...a blog by Richard Flowers

Tuesday, February 19, 2008

Day 2604: Mr Frown on the Rock of Ages and Ages and Ages


So, the Northern Rock is to be nationalised.

Or, as Chancellor Sooty put it on the The Today Programme: "We're going to have to take the action that… you know; we'll bring it under the control of… well you understand; we're going to do… thingie!"

On the never-short-of-excellent "Boston Legal", Mr Brad Chase has a phobia of saying the word "lesbian". I wonder if Chancellor Sooty has the same problem.

After all, it is just as WORD! All together now:

"Lesbian, lesbian, lesbian! Nationalisation, nationalisation, nationalisation!"

That wasn't too hard, now was it?

The Conservatories, meanwhile, are being stupid.

Mr Balloon has, predictably, called for Sooty to go, and GROWN-UP Young Master Gideon Oboe has called him a "Dead Man Walking".

(In fact, Master Gideon has been ragging Sooty all week after he backed down over the taxing of the "non-doms"

"As Any FULE KNO, these plans is RUBBISH!" said Master Gideon " 'cos they was nicked from US! Er…")

But the REAL stupidity is their supporters, who are crowing that this is the Labour's BLACK WEDNESDAY. This is stupid because:

  1. it is Sunday
  2. it reminds everyone of the day when the Conservatories' entire economic policy imploded up Mr Norman Badger's BOTTOM!
  3. and that was with help from Mr Balloon.
But are they RIGHT?

Well, in CASH terms, probably NO.

In 2005, the FT used the Freedom of Information Act to discover that on "Black Wednesday" Mr Norman Badger spent BILLIONS from the foreign currency reserves buying pounds in order to try and prop up the value of sterling. At the end of the day he was left with twenty-seven billion pounds in pounds; unfortunately the foreign currency that he had spent to buy it was worth thirty billion pounds – an absolute loss to the tax payer of three billion quid.

Adjusting for fifteen year's inflation, that is like spending Forty Billion pounds to make a loss of FIVE BILLION pounds in today's money.

(RPI Jan 2008/Sept 1992 = 209.8/139.2)

Chancellor Sooty has loaned twenty-five billion pounds to the Rock. That money is at RISK because the bank might not ever be able to pay it back. But we haven't LOST it yet. We'll have to add to that any money that it is decided must be paid to the shareholders to compensate them for the loss of their shares. (Of course technically the shares are worthless. They only have ANY value so long as the bank is supported as a private concern by the government, and clearly the government have just said they aren't going to do that any longer.)

By nationalising, the Chancellor makes those loans less risky – because he has got his hands on the bank's ASSETS.

Now, most of those assets are the mortgages that the bank has loaned out to people.

Young Master Gideon talked about the Chancellor now being responsible for a hundred billion pounds of mortgages like this was a BAD THING. But that just shows that he doesn't have a CLUE what he's talking about. It is not a hundred billion that the bank OWES; it is a hundred billion that is owed TO the bank. Over time, the bank will get all of those advances turned back into cash with interest. Or they can sell bits of the mortgage book to other banks for (less) ready money now.

Yes, there is – again – risk involved in holding assets in the form of mortgages, but they are LESS risky than just ordinary loans (for the LENDER) because they are "secured" on your houses – if you don't pay up, then the bank can repossess.

(Though obviously that could LOOK bad if the government is taking people's homes away. Still, that didn't seem to bother Minister for Housing Ms Flint.)

So basically we now all own a bit of a bank, like we used to before the Conservatories flogged off the TSB.

Again, Master Gideon demonstrated his ignorance by saying "anyone who has read about the Seventies knows that nationalisation was EASY to get into and HARD to get out of." Well, anyone who has ever even HEARD of the Eighties will know just how EASY it was to privatise everything going, and it beggars belief that a Conservatory like Master Gideon has forgotten that!

The government now needs to let things CALM DOWN a bit, wait for the banking industry to get their knickers untwisted about the credit crunch crisis, and let the bank get on with sorting itself out so that it has a working business model, ideally one that does not involve endless borrowing from the magic money fairy. Then the bank can be floated again, and we can have another big privatisation gold rush. Whoo very hoo!

The alternative, if that is not working out, is to sell off the mortgage book as a whole to another bank or building society.

In either case, EVENTUALLY, the Treasury will get a nice little wedge of cash back. Whether that will be equal to or more than what the bank cost has yet to be determined. There's no reason why it SHOULDN'T be… other than that governments are notoriously RUBBISH at running ANYTHING.

That, of course, is the DANGER of nationalisation – that ministers cannot resist trying to tinker, and that unions think that they have bottomless reserves to draw on. (Master Gideon thinks that the danger of nationalisation is unfair competition, which shows he really HASN'T read anything about the Seventies!)


But, but, but, but, but….

The impact of Black Wednesday was far more in PERCEPTION than in actual CASH COST.

As it happens, the economy actually IMPROVED after Black Wednesday – but that really only added to the impression that the Conservatories had been totally wrong about EVERYTHING, that they'd nailed the pound to the EMU at way to high a rate just to prove how MACHO Mr Major-Minor was, and how we'd all be better off without them.

In 1992, the Conservatories only HAD one economic policy (and it was arguably their one foreign policy too): stay in the ERM at all costs. In contrast, the Labour's economic policy does NOT hang on the saving or failing of one bank. But it DOES hang on the idea that Mr Frown is a both DECISIVE and PRUDENT fellow, under whose stewardship the economy glides smooth and serene.

For the Conservatories, Black Wednesday was a TURNING POINT: everyone knew they were EVIL but at least they would make everyone RICH. Suddenly, it turned out they couldn't do that EITHER!

This isn't the Labour's Black Wednesday because they've already HAD their Black Wednesday!

It wasn't the decision to nationalise a bank. It wasn't the dither and delay that held up making that decision from last Autumn, when Dr Power Cable told the Prime Monster that he should grit his teeth and bear it.

It wasn't even the day when Mr Frown sank his own credibility by not calling a general election.

No, the TURNING POINT was the day he tried to use IRAQ for political purposes, on the first day of the Conservatory conference. It was shallow and it was selfish and it even a flak-jacket couldn't hide that the Emperor of Prudence was naked.

This latest humiliation is JUST the latest humiliation, heaped on the pile that includes losing half the country's personal data, arriving late to sign the Lisbon Treaty and Mr Peter Vain.

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