UPDATE : Pound is tumbling as Asian markets open tonight. The pound is now at the weakest it has ever been against the Euro, tumbling against the Swiss Franc as well. Guido is short…
Who is telling the truth at the top of Government? The Prime Minister says the economic situation isn’t as bad people think and that Britain is well placed to weather the economic storm, but the Chancellor says we are at a 60 year low. Gordon Brown has briefed out stories that he has an economic recovery plan all worked out, meanwhile the Chancellor says the downturn will be more profound and long-lasting than people thought.
Mulling over whether or not to bet the shop against sterling…
UPDATE : The Chancellor in the interview does appear to know the price of eggs. We can relax. Phew.
Could it have something to do with George Bush’s timely $150 billion bi-partisan growth stimulus package in February? Both the Democrats and Republicans are running on tax cutting platforms. We have bi-partisan tax and spend sloth policies. Guido understands the politics of it, the economics of it are what disappoints. The Finkelstein “you can’t win promising tax cuts” approach was always timid, it is now the wrong strategy at the wrong time. The voters have moved on, they recognise the economy needs tax cuts to grow.
“Taxpayers have every reason to be angry: with the private-sector managers and directors who behaved appallingly and have never been brought to book; the company auditors who passed last year’s accounts without spotting the big holes in the company books; the regulators (the FSA) who also gave the Northern Rock a clean bill of health; and the government, which was at best naive and at worst dishonest when it claimed to have secured the government’s loans.”
Why didn’t Vince ask the key question, what are the taxpayers billions in loans secured against?
UPDATE : LibDem Voice is rushing to the defence of old twinkle toes. Essentially saying nationalisation was the least bad option. Well that is a question of judgement. Guido does not think expropriation is the solution to anything in any circumstances except perhaps war. The best solution would have been to wind-up Northern Rock, which is what Guido said at the time and Redwood told Cable in the debate.
The Tories sent mixed messages, essentially they didn’t want to nationalise it (they are not that left-wing) but they didn’t want to say “put it into administration” (John Redwood was the most coherent Tory voice on the issue here and here).
Cable today says that he knew all along that it was iffy:
“These figures confirm the suspicion, held by many of us, that the Government and the regulators were badly deceived by Northern Rock’s former managers when they agreed to bail it out on the basis that it was a good bank with a good loan portfolio… I am encountering cases of people being repossessed as a result of deeply foolish loans and the bank and the taxpayer who now own Northern Rock are having to absorb the resulting losses”
So why did Vince happily congratulate Gordon on nationalising the Rock? Socialising the losses and privatising the profits is not a good deal for the taxpayers. Vince is currently on a damage limitation tour of newsrooms salvaging his reputation for sound judgement…
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?
The truth is the City and the Gilts market has regarded the Golden Rule as a political fiction for years. 700 or more PFI debts that build schools and hospitals owned by the state are government guaranteed debt whatever fudge the government claims. Northern Rock mortgage guarantees are not only bad debts they are also government debts, the Network Rail debt likewise, state pensions are another unfunded government debt.
The Office of National Statistics made it officially 43.1% back in May (full explanation from IFS download here). The only news is that the Treasury looks set to admit the truth. The pathetic reality is that Gordon’s psychology did not allow him to admit his failure to keep his own rule. The rule could have been kept to in the good times, it hardly needed much fiscal rectitude to sustain when he inherited falling public debts from Ken Clarke.
The Treasury is spinning this morning that it is not going to break or loosen the rules. Guido suspects it will “redefine” the economic cycle somehow.
See also Fantasy Island Economics.
Since the Budget in March, the Treasury has already taken an estimated £820m more than its forecasts in North Sea oil tax. The £6bn of surplus revenue would easily cover the cost of U-turns on both fuel duty and vehicle excise duty, where ministers are introducing new bands which could cost an extra £200 for drivers of inefficient cars. Deferring the 2p increase in fuel duty by six months would cost £550m. Scrapping the revamped vehicle excise duty altogether would mean the loss of an estimated £465m next year and £735m next year – although ministers may only remove the retrospective element of this tax.
So scrapping the poll tax on wheels and the 2p hike on petrol taxes would cost about 9 weeks extra than forecast windfall taxes due to high oil prices. Scrap ’em now…
This lunchtime Gordon made his call for increased oil production by OPEC and North Sea Oil producers. How did the market react? Above is today’s price chart, notice the move beginning just after Gordon’s midday rant at the market.
You guessed it – oil rose over 4 bucks…
- the reasons for departing from the previous fiscal policy objectives and operating rules;
- the approach and period of time that the Government intends to take to return to the previous fiscal policy objectives and operating rules; and
- the fiscal policy objectives and operating rules that shall apply over this period
Well the government could honestly specify:
[…] Read the rest
- We recklessly overspent in the good times and when things went wrong and we nationalised Northern Rock, we bust even the fiddled limits.
The final sentence visible concludes, in bold type, that most importantly: “… it is vital that we show that at this time of uncertainty we show that we are on people’s side”.[…] Read the rest