Darling on Rock
There have been more proposals to buy all or part of Northern Rock than the bank might have expected even a couple of weeks ago.
However of the ten-odd expressions of interest, two stand out.
They are from the US private equity firm, JC Flowers, and from a consortium led by Sir Richard Branson's Virgin (Flowers is finalising its bid and will submit it formally by Tuesday morning; Branson's went in yesterday).
Both would buy all of it, not just a supposedly profitable rump.
Both would inject a significant amount of new capital into the business - in Virgin's case, a billion in cash plus an in-kind injection of its existing financial business, worth somewhere between £100m and £200m.
And both would supply a new management team, including a chief executive and chairman.
Virgin is slightly out in front, according to those involved in scrutinising the bids.
If Virgin were to emerge as victor, its consortium would end up owning around two-thirds of the equity – leaving the existing shareholders with a third of the business.
The ball is now in the court of Alistair Darling, the Chancellor.
No deal can be done till he makes up his mind about how long he is prepared to sustain the enormous financial support he has provided - in the form of insurance for depositors and a Treasury-backed loan from the Bank of England of around £24bn.
His actual and potential exposure is well over £40bn.
How long he is prepared to keep that in place has wide ramifications, particularly for shareholders.
If he wanted his money back tomorrow, for example, the bank would go straight into administration under insolvency procedures and the shares would be worth nothing.
If he is prepared to leave the financial prop in place for three years – subject to not falling foul of EU state-aid rules – existing shareholders might recoup some of the losses they’ve incurred.
Now Darling made it crystal clear, in letters to the Public Accounts Committee and the Treasury Select Committee, that protecting shareholders is not on his to-do list in any shape or form.
And he won’t be feeling under any moral obligation to help the ten big investment institutions – hedge funds and more conventional investors – which control more than 50 of the Rock’s stock. It’s caveat emptor for them, Darling would say.
However, some 20 per cent of the Rock is owned by 150,000 small shareholders – many of whom received their stakes as payment for their previous de facto interest in the Rock as a mutual building society.
They are not, on the whole, experienced investors. Few of them had any inkling of the risks of equity. And for many the shares were an important retirement nest-egg.
Could Darling really contemplate wiping them out, even if it’s his official responsibility not to subsidise them with taxpayers’ money?
It is a potential nightmare for him.
And here’s what complicates matters.
He said during and after the run on Northern Rock that the bank is solvent.
As much as anyone, therefore, he is responsible for giving hope to small shareholders.
The political backlash were he now to dash that hope would be something to behold.
PS Many apologies for the difficulties you have been experiencing in posting comments. Apparently the publishing system is working again. Thanks for your patience.
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it beggars belief that £20 billion plus of our money has gone to preserve some small share holders in NR.This is an obscene amount of money to be risked for political expediency by this incompetent government but alas is typical. A country always gets the politicians it deserves and that is what we have a rag bag of nameless yes men and women who couldn't run a cake stall.No wonder 200,000 people emigrated.
Just because Darling said the bank was solvent, did not give any indications of the value of any shares people may hold.
It will be shocking if Darling somehow bails out shareholders - holding shares is a risky business, particularly if they are all in the same company. It's not the Governments role, the markets decide risk and reward and in this instance the moral is to spread risk by spreading your shareholdings.
I dread each of your blogs about the Rock, as each one tends to stir up more hatred of the Rock, and us employees.
Thank you Robert - just this once - for not battering us a little more.
I would like some clarification as to what would happen if the bank went into administration. I am an investor, not a shareholder, and although my investment is guaranteed at the moment what would happen to my money if the bank went into receivership? Would a new owner guarantee my investment?
I think the 91Èȱ¬ go for sensationalism and add to the hysteria surrounding this. We all want our money to be safe but if people close their accounts because of what they have heard on the 91Èȱ¬ it only makes the problem worse. If I were to ask advice from my bank they would probably try to get me to transfer my money to them rather than give me reassurance and I believe in spreading my assets.
This has been going on now for some time and the longer it goes unsettled the more people will close their accounts. Can the 91Èȱ¬ be more reassuring to the investors?
All is well that ends well!
Value is in the eyes of beholders.
Those who short sell for a 10p gain now face a 1000p loss.
I find the idea that small shareholders should be protected admirable but out of kilter with the treatment meted out to such people in the past. l recall, for example, the collapse of Rolls Royce nearly 50 years ago because my elderly parents, both of whom had been employed by the company, lost most of their savings which had been invested in workers shares. Within a year, the company was reborn, but they received only a small part of their original investment from the administrators. I do not remember anyone at that time arguing they should not lose their savings because they knew very little about the risks of investing. In any case, they had always been told that Rolls Royce was as safe as houses.
Any continued support must be on the based on a proper business decision. The short term issues have been resolved and the interests of depositors protected. Further involvement must represent good business for the Exchequer and a proper return on his £24B investment. It is not the Chancellor's function to support shareholders or distort the financial market to the determent of responsible bankers. The fact that all prospective purchasers appear to require Treasury support suggests that the business is not sound and should be in administration already.
Shouldn't he be putting this amount of subsidy to a vote in the House of Commons?
They let Rover go to the wall. Despite manifest incompetence and asset stripping by the management there.
They ripped off the 'grannies' who had shares in Railtrack when they made that bankrupt.
What's so special about Northern Rock?
Apart from the footage of the queues outside Northern Rock branches.
I don't believe Darling should worry about the shareholders losing money. His primary obligation is to the taxpayers.
Following that logic he should have let Northern Rock go under, as Buiter said on Newsnight last night.
I suspect that Darling is trying to weigh up the political damage from NR going under against that from losing tax-payers money, also taking into account that a wholesale banking crisis and ensuing recession would see Labour out of office rather quickly.
He actually has nowhere to turn.
"If he is prepared to leave the financial prop in place for three years – subject to not falling foul of EU state-aid rules ...."
I'd be grateful for clarification from anyone regarding this issue.
As I see it, the BoE 'lender of last resort' facility is available to all the banks if they need it, so does this count as 'state aid' under the rules? I would have thought not.
Darling made changes to increase protection to 100% of the first £35,000 of ALL depositors funds, so no anti-competitive issues there.
So we are left with Darling's decision to protect ALL deposits in just Northern Rock, and I would imagine that would be subject to the 6 month rule. So, if the intended legislation to increase the guarantee limits is delayed for any reason, and if Darling is forced to lift the 100% guarantee from NR, might we witness another run on the bank from those customers who still have large sums on deposit ???
