Northern Rock Madness

The British government is currently considering propping up what appears to be an otherwise failed bank with securitised loans currently running at between twenty four and fifty billions according to some reports. The people chosen to float the new idea and see what happens are Tony Blair's new employers. The Government is highly reluctant to nationalise the bank.

As I understand it, the government is either going to get someone else to buy the bank at knock-down prices, with 70% of its mortgage assets secure and held by another company based abroad, or to turn the bank's debts into bonds which it will then owe and pay out upon with cash that can ultimately be traced to the taxpayer.

Either way, this means a vast injection of capital into the system. As a rule of thumb, 1 billion pounds of a bond issue will mean over 3 billion injected in, because the bonds will be paid back at interest and will have a multiplier attached. Since at least 24 billions are involved in the Goldman Sachs scheme for Northern Rock, this means nearly one hundred billions of extra cash into the banking system. This would be an encouragement to imprudent lending, not a punishment.

Money supply growth is already over 14%. The Banks are lending to each other at much higher rates of interest than the central rate, presumably because they expect the value of the money to fall due to inflation.

Modern Britain is a place where punishment doesn't exist for teenage thugs, many criminals, industrial robber-corporations or banks; but it does if the tax authorities are honestly informed of your activities. It comes in the form of extraordinarily high rates of marginal taxation and sundry legal threats. If various soi-disant communities feel offended by your speech, you are also in trouble; and God forbid you if you have a cigar in your mouth or fail to benefit big business and local councils by expecting them to take away unsorted rubbish.

Still at least we can all look forward to continuing credit until the Chinese, who seem to work hard and make things for a living, come in and buy the place. They shoot corrupt and incompetent businessmen and administrators.

As an aside, China is extremely unforgiving of crime. In fact, executions in China seem to run at over fifteen thousand people a year. The people's Republic currently also is experimenting with lethal injections, 'mobile death vans' and public executions with a single shot to the back of criminal heads.

Ah well, it could be worse. At least the South Seas Company isn't still around and approaching the tax collectors for help.

UPDATE: As Jock Coats has pointed out in the comments below, Tony Blair is working 'part-time' for J P Morgan, who are nominally rivals of Goldman Sachs, for over a million a year. For the avoidance of doubt, Mr Blair also earned a reported 300 000 pounds from Goldman Sachs for a Florida trip on Friday, which is what I meant by employers, but I apologise if I wasn't clear. Nice work if you can get it....

Comments

Jock Coats said…
Let it not stand in the way of a good story, but isn't Bliar working for J P Morgan, not Goldman Sachs, who I thought were the ones who have put together this scheme?
Martin Meenagh said…
Hi Jock
Blair's playing both sides and will earn a reported three hundred thousand from Goldman Sachs this week at the same time as the part-time thing he has for over a million at JP Morgan. Here's a link;
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/01/16/ccdiary116.xml

Maybe I should have made things clear, but if I started detailing this money-go-round I'd need dramamine. Thanks for reading the blog by the way!
Thanks for reading!
Martin Meenagh said…
oops, the link isn't working. Anyway, the money is for a speech in Florida, which you can easily verify by googling. My apologies.
Jock Coats said…
Shouldn't someone be making a Proceeds of Crime Act application! I really want for that man to be written out of history somehow...:)

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