Rock boss’s upbeat vision of the future
Aug 6 2008 By Adrian Pearson
This once great community has been brought to its knees
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Many in the North East have already paid with their jobs and billions of pounds of taxpayers’ money are at risk.
What was new and worrying yesterday was the acknowledgment of the scale of the hit which taxpayers have taken from the decision to rescue the bank. From September onwards the taxpayer bankrolled Northern Rock to the tune of £26bn which, we were assured, was secured against good-quality assets. Yesterday we find out that £3.4bn of this enjoys nowhere near such security.
This £3.4bn amounts to an effective rights issue to its one and only shareholder – the Government. This money will now be entirely dependent on the success of Northern Rock as a business: a rather worrying position when its stated business plan is to contract by a half.
Of course the hope is that the Government will be able to sell off Northern Rock as a viable business when times are better, and thus be able to finally recoup much of its money. Meanwhile, in an already depressed and worsening market, it is clear that a large amount of taxpayers’ money is now at serious risk.
What makes the whole situation particularly galling is the whole Northern Rock debacle was made so much worse by the Government’s inaction in a crucial period in the autumn of last year. I and others repeatedly warned the Government to stop the bank offering reckless ‘Together’ mortgages of 125% of the value of a property. It was already clear that the market had passed its peak and that these mortgages were simply an invitation to negative equity.
Yet the Government did nothing and the bank acquired yet more risky mortgages underwritten by the taxpayer.
We are now seeing just how misguided some of Northern Rock’s lending was. The decent mortgages Northern Rock had have been sold off to repay £9bn of the taxpayer loan. We can see that what is left behind includes many junk mortgages which are either unsecured or have been lent to people who simply cannot afford to keep up repayments.
The people of the North East and taxpayers as a whole who have seen this once great community bank brought to its knees have a right to be angry. Not only angry at the managers and directors who still have not been held to account but also the auditors, the regulator and the Government as a whole.
The woes of Northern Rock are now being felt industry-wide, and other banks, some of whom have acted in a similar fashion to Northern Rock, now wish the Government to guarantee their new loans. This would put yet more taxpayers’ money at risk and seek to prop up a housing market which is having to adjust to more affordable prices. There have been calls to temporarily abolish stamp duty for the same reason, yet this would use more public money for the same questionable end.
This does not mean we should sit idly by while people feel the pain of this falling housing market. But we must be focused on what we want to achieve. Firstly, we must ensure through a statutory code of practice that banks only ever repossess as a last resort. We must not see a return to the 1990s where half a million were made homeless. Secondly, as demand increases, the Government should rebuild the stock of social housing by allowing councils and housing associations to borrow money to buy up houses, if they can identify unsold new private property available at a generous discount.
Northern Rock must be a lesson for the Government. From here on we must concern ourselves with helping people who have been hurt by the credit crunch, not banks who are feeling the effects of their own reckless actions.
PAGE THREE: Help on offer if you're in trouble