I'm just surprised to see that NR is still advertising for consumer deposits at rates higher that similar businesses. Is the taxpayer "guaranteeing" these higher rates? If so why?
I dont care about any of the shareholders - the whole point of being a shareholder is that you could gain, you could loose - after all if NR hadn't floated depositors wouldn't have had the shares.
What would happen if BofE wasn't covering maturing loans made to NR? Surely those investors should be the ones loosing their money, not the state bailing out. Isn't it strange how failed businesses manage to get state to bail them out, yet people with absolutely nothing through no fault of their own dont get help from the state, and so many benefits are means tested?
Any continued support must be on the based on a proper business decision. The short term issues have been resolved and the interests of depositors protected. Further involvement must represent good business for the Exchequer and a proper return on his £24B investment. It is not the Chancellor's function to support shareholders or distort the financial market to the determent of responsible bankers. The fact that all prospective purchasers appear to require Treasury support suggests that the business is not sound and should be in administration already.
Robert, Call me a cynic but your excellent analysis continues to avoid a geographical dimension. The Northern Rock is very much a northern business. Rock solid labour heartland, which will weigh heavily on Darling's decisions. To save jobs and depositors, the subsidy may stay in place much longer than anyone predicts, ensuring a gentle hand-over. The moral hazzard dimension while being ignored today will be back to haunt us tomorrow. It is now politically impossible to let ANY bank go under.
Is this a resignation I see before me?
Is this going to be another black Monday/Tuesday....?
"If he is prepared to leave the financial prop in place for three years – subject to not falling foul of EU state-aid rules ...."
I'd be grateful for clarification from anyone regarding this issue.
As I see it, the BoE 'lender of last resort' facility is available to all the banks if they need it, so does this count as 'state aid' under the rules? I would have thought not.
Darling made changes to increase protection to 100% of the first £35,000 of ALL depositors funds, so no anti-competitive issues there.
So we are left with Darling's decision to protect ALL deposits in just Northern Rock, and I would imagine that would be subject to the 6 month rule. So, if the intended legislation to increase the guarantee limits is delayed for any reason, and if Darling is forced to lift the 100% guarantee from NR, might we witness another run on the bank from those customers who still have large sums on deposit ???
A Labour government has always bemoaned the sell-off of social housing under Margaret Thatcher. Surely they should not now be considering supporting a private bid for NR. They should be nationalising it, paying a nominal sum for the equity. They should not be squeamish about small investors losing their money. When any mortgagor defaults in future they should foreclose and, voila, an item of social housing. (They would not auction off the property, merely pay the occupier their equity as established by the District Valuer.) They could even rent it back to the existing occupier. This seems too simple to me. Am I missing something?
The Chancellor has been painted into a corner, and there is no way out. But the biggest political fallout would be for him to use billions of pounds of taxpayers money. Surely he cannot possibly to do this.
If he goes down that route, then there would have to be a vote of no confidence in the Government, especially since the economy is looking increasingly fragile. £20 billion is a significant amount of money, £40 billion scares me.
Shareholders in any company are aware of the risks - shares can be wiped out. If he were to support them, then the legal ramifications are worse: every time a company went to the wall people would demand support from the Government, quoting the Northern Rock case.
The Goverment only ever seems to have two solutions to problems: throw money at it or tax the hell out of it. Short term measures that cause considerable long term harm.
Robert,
Are you not ignoring a geographical political element. Darling knows Norther Rock is very much a North Eastern (read Labour) based business. Jobs + small shareholders = votes. The taxpayer will subsidise this business for a long time. Darling wont now be able to let ANY bank go under. Bob Diamond et al will not have missed the appearance of a safety net.
It's possible to have some sympathy with small shareholders, but in the final analysis, everyone knows stock market investing is a risk. Of course, in Mr Darling's eyes votes may also be at risk, but bailing out equity investors with public money would be quite wrong.
A Labour government has always bemoaned the sell-off of social housing under Margaret Thatcher. Surely they should not now be considering supporting a private bid for NR. They should be nationalising it, paying a nominal sum for the equity. They should not be squeamish about small investors losing their money. When any mortgagor defaults in future they should foreclose and, voila, an item of social housing. (They would not auction off the property, merely pay the occupier their equity as established by the District Valuer.) They could even rent it back to the existing occupier. This seems to simple to me. Am I missing something?
Jim Clarke's ascerbic comments are so misdirected. The £20b he refers to was to support 6500 jobs, not the shareholders, small or otherwise. If he had thought it through properly, he could still have criticised the Chancellor for closing the door long after the lame nag had bolted. The systems simply were not in place to provide warning of this disaster. In the meantime, I would recommend Mr Clarke steers clear of the North East of England. He has a good chance of bumping into one of the tens of thousands of employees and small shareholders, who have lost their retirement nest egg, he cares so little about!
Jim Clarke's ascerbic comments are so misdirected. The £20b he refers to was to support 6500 jobs, not the shareholders, small or otherwise. If he had thought it through properly, he could still have criticised the Chancellor for closing the door long after the lame nag had bolted. The systems simply were not in place to provide warning of this disaster. In the meantime, I would recommend Mr Clarke steers clear of the North East of England. He has a good chance of bumping into one of the tens of thousands of employees and small shareholders, who have lost their retirement nest egg, he cares so little about!
I'm a member of Northern Rock staff. One of the people who barely get a mention in all this. A huge percentage of Northern Rock staff are shareholders in the company, encouraged by a 'staff share save' scheme. Not only have 'ordinary' staff lost a fortune on shares we may well lose our jobs. We are also all tax payers. It's all well and good saying shares can go up and down in value but how many people expected the 5th largest mortgage lender in the UK to implode?
"The Northern Rock is very much a northern business. Rock solid labour heartland, which will weigh heavily on Darling's decisions."
Unfortunately Labour can take votes from the North East for granted, no matter what they do.
How can anyone believe that the Government should indemnify Northern Rock shareholders against loss? What on earth are we thinking of? When the price of these shares was going up and up and up did anyone suggest that it would be a good idea to compensate all the non-shareholders who had had the misfortune not to be part of this zero-effort wealth accumulation?
