Tuesday, August 05, 2008

Labour pours more money down Northern Rock drain

Labour has poured another £3bn into Northern Rock, this time in the form of 'equity' in the failed bank. Let us be clear, if Northern Rock had not been nationalised then it would have gone bust. The ex-shareholders have not yet been compensated, so what we have is the government buying 'equity' in a bankrupt bank with a huge mortgage book of low quality loans in the middle of a housing crash and with a potentially huge unquantified liability to its former owners. This is not a good investment. They haven't even told us how much 'equity'? Does £3bn represent 10% of the bank when it is eventually floated back onto the stock market as is the supposed intention? Or is it 20%? More? Less? Who the hell knows. This is a simple case of good money after bad.

Nationalising Northern Rock made no sense in financial terms, but it was never about money, it was about Labour marginal seats. Make no mistake, if it had been called 'Southern Rock' and based in Guildford then it would have gone to the wall. That could not be allowed to happen to one of the biggest employers in one of Labour's heartlands so they used the taxpayers money to bail it out, and now to keep bailing it out because even with guaranteed government funding Northern Rock is still tottering. This is £3bn that the government can't use it to help the many people who are finding it tough as the country slides into recession. How about reducing taxes? How about kick-starting the housing market? How about reversing the punitive increase in Vehicle Excise Duty that hits the poorest families the hardest? No, instead the cash goes to preserving a few thousand jobs and a few jobs in particular: Labour MPs in the North East.

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