Crock Quality Check

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?


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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