Now we have a situation where £100 billion of taxpayer’s money has been bet on the UK property market as it goes south. Gordon Brown and Alastair Darling repeat the mantra that the public’s money is secured against the bank’s assets. The bank’s assets are what exactly? The equity in mortgagor’s homes belongs not to the bank, it belongs to the homeowners. The only properties Northern Rock has an interest in are it’s own branches and offices. The only homes it owns are those where it forecloses, usually and increasingly at a loss due to negative equity (remember all those 125% offers).
Northern Rock is selling off any assets of value to pay down the government debt. Essentially the government is asset stripping what it can and like many an asset stripper before it is sacking staff. Unlike capitalist vultures it will not make a profit, the government will be left with billions of bad debts. This half-year’s losses are £585 million, £20 per taxpayer. Mortgage arrears have doubled, repossessions are up another 50% on already bad figures – and the worst is yet to come. The Rock’s bad debts will be borne by taxpayers.
UPDATE :A co-conspirator emails to point out that adding the debt for equity swap (which the taxpayer will never see back) to the losses gives £3,585,000,000. Divide that by 28 million taxpayers and you get £128 per taxpayer, or some 70 pence per day so far. What would you rather spend the 70 pence a day on?
Darling says “tax is complicated”. Who complicated it? Simplify it by raising thresholds dramatically. Why should people on earnings of less than £10,000 pay any tax? They only have to fill out endless forms to get it back in welfare payments. Crazy. Raising the threshold on the low paid will incentivise people to come off benefits and work. It will reduce the cost of collection which is disproportionately higher on low incomes.
The Tories are too timid, the mood of the public has changed. New Labour has always referred to “unfunded tax cuts” and demanded to know how many hospitals and schools would correspondingly be cut. The Tories should be pointing to Labour’s “unfunded spending commitments” which have given Britain the highest budget deficit in the Western world. We can’t afford Labour’s reckless spending commitments – they are literally mortgaging our children’s taxes to pay for current spending. It is the economics of the “never, never”.
26 Labour MPs have signed a motion calling on the government ot reverse the budget tax hike on low income earners. The wording could have been written by George Osborne:
ABOLITION OF THE TEN PENCE TAX RATE02.04.2008
That this House notes that, despite assurances to the contrary, many people are being made worse off by the abolition of the 10 pence tax rate; notes with concern that this is having a disproportionate impact on people who can ill afford to be made worse off; accepts that this was not the intention of the Government but is dismayed at the response to the plight of those adversely affected; and calls on the Chancellor of the Exchequer to bring forward measures to correct this damaging change to the taxation system.
UPDATE :Just noticed that Ben Brogan has posted almost the exact same thought.
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Guido will give a prize of a copy of John McCain’s new book Hard Call: Courageous Decisions by Inspiring People to anyone who comes up with a decent campaign sing along in a pub song. Entries in the comments…
When Brown and Darling try to present themselves as the safe pairs of hands in this coming time of economic crisis, remember that Brown was the financial whizz who sold Britain’s gold reserves at the historic low for dollars. Now as the dollar goes into freefall the total loss from that idiotic decision (he even told the market to get short before he sold off the reserves) will dwarf the few billion lost by the Bank of England on White Wednesday. Brown’s judgement is neither good or timely.
We have yet to have the final reckoning for Northern Rock, where some estimate that over 20% of the loans are to mortgagees with negative equity. The Fed arranged the sale of Bear Stearns in comparable circumstances over this weekend. It took dithering Brown months to make the wrong decision on Northern Rock. Remember how Lloyds TSB was interested in buying Northern Rock in much the same way Morgan Chase has just bought Bear Stearns?
UPDATE : Curly points out that taxing a Nissan Micra will cost £40 more!
It is worth taking a moment to reflect on how we got here. When Northern Rock’s troubles became critical there was no systemic risk to the financial system. There was a risk to 6,000 regional jobs which was a political risk in a period of election fever in Labour’s North East heartlands.
If Northern Rock had been put into administration the shareholders and probably the employees would have lost out. No mortgage holders would have been worse off, depositors would, since we are told by the government the bank’s assets are good, have got their money back.
The only cost to the taxpayer would have been the unemployment benefit payments to redundant Northern Rock staff – most may have kept their jobs with new owners of the business (Lloyds TSB was said to be interested). Instead of the normal commercial and legal run off process taking its course, the government intervened. The result is the biggest nationalisation of the century.
Many would argue convincingly that depositors would have not been able to extract their money in the event of a liquidation, or at least not in good time. The government could have in that case guaranteed the deposits and collected the money back as a normal creditor. For a moment in the beginning that did seem to be a real possibility. That would have been a much smaller risk to the taxpayer.
Now we have a situation where £100 billion of taxpayer’s money is being bet on the UK property market as it teeters on the edge. Gordon Brown repeats the mantra that the public’s money is secured against the bank’s assets. The bank’s assets are what exactly? The equity in mortgagee’s homes belongs not to the bank, it belongs to the homeowners. The only properties Northern Rock has an interest in are it’s own branches and offices. The only homes it owns are those where it forecloses, usually and increasingly at a loss due to negative equity (remember all those 125% offers). The other major asset the bank owns is it’s profit stream from the spread it makes on lending versus borrowing. That has disappeared because of the credit crunch. Right now there is no profit stream to speak of, that is why the bank is bust.
What is most disturbing about the new legislation being proposed is that it will empower the state to nationalise more banks. Which seems to contradict Darling’s claim that this is a “temporary and exceptional” measure. It has always been the objective of British socialists to nationalise the banks. Thirty years ago they wiped out the British owned car industry, now they are coming for the banks. New Labour is dead. Socialism is back…
UPDATE : Anatole Kaletsky agrees – wind-up the bank.
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Earlsfield resident Olivia Seccombe writing to the Wandsworth Guardian:
“I would like to question the judgement of Tooting’s Member of Parliament, Sadiq Khan, now Babar Ahmad has been found guilty of running websites that allegedly sought to raise money, recruit fighters and seek equipment for terrorists in Afghanistan and Chechnya… Now this man has been found guilty – after a full and fair trial in the States – I would like Mr Khan to answer firstly, what his concerns with the legal process were and secondly, why he spent so much time campaigning for this man when he should have been representing Tooting in Parliament?”