If investing in Northern Rock is to be on the basis of "Heads I win, Tails everyone else loses" wouldn't all the other stock-market gamblers have every right to press for equivalent treatment? Or has the Government that "doesn't do God" decided also that it "doesn't do principles"
The danger to the UK economy in all this is immense. The over reliance on financial services and the fawning attitude of this Govt towards the sector to the detriment of all others has left us with an economy that is hugely out of balance.
The pound fell 2.1% against the Euro last week and 2.2% against the Dollar and analysts are urging investors to sell the pound. This is real danger zone stuff.
I sympathise hugely with NR employees. This Govt's attitude and that of the financial services sector to real industry is going to make it very hard for them to find new jobs when this fiasco reaches its conclusion.
Save the ranting and raving everyone. What was at stake when the government made the emergency loan to NR was the loss not only of NR's depositors money but the loss of the savings of the depositors of all of the other smaller banks and building societies which would have followed NR if nothing had been done. The resulting crisis of confidence would have the brought the economy and the government's precious tax receipts tumbling down. So this was an economically rational action from a government that had no choice.
The next step also has to be economically rational. The Treasury has to take the best available deal for NR in the context of the likely risk to the Treasury/depositors of NR. I personally fancy the reputation of JC Flowers' execution over Virgin's (although I don't know the details of the plans).
Finally, can we cut the moralising, grandstanding clap-trap of the chairman of the Treasury select committee. NR was a business model which failed an extreme test. The management is fired, the shareholders have lost their money - deserved. But they were not guilty of fraud - just of a business model which pushed the envellope. There are still plenty of those around - come to think of it, this government's tax and spend policies are pushing that same envellope.....
It just 100 years since the The US Panic of 1907, also known as the 1907 Bankers' Panic.
Fortunately, modern communications have averted a panic from occurring today, its more of a nervous rash that won't go away.
However, there are similarities. Money was in short supply. The US Treasury stepped in but it was not enough and only the efforts of J.P Morgan saved the day.
Perhaps this should be an inspiration to the worlds billionaire entrepreneur's to do something that will save the day?
I agree with AY's comments on the last post, very well said, my thoughts entirely.
The reality of this situation is that it was a unique crisis and despite the calls to let the bank hang, we must consider the magnitude of the macro economic conseqences if the government had let Northern Rock fail, we are talking a potential collapse of confidence in the entire banking system, the epi-centre of our economy. The ramifications of this would be would be a disaster, loss of savings for millions, collapse in company pension schemes, loss of millions of jobs, a terrible depression - is that what many of the contributors on this forum really want?! Forget the smug people wishing for a collapse in house prices, they would all be affected.
In time, we will look back on this situation and praise Alastair Darling for a superb judgement call.
Your blog focus is on the importance of protecting small shareholders. 50% of £600million share capital = £300million. As against up to £40BILLION of taxpayers who did not CHOOSE to take a risk with NR, even though they could have bought shares. The people responsible for decimating the the small shareholders and staff are called Applegarth, Ridley and Wanless, not the hapless taxpayer. We want 100% of our cash back today. Staff and shareholders can sue Applegarth for his Aston Martin, Ferrari and country mansion.
True, the North-East is a Laour heartland and Northern Rock employs 6,500 people. However, as someone earlier has gone some way towards pointing out, Birmingham is a Labour stronghold and 21,000 jobs went when the government kept their hands clean of Rover.
I don't think it's entirely accurate or fair to suggest that the government is willing to invest £24 billion (our entire transport budget is £30billion, defence £32billion - so the day is not that far away when the Exchequer could potentially be spending more propping up a single bank than invading countries) over 6,500 jobs.
I think it's possibly more accurate to suggest that they are piling in the money to try and preserve confidence in our increasingly fragile banking system. Gordon and co. abandoned Central Bank discretion over bail-outs, and instead introduced the tripartite system that is now causing us so many problems (nobody is ultimate decision-maker anymore). Further, given the way our economy is currently going, this seems to me to be a last-ditch attempt to preserve public confidence in a rapidly disintegrating facade.
Richard Hannam wrote:
"The £20b... was to support 6500 jobs, not the shareholders, small or otherwise."
Were that true -- that would make it a bit over £3 million per job!
What I see here is the vultures gathering for some quick personal millions from a now taxpayer-fattened corpse.
Robert,
Slighly off point question but with origins in the NR story.
A few weeks ago Mr Darling stated that the upper limits for the guarantees on private savers funds would be reviewed.
This would seem to me a very important measure in the restoration of saver confidence in the present crisis and the future stability of institutions like the NR.
Is it possible that you could do an article on this blog-site about the progress of this review, thanks.
No.24 (Mark) asks: "...how many people expected the 5th largest mortgage lender in the UK to implode?"
The answer? Many. I could point you to forums predicting exactly that long before the run actually happened. If you had had any sense, you would have sensed danger when the share price halved, and halved again.
The people who could see this happening were the same people who did not blindly believe the "property only goes up" mantra peddled by the industry and, I must add, 91Èȱ¬1 daytime television.
Your "open to sub-prime business" bank ((as quoted from the NR website) was at the forefront of inflating a house-price bubble --- and bubbles always burst.
I may be wrong, but I wouldn't have thought that many of NR's customers were relying on their demutualisation shares as a retirement nest egg. They were getting, what, typically £1000? From personal experience I can assure you that if you are in a position where £1000 makes a real difference to you, you sell the shares on issue and take the money.
Now retired from the NHS after 40 years, I was not completely surprised to read that the NHS is "£500m in debt", though I did worry about such a hit on taxpayers.
I don't worry about that anymore. It's a drop in the proverbial compared to that which resulted from the incompetence (to say the least)in the financial sector which may cost us £40bn.
I suppose that I have 'normalised' my view of debt!
I'm not a great one for conspiracy theories - I think they're usually psychological creations that satisfy, albeit imperfectly, a human need for explanation of situations where the true and the straight are perceived to be too far-fetched to be correct.
But, I'm wondering about Northern Rock(NR). What is so special about NR that it became unable to obtain short-term inter-bank funding to allow it to continue in business? Is there something uniquely flawed in its business model that caused it to be singled out from the rest as an unacceptable risk? Are there not other institutions that have followed very similar models to that of NR? If the inter-bank market has universally decided that NR is too bad a risk to lend to, are there not other banks, almost as exposed as NR, where the same calculations would have led to the same conclusion being reached?
Or are the NR developments part of a gigantic, concerted, secret damage limitation exercise? Has NR been chosen as the sacrificial lamb in a desperate attempt to construct the notion that what we have is an isolated, one-off problem in an otherwise OK structure? Would we be wrong to believe that NR's future has already been choreographed to maximise the chances of this version of events becoming the mainstream perception?
