So now there are just two suitors for Northern Rock. Tax haven abuser Richard Branson and the management are left in the race.
Of these the government can have the service of one if it nationalises this bank: after all, the management won't be going far, or can if they do be replaced by those more suited to the task, and we know they have been identified.
Branson has abused the UK tax system and shown complete disregard for all concepts of transparency and accountability throughout his business career. He is not suitable to own or run a bank. Much less should he be the beneficiary of the potential largesses of the government when loan write offs, inevitably, occur.
There is only one option left for Northern Rock that meets EU requirements and recognises the economic fact of this matter, that Northern Rock is bust. That is nationalisation managed to ensure maximum return to those now bearing the equity rick in the failed bank: the UK taxpayer.
Why is it taking so long for a Labour government to see the benefit of public ownership for the public good when the market has failed?
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This is a weird point of view and somewhat incorrect, are you trying to stir up comment?
If the market has failed and that is a big if, then is the answer that government should just swallow up the mistakes, it will be far more costly to government if they had to nationalise, the UK taxpayer would be paying for this governments folly for years to come.
If the market failed the government should never have interseeded. It did we have to live with that. However looking to the future, if the Rock is now worth a £1 then that is what it is worth, if Branson wants to buy it, he should be allowed to offer the best bid he can. The situation is simply, the government having made the mistake, must now salvage what it can… off load Northern Rock and learn it’s lesson with fingers burnt.
For once I commend the EU for forcing the governments hand in this.
Guy
You seem to ignore the fact that market failures are not neutral. Only economists can assume that. In this case the risk of ongoing cost to society from the failure of the market was considerable. That justified intervention.
Having intervened what is incorrect to assume that the state does not have the capacity to rectify matters, or the right to do so to ensure its interests as principal creditor (as I consider it to be) are not protected.
Selling for £1 and hoping Branson will use his powers to protect the taxpayer’s funds is absurd. There is no evidence that he will.
And remember, nationalisation is the most acceptable option available here to the EU.
Richard
If it’s all upside and no downside, why are there only two bidders? I Branson trusting that he’ll be able to manipulate ministers into ignoring the “inflexible terms” that have apparently put Olivant off?
Credit =”money as debt” costs nothing to create: it is merely a book-keeping entry. The function of private banks is essentially that of guaranteeing the credit of the borrower, and Banks back that guarantee with an amount of regulatory capital specified by the Bank of International Settlements.
The true cost of the guarantee provided by private banks is the sum of their operating costs, default costs, and their profit margin.
The credit created by Central Banks as money (typically notes and coin) costs nothing to create either, and the income which Central banks receive in respect of its use (which consists of a charge made to clearing banks for the use of the money) constitutes a windfall known as “seignorage”.
As Tim Congdon has pointed out a couple of times now in the FT, the Bank of England has created “virtual” money to loan to the Rock and – what he didn’t say – in doing so is starving the system of reserves and liquidity. So the poor old tax payer is not only not losing, but is currently gaining at the rate of about £25m PER WEEK from this seignorage, which is, to all intents and purposes, a premium being paid for the use of the Treasury guarantee.
To me it appears obvious that this seignorage/premium should be placed into the hands of a custodian, and it should rank alongside the existing capital which exists as a cushion against defaults
I believe that it is straightforwardly possible to utilise a UK LLP as a framework within which such a structure could be developed so that shareholder “equity” could be augmented to form part of the equity in an LLP. Any excess of Northern Rock income over its operating costs could then be shared PROPORTIONALLY between existing equity and this new “quasi equity” funded from the guarantee premium.
And there is no reason why any other bank which finds itself short of:
(a) retail deposits (which are in secular decline, due to the gradual concentration of wealth in fewer and fewer hands through the operation of the current toxic version of financial capitalism); and
(b) wholesale deposits, through the “credit crash” (the continuation of the crunch to its logical conclusion);
should not avail themselves of Treasury credits in exactly the same way.
The effect of such a partnership model would be to “disintermediate” banks, and for them to become a service provider. This is in my view a logical consequence of the pervasive spread of the Internet in any case – a process I call “Napsterisation”.
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