Good Old Will

Reliable as ever is Will Hutton. I agree with parts of his analysis, that bidders are indeed tryingto dump the losses at Northern Rock onto the taxpayer while claiming the profits for themselves: that\’s pretty obvious. It\’s also what any sensible person would try to do, even if they can\’t quite manage to pull it off. However, Will\’s logic then goes a tad awry.

Bank of England Governor Mervyn King has made some woeful misjudgments over this crisis, but at least he wanted to show private sector sharks some cold steel. No such attitude seems to exist in Whitehall.

The problem is with the politicians, their being muppets essentially. Agreed.

So Will thinks that the politicians should take over the whole bank, nationalise it.

Hunh?

8 comments on “Good Old Will

  1. Northern Rock’s problem wsas not its lending policy but the central, and not unreasonable, assumption that the central bank would retain control of the short term money markets. The BoE failure to do this in the summer meant that the business plan effectively unravelled.Anyone with a bigger deposit base was OK. Perhaps more important, if Northern Rock had any branches in Europe it would have had accees to Euribor (which didn’t spiral up towards 7%) and thus would have been able to keep going. In this sense the BoE is culpable, as is the Treasury which refused to allow a better positioned bank to allow the underlying business to survive. Mis-guided “toughness” is the prime error here displaying the worrying lack of real world experience at “the top” And as Mr S&M points out the shock to the system that the good old proles didn’t believe their managerialist masters that everything was OK ought to have been a wake up call to them. Let’s hope so.

  2. From what I’ve seen, the argument seems to be.

    1. Nationalise bank.

    2. Recoup [most of] monies owed to Bank of England – the memorandum the FT were prohibited from publishing appeared to suggest that NR’s liabilities to the BoE could be reduced to £6bn by 2010/11.

    3. Privatise NR when monies recouped.

    If (big if) the Pols stay out it and the BoE operates like a private equity investor, it could be do-able.

    Nationalisation – yes, but not like it used to be.

  3. They should have let NR die. Now it is on life-support someone will have to make to decision to kill it and that ain’t going to happen.

  4. Re Euribor: completely off the top of my head and without any info either way….

    Wouldn’t this have exposed them to huge – i.e. similarly business plan busting – FX risk?

    Tim adds: Hmm. yes, to the extent that you couldn’t do swaps. it would.

  5. The BoE is only in control of the money market to the extent that it sets interest rates, not the amount of liquidity. NR was caught short by liquidity drying up: if the markets had remained liquid but at higher interest rates, they would have been OK (but with squeezed margins, obviously). What snookered them was being unable to roll over their short-term funding at any price. And liquidity dried up because all the other participants suddenly decided they couldn’t trust each other, and the idea of hanging onto their cash, even at the cost of losing a bit of interest, was more attractive than the fear of lending it out and not getting it back. Not much the BoE can do there: can’t force the banks to lend. It could do some lending itself: and that’s what it did.

  6. the Bank of England could have taken asset backed securities as collateral, could have extended faciliies to 90 days and could have done so at a non penal rate. The Fed did all three, the hair shirt BoE did none.

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