Who is Really to Blame for Northern Rock?

Robert Peston’s reporting for the BBC of the whole Northern Rock saga has had a “blame Mervyn” undertone to it. Today he basically peddles one of the two Treasury favoured spin lines;
  1. The Treasury’s primary spin-line is that it is all because of the sub-prime crisis in America and that no one could predict it coming.
  2. The second line of spin is that it is the Bank of England’s fault for not flooding the market with liquidity when trouble came.
The first point is easy to deal with, Mervyn saw it coming as did half the City, that is why Northern Rock shares halved long before the headlines. The blame really lies first and foremost with the board and management of Northern Rock. They failed to foresee the problems and they alone bear responsibility for the dash for growth and profits through securitisation which has unravelled. The LibDem’s Vince Cable was spot-on when he blamed the Northern Rock management for their own undoing. So should Mervyn King discourage or encourage bankers to make mistakes?

King thought not on September 12, yet under pressure from Alastair Darling, the very next day he supported the bail-out of the Northern Rock management. There was no systemic risk to the financial system which could justify such a move. Now with the Treasury promising to guarantee all bank deposits, the British banking industry has become Moral Hazard central. The news that King has been forced to effectively reverse a sound policy means all risks have been transferred to the taxpayer. So if today an RBS trader “did a Leeson” the Treasury would end up picking up the tab.

The second line of Treasury spin is that the Bank of England should have flooded the markets with liquidity. That is never generally a good idea for an institution obliged to fight inflation. Market participants were in any event able to borrow from the bank window at penalty rates (and some did). Northern Rock could not do it because they did not have the necessary collateral.

The blame lies not with Mervyn King but squarely with Northern Rock’s management. The Northern Rock board took the risk in their dash for profit growth, a risk that should have been spotted at board level by their risk management committee chaired by Sir Derek Wanless.

Wanless should resign immediately and be stripped of any bonuses and performance related payments.

Sith’s Deborah Mattinson is Advisor to Northern rock

Gordon Brown’s personal pollster, Deborah Mattinson, advises Northern Rock on corporate responsibility programmes. Presumably it was she who advised giving circa half-a-million quid to New Labour’s IPPR think-tank. How many more of Gordon’s circle have their hand in the Northern Rock till?

Gordon’s New Convictions Revealed

Some of the comrades don’t seem too impressed with Gordon’s new conviction politics.

Update : Dizzy reports that the blog post has now mysteriously disappeared from the “grassroots” independent LabourHome website. Fancy that.


Picture-credit :
LabourHome

++ Source : IPPR Think-Tank Got”Massive” Donations from Northern Rock ++

Wonks for Sale : New Labour’s favourite think-tank and source of policy ideas has confirmed it received funding from Northern Rock.

IPPR has yet to get back to Guido, so am as yet unable to confirm that they received hundreds of thousands of pounds in donations from Northern Rock. Reminds Guido of how generous Enron was with political donations before the end…

UPDATE : Northern Rock promised £191,018 to IPPR in May 2006 alone. Still awaiting total amount to be confirmed.

UPDATE II : Another £180,000 spotted in the 2003 IPPR accounts. Source says it will total over half-a-million.

Trouble on the Fringe

Something tells Guido that the news that education policy dissident Graham Brady will be speaking at a Tory fringe event organised by the National Grammar Schools Association will not fill CCHQ’s Cameroons with joy. The media will be looking for “Tory division” stories in what will be a packed room. Shouldn’t be too hard to find plenty of old school Tories there…

Hat-tip : Ben Brogan

iPhone Hack

Every geek Guido knows is twitchy about getting an iPhone from Apple. The snag is that in addition to the high handset cost (£269) the monthly rental includes an overcharged lock-in to Apple’s partner 02 mobile network.

Now hackers have figured out how to unlock the phone and connect it to any network without the high-priced monthly charges. Apple have put their U.S. lawyers on the case, trying to enforce some kind of corporate communism. You buy the phone, but it is not your property to do with as you please if Apple get their way. (The big pharmaceutical companies try to do the same with their products, stopping you importing them from cheaper markets.)

Big business uses lobbyists to get politicians to pass laws that favour their clients rather than the common good. It is special pleading and protectionism of the worst kind. In the coming months Guido will be on the look out for examples of lobbyists using MPs to further private corporate interests at the expense of consumers. It is a murky world that people in Westminster are reluctant to talk about. Full of ex-MPs, ex-SpAds and on-the-make spivs. They like to do business behind closed doors, but you’ll catch rare sight of them in the open at the party conferences. Lavishing food and drink on anyone they think useful to their client’s interests…

Email Guido with any examples of lobbyists trying to screw the public for their clients.

Where’s Wanless?™

Derek Wanless – Gordon Brown’s most trusted banker – is due to speak at a fringe meeting at the LibDem conference on “Caring Choices”. One of the other speakers will be Vince Cable, who yesterday railed at the “collapse of Northern Rock; a product of greed and reckless gambling by overpaid executives”.

Will Derek Wanless, the chair of Northern Rock’s audit and risk committees, show his face in public? Or will he go missing, like Gordon?