Which is more important? That we maintain a myth in the hope that it will never have to be corrected? Or that we accept that its foundations are built with fallacies and do whatever we need to do to replace it with a more appropriate structure.
It seems to me that the rescue of Rock by the Chancellor whilst arguably laudable in itself and if considered in isolation, has actually set an apalling and very dangerous precedent for 'UK Ltd'. What would happen if one (or more) of the larger city banks got into equivalent trouble ? - these institutions are worth tens of times more than Rock, and taken singly or together once big failure would be beyond the ability of the treasury to rescue (there is not enough money in the exchequer to do do without spectacular economic dislocation and tax ramifications). Where would this leave the Chancallor morally, politically & legally ?
There is a huge difference between the NR situation and that of other companies quoted on this board.
NR was stranded by the failure of the BoE to ensure liquidity problems in the market were short lived. It was a solvent bank.
The assets of the company are not much different now to what they were when in July. The taxpayer has security for its loans. There is too much hysteria.
It is interesting for one of the key journalists in the story of Northern Rock to be concerned over the impact on shareholders.
It was press fuelled hysteria that caused the run (which amounted to nothing) after all.
Perhaps here is a classic case-study for modern financial "emergencies".
So many people are talking as if £30billion has been transferred from the Treasury to Northern Rock. This is nonsense. The Bank of England is simply creating new money to give to Northern Rock, and charging Northern Rock a hefty penalty rate of interest on that newly created money.
When the money is repaid it is simply ‘un-created’, with the interest either being kept by the Bank (of England) or going to the Government. So for all this talk of risking public money, the fact is the Government is likely to make a fortune from this situation – the profit on a collateralised loan of £30b at a penalty rate of interest will be immense.
No doubt the Rock’s strategy failed, but if the Rock had been based in any other major economy it would not have. The BoE is the only central bank that decided it did not have a responsibility to ensure liquidity in the markets – we heard nothing from the Fed or ECB about ‘moral hazard’ – they realised that avoiding the ensuing crisis and collapse of confidence in the banking system was far more important than penalising banks or abstract academic theories like moral hazard.
We could now be facing a catastrophic situation for the economy of the North East. There is no other employer that offers quality jobs on anything like the scale of the Rock. We are talking about a large, skilled, well educated workforce being decimated with almost no remotely similar positions available in any number in the entire region. Within my own small circle of friends (I live in the North East) I already know four people, all graduates, who have been forced to move home and take jobs outside of the region as a direct consequence. And they could end up being the lucky ones.
So Branston and company put up just over a billion? Not much considering the British taxpayer is backing up 40 billion or so. I don't remember anyone asking them if they fancy doing this. As has been said many other companies have gone to the wall with no help from the government. The fact is the entire banking system has been found out and they're desperate to keep the lid on the problem. Mainly because if they did announce their real losses it would greatly reduce the amount that they have available to prove their banking status. That means a raft of money would be needed to set the asset record straight. Where would they find this money? They're too frightened now to lend between themselves.
I have no problem with HM Treasury et al providing a line of credit to Northern Rock in order to ensure that it maintains adequate liquidity to enable depositors to remove their funds and fund the loan book it had outstanding when it all went wrong.
However, the fact that the bank is still writing loans and continuing to carry on normal business defies belief. The only way they can relibably fund the new loans they are writing is via the Bank of England, ie. us. This is a disgrace. Northern Rock should have be put into administration and cease to write new loans or accept new deposits. The loan book should be run down or sold and the proceeds used to repay the Bank of England.
What is happening now is nothing more than the subsidisation of Northern Rock shareholders by the Government. It is a total and utter disgrace.
Again I say the 91Èȱ¬s Coverage started the panic. The Breaking news led to people watching 91Èȱ¬ news. The over the top coverage of this would have reminded them of the coverage of 9/11. Perhaps some people only experience of News 24 is when there is a terrorist attack or any other REAL emergency.When they saw this covered so heavily, They didn't realise NEWS 24 had nothing else better to do . This lead to large queus to film. and the story was taken up by other channels. The standard of coverage on all channels including the 91Èȱ¬ was extremely poor 'that's life with esther rantzen' style vox pop and seemed to go on for weeks. are 'Cap in Hand' and 'Handouts' good ways of describing loans? I think not. Confidential information leaked to a man with some kind of agenda(R.Peston) not Darling.
As a NR member of staff I blame the board. While the going was good they massively rewarded themselves but when it all came crashing down they deny responsibility. It was their choice to run NR the way they did. At the end of all this they will all still be Millionares (unless they are sucessfully sued) leaving the rest of us to try to find new jobs.
As a tax payer I don't think the NR should be bailed out. £30 billion for 6000 jobs/votes doesn't add up. It is worth pointing out though that as I understand it, NR has assets of £120 Billion and the only reason the bank of England is lending NR money is because their loans are covered by these assets.
#29 I think has it spot on. People would have thought that the system was vulnerable and there'd likely be a run on a lot of banks - we would now be living in a different world. The decision Alistair Darling took was necessary, in my view, both financially and politically.
The problem for Darling (it's great to say that isn't it?) is that he has a huge funding commitment for years - no one's buying the Rock with £30B of debt - and he has no room for manuveure. As the economy worsens, his tax receipts go down, jobs get lost and good debt becomes bad debt, then his obligation to support the Rock's debt will increase. And what if another bank gets itself into trouble? We will literally be back to square one except the government cannot now step in. And the consequences will be the same.
All I imagine Darling can do now is quietly let the Rock go to the wall (if I was a saver there I'd have got my money out long ago) and wait for the next bank to ask for help...(I would bet there are huge strings attached to any current deal for the taxpayer. Who would buy a bank that is hugely exposed in a declining market at this moment?)
William Morris 11.32am
What you write is absolutely correct if you start from the viewpoint that the financial sector is overwhelmingly a force for good. Perhaps there are a few bad eggs, and maybe some who have over-focused on personal gain rather than the general good. But the mainstream ethos of the sector, however, is to add to general wealth by supplying financial products and services that nurture the activities of the general economy; and because of this, the sector has no obstacles that make it impossible for capable and ethical people to do what they consider to be the right things.
