Wrong, wrong, wrong.
The latest decision to guarantee most of the liabilities of Northern Rock is a clanger.
There is no statement to Parliament, no statement of how much is now at risk, and no statement on how long our money is to be at risk.
Why cannot the government understand that it has to be tough bank manager to Northern Rock, lending the least it can get away with, imposing strict repayment timetables, and monitoring cashflow daily to ensure that all surplus cash is used for debt containment or repayment?
This government seems to think the taxpayer is made of money. Although Northern Rock is not a huge bank by international standards, judged in relation to the size of the Bank of England it is a collosus, and in relation to the UK public sector it is large.
Guaranteeing maybe ??100 billion is the equivalent of one fifth of stated total public debt, the same as the annual NHS budget, and almost one fifth of total public spending. They are crazy to do that.
Every one percent of error or loss on the whole Rock balance sheet is ??1 billion! Before this move 1% of taxpayers exposure was a mere ??250-300 million, already large but just about within the government’s command.
Northern Rock is too large to nationalise, and too large for us to guarantee all its liabilities. Unfortunately you cannot help some people – they are just determined to get it wrong.
Additional comment: we are now learning that maybe so far we are “only” guaranteeing ??60 billion. It is outrageous that Parliament and markets cannot be told how much is being guaranteed, and on what basis. The authorities lecture other banks about the need for transparency, and then commit the taxpayer to these large risks and vast sums without any proper explanation of how much, for how long, and on what basis.