Northern Rock

What is total potential taxpayer liability in the Northern Rock bail out (without nationalising)?

For the answer see Robert Peston here.

Better to nationalise Gordon?

About loveandgarbage

I watch the telly and read when not doing law stuff and plugging my decade and a half old unwatched Edinburgh fringe show.
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2 Responses to Northern Rock

  1. fatkraken says:

    I have heard, I think it was on working lunch, that the actual potential loss figures touted in the papers are extremely misleading. The government is proposing a massive baliout, yes, in that it will back account holders who wish to take out money. But it is not a “gift” or even an unsecured loan, because it is backed by bricks and mortar property investments held by Northern Rock. The figures I heard was the actual money potentially “down the drain” and not recoverable by siezing and selling off assets was less than half a billion pounds. I will look for proper reporting of this and get back to you

    • Part of the problem is that the new guarantees underwriting private loans to the bank are contingent liabilities (effectively guarantees – caution in Scotland, surety in England), but are in addition to the existing underwriting of the bank (meaning a double hit if there is a problem – because the loans will be withdrawn and/or called up leaving the state to pay).
      I think that the asset backing for Northern Rock securities is pretty good (I declare an interest as a borrower myself), and that the chances of institutional default are slim (as the securities are valuable rights that can (insofar as they have not already) be realised through sale). The Northern Rock though is – with its borrowers – tied into undertakings that prohibit enforcement and full realisation of the loans prior to default meaning money can only be realised on the loans through a sale at a disocunted value – the actual market value of the securities is then less than the book value, because any purchaser will discount for the risk of default (and in a secruitised product at the moment is, I think, likely to discount for a higher sum, given the bundling of good and bad securities, and the lack of transparency as to potential risk in the securitised product – despite the “AAA” statements from insurers in the sector).
      However, when the bank could have been sold with a guarantee of a few billion to Lloyds TSB, that the current guarantees expose a risk of £100 billion (albeit a risk unlikely to arise) suggests a screw up somewhere along the line.
      Nationalisation seems cheaper – but I might be missing something.

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