There is another view of how the financial sector operates. Some people believe that the mainstream ethos has been hi-jacked by the self-serving, to the extent that it is no longer possible for ethical people to survive. The entire sector is focused on selfish acquisition, and any public good that comes out of its activities is purely incidental - it's certainly not by design. Not the smallest part of this construction is the concerted and incessant repetition of the message that the general good relies unequivocably on allowing the financial sector to do whatever it wants to do without restriction, sanction or control - and that if we choose to ignore this we will bring about total social collapse.
The truth certainly lies somewhere between these two positions, and I would suggest that what society in general should be trying to do is to work actively to create a structure that comes as close to the "good" end of the spectrum as it is possible to get. There are others who feel that it is more appropriate just to believe that we are already at the "good" end. The rational thinker in me doesn't allow me to do this.
I would like to respond to Arthur Rusdell-Wilson's contribution. Does he actually own a property?
His idea of taking over people's properties is truly ludicrous. Clearly, he couldn't care less about people's financial security.
You have managed to severely damage the North East Economy. By your self serving, panic mongering, Deliberately misleading, pun based coverage. It's about the 91Èȱ¬ damaged your economy Peston.
I have just googled for a "banned" article (published by the FT) related to Northern Rock which is supposed to be available on foreign servers. I did not find it, but I did find an advertisement from Northern Rock offering 4% home-loans!
Obviously we are governed by fools, and it is we, the taxpayers, who are funding this nonsense. Shut the business down and sell the mortgage-business in chunks to responsible finance-companies.
3 brief points;
1.It's a bank: not a building society but, as with all 'privatisations' shareholders appear to expect government bale out when things go pear shaped but are quite happy to keep any benefit.
2. Please dont let an American company buy it: wasn't it the US problem which caused the knock on here?
3. The 'news' reporting did lead to panic but unlike the rest of the financial sector there doesn't seem to be any regulation or comeback on consequences of what is said
This Northern Rock business has been played out in such a LABOUR way.
They have delayed the pain because they couldn't face up to the problem, and that pain for them is going to be so much worse now that they have truly taken ownership of the problem.
I think the Tories would have been far more inclined to take it on the chin and let the Rock sink.
I don't think jobs is an issue in the sense that is mentioned above. Newcastle will vote Labour, not Tory no matter who is in charge when 6,500 jobs go.
What Labour is most worried about is the effect a high street bank going to the wall would have on their reputation. And for that reason they have taken the wrong commercial decisions.
What they missed was that it was not their problem. The buck stopped with the NR management.
Bankruptcies are a good and healthy cleansing. They take assets away from people who don't deserve them and give them to those who do. The new owners carry on without the debt that saddled the previous owner. Since NR is finito as a mortgage lender it has no need of staff and should let them go, as spending money keeping them on out of sentimentality will prejudice creditors. As a small businessman I offer them about the same level of sympathy I expect they show entrepreneurs each time a business closes its doors - or each time they've had to foreclose on a mortgage: sorry china, but that's life.
Suddenly, liquidity panic caused the problems.
It is quite possible that problems suddenly ease within weeks or months. Then things will be remembered as just a blig and everyone emerges a hero.
There are two sides to uncertainties.
If a strong trade buyer recognises this rare opportunity, we will see the emergence of a new kid on the block.
Staff may end up much better off in fact.
I may have missed a trick here, but why did the FSA not act against the fundamental unsoundness of NR's business model? Elementary economics warns of the dangers of borrowing short to lend long - sooner or later it will implode, and had the FSA realised that this was NR's problem (or acted if they did in fact realise), then a great deal of anguish would have been avoided. I don't hear calls for anyone in the FSA taking responsibility.
Most jobs at NR aren't high quality they;re call centre jobs.My ex-manager once said this was on a par with working on a supermarket check-out.
I think the Government made a big error in not letting Lloyds buy this.
Confiteor wrote: "Your "open to sub-prime business" bank ((as quoted from the NR website) was at the forefront of inflating a house-price bubble --- and bubbles always burst."
NR got into trouble NOT for sub-prime lending (its portfolio is actually very strong). But for having a lending/equity ratio that was a bit too far in direction of lending for a global credit crunch with liquidity basically drying up.
Do any of the armchair experts on here actually have a clue about the actual situation?
The government could certainly offer any shareholders who were members of Northern Rock and hence became shareholders from demutualisation the original cost of their shares indexed to RPI. This would cost ... precisely nothing, since it was a WINDFALL profit and they never paid anything for their membership.
The LIBOR rate for lending between banks for three months has risen to 6.4%. It will probably go higher. Mortgage costs must increase. It is a vicious circle, it will get worse.
The value in Northern Rock will fall away as repos start.
Its too late to let it go to the wall but I cant see Darling getting all the money back he has lent.
Darling is on the Rocks and there is a big hole in the "BUM" of his boat.
regards
The concept that our modern financial sector is overwhelmingly a force for good is risible..
I'm ashamed to say it's even less of a force for good than the American financial sector.
Commenting on the recently released Competitiveness League Tables that put the USA at the top again the Chief Economist of the World Economic Forum said :-
"The US gets its leadership position through a winning combination of highly sophisticated and innovative companies that lead the world in research and development and operate in very efficient and large markets. This is buttressed by an excellent university system that works closely with business, a very flexible labour market, a unique ability to attract talent and A FINANCIAL SECTOR THAT SUPPLIES THE NEEDED CAPITAL FOR RISKY INNOVATION VENTURES. These strengths allow the US to overcome weaknesses related to its macroeconomic imbalances"
You could therefore argue that because the UK financial sector won't supply the capital (or at least anything like enough) for risky innovation ventures that it's actually working against the UK interests by having allowed all other sectors to fall back leading to an unsustainable imbalance.
It seems very unfair on the smaller investor. However, they took a gamble on the market remaining stable. Unfortunately, it did not (esp in a very unstable world economic environment) and they lost money. john
Interesting to note fluffythoughts comments re Northern Rock offering home loans at 4%. If that was the case, given the current economic climate, I would guarantee seeing a return of those queue's outside their branches. Perhaps they should check the facts again !!!!
Alistair will be tempted to
procrastinate about this. Given his
political nature, he would like to
spin this out, hoping that "events,
dear boy" will save him. But we, the
taxpayers, have no interest in _him_
at all. We just want our money back,
with a tidy profit for the risk we
have taken.
Therefore, it is right to call in the
loans and nationalise the business
now. Then we take out cut, and our
profits, from the collateral, and
throw the bones to some investor or
other, it matters not which.
