91Èȱ¬

Browns target is to hang on to as many Northern MPs seats as possible. Thats where it started to go wrong in the frist place. That is where it will end

The last remaining question is how much will the government (we) pay for the NR? Answer, anything greater than zero will be too much. How much is it worth without the guarantees?

Bullies when faced with bullies tend to cave in. I predict the bully Brown will accept, circa £1.80 per share or more than £50,000 per employee.

Only time will tell if the fallout on this will be worse than in 1992 when the Tories did nothing. I strongly suspect that it will be.

Same sort of Peston rubbish. Guess some figures, make up the rest and hope to appear as making an educated analysis. A new story will be around soon and hopefully the Peston views will take over from the facts and figures.

So, how many other European countries have their National Debt below 40% of their GDP?

There is another answer other than private sale or public purchase. The Bank of England should demand full repayment of it's debt, and when Northern Rock demurres, as it will, should call in the Administrator. We have always been told that NR is solvent, so when it cannot be sold the Administrator will simp[ly sell its assets (mortgage book) to pay of its creditors (the Bank and depositors). The LIQUIDATION of NR is now the obvious answer!

Watch out for some nifty financial engineering whereby NR's liabilities will be off UK Plc's balance sheet for years.
By the time they are back on ravaging inflation will have brought them down to size. Meanwhile the golden rules will not have been breached...

How much of our, the taxpayers money, the whole £55 billion shall we see again?
Who authorised this use, misuse of our money? We the public were not consulted.
Just think what could have been done with this cash. The purchase of Jaguar/Landrover for a start and the rebuilding of the British car industry. The bringing back of rail and energy and others into British state ownership. Run by capable and committed people looking at the long term rather than the short term which dominates thinking in Britain today.
l have long condemned Brown's economic managment.Seems many others are starting to agree.

When you buy shares in a company they can go up or down? Well if the business is not worth much, then we should not pay much. The shareholders are against the offers on the table because they think the price etc being offered is too little; but that is what it is worth. The 2 hedge funds bought and hoped to make a killing, why should we pay for their speculation? There is nothing G Brown has done for this country to strengthen our economy, he inherited a strong economy,was very fortunate that we had a good global economy and low global interest rates when he was chancellor. We were the 4th biggest economy, now we are 6th, we had the best pension provision in the world, sold our gold at the worst time in the market....after telling the world he was going to do it! We have nothing put away for a rainy day and are more in debt both as a country and as individuals. We are going to spend the next 10 years paying for his extravagences and the mess he has created, he has no business sense at all. He is great at deliverng figures at speed, this shuts people up for a time but they are meaningless and incorrect. The unbelievable thing is the employees are getting bonuses, how weird is that? But then civil servants in failing departments get bonuses so who know what Brown/Darling will spend our money on next?

This is a very sad but inevitable story.

North East loses Shipbuilding and heavy industry.

Replace shipbuilders with Bankers.

Bankers lose the whole lot, and Area in decline again.

Bring back shipbuilding there is more money to be made in that business again than banking

when will they ever learn

regards
Rich

This situation could have been avoided if the story of the Crock's difficulties hadn't been in the public knowledge.

That the information was let out in such a way as to frighten all those grannies into getting out their savings is nothing short of criminal. Someone has profited and will profit further from this situation.

Now who would benefit from the breaking up of the UK's fifth largest bank?

I know who won't benefit - taxpayers.

"How much of our, the taxpayers money, the whole £55 billion shall we see again?"

Please read and understand the FULL story before commenting. We are currently owed approximately £26 billion - the £55 billion includes covering deposits. Therefore, if NR is turned around only £26 billion needs paying back NOT £55 billion.

Paul

Why is the 55bn amount being bandied about when it should be the NET deficiency in capital (adjusted, of course, for the fatal 'timing differences') which needs to be accounted? So the bill's a great deal less (except - for paying all those nice 'advisers' to sort it out).

I did just wonder whether NR had been punished by the establishment for getting too big for its boots, just as (arguably) Equitable Life got punished for not handing out fat intermediary commissions. To those who do not join the lucrative club: 'first strike and you're out'!

A liquidation would likely not bring in as much as someone above suggests. This is because the liquidator's fees would likely be large and at the same time if the bank was placed in liquidation all the depositors who have had their money legally backed by the... treasury... would be legally entitled to withdraw it. The Government would have to pay, without those cash assets in the current market the mortage book as an asset is not that robust and would be hard to value.

This bank should have been allowed to crash. Individual savers would probably have got most of their money out in time and the £30k rule would have saved all those who probably most needed saving.

State intervention to save politicians faces. Gah.

