The Northern Rock has had problems which we all know about - a run on the bank caused by a combination of a catastrophic drop in their share prices and their high risk (but potentially high yield) Business model, with 70% of their funds reliant on the money markets, which have taken a battering because of the US mis-selling in the sub prime sector which has seen 20% of borrowers default and a million lose their homes already, with expectations of many more to follow. In Europe, the finance houses rushed to pump money in to stabilise the market, the Bank of England has followed suit as soon as it was able to with some £10 billion. The Government has been forced to underwrite in the region of £28 billion worth of savings in the Northern Rock. All of this is, of course, taxpayers money. Of course, if mass repossessions hit the UK as well, then it will involve taxpayers money to find housing for those families who have lost their homes.
Despite Northern Rock share prices falling by 75%, they are struggling to find a buyer as estimates are it will cost up to £20 billion to re-finance it. We saw the tactic of City analysts being wheeled out on the television telling people there was no need to panic and their money was safe with the Northern Rock. At exactly the same time, City analysts in the City itself were telling Northern Rock investors to bail out as their money was not safe, as demonstrated by the huge drop in share prices. They take us for idiots apparently!
The Financial Times has admitted that what the Government has done is to partly move down the road of nationalisation of the NR anyway, so why not go the full hog? Full nationalisation. If the banks insist on gambling with the economy through their risky strategies and expect to be bailed out by the taxpayer if it all goes wrong, then it should be made clear to them what the actual consequences would be - If their greed for profit puts the UK’s finances at risk of recession, then they will pay a heavy price, and Nationalising NR will send out a very strong message to that effect.
The capitalists will shuffle money all over the place in an effort to stem off this developing into a full blown crisis, but they can only shuffle money so far and it’s evident when we reach the stage of selling people mortgages at six times their income and lying on borrowers behalf about their income - as has been shown in the US - then it is clear they are desperately looking for short term solutions which will not be able to stop the credit crunch getting worse than it already is.
The role of any Government is to intervene in the best interests of the people who elect them, not to intervene to prop up share prices in financial institutions which have been making record profits over the last few years which have been used foolishly in as much as they appear not to have been used to stabilise their finances, as demonstrated by Barclays having to go cap in hand to the B of E despite the huge profits it has turned over in recent years. The global capital market is in turmoil and is starting to run out of places to turn. When it is shown that “the market” is not being effective, as increasingly looks to be the case here, it should not come down to the vast majority of people to foot the bill on behalf of the financiers who have stashed away ever increasing amounts of the worlds wealth for their own use. This is why we vote for elected representatives instead of letting the richest on society just get on with doing whatever they want - we vote for them to make sure our interests are represented.
It’s time for a bit of a demonstration that this democracy is actually effective in achieving that, and the Northern Rock seems as good a place to start as any.
The Scottish Stoner
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