So don't try and diddle us, Alistair,
we're onto your little game!
Surely the BIG question is. If the Northern Rock business model was so extreme and out of step with other financial institutions why was it allowed to continue operating for so many years while supposedly the BoE and FSA are there to prevent just such an occurrence.
Mother Brown will not be singing in the bath this morning. In recent days the broadsheets have cottoned on to the fact that the FSA may not be fit for purpose and that the Tripartite arrangement for bank supervision which was Mother B's baby looks like another classic new Labour all fur coat and no knickers. On the face of it none of the bids for the Rock as described look anywhere like a good deal for the taxpayer or for hard working families to quote Mother B. Indeed will it be hard headed economics that decide the fate of the Rock or low politics? Creating a smokescreen to hide the incompetence of the FSA will be the order of the day. The fate of the Rock rests with Mother B but Brussels will want its say if there is obvious prolonged public subsidy for a lame duck. Who knows maybe the incompetence of the senior management of the Rock will prove to be a blessing in disguise if it leads to a wider public grasp of Mother B's unsuitability to run a pie and mash shop let alone UK plc.
How many Post office branches could be kept open with this £40 billion?
How many pensioners kept from Hypothermia?
Now that Gordon has postponed his (re)election, treat Northern Rock as the governement has every productive business that got into difficulties. Feed it to the wolves
NR may have been 'technically' solvent when the Chancellor made his comments but the bank clearly could not trade its way out of its difficulties (lack of liquidity). As the weeks have passed it is still apparent that even with injections of liquidity, the NR is not able to trun the corner. If the credit 'crunch' had eased earlier, it possibly could have got back in its feet, but because the financial instruments it depended upon to raise debt are now worth SFA because other lenders (BR's lenders) are dumping them ('writing down losses'), continuing to support the bank is a realised moral hazard and it should stop. Claerly the BOE and the Chancellor have questions to answer, but I suspect that Darling will elbow NR into a fire sale - any other outcome would catapult a parliamentary inquiry out of he traps.
To say that Northern Rock is 'solvent' seems to me to bring a new twist to the term 'political spin' - let's hope this is not a sign for the future with this government!
Perhaps William Morris #48 would care to explain to us what 'financial security' there is in buying a property with someone else's money, i.e. a mortgage, when the borrower has lied about their earnings, has taken out a 125% mortgage, and has no hope of meeting the repayments.
So William, do you 'actually own a property', or are you just another one of the multitude living in a property actually owned by a mortgage company.
It really makes me laugh when I hear people boasting about the new house they've just moved into, when it doesn't actually belong to them at all, and won't until that final mortgage repayment is made.
What a sad 'something for nothing' society we live in.
The Daily Telegraph reported last week that of the £110Bn assets in NR, "£80bn were in prime mortgage assets, which would leave a rump of £30bn of less attractive mortgages".
Is this the responsible Bank that previous posts have referred to? Nearly 40% of loans were less attractive. Why should the taxpayer pay the cost; the reason is the same as why the Government bailed out Rover: Looking after the "Labour" voters. It isn't the job of the Government or the taxpayer to underwrite the free shares that were given to investors when the Building Society was floated.
#50 did you really see a NR ad for 4% home loans or a sponsored link for a homeowner loan that doesn't go anywhere near the northern rock website? perhaps you should provide your link and we'll see.
Peston - a word about your style. If you're going to give us information, tell the whole story.
E.g. "His [The chancellor's] actual and potential exposure is well over £40bn."
Now I may have missed it in previous blog's, but how do you get from ~£24bn to £40bn? Give a FULL explanation please, as we aren't all qualified experts in economics. Although whether you are qualified is certainly questionable.
Robert:
One thing to remember about the small shareholders is that many are in the northeast which is a hugely important Labour area (Milliband is in South Shields, Tony was down the road etc etc). Darling and Brown will be very aware of the political problems it would cause in the northeast if they shaft the small shareholders....
Shares are not something to invest in as a gilt-edged security. Investing in shares is a gamble.
I would feel very sorry for the investors who were given shares (when NR changed from being a mutual) to have that money wiped out.
But what does one invest in as a nest-egg for ones twighlight years?
Mr Brown has not a good record with pensions.
Money is (was?) only secure to ~33,000GBP in banks.
Property is teetering on the brink of a negative slide.
So what is left?
Gold seems to be a good bet. All the more ironic as Mr Brown sold of massive UK gold reserves when he first got his hands on the treasury !
"It really makes me laugh when I hear people boasting about the new house they've just moved into, when it doesn't actually belong to them at all, and won't until that final mortgage repayment is made.
What a sad 'something for nothing' society we live in."
Not quite accurate! Many businesses own assets - and pledge them as security for working capital. The common household mortgage does not alter the ownership of the house - it only recognises it as security in the event that payments cannot be made as and when due. It is the encumbrance that ceases when the loan is repaid - not the ownership changing. TThe owners are entitled to rejoice in their property - all the while they can service the loan. Splitting hairs, I know, but it it distortions of the facts which lead to misunderstandings and problems - and any responsible home owner with a mortgage with strongly refute the "something for nothing" tag. I detect green eyes!
Robert - can you even BEGIN to imagine if the Tories were in government and had propped up Northern Rock (or ANY bank) to this extent, what Labour in opposition would have been saying..?
Baying for the Chancellor's blood and resignation doesn't even come close..!
* 56.
* At 03:39 PM on 17 Nov 2007,
* scottow wrote:
Most jobs at NR aren't high quality they;re call centre jobs.My ex-manager once said this was on a par with working on a supermarket check-out.
I think the Government made a big error in not letting Lloyds buy this.
---------------------
Wow - this was a sensible post -regardless of the position within the company a job is a job. Job losses mean a higher stat on unemployment and people claiming benefits.
If you have nothing sensible to say - don't say a word!
I never thought I'd feel sorry for a Labour cabinet minister, but Darling has been made an absolute "Patsy" in this debacle.
He'd only been in the job for a few weeks, and is now being left to hang out to dry by the real culprit, Gordon Brown, who spent ten years engendering these circumstances. He is the architect of this fiasco, and yet once more he does a disappearing act.
No doubt Darling will learn a lesson. If you lay down with dogs, you get up with fleas.
This is depressing. The level of ignorance over what money is, how our monetary system works is... scary...
Here's a question for you...
How could it be necessary for a run on the bank to occur... ever... ?