I'm still at a loss as to why NR wasn't just allowed to go bust? Propping up a failing company with taxpayers money has NEVER worked, yet this is exactly what has happened.
The mortgage business is still worth something so it would have been unlikely that investors would have lost everything.
As for Robert's comments - time will tell, but I won't hold my breath, it WILL cost the taxpayer in the long run for no gain.

Shocking. The taxpayer funding an utterly indefensible action in taking over the bank, solely to keep votes in a Labour heartland. That's the long and the short of it. And then what happens when there is a run on another bank - are we the taxpayer to look after every over-extended financial institution?

I'm not sure the Tories would have done any better with Northern Rock, these are exceptional global events. And the Lib Dems are nothing but verbose smug hindsight. To allow it to fail would have been actually much worse and could have led to other banks failing. By nationalising now, there's a good chance of discretely selling it off in manageable chunks - shareholders should get absolutely nothing at all out of this. Share oprice £0.00. And the regulators who allowed such a house of cards to develop should be shot at down, and named and shamed.

Why can't the hedge fund owners (well, mostly) of the Rock pick up the tab for its debts,and leave us taxpayers alone now?

They bought into it - now they've got to get themselves out of it.

But tomorrow I suppose we are going to hear the same old whingeing from them about how the government has to bail (bale?)them out of their stupid investment decision.

Unless they can pin the blame on the equally culpable FSA...

A truly independent ONS could be a valuable resource for keeping tabs on the Government.

But no doubt HMG will still try to influence it, just as they still have some leverage over the BoE.

Politicians seem to generally crave power and therefore find it very dificult to 'let go', even when it is patently in the people's interest for that to happen.

#11

Shipbuilding? That made me laugh..

The UK financial institutions would never ever cough up to help set up a shipbuilding company. They don't think like that.

Are NR still sponsoring Newcastle football club BTW?

I think the Govt should bite the bullet and liquidate NR. Shut the thing down and flog off its mortgages. This whole darn affair is turning into the financial services sector equivalent of Monty Python's dead parrot.

So in the event that that the Rock[or is at a pebble?]is nationalised and it takes us over the 40% rule then surely this puts a huge strain on the Government should it ever be necessary to have to spend large capital in any other type of emergency it may be called upon over the next few years.

Albert- the point is not other European countries, the point is that Brown set himself the 40 per cent rule and now seems certain to exceed it.

What a truly appalling travesty this has been from start to end! A difficult situation has been made impossible by (a) hedge-funds buying shares and trying to make a fast-buck (correction: yet another fast buck) out of a difficult situation, (b) sensationalist media types panicking people in the street to generate a "must see" TV story, (c) directors rewarding themselves very generously (again) so they will not depart in difficult times and (d) the tripartite regulatory authority desperately trying to save face with each member blaming the other two! An admittedly very difficult situation has been engineered into the worst possible outcome (a £55bn debt for the UK taxpayers and growing) whilst whole groups of people selfishly put their profits, interests and political careers first! The primary concerns in this should have been the innocents: normal depositors and taxpayers-and not the overly wealthy city types whose role was more than partially to produce this mess in the first place!

Don't forget, this is a government that rules by decree. As such, there's nothing holding them to the rules you suggest: they could very easily leave the institutional debt with the idiots who bought it in the first place and who are holding their breath and anything else that they're attached to in the hopes of HMG letting them off the hook. Anyone for a game of dominoes?

So if the figures are correct and the gvt go over the 40% rule,i suppose the Gvt is stuffed should it have to stump up more cash in the next few years, should any kind of emergency emerge......What then ......borrow borrow and borrow some more!!!!!!!!.
p.s Dont worry about the small debt you might have on your credit card [it's insignificant].

If Northern crock is still trading on the LSE, the it must be solvent. The Govt should agree to underwrite for a fixed period of time the money it has lent and a suitable buyer found.

Lloyds TSB were willing to buy if the guarantee was in place, so why was it not old? We would have then got this overdraft/lon off (our) the books in due course.

It's about time the shareholders were told that if you don't like it, sell your shares, and if you make a loss, you can learn a valuble lesson in life.

If they really don't want that, the liquidate and be done with them.

By the way, Robert, can you find out what fund managers had NR in their funds and what they want to happen?

Paul #13, thanks for making me feel good. So it's only £26,000,000,000 on the line? Well that's alright then, why are we worried about such a piffling amount? It's barely small change, right?

I agree the £55bn is quite unfair and probably "just" £25bn is at risk.

However when it comes to government debt as a percentage of GDP we must still add the £20bn of NETWORK RAIL debt. Brown et al have cooked the books on that one like they have been churning in MacBeth's witches cauldron. So the same treatment again for NR and it might even wind up as a net asset!