Where’s Gordon?™ 4

Benedict Brogan and Adam Boulton shout the traditional cry which goes out when trouble is about – “Where’s Gordon?™”. Guido suspects Gordon will stay hiding behind the sofa if there are still queues outside branches of the Northern Rock or the Alliance & Leicester this morning. If there are no queues he’ll show his “courage”.

The open ended government guarantee promise is unprecedented. It could prove to be insane. If the housing market drops dramatically, mortgage repossessions could become even more endemic than they already are, with the result that the government could be left losing tens of billions of taxpayers funds. Bear in mind that Greenspan expects double digit percentage falls in house prices. Of course all we know of the terms is that Alastair Darling says “his word is his bond”. (He also said last week there was no problem with Northern Rock.) Equitable Life’s unfunded pensioners know the value of the government’s implicit rather than explicit guarantees. Zilch…

A & L CLOSES DOWN 30%Investors Head for the Alliance & Leicester Exit

Cherie Storms Off

++ LibDems Cable : “I Warned Brown 4 Years Ago” ++

The LibDems Vince Cable has just let rip at Gordon;

“The British economy may have been reasonably successful but it is also highly fallible. The house that Gordon Built may not be built on sand but it has certainly been built on a floodplain. It has yet to be fully tested against rising economic sea levels, though the events of the last week suggest that it may be very soon… This current boom does not depend on long term investment or on exports or on the cultivation of a more educated, skilled, labour force. It is powered by debt financed consumer spending, some reckless lending and the optimism generated by a house price boom. The water is now pouring through the defences after the near collapse of Northern Rock; a product of greed and reckless gambling by overpaid executives; lax, indulgent bank regulation; and a complacent government. I warned Gordon Brown of a looming debt crisis four years ago.”

++ Cameron Calls for Statement from Chancellor ++

Cameron blames “the increases in debt in the UK economy – personal, corporate, and Governmental – have added a new risk to economic stability” and cites Greenspan’s warning this morning; “Alan Greenspan himself, recently appointed by Gordon Brown as his economic adviser, made exactly this point this morning when he said that “Britain is more exposed” than the United States.”

Blame Gordon’s Banker

Derek Wanless is Gordon Brown’s most trusted banker. When Gordon wanted a plan for the NHS billions, he called in Derek Wanless. It was the 2002 Wanless report, the Health Trends Review, which provided the intellectual framework for the billions poured into the NHS. Gordon liked what he heard so much, he asked him to produce two further reports.

Sir Derek sits, like so many other of New Labour’s great and the good, on various government quangos; the Statistics Commission and the National Endowment for Science, Technology and the Arts.

More importantly he chairs Northern Rock’s Risk and Audit committees. If anyone should have known what was coming, it was Gordon’s favourite banker. He had to sign off on all strategic risk management issues. When Northern Rock realised the game was up, do you think it might have been Derek who was deputised to call his old political ally, Gordon Brown, for the bail-out?

Toby Young on the Tory Mayoral Hustings

“Don’t Panic” Chancellor

It is worth downloading this Sunday’s The World This Weekend to listen to how a finance minister should not behave during a financial panic. In the words of Fraser Nelson, the Chancellor is losing his grip, muddling his figures and rambling on irrelevantly about how a twenty five year-old David Cameron worked for Norman Lamont during the ERM crisis. Stuttering, he covered his ass by passing the buck to the Financial Services Authority – expect that to be a common refrain in the coming days.

Since Darling brought up the subject, Guido thinks this is Labour’s ERM equivalent moment, when this government loses whatever reputation it had for economic competence. It is going to be very hard for them to blame this instability on the Tories, perhaps they will blame it on Mervyn King at the Bank of England.

Darling has been on the phone to Benedict Brogan spinning furiously, complaining that everything is fine, that Cameron is playing politics. “He’s acting like a Tory backbencher, not the Leader of the Opposition. It’s completely opportunistic at a time when he ought to be reassuring people,” one “senior source” (with white hair) is quoted by Brogan. Playing politics, eh?

If anything the Tories have been slow to press home to the voters the reality of the “debt and mirrors” economics of Gordon Brown. Can you imagine this happening when Gordon was opposition shadow chancellor? Would he have gone around “reassuring people”? Would he hell. He would have said that it was the Chancellor’s fault and that it was the policies of the government that brought this on. He didn’t say on White Wednesday that exiting the ERM would lead to the longest period of unbroken economic growth in living memory. Gordon said it was a disaster. How should Osborne describe Britain’s biggest home lender of last year going bust?

Osborne might do well to point to moves like the loosening of bank reserve requirements which reduced the cushion of capital required of Northern Rock. Far worse still is Gordon’s dishonest manipulation of the MPC’s composite inflation target to justify the lower interest rates which have encouraged the property bubble. It is not as if there have not been enough warnings…

LibDem Fringe : Huhne 13 v Clegg 8

Guido’s man in the sandals reports that the future LibDem contenders for the leadership are, as to be expected, putting themselves about on the conference fringe. Huhne is speaking at 13 events and Clegg at 8.

We are told that Ming is in control, there is no leadership question and that he knows what day of the week it is.

[…]

+ READ MORE +



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