Here's another one ...
If your money is loaned out to someone else. How can you possibly take it back out? It's been given to someone else, the bank surely don't have it any more.
Good evening.
I've just had a chat with Teddy about the posts.
In case you are interested, he is quite pleased with 34, 43, 46, 50,52,53, 56, 65, 68, 69.
To clarify the position for those who believe NR has dabbled in Sub-Prime - it has NOT.
NR does not and has never give anyone any of their money for a sub-prime mortgage.
Earlier this year they stuck a deal with SPML (a Lehamn subsidiary) to PROCESS SPML applications - this is Lehman's money, Lehman's policy, NR simply process the application (Lehman pay NR to do this because they are the cheapest and most efficient in the country at processing applications). This however is why you will see a sub-prime section on the NR website (read it carefully).
Now to the 125% myth. NR has never give nayome a MORTGAGE of over 95%. They offer something called a Together product where you can get an usecured loan at the same tame as your mortgage (and same rate). This unsecured loan (which is a max of the lower of 30% or £30k) does not form part of NR's mortgage book. No different from you having your mortgage and car loan from any other lender, except maybe your income gets a greater level of scrutiny as you can only apply alongside your mortgage.
Its a real shame that NR is the only bank facing this situation, when its one of the few banks out there who have steered well clear of the sub-prime market. Other banks have got themselves in to the point where they are posting losses of several billion, and it is these sub-prime losses of these other banks that have driven NR out of business, despite NR having very deliberately kept out of the sub-prime sector.
I find it laughable that some people on here seem to think that labour do the North a favour. Labour take votes from the North for granted. All the good jobs go to the South. All big business is attracted to the South because the government won't improve road, rail and air links in the North. The only jobs the government send to the North are poor quality Civil Service jobs.
Don't complain about house prices and traffic in the South when we all come down there to get a decent job.
Ref 80
"Now to the 125% myth. NR has never give nayome a MORTGAGE of over 95%. They offer something called a Together product where you can get an usecured loan at the same tame as your mortgage (and same rate). This unsecured loan (which is a max of the lower of 30% or £30k) does not form part of NR's mortgage book".
An unsecured loan at the same rate as a mortgage is not sub prime? You are nailing the lid on the coffin yourself.
Umm...
If New Labour don't get the printed money back, which looks extremely likely so far, then the country ends up with 20 billion (so far) of printed money in circulation.
This will obviously cause inflation. Printing money is not equitable for society as a whole, considering many taxpayers without homes or shares foot the bill.
So far, we will be paying 800 pounds in increased prices when they filter through. So maybe you won't notice the small price increases but you will certainly pay them.
If Darling doesn't get the money back the average taxpayer will be paying up to 2000 each in the end. Simple as that. Either tax or inflation, up to him. You will be paying though.
"73. SouthernSkye wrote:
Shares are not something to invest in as a gilt-edged security. Investing in shares is a gamble.
So what is left?
Gold seems to be a good bet. All the more ironic as Mr Brown sold of massive UK gold reserves when he first got his hands on the treasury !"
Sorry. There is no such thing as a safe investment, or a "good bet".
Shares, gold, oil, coffee and even money itself are all subject to the laws of supply and demand.
There is really no difference between shares, gold or money you are simply changing your value between commodities depending on the prevailing perceptions.
In fact, money is one of the least safe investments of all, with it's value decreasing on average by about 10% per year.
When the stock market, housing markets are decreasing, are the businesses, houses really of lower value? Or is it simply that money has a higher value?
What's really happening is that the value of money is being manipulated by banks and the government, primarily through the supply of money to the economy. The greater the supply, the lower the value and the higher house, stock and supermarket prices go.
Take the credit squeeze as an example. Something like 97% of the money in our economy was created at the point a loan was taken out. Well. If you cut the number of loans, or if you pay back the debts, you are actually reducing the supply of money.
What are banks doing right now? They're making it more difficult to get credit cards and tightening their loan criteria. That literally means less money. Reduced supply, higher value for money and since everything is priced in units of money the value falls.
I don't expect the government to bail out anyone. But I do expect the BoE to act promply and effectively in quickly resolving liquidity problems in the market. Whether or not things would have ben different if the BoE had acted decisively instead of faffing around with measely overnight loans we shall never know. But it is clear that the market is not a jot better as a result of the BoE's leaden response. So at best it has failed to make a difference. At worst it brought on the NR crisis. And I do expect the BoE to act ast the lender of last resort when the market is in turmoil. That's why its there.
As to DARLING'S DILEMA....
He can't take NR into public ownership - for many good reasons not least the much greater Treasury exposure it would create. He can't be seen to let any bidder buy it for a song and then make handsome profits effectively underwritten by the gov. And besides the major shareholders will have to go along with the sale.
He could continue to support NR - the EU objection can be circumvented. This brings the double benefit of allowing him consider more seriously the turnaround option which in turn puts him in a far better position to drive the bidding more aggressively. Lots to play for yet.
Labour politics will not allow NR to be sold off for a song with bottom scavengers making big profits. Its unlikely they would go along with a break up either.
They would go along with nationalisation but the gov would not.
A stabilisation and turnaround package would not offend the Labour politicos.
The front runner must be a sale at a price that would not be opposed by the big shareholders, would not look like a giveaway and for which continued Treasury support would be available for a number of years. If bidders try to play hard ball, the turnround option will be brought into play.
Would any financial institution that could lay it's hands on £20 billion,want to spent it on Northern Rock?I think not.
The only solution is simple - withdraw funding of what is essentially, Public (taxpayers) money. Why should public money be used in such a carefree way??.
The easiest option would surely, to have let Northern Rock go bust. Lending of such vast amounts of money surely smacks of pork barrel politics.
To quote politics from Italy, " If something is diseased, you cut it off".
£40bn. Wow that's a lot. My dodgy maths tells me that's somewhere between 1% and 2% of our GDP. That pretty much wipes out the efforts of our agricultural sector this year. Or twice the efforts of our mining sector. Let's hope the crafty Scotsmen can pull something out of the hat otherwise we might be in trouble!
Ref 82.
Do you even know what sub-prime is?
Sub-prime is lending to people with adverse / impaired credit histores. It has absolutely nothing to do with the interest rate charged on an unsecured loan.
The mind boggles.