The money created "ex nihilo" and loaned to Northern Rock is no more "tax payers' money" than is the stock of bank-notes in circulation.

Tim Congdon set out the truth of this in the FT a couple of months ago but this financial pornography exposing the true workings of Central Banks has since been studiously ignored by the rest of the press and by politicians.

The fact is that the more money that is created and lent to Northern Rock, the better-off the taxpayer will be from the "seignorage" that accrues to the Bank of England from its privilege of money creation.

I believe that this "seignorage" - which is currently coming in at a rate of over £25m per week - can and should be placed into a "Default Fund" (held by a "Custodian")which would then be available to augment the existing conventional "cushion" of shareholder equity and subordinated loans.

It's not exactly Rocket Science, but the government would clearly prefer to see Northern Rock fail than admit the truth about the deficit basis of our monetary system.

Which is a pity.

Rather like a PFI scheme NR could always be wrapped up and 'sold' on to a bank or consortium with a difference- the Government paying them to take it away- just a variation to PFI.

The Government would pay a certain amount over a period of years for the management kicking the problem into the long grass- 10yrs to 30 yrs. That stream of cash could be 'securitised' and sold to pension funds and life assurance companies creating the new capital- possibly uls, convertible loan or a convertible preference stock.

No impact on Government capital ratios but an annual cost and some option on the bank perhaps to make it look better; indeed that option might also be saleable.
A recapitalised NR, with a sound bank or consortium managing it, would be able to re-attract deposits; indeed they seem to have written to me offering an extra 50bp though I've not been helpful.

"2.4 Apart from changes in foreign exchange reserves and certain liquid assets such as bank deposits, public expenditure on the aquisition of financial assets (such as loans to the private sector) and receipts from the disposal of financial assets (mainly privatisation proceeds) are scored as determinants of the net cash requirement. However, as these transactions involve matching changes in the public sector's financial assets and liabilities, they have no effect on its net financial indebtedness. They are therefore recorded in the national accounts "below the line" in the financial account and therefore have no impact on net borrowing."

Problem with accounting for assets vs liabilities is that debts are real whilst most of the assets are notional. Asset values have been deliberately exaggerated by banks in order to facilitate an orgy of lending/borrowing. Halifax says that UK housing is valued at 4 trillion. If that falls (and in EURO terms UK housing has fallen 12% in the last month alone)then there may be a massive hole in balance sheets that will make the NR net liabilities look like small change.

#14 - I would certainly argue against intermediaries bringing down Equitable Life - more like their 'clever' actuaries who thought everything would be ok if they turned a 6 upside down and made it a 9 - surely nobody would notice...

Anyway, back on topic. With the potential taxpayer exposure up to £55 billion and at least £26 billion, allowing the Rock to fall into administration now would not represent best value for the taxpayer - it is way too late for that.

I do wonder, if the government can resist from meddling once nationalised, if nationalisation is infact the best way forward now. With a hands-off approach and decent new management, the Rock could easily stabilse and slowly shift it's business model over a carefully followed 3 or 5 year plan. By setting the correct rates, the mortgage book can be trimmed organically and a return to a reasonable situation can take place, with a more healthy balance between savings and loans.

The value would then be realised to the taxpayer as the Rock can then be sold off for a nice fat profit.

Once under sensible management, the taxpayer exposure is infact very little, as the business itself repays the treasury loans from the market over time, and the depositer's guarantee would no longer be required. In fact, if this was the case, there would certainly be a gravitation of new depositors to the Rock, hoping to become a good old-fashioned carpet bagger upon the sale.

Only problem is, I very much doubt tthe governments ability to not mmeddle in the running of the Rock once nationalised.

A nationalised Rock would also be a retail outlet potentialy for NS & I products, thus allowing the government to further trim down the number of post offices in the country. Fortunately, the government doesn't do enough joined up thinking to actually be this evil...

The problem I have is the deafening silence on the value of the mortgage book which would have got the Government off the hook if it had comfortably exceeded the loan guarantees, making it a cash flow issue not a massive hole in the Balance Sheet.
I don't buy the excuse that mortgage valuation is difficult because all Banks have (or should have) their own valuation percentage that comfortably reflects any possible downside and MI to show loans in default at the press of a button. My guess is that their systems are hopeless making such a valuation impossible. Taxpayers should be told.

"Under the sustainable investment rule, public-sector debt must be no more than 40 per cent of British economic output or GDP."

The banks are slowly having to bring their sub-prime loans on to there accounting books.

Our government will, eventually, have to account for the money given to Railtrack(or whatever it is called) and for Private Finance Initiative plans, thus exposing the true costs involved.

From No6 above...
"We have always been told that NR is solvent, so when it cannot be sold the Administrator will simp[ly sell its assets (mortgage book) to pay of its creditors (the Bank and depositors)"

Logic and sensibility are not part of the solution.
Only political spin will be allowed.

