Friday, January 23, 2009

How Northern Rock became a British Fannie Mae

It had to happen.

Gordon Brown finally couldn't resist the temptation of turning Northern Rock into a British-Lite version of Fannie Mae, the organisation at the root of the world's financial crisis (along with its masters in the US Congress).

It's difficult for me to do it, but I'll try to think in an "orthodox" way for a few moments, to get all of this into perspective:


=> Northern Rock had to be nationalised to prevent it from failing, because if it had done so, it would have led to a meltdown within the British banking system - there are some companies which are simply too big to fail (though why any such company is allowed to exist in private hands, when it is really backed by the taxpayer, for the moment escapes me)

=> Once in this temporary nationalised state, to get Northern Rock back into private hands the government had to clear Northern Rock's mortgage book of everything except fully prime mortgages, to eventually sell Northern Rock back to the market and to preserve some form of return for the taxpayer

=> The government would encourage every mortgage customer to leave Northern Rock and clear the mortgage books by making sure Northern Rock didn't abuse its favoured financial position, via its access to unlimited Treasury funds printed on the Bank of England's presses

=> Within five years Northern Rock would have been back in the private sector

=> To encourage all of this "mortgage cleansing", Northern Rock staff would receive large bonuses related to their ability to get rid of Northern Rock mortgages, despite the political difficulty of following this incentivisation policy


But no, the government entirely reversed tracks on Monday, and will now be using Northern Rock as a vehicle to provide counterfeit cash to any of its supporters who need sub-prime mortgage relief.

Quelle Surprise.

Now the memory hole rationale behind the nationalisation of Northern Rock has transmuted into the following:

=> To hell with protecting taxpayer returns

=> Let's just protect Gordon Brown's back

=> And that's it!


I presume Northern Rock staff will now receive bonuses for building their mortgage book back up again! Talk about double bubble.


For more on how Fannie Mae lay at the root of this financial crisis, check out the following Lew Rockwell article, here. Click through this article to the interview mentioned, with the long-time credit controller of Fannie Mae, Edward Pinto, who is refreshingly honest in his opinion about what has really been going on.


Anonymous said...

Jack, I must ‘fess up to all of this. It was I who posted in the DT: that if the government wanted to get the economy moving again it should consider that it had control over both the printing presses i.e. origination, and ownership of Northern Rock and its branch network i.e. distribution.
I only meant it in jest, but who knows who reads these postings.
The government’s position is a mess. It still tries to pretend it there is nothing wrong with Northern Rocks assets and they will come out of the exercise showing a profit but fail to take into account that if that were to be the case, they had no good reason to nationalise it in the first place
I suspect however this is much the same tactic as they played with the economy in the first place.
The economy was in a mess so if they messed it up even more, and blamed the overall outcome on saving the world to obfuscate the original sin.
In the case of Northern Rock they now realise they will make a significant loss and plan to cover it up by writing a load of new assets.

Jack Maturin said...

> Jack, I must ‘fess up to
> all of this.

So, anonymous, now we know. I thought it might be you, all along.

I wouldn't worry yourself unduly though. I think the same people who spoke to Joan of Arc are currently speaking to McAvity Brown.

He has absolutely no idea what he's doing, what caused this crisis, or what to do about it. He's just rocking from one newspaper headline to another, with the only goal on his mind being an election win in two years time.

With the Tory idiots saying that his plans are basically what they would be doing too, he is probably delusional enough to believe that it's actually possible.

I don't know if you heard his interview on Radio Moscow this morning, but he's still banging on about how 'market failure' has barely touched his glorious record of ten years of stable growth, and still refuses to take any blame whatsoever for what has happened.

I hope the men in white coats weren't listening. Because if they were, they'd surely be driving the van to Downing Street right now! :-)