while the Conservative Party asserts that the Chancellor’s decision represents a failure of economic policy, not least because it has exposed the British people to a liability of £110 billion - £3500 per taxpayer – it is difficult to see what else he could have done. It was, in essence, the lesser of two evils, for both savers and borrowers could have lost thousands and millions under the alternative rescue packages, and the Government would ultimately have been blamed for any subsequent failure.

Yet rescuing savers and borrowers is one thing, but what about the shareholders who are being forcibly deprived of their assets? Bertrand Russell said that the essence of politics is obtaining money from the rich and votes from the workers, under the pretext of protecting them from each other. If he had tried to define party politics, he could not have done better, but the true meaning of politics is to serve the ‘whole’, and shareholders are manifestly part of this whole, albeit the part of lesser concern to New Labour.

Money is supposed to make the world go round. Certainly those who control the world’s money supplies are at the helm of global destiny; determining who owes what to whom, which nations prosper, which nations endure crippling interest rates, which nations are bribable, which continents can be controlled by monetary intervention and which regimes will fall because of economic hardships. Money influences every aspect of life through government or independent banking policy - money and power are bedfellows in all walks of life. Those who have plenty find it easy to lord it over those who have little, and those who have little or none are beholden to those who become their creditors. It is the same principle, from individual transactions to global power-play - he who holds the purse strings has the ultimate authority.

Unless the shareholders are compensated fairly, this nationalisation will have no foundation in natural justice. As the Pslamist observes:

Thou sellest thy people for nought, and dost not increase thy wealth by their price’ (Ps 44:12).

It is a crime before man and a sin before God to short-change anyone, and a greater crime to deceptively and forcibly devalue a person’s wealth.

Northern Rock may be a very obvious example because it is being thrust down everyone’s throat while it remains newsworthy, but henceforth Cranmer will also be watching the inflation rate, for that is the greatest government conspiracy and financial fraud ever perpetrated against the people, not least because its omnipresence and relentless rise are considered inevitable and unavoidable.


Blogger AethelBald, King of Wessex said...

What one can say with confidence is that Northern Rock's management sailed too close to the wind as far as risk management was concerned. The risks eventually bit their collective arse, as risks are wont to do, and the wound was fatal.

The fact that Northern Rock was able to produce slightly cheaper mortgages with much better customer service than most of its competition is directly related to its excesses in risk management.

Should inverstors be protected from the Rock's downfall? People who invest money in any enterprise take a risk. They know that there are circumstances in which they can lose it all, repeat all. That's every penny. If they don't know this then they should not invest. A criticism of our education system might be that it produces people who imagine that they can invest without risk.

People who invest with their time, the workers, also need to understand that businesses are Darwinian enities. Thay can fail, they can shed workers. There is no security.

But there is moral hazard. The Directors of NR need to be pilloried in public for their foolishness. The FSA (or applicable oversight authority) needs to be held accountable for being asleep at the wheel.

The people of Yorkshire need to wake up. They should have been first in the queue when the run started but they were so soaked in the Rock's marketing hype that they stayed home. What dimwits they are!

The government is now in the position where what it should do is let the Rock go to the wall. All the little guys should lose a lot and become the wiser for it. All the big guys should go to jail, if possible, but failing that live out the rest of their lives in shame. What we will see is something different.

We will see that the ruling class cannot risk the votes in the next election. So we all have to pay, and pay mightily, for the recklessness and self-serving ambition of a few company directors and the ruling class. We pay for Iraq, Afghanistan and now the Rock. At least the Rock is only money.

18 February 2008 at 12:25  
Blogger Tomrat247 said...

Your Grace,

The King is right - were it not for the dithering and flaccid control of the financial structure of this country Northern Rock would have gone the way of all Flesh; its assets stripped to the bone, sold off for all its worth and the shareholders duly compensated with nothing, having enjoyed dividends from a company who's business model was farcical. Those shares are worthless - we are all alligned to pay for their worthlessness now and not just the irresponsible.

18 February 2008 at 13:12  
Anonymous liverpuddlian voice said...

"Money is supposed to make the world go round. Certainly those who control the world’s money supplies are at the helm of global destiny; determining who owes what to whom, which nations prosper, which nations endure crippling interest rates, which nations are bribable, which continents can be controlled by monetary intervention and which regimes will fall because of economic hardships...etc"

I've read this somewhere before...

18 February 2008 at 13:23  
Anonymous oiznop said...

Tomrat, that might be your idea of fair but its the law of the jungle. We're dealing with real people's lives here, whether they are borrowers or investors, and that demands compassion.

