Taxpayers lose a fortune on the Northern Rock bailout

November 17, 2011 12:14 PM

It is a long time since Northern Rock was last regularly hitting the headlines, as its funding dried up at the start of the credit crunch.  Then politicians were busy playing down the cost of the bailout.  But we weren't convinced.  TPA Research Fellow Mike Denham argued that we would be left with a hefty bill for the poor quality assets we had taken on.

And I looked at the extent to which politicians were "committing taxpayers money to the risky venture of trying to revive Northern Rock instead of taking the more cautious approach of trying to get value from the assets as they stand".  Now part of the bank is returning to the private sector and the losses on the bailout are starting to be crystallized: the BBC reports that we are down £400 to £650 million.  But that's just the start.

The big money is in the bad bank.  Again the BBC reports that the losses there could be as much as £21 billion.  That's over £800 for every family in Britain.

And even more of our money is at stake in the other nationalised banks; particularly RBS and the Lloyd's Banking Group.  It wasn't so long ago that they were worth more than they are today, but wise commentators were telling us that we needed to hold on to those shares so we could enjoy the gains as their prices inevitably rose.

Now, with their talent for identifying every possible opportunity to lose huge amounts of money, and the unfolding eurozone crisis, it is possible that RBS could even need another bailout.  At that stage, surely we would need to finally put the bank out of its misery and look at bail-ins of the kind envisaged in the Vickers Report instead of putting yet more of our money on the line.

The deal today will at least create more competition for high street banking and get some money back.   Ed Balls suggesting after three years that we should keep holding on in the hope of a turnaround is ridiculous.

The critical mistake that politicians have made at every stage in this crisis is to think they know best, that they can see a safe opportunity for profits where people playing with their own money can't.  Taxpayers weren't queuing up to put their money into Northern Rock, quite the opposite, but politicians did so on our behalf.  The best guess as to the long term value of the taxpayers' shares in the nationalised banks is their market price.  Now we are starting to pick up the bill for the politicians' hubris.It is a long time since Northern Rock was last regularly hitting the headlines, as its funding dried up at the start of the credit crunch.  Then politicians were busy playing down the cost of the bailout.  But we weren't convinced.  TPA Research Fellow Mike Denham argued that we would be left with a hefty bill for the poor quality assets we had taken on.

And I looked at the extent to which politicians were "committing taxpayers money to the risky venture of trying to revive Northern Rock instead of taking the more cautious approach of trying to get value from the assets as they stand".  Now part of the bank is returning to the private sector and the losses on the bailout are starting to be crystallized: the BBC reports that we are down £400 to £650 million.  But that's just the start.

The big money is in the bad bank.  Again the BBC reports that the losses there could be as much as £21 billion.  That's over £800 for every family in Britain.

And even more of our money is at stake in the other nationalised banks; particularly RBS and the Lloyd's Banking Group.  It wasn't so long ago that they were worth more than they are today, but wise commentators were telling us that we needed to hold on to those shares so we could enjoy the gains as their prices inevitably rose.

Now, with their talent for identifying every possible opportunity to lose huge amounts of money, and the unfolding eurozone crisis, it is possible that RBS could even need another bailout.  At that stage, surely we would need to finally put the bank out of its misery and look at bail-ins of the kind envisaged in the Vickers Report instead of putting yet more of our money on the line.

The deal today will at least create more competition for high street banking and get some money back.   Ed Balls suggesting after three years that we should keep holding on in the hope of a turnaround is ridiculous.

The critical mistake that politicians have made at every stage in this crisis is to think they know best, that they can see a safe opportunity for profits where people playing with their own money can't.  Taxpayers weren't queuing up to put their money into Northern Rock, quite the opposite, but politicians did so on our behalf.  The best guess as to the long term value of the taxpayers' shares in the nationalised banks is their market price.  Now we are starting to pick up the bill for the politicians' hubris.

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