From No8 above....
"The bringing back of rail and energy and others into British state ownership."

I only remember where the railway staff were considered - not the passengers.

And as for the energy companies - a long time was waited for them to attend to defects and we were lucky not to go through a year without power cuts.

I am confused!

There is approximately £9bn of deposits at NR.

Why could the government not just have bailed out the depositors and let the rest go to the wall as happens in the rest of the commercial world when business plans fail? Had it done that, wouldn't the exposure have only been £9bn.

Am I wrong, or has the government effectively gambled £46bn to avoid paying £9bn or am I missing something?

The reality is that we don't know how much the taxpayer's liability is and I suspect we won't know until the bank is wound up.

We know the taxpayer has already lent the bank £26bn

We know the taxpayer has underwritten Rocks commercial loans, if the lenders demand their money back then the taxpayer has to fork out.

We don't know how many of the lenders have demanded their money back yet and we don't know what the value of the underlying assets is.

Either way Brown and Darling have been remarkably reckless with our money, but then they always were - they just repeated the mantra of prudence and fooled a lot of people for a long time

What a lot of Northern Rock shareholders posting stroppy and ill-informed comments on this thread!

Of course there are assets linked to the debt, but that's not how public accounting works, is it?

When the Government borrows to build a school, they don't knock off the likely sale value of the school from the borrowing totals!

5 - How many governments claim that debt must be less than 40% of GDP. Its not us that made up these rules of fiscal prudence.

6 - You assume that the mortgage book would be worth the carrying value in the accounts in a break up of teh business. It wouldn't be, and there are questions as to whether fair value would be the same as book value even if the rock were not to be broken up.

12 - The Rock had no choice as to whether to release the information. Its a listed business, and the inability to fund itself in the market would (and did) have a profound effect on the share price. The information publication is a fact of their listing. The question is, why was the information not released previously?

The Whole Ethos of this Goverment has been to keep the economy moving forward on the basis that we should sell houses to each other at ever more inflated prices, sustained inpart by mass immigration !! The Collapse of N.R is simply a manifestation of a fundamentaly flawed policy

Whilst politically I would prefer to see Northern Rock (and all non-mutual Banks) taken into public ownership, this would have to be on a permanent basis, which would not be the intention of this government. Public ownership would just be used to "turn it round" and then privatise it again, either as a whole, or by a managed sell off of its assets.

In the context of a free market economy, then, the solution for Northern Rock is very different, and much simpler.

Northern Rock is solvent but has poor liquidity. So it needs to raise cheap funds, rather than expensive and scarce loan funds. The cheapest funds are equity.

The answer is to raise adequate funds by a "Rights Issue", that is, creating a large enough amount of shares which are offered initially to existing shareholders in proportion to their shareholding. Any shareholder who does not wish to take up their rights, can sell those rights. That way the existing shareholders can retain ownership if they wish to do that, whilst improving the liquidity of the company.

One thing I seem to have missed in this whole saga, Robert - wonder if you or anyone else could illuminate?

I had thought that the BoE "lender of last resort" facility (for liquidity, essentially) was only supposed to be offered to those banks which are thought by the triumvirate (i.e. the BoE, FSA & Treasury) to be fundamentally sound, solvent, viable/profitable etc - at least in the longer term - is that right?

The implication, of course, is that the BoE would have to let a bank which they thought was fundamentally unsound fold, as painful & generally damaging as that would be... (although there seems to be such fear about the general panic which might ensue that personally I doubt whether they would actually let that happen).

Leaving aside for the moment the issue of just how long an acceptable "longer term" might be (i.e. how long before the taxpayer is repaid that c.£26bn), did the wise men get it fundamentally wrong when they assessed the Rock's "soundness" last Autumn?

If they got it fundamentally right, why doesn't the market seem to agree with their judgement, which might be expressed either in the share price, or, now, as a buyer coming forward offering a workable package and price for the Rock?

So was the Rock always a crock (at least, since its adopted business model left it so vulnerable to credit markets' illiquidity), or has it only turned into one since their liquidity issues, the facility was granted, the run occurred, confidence collapsed, the housing market (and the Rock's property book, therefore) seems to have slowed/fallen in value etc etc?

The government's books are already bust by a lot more than the Northern Rock loans.

First of all hidden public sector pensions liabilities, off-balance sheet PFI debt and other debts, such as to Network Rail, take the real debt to GDP figure well above 100%.

Add to this the incipient economic recession, disappearing tax revenues from the financial and property sectors, the unwinnable wars we are fighting, and the public backlash against stealth revenue-seeking (speed cameras, fuel excise duