Darling guarantees Northern Rock depositors' money at last

The Chancellor has finally guaranteed depositors' money in Northern Rock. That he did so today will come as a bit of shock to some people who were convinced that the Bank of England's loan facility was in some way a 'guarantee' that people's money was safe. It wasn't and until Darling spoke up the smart thing was to get your cash out quick. Now, there really is no need to panic, but there is still some case for evacuating from Northern Rock because while it is saying that it hasn't taken up any of the Bank of England's loan, that is soon going to change. When it does, cheap mortgage deals will start to be financed with expensive money cutting, or eliminating, the margin on the asset. Put simply, while Northern Rock has a good quality loan book in that few of its mortgagees are likely to go bust, it doesn't have a very profitable loan book and it is going to get worse. So, at the very least it won't be able to match the best deposit rates and at worst it may yet fail. If that happens your money may be safe, but it will probably be some time before you can get your hands on it. Simply because of better deals elsewhere and the possibility of some inconvenience then depositing elsewhere is still a rational option. What it isn't any more is immediately urgent, and people have some time to shop around and consider options.

On a political note, if the Chancellor was up for a guarantee then why wait until now? Loss of nerve or just bad timing? Both are pretty important in politics.

Cameron, Brown, and Northern Rock

David Cameron has written in the Telegraph today to point the finger of blame at the current financial difficulties at Gordon Brown. His key points are that financial regulation is a matter for government and that Brown as Chancellor allowed both government and personal debt to rise unsustainably, making the economy fragile in the face of shocks of the kind we are now experiencing. He is right on all counts, and he deserves credit for putting a strong marker down that this is a political issue as well as a matter for the markets, especially if things take a turn for the worse. Brown should not be allowed to weasel out of his culpability in the general situation, and specifically on the Bank of England's approach to the credit crunch, which has been to place financial virtue above helping people out. I am sure that Northern Rock's customers are especially grateful for that hard-edged approach.

Until Black Wednesday the Conservatives had a seemingly unassailable reputation for economic management. They managed to lose it in more or less an afternoon and Labour has benefited ever since. It has been the economy that has kept a serially incompetent and dishonest government in power for a decade. A credit crunch, mortgage hikes, slowing housing market and rising prices are all factors that could contribute to a political paradigm shift, but much as I wish this lot out I wish it didn't have to happen this way.

Darling seeks to reassure Northern Rock Customers; doesn't work

Let us pretend that you have money in the Northern Rock Building Society: what then is the rational course of action? According to the Chancellor, the emergency loan he has authorised to the beleaguered building society means that everyone can be reassured. It's not going out of business. That still leaves the question: what would you do? Well, the Financial Services Compensation Scheme that protects depositors only provides full compensation up to £2000 and ends £35000. This loan from the Bank of England isn't exactly free money either. The loan is secured on the Northern Rock's loan book, so it is effectively capped at £31.5bn, and that is assuming that none of the loans have not already been used for collateral elsewhere. It is also at a punitive rate of interest, so taking it up cuts deep into profitability, and Northern Rock will certainly have to take it up. So, in strictly rational terms the smart thing to do might be to get your money out, especially if you are well over the £33000 limit. In any case, Northern Rock customers are voting with feet, regardless of warm words from politicians, with £1bn withdrawn yesterday and more today, and the more is taken out, the more sensible it is to take your money out. Whatever happens Northern Rock is finished, facing either takeover or bankruptcy, probably the former. They ran a money market-based strategy, and, like so many similar, it worked just fine until the market changed. Using your business as a one-way bet is never a good idea.

I reckon that Northern Rock customers have got it right. The question is how correct are the Chancellor and the Bank of England on this one? They are being much less sympathetic than the the Fed or the ECB. This could turn out to be a mistake, especially if the Northern Rock collapses.

John Baron MP attacks Government over housing policy “shambles”

Following recent obscure White Paper publications, John Baron MP has criticised Government plans to increase the number of houses that councils will be forced to build and to limit the power of councils to block the building of incinerators and sewage plants. He has also attacked the Government’s record on social housing.

John said:

A series of recent obscure White Papers and announcements show the Government’s Housing policy is in a mess. We need more houses across the region, but forcing ever higher house-building targets on local councils and communities is not the way to do it. This policy can only put pressure on our already-overstretched public services, and it will also threaten our greenbelt and the environmental protection which this provides.

It is also undemocratic – local residents should decide the type and extent of new development, not politicians sitting in London. I don’t buy the Government line that local communities cannot be trusted to make these decisions.

Meanwhile, an obscure White Paper has revealed that Gordon Brown is planning to strip local communities of their say over incinerators, rubbish dumps, and sewage plants. The Government has sided with large developers, rather than the people. These decisions will now be made by a new central Government quango, which will be unsackable and unaccountable. So much for a more ‘open’ style of politics.

Evidence that the Government’s housing policy is in a shambles is its record on social housing. Less social housing has been built in every year under the Labour Government since 1997 than in any year under the last Conservative Government. I have asked the Housing Minister what she intends to do to put this right. Once again, Government action has not matched its spin.

John has written to the Government asking for answers to these points.

Alastair Darling blames the Banks for Brown's mistakes

Alastair Darling, who has just remembered that he is Chancellor of the Exchequer and noticed that something appears to be up, has criticised the banks for being reckless lending and urged a return to 'old-fashioned banking'. This is, of course, a meaningless soundbite. As Darling well knows the current crisis is on the finance side of banking operations, not on the lending side. As he also knows there are already serious effects on the real economy, but they are effects not causes. No financial institution lends unless they expect to be repaid, though it is certainly true that some are more risk-averse than others. In any case, the banks are already raising interest rates and tightening up on lending independently of government and the Bank of England, and that is the policy failure that he is trying to cover up. Not only has there been a regulatory failure with regard to complex debt-based instruments, but the refusal of the Bank of England to inject liquidity into the UK money markets means that it is the consumer that is going to take the pain. This is not the stance taken by either the Federal Reserve in the US or the European Central Bank by the way, who have acted to protect ordinary people. Who is at fault? Well, who has been Chancellor for the last 10 years? Who has set the regulatory framework? Who hired Mervyn King and the rest of the Monetary Policy Committee? It's Gordon Brown of course. Darling is covering for his boss as the failures of Brown's tenure at No 11 become apparent. That he feels he has to do it does not augur well, however. One wonders what the report that must have just landed on his desk actually said.

Laindon Centre redeveopment Consultation Starts

If you live in the Basildon area then you probably know the Laindon Centre. As no-one would argue it is a depressing, graffiti-riven piece of 60s brutalist architecture, which has less fallen out of fashion but more a wonder that it ever was in fashion. However, it has some first-class traders, including an excellent Indian restaurant, hairdresser, and a fine chippie. It is in private ownership, and the previous owners had obtained planning permission for a redevelopment. The trouble was that the scheme could not be delivered, at least they could not find anyone to finance it as it stood. Now there are new owners, and they are starting to consult for a new scheme. Basildon Council has used its good offices to get matters to this point, but now it is up to the private sector, and the good people of Laindon, to make it all happen.

Rees-Mogg Reckons things can only get better, for David Cameron

Brown has lost his bounce, and a few things are going wrong, most notably the economy, as William Rees-Mogg summarises here. It appears that the credit crunch is feeding through into business interest rates, which have risen without reference to the Bank of England. Mortgage rates will probably follow as banks seek to fund loans from deposits instead of borrowing, and several have already started raising savings rates in anticipation. So, for the first time the levers of the economy have drifted away from the government, remember they set the inflation target for the Bank of England to aim at but if the Clearing Banks are doing their own thing than Gordon Brown and the BoE become bit players. Of course, they can cut base rates in effort to reassert their authority, but is that the right thing to do? If the Banks don't move their High-Street rates then it makes no difference anyway.

So, Brown is in trouble and even cheerleaders like Simon Heffer are laying into him, though in this case via a moronic economic analysis. When even New Labour apologists like Heffer turn against you then you know you've got a problem.

John Baron MP on St. Andrews Health Centre in Billericay

Our local MP has taken up the very serious issue of the threat to the St Andrews Health Centre in Billericay. This is what he has written to the Chief Executive of Basildon Hospital:

31st August 2007 Ref: JB/TD

Dear Alan ,

St Andrews Centre, Billericay

I am writing to express my concerns and those of local residents about the current review that is being undertaken regarding the future of St Andrews Centre, Billericay.

Whilst accepting that you are obliged by Monitor to ensure that your assets are being properly utilised, you need to be fully aware of the extent to which St Andrews is relied upon by the local community, and the extent to which we will resist any downgrading or closure of services. I have sent a 1,000 signature petition and 78 letters of support to SW Essex PCT to illustrate the strength of feeling on this issue – and my thanks go to Cllr Terence Gandy for helping to collate all these. I will be sending the PCT a further tranche of petitions once they have been collected. I have directed these petitions to the PCT as I fear that any possibility of closure could be driven by cost considerations.

We are determined to fight to keep St Andrews open and fully operational, and would therefore appreciate your written confirmation that this will be the case. You should be aware that, if this confirmation cannot be given now, I will be inviting the PCT to a meeting with local residents to which you will also be invited.

On a related issue, I have also made the PCT aware that I find it somewhat unfortunate that relevant stakeholders were not consulted about this issue – for one thing, it cannot be good for staff morale to first hear about this in the newspapers.

I look forward to hearing from you

Yours sincerely,





John Baron MP

cc: Cllr Terence Gandy

Mr Alan Whittle
Chief Executive
Basildon and Thurrock University Hospitals NHS Foundation Trust
Nethermayne
Basildon
Essex SS16 5NL

Terence Gandy is a Councillor on Billericay Town Council and he deserves congratulations along with John for gripping this issue. The Trust is on notice on this one. Billericay as a community will fight for our local health facilities.

Simon Heffer, economics illiterate

Today, Simon Heffer tries his hand at economic analysis in his column in the Telegraph, and demonstrates to all and sundry that he knows nothing whatsoever about the subject. He sets the tone thus:

We need not blind ourselves with the technical details of the liquidity crisis enveloping so many financial institutions.

Then having made a virtue out of ignorance he sums up the global economy in one incisive sentence:

We are saving too little and borrowing far, far too much. Not just in Britain, but around the world, we have gone on a spending spree.

Right, well unbeknownst to Simon, when people spend money it does not evaporate, rather it passes to some other party and is further utilised, spent, invested or whatever. What he is actually saying is that the problem is that there has been too much economic activity, which is absurd unless you genuinely think it is better for people to be poorer. What is actually going on is that it has become apparent that some types of financial instruments cannot be accurately priced, which means that the risk of lending to institutions with the things on their books cannot be gauged. The dodgy assets are based on packaged up mortgages from the US which has seen an unsustainable property boom and a great deal of mis-sold mortgages as a result. It is one of the glories of the globalised economy that bad loans from Iowa can end up in Stuttgart but there you are. Having ignored the 'details' Simon gets on with pointing the finger, and in a complete departure from his usual form, he says that it is Gordon Brown's fault:

Much of this problem domestically is the fault of none other than our Prime Minister. When Chancellor, he set the inflation target for the Bank of England, and he set it too high. The supply of money in the economy has for years grown at an unsustainably high rate.

What this means is that Simon thinks that UK interest rates have been too low. He doesn't explain what on earth this has to do with a credit crunch caused by a US property crash, though. Anyway, his central point is that it is all going to end in tears because there is too much personal debt, and he harks back to the Victorians as an exemplar on how things should be organised. All I would say to that is why stop there? Maybe iron-age Britain had a few things to teach us too when it comes to managing international finance in the 21st century? It is also interesting to read a supposed admirer of Margaret Thatcher effectively trashing the concepts of free markets and personal freedom with gems like:

Those sensible Victorians used to lock people up for debt...

and

It might not be a bad idea to lock up a few reckless lenders as well...

That is economics by a committee of Fidel Castro, Robert Mugabe and Lenin. Does anyone still believe that Simon is a Conservative?

Later on Simon returns to more familiar ground in attacking David Cameron, this time for going up in the polls by espousing the sort of Right-wing policies that Simon pretends to endorse. So in Hefferworld no one is right, except for Simon of course.

Basildon Emergency Control Room opened

Hope for the best, but plan for the worst. That is a pretty good maxim for a Local Authority like Basildon District Council, so we have put a deal of time of energy into emergency planning. This now includes a high-tech control room to manage the sorts of things that we hope will never happen. Unfortunately the occasionally do, for example we had a very bad fire in Billericay at a workshop site in January that led to an evacuation of local residents. From an emergency response perspective at least it went very well, and the same team that ran that situation are now even better equipped.