If 'Compassionate Conservatism' means anything, then the state has a duty to protect against hardship. Since Labour had already intervened to the tune of £50billion, they had no choice but to nationalise.

18 February 2008 at 14:08  
Blogger Unsworth said...

Your Grace,

Yes, well Oiznop's 'compassion' equals six grand of my money.

There is a limit to my generosity. Particularly when my cash is being used to shore up an establishment which has been grossly and scandalously 'managed' by those who undoubtedly knew better. The bank, like BCCI and Barings, should have been left to fend for itself. It is a commercial enterprise, not a charity. I don't recall being asked if this was OK by me.

The decision to shore this wreckage up with taxpayers' cash was solely political. It had nothing to do with ethics or with the viability of financial systems.

18 February 2008 at 14:20  
Blogger Cranmer said...

Mr Unsworth,

In truth, His Grace lies somewhere between your view and that of Mr Oiznop.

Ordinarly, the shareholders might be expected to bear the brunt of financial mismanagement, and this would be consistent with the functioning of the free market. But in this case the shareholders are between a rock and hard place (excuse the pun).

Since the Government intervened, it has a moral obligation to pay the shareholders a 'fair' price, whatever that may be. Otherwise, they have simply purloined what is manifestly not a worthless asset, and compensated the owners not a jot. The Government may have the legal right to swipe billions of pounds worth of assets merely by Act of Parliament, but the moral right is questionable.

Personally, His Grace would rather have £3,500 of his money temporarily propping up an outfit with billions of pounds worth of property, than having it spent on the plethora of unsound and unsure enterprises upon which governments traditionally spend his money.

18 February 2008 at 14:40  
Blogger AethelBald, King of Wessex said...

Your Grace appears to be at one with El Gordo when he implies that the Rock is worth something. This is Utopian folly. The current market value of the Rock is such that it might fetch an eyebrow-raising price on E-Bay, that's all. It's assets are almost worthless because there is no market for them. That's what worth or value is, market value. It's not intrinsic or inherent. They may become more valuable over time as the credit crunch eases, but this consideration is always factored in to the market value as of right now.

The government has not purloined something of value. It has taken into its care a basket case, a money sink, and we will all be subsidising the non-jobs of its employees until after the next election when the government, with the connivance of the Tories, has extracted the value it seeks: votes in the Northeast.

18 February 2008 at 15:25  
Anonymous mickey said...

Whilst his Grace is reflecting upon the uses and abuses of our money by this 'government' he may care to consider the following example of said profligacy -

"Khan - whose role looking after his 71-year-old mother "earned" him an allowance of £160 a week - was also recorded telling associates the only reason he was living in the UK was to steal the nation's wealth and send it abroad.

"Muslims live here for one reason - to get their wealth and give it to the Muslims," Khan told a friend while being bugged by the security services.

Explaining his remarks, Khan then added: "We shouldn't be living here ... we are going to cut his throat, her throat ...

"Britannia, America ... by living among them we are going to squeeze them financially.

"We are here for a reason... because there is a financial war and we are going to make them bleed financially.

"If we cancel their finance and take it off them and give it to the Muslims, it's a big blessing for us."

Referring to non-believers, Khan then said fellow Muslims should "walk like them, speak like them, but don't be like them."

Khan added: "When you take from the Kafir (a term for non-believers) it makes you feel happy... take from them ... then you know you are a soldier.

"It doesn't mean you need a machine gun - we are all soldiers - either we can be physical soldiers or we can be financial.

"Islam, man ... getting strong and can destroy this Christianity."

Khan was claiming benefits of more than £20,000-a-year during the time he plotted to snatch the serviceman off the streets and decapitate him "like a pig".

- Northern Rock is, clearly, no longer a viable brand in the banking market, ie. it has no future. So what public funds are shoring up is the loan book, nothing more. What has yet to be revealed is the nature of these loans - how many, one wonders, have been made to Mr Khan's kinfolk for use in the Northern buy-to-let market? I suspect, in this regard, that we may be in for an unpleasant surprise!

18 February 2008 at 16:07  
Anonymous hear o israel said...

your grace

there are many puzzleing facts about the northern rock fiasco that are not yet fully known .

1 why was a bank allowed to lend money using the riskiest boom strategy known .

2 where was the FSA

3 what reports did the BOE recive and give as regards this business model to and from the gov .

4 it was allowed under gordon browns watch

5 what were the assests that were sold in nov/dec and why??

6 how can you have a 120% mortgage , a device that creats a housing boom !! for perpetuity.

