Nov 2008 28

Crock Quality Check8


Not quite as advertised

Remember all those official assurances about how our £100bn would be safe with the Crock? The huge deluge of "comfort" from our rulers and betters that the guarantees would cost us nothing?

No?

Well, here's a reminder (and see all previous Crock blogs gathered here):

  • FSA – "We believe [Northern Rock] is solvent, meets all capital requirements, and has a good quality loan book." (FSA chairman Callum McCarthy 17.9.07)
  • Darling – "Bank of England lending is secured against Northern Rock's assets such as high quality mortgages, assessed by the Financial Services Authority as being of good quality" (21.01.08)
  • Brown – "Most people agree that Northern Rock has a quite high-quality loan book and I can assure you that our aim in all of this is to secure the best deal for the British taxpayer." (20.01.08)
  • Cooper (Yvette, not Tommy… or was it the other way round?) – the guarantees "have not been called upon, so they've not actually created any cost for the taxpayer"(18.2.08)

Wellwaddyaknow? The Treasury has finally admitted what we've all known for well over a year. With the Crock's mortgage arrears having quadrupled since December, its repossessions soaring, and 20% of its loan book anticipated to be underwater (ie in negative equity) by next year, HMT minister Lord Myners now says:

"Foreclosures are higher in Northern Rock than in other mortgage lenders because its lending was more irresponsible. It is as simple as that."

A big round of applause for his Lordship: a Treasury minister recognising that truth is a first step to gripping the real crisis (NB Myners is new, so this may well be his first and last essay in candour).

But of course there's a much bigger issue now: whereas the Crock was a measily £100bn of exposure, we're now effectively guaranteeing the entire UK banking sector. And its liabilities weigh in at well over £6 trillion, including a very scary £3 trillion of foreign currency liabilities (ie the stuff HMG can't print).

So how good is their loan book? How good are all those impenetrable securities they've piled up?

I think we can guess the horrible answer.

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  • Hardeep Singh

    Uncomfortable and somewhat painfful but then again the truth always is.
    Yet still no word on the public sector’s participation in sharing the pain that the rest of the economy still faces.

  • Steve Robson

    except the £35billion of efficiency savings that you people have not noticed. i think you’ll find thats the public sectors share of this private sector created recession.

  • Call me Dave

    Pain? What pain? The public sector don’t know the meaning of the word. Every day more private sector companies are being forced to “restructure” ie pay people off. Many are being forced into receivership ending all the employees jobs. That is pain – something the public sector cannot relate to. Making £35 billion of “efficiency” savings in the public sector can be acheived merely by reducing their absenteeism rate to match that of the private sector – but even for them that must appear painful in their feather bedded world (duvet days).

  • Call me Dave

    Amazing how people involved in the non wealth creating sector blame the recession on the private sector. Would you also blame the private sector for 10+ years of economic growth or was that someone elses fault??
    As usual public sector employees expect their share of the cake when it’s growing but cannot accept the reverse.

  • Steve Robson

    Its not amazing to blame it on the private sector. The recession is entirely caused by over-lending by private sector employees so that they’d get big bonuses, which they’ve now spent. No employee in the public sector rver gained from those bonuses, so got no share of the boom.
    They will share the pain though. You are mad if you think £35million of efficiencies will be achieved without pain, it will mean lots of job losses.
    Finally your division between wealth creating and not is nonsense. The public sector creates the conditions for wealth creation; educating the workforce, keeping it healthy, providing infrastructure, regulating the market, keeping the peace, protecting property and capital. The relationship is entirely symbiotic. I bet even Cameron could work that out, the evil Thatch did. I could equally argue that the excessive profits made in the private sector are based on the expolitation of loew paid public employees. That is, educate your own workforce and pay to keep them healthy etc and you’ll see much lower profits mate.

  • Call me Dave

    Steve, we dont expect to see lines of public sector employees at the job centre any time soon. It’s all about perception – the government may announce they are cutting jobs in a particular area but what they don’t tell you is the individuals concerned merely take up roles in a different area.
    You just don’t get it do you? Pain – what pain??
    If the local cooncil is running short of money they simply increase their prices – ie hike up local income tax. This is also exactly what central government does. Service provision within the public sector is a monopoly. Like all monopoly’s the consumer gets screwed. That is what this site is all about but you just don’t see it. Possibly because as you have shared elsewhere on this site that you are employed in the public sector and earn in excess of £100k per annum, so I can understand your misguided comments.
    Yes we need the public sector infrastructure to provide the conditions for wealth creation via the private sector. But we need to deliver that infrastructure in a smarter way. That’s the bit you, along with the rest of the public sector, struggle with.

  • Call me Dave

    So Steve, the public sector got no share of the boom? I’ll leave it to others to explain the patently obvious – really can’t be bothered. Great insight indeed from a £100k+ public sector employee.

  • Steve Robson

    I’m afraid I’m a former £100K+ public sector employee, now a £100K+ private sector employee. And I am truly dedicated to an efficient public sector, but what you don’t get is that will be achieved through real leadership and management, not the TPA’s slash and burn, which will increase costs rather than reduce them. with no good leaders, costs will rocket!
    And, I don’t know why you don’t get the point about benefiting from the boom. No public sector employees got the massive bonuses and share options paid in the public sector. Yes there was a bit more cash about, but nothing on the scale of bankers bonuses. That, I’m afraid is where gain and pain do naturally go together, but at least those guys have now paid of their mortgages with their bonuses, unlike their public sector counterparts.