THE Â£50 BILLION PACKAGE FOR THE BANKS WOULD HAVE SAVED NORTHERN ROCK IF INTRODUCED LAST AUTUMN.
If the government and Bank of England can make Â£50 billion available to the banks today to get the mortgage market going again, why couldnâ€™t they have done that last September to prevent the Northern Rock crisis?
This latest move completes their extraordinary U turn from wrongly saying there would be no bail-outs or help for the banks last September, to now adding a Â£50billion money market package to the Â£100 billion nationalisation of Northern Rock. British taxpayers uniquely in the world have double trouble â€“ we are paying for the credit crunch twice, just as we seem to pay twice for everything else this government attempts. We are likely to lose money on the nationalisation, and have very overstretched public accounts thanks to this double borrowing whammy. The irony of the UK position is the government is seeking to sort out overlending by the mortgage banks by overborrowing itself!
If Â£50 billion had been made available last September there would have been no run on Northern Rock. That unhappy institution would not now be owned by taxpayers, responsible for shedding at least one third of the staff and fighting a legal argument over competition law with the EU. It would not now be running its business down and struggling to repay a massive Â£25billion loan from the taxpayer. Instead confidence could have been restored with this kind of package last autumn.
The latest scheme – Â£50 billion of government debt to swap for mortgages â€“ is a better way of helping than clumsy and expensive nationalisation. The reported timings are clever â€“ one year bonds to avoid proper balance sheet accounting for the government, three year duration for the mortgage banks to get the government through the next election before the reckoning. The Â£50 billion scheme, if properly designed, will be better value for taxpayers than the nationalisation, and will help all banks in the UK, not just one. It is not without its dangers, but at least it does not make the taxpayer responsible for all the staff, loans and liabilities of all the other banks in the way we are for Northern Rock.
The history of the Northern Rock crisis can be followed on www.johnredwod.com, under the Northern Rock tab. Items are in chronological order.