This fiasco shows one thing - the incompetence of the Brown government. The idea of letting a bank go under is a nightmare. The gov should have taken control right away and nationalised it. That way it would send a clear signal to all the other fat-cat financiers that behaving in a reckless manner would lead to total loss for shareholders and protection for account holders. . At the end of the day whether you like it or not, the foundation and cornerstone of capitalism is its banking system - if you lose confidence in that then we all go back to pushing ploughs and eating dirt. The fact is that Britain now has over 50% of GDP from the financial system and to have had a run on a bank is shocking beyond belief. No amount of spin is going to change that Darling.
The state aid is the fact that the Northern Rock loan from the lender of last resort, the Bank of England, has been quietly reduced to 5.75% i.e. below LIBOR.
The latest blog this AM makes this clear and the fact that we the taxpayers look likely to take a big hit on the subordinated debt we are increasingly taking on.
Note they are borrowing from us at 5.75% and offering to pat out 6.71% on interest bearibg accounts. looks like NR have found another mug punter i.e. you and I.
Don't worry Gordon Brown will find a "good day" to bury that piece of news!
The state aid is the fact that the Northern Rock loan from the lender of last resort, the Bank of England, has been quietly reduced to 5.75% i.e. below LIBOR.
The latest blog this AM makes this clear and the fact that we the taxpayers look likely to take a big hit on the subordinated debt we are increasingly taking on.
Note they are borrowing from us at 5.75% and offering to pay out 6.71% on interest bearing accounts. looks like NR have found another mug punter i.e. you and I.
Don't worry Gordon Brown will find a "good day" to bury that piece of news!
"92. Dave Robertson wrote:
This fiasco shows one thing - the incompetence of the Brown government. The idea of letting a bank go under is a nightmare."
If bank's don't go under they'll just take bigger risks, if that is possible. What keeps them honest is the threat of going under.
Money in the bank has never been safe no matter what the bankers tell you. WHY should the taxpayers bail out bankers for their promises to you?
Unfortunately the system has been in place for 300 years and isn't going to change anytime soon. Too convenient for the politicians, no matter that it isn't to the benefit of the average citizen.
Lets get a few things straight.
1. The shareholders own the company. If the majority of them do not go along with any bid, then the only options for the government are
a) Nationalise - if they do this and then sell on the business, or the remnants, they will be on shakey ground as that totally undermines the concept of a public company and would have the potential to kill London as an world equity center. This would be disasterous for the UK economy.
If they do this and sont sell, then the govenment just got into the mortgage and banking business, in competition with the private sector. It will loose far more this way than it stands to loose right now because as a government institution it will be hamstrung by financial and beuracratic inneficiencies, in addition to the conflicts of interest in terms of governance and regulation.
In short nationalisation would be a disaster both economically and politically for the government.
b) stop indemnifying the loan from the BoE. - The BoE would then extend no further credit. This would probably cause another run on the bank, but the bank would be in administration within minutes of the anouncement and I suspect all of the branches would be closed with immediate effect simply to prevent this. The business would be wound up. There would be a firesale of the assets, a large administrative overhead in ensuring the correct transfer of monies for the existing mortgage book which would be sold off first, combined with the government garaunteed funds being returned to the account holders and other cash investors. In this event it is unlikely that the assets will fetch anywhere near their true worth, more likely around 50%. Thats around £65Bn, if their are loans of £24Bn and garauntees for around £30Bn, the government might just about cover costs and recoup the money, albeit over a prolonged timespan. So the govenrment may break even, a load of other banks will get the NR assets for a song and the investors in NR will loose to the benifit of investors in other banks (note the taxpayer wont be eny better off, only different bankers and shareholders in those banks). Politically it will be a failure, becuase the Government will look like they tried to save the rock and failed.
c) Continue to prop up the rock until the new board can sell it off at a price acceptable to the current shareholders(owners) or raise the capital to restructure the borrowing so that there is no longer a requirement for the BoE loan. The problem here is that the government are (rightly) perceived to be subsidising the business to the benifit of the shareholders, it wont be widely touted that this could also be the most benificial for the treasury and therefor the taxpayer, or the banking sector and therefore economy as a whole. The key question for this option is the duration. Until that is more accurately determined I think option c will prevail and when it is more accurately determined I think if it is less than 3 or 4 years, option c will continue to prevail.
Advice to A. Darling
This is what I would do-
1. Act quickly and decisively.
2. Nationalize NR - as you have loaned from the BOE on poor quality security and, apparently, guaranteed depositors against no security at all. NR bidders are trying to take us all for a ride.
3. Write off the loss. After all it is quite small compared to the ongoing Private Public Partnership costs, the MOD procurement and many government computer systems disasters.
I think the nationalizing of NR is preferable to the alternative which is Receivership, from the taxpayers point of view. Also the NR Foundation and jobs may be saved.
In giving the BoE 'freedom' to set interest rates, why did the government not include housing cost inflation data.
In other words, why did the government not want to control house prices?
It seems, the government has caused us to overdose on credit?
Barings went for a quid so how much NR?
same old story,asking to much.just realy tells you what house prices are worth,because thats n.r security. let them sink..........
Sir
The credit squeeze afflicting NR and the US and UK economies underlines the central importance of residential mortgages as a major part of the collateral supporting the western credit structure with it's myriad of derivatives.
It is not the business model of NR that is at fault. It is the actions of national govts in failing to realise this central importance and act by regulating to impose income multiple limits, required proof of income and same lender second mortgages.
To expect banks to regulate themselves or the market to do so, misunderstands the immediacy of markets and their handmaidens secrecy and greed.
Government reaped electoral advantage from inflating house prices knowing millions were misrepresenting their income to get a back garden for their kids. Now it's time to prosecute the borrowers for fraud and the banks for failure to report suspect stated income to NCIS. Or is it that we are now a nation of thieves with the king thief sitting in downing street.
Some years ago I calculated that efforts to create jobs by the Government were costing about £100,000 per job created. These were targetted efforts not unlike NR.
At today's rates, let's say 500 jobs created might require £200,000 investment in each. Let's see. That's a million for 5 jobs ... a hundred million for 500 jobs.
Hm.
Post #91 - Do you think I will get a job as a government advisor ? No - I wont as that advice would have been roundly scorned.
We are indeed becoming more like America. Doing everything the wrong way first...
i have lived my life and along the way have incurred ccj's thus am now a bad debt which northern rock would not have given a loan to. I do get loans but interest rates are between 16and50% interest, so with all this mind can you tell me why i am now going to work to keep them. i.e. a bad debt