7 are there any other aspects of this business model that are dangerous or hidden .

8 5% of northern rocks profits went to the northern rock foundation .

9 will the business now it is nationalised be subject to public scruitny ??

10 is buy to let a devious model that undermines work to own

of course we now are begining to see the poverty of utopia and what dumbing down achieves for those who promote it. this policy is far from the simple "horn of plenty" it was promoted as being.

surely we are seeing "double speak" in all its fake glory and its inequities.

the love of money is the root of evil , more so when run political power with it .

18 February 2008 at 19:51  
Blogger Unsworth said...

Your Grace

With profound respect, you make a series of doubtful linkages.

Government intervention was/is morally dubious. Why should the Government intervene in such commercial matters anyway?

For the purpose of debate let's accept that, post intervention, the Government has/had a moral obligation. Does the Goverment also have a moral right to use taxpayers monies in such an unprecedented venture without a mandate so to do? And to what extent is Government culpability to be visited upon us all? To what extent is Government incompetence to become our moral hazard? As you say, "The Government may have the legal right to swipe billions of pounds worth of assets merely by Act of Parliament, but the moral right is questionable."

As to uses of your/my money, well you may possibly be proved right as to the outcome of the gamble. But I'd rather have some voice, however small, in how a Chancellor may choose to place his bets. Many authorities do not accept that were this particular bank to fail, others would follow. Now, however, other banks may wish to avail themselves of such generous Treasury support.

This has been presented as the result of uncontrollable external influences. That may be so, but the disaster and potential for disaster were widely and vociferously predicted long before the actual events. Thus we are now grappling with the result of individual greed, mendacity, irresponsibility and incompetence. Of these only the latter is vaguely excusable. It seems to me that others' sins are now being visited upon the innocent.

So much for morality, then.

18 February 2008 at 19:55  
Anonymous DocBud said...

Oiznop said: "If 'Compassionate Conservatism' means anything, then the state has a duty to protect against hardship."

Exactly, but it does not then follow that failing businesses should be rescued with public money. The bank should have been allowed to go to the wall, and anyone suffering hardship as a result helped in the usual way.

One question that nobody seems to be asking is: what happens if there are a couple more Northern Rocks around the corner?

18 February 2008 at 22:00  
Blogger The Black Fingernail said...

Northern Rock is now the safest bank in the country. The Treasury has guaranteed its future and underpinned its assets. I might just be tempted to jump ship from Barclays to Northern Rock to have my own saving guaranteed.

18 February 2008 at 22:21  
Blogger mongoose said...

Compassion has little to do it with, Your Grace. We must render unto Caesar what is Caesar's. In this case Caesar is (or was, indeed) the market.

A daft Board ran a high risk bank. It borrowed short and it lent long. It compounded this misadventure by accepting the inadequate collateral (125% mortgages) offered by so called sub-prime borrowers. It was a recipe for a crash. And, lo, it came to pass.

What to do? When it happened what-to-do was to let the poor fools sink beneath the waves. But they did not do that. Prudence and Captain Darling offered guarantees against future unknowable events. As soon as these guarantees were offered, the market was skewed and the propsect of any sensible outcome was lost. The risk of loss was, in effect, crystallised into loss in the moment. This will be whittled away over the years and the books will be fiddled but the markets measured those guarantees that very moment and will have their sup of them in full. No other outcome but a lingering death was then possible. In 2025, or thereabouts, some hulk will be pushed into the Tyne. It will drag its chains and make a fearful splash, and Prudence's grand-daughter will announce an effective and honourable recovery as the crewless behemoth bobs helplessly on the waves, a tuneless, echoing satire of follies past.

As to the shareholders? Ordinarily, I would say that the emptor didn't caveat. But in the time between the inital crash and last Sunday the Government acted to distort a true and fair market. As you say, and I agree, the Government has a moral duty to meet the value gap they created. They won't and I expect m'learned friends will make a few bob. Put not your faith in Princes.

19 February 2008 at 00:45  
Anonymous Rick said...

Compensated fairly for what?
Their bank was worthless. But for the government intervention,it would have collapsed in September. Why should I put my hand in my pocket for the shareholders?

22 February 2008 at 10:55  
Blogger Benny Austwick said...

Dear Cramner,

Apologies for writing this as a comment but one could not find a contact address on your website.
I write for a British centre-right blog, it is moderatly popular, featuring on Reuters and other News Source Websites. Would you be willing to exchange links?

I blog at

Many thanks,

Benny Austwick

4 March 2008 at 14:45  

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