Last August Northern Rock was the subject of the first run on a bank in this country for a hundred and forty years. People queued up all night to try to get their money back. But, of course, their money wasn’t there. Where had it gone?
Former chief executive Adam Applegarth could provide part of the answer. Over the past five years he’s sucked £10 million out of the company. In January he cashed in shares worth £1.6 million to add to his collection of luxury sports cars. Then each share was worth £12. Now they’re saying each share could be worth just 1p. Did Adam know something he wan’t telling the rest of us?
The government is looking tired and incompetent. The wheels are falling off New Labour. So Chancellor Darling dithered as Northern Rock crashed. Gradually it dawned on him that he couldn’t let the bank go to the wall. It might drag great chunks of the British financial edifice with it. That is what finance capital does: it links us all together, all our fates and all our fortunes in a great money chain. But we only realise this when things start to go wrong.
Northern Rock was dragged down by the US sub-prime loans scandal (see Michael Roberts’ article). The sub-prime loans were handed out to ‘trailer park trash,’ as working class people are routinely referred to in the States. They had no chance of repaying.
But the Rock didn’t have a single such loan on its books. What happened was this. American sub-prime loans were bundled up in SIVs -‘structural investment vehicles’, pieces of paper sold to banks all over the world as financial assets. So an American financial scandal was ‘globalised.’ Thanks a lot!
Now these toxic SIVs have caused bank lending to dry up all over the world. It’s called a credit crunch. That’s what caught out Northern Rock.
Huge figures
Darling has shown the fiscal probity of a drunken sailor in his efforts to keep Northern Rock afloat. Huge figures have been bandied about, but it seems Northern Rock has already swallowed £40 billion of our money, round about £667 for every man, woman and child in the country.
Gordon Brown refused to tell Parliament how much he’d pumped in, burbling about ‘commercial confidentiality’ in Prime Minister’s question time. Not when it’s our money you’re wasting, it’s not! The opposition are having a field day. LibDem Vince Cable said the government has spent enough money to build thirty millennium domes, and we haven’t even got a rock concert out of it.
What should the government do next? They are right to assume that a collapse of the financial system doesn’t bear thinking about. But the fact they want to stop Northern Rock sinking below the waves means capitalists can take them, and our money, for a ride. Take the predators like Richard Branson, who have been circling round. Their plan is simple. Northern Rock has got assets of £50 billion in mortgages. They want that. They are prepared to buy that. Then they will dump the Rock’s liabilities on Josephine and Joe Public. We should not be surprised at this. We socialists already know that the capitalist class are greedy and useless. But the government are pandering to their worst instincts.
Even mainstream commentators are outraged. Will Hutton comments in The Observer, "The amazing amoral asymmetry of the way the government has approached this affair – the taxpayer picks up the bill while the bankers and shareholders are in the driving seat in the service of making private private fortunes – has been progressively unmasked."
The other shower who are playing the government like a violin are the Northern Rock shareholders and the new board of managers. Not surprisingly, they want the taxpayer to foot the bill to keep their share prices up. But shareholders,we are told, take risks: they may occasionally have to take a hit if things go pear-shaped. That is why they are entitled to a profit.
It’s all a fairy story. Really, these people have no right and no power over the government. They backed a loser. Hutton gets so furious at them he becomes uncharacteristically demotic, "The Bank of England and government have a de facto veto on any plans. The City must think them a bunch of muppets, but given the Treasury’s behaviour, the attitude is amply justified."
Get rid of the influence of the predators and the shareholders. Get their hands out of our pockets. Nationalise Northern Rock. Since the government is intervening to prop up the banking system as a whole, we don’t just want to take over the loss-makers. We want the lot. Take over the banks. Then we can guarantee the rights of depositors and mortgage holders, and make the future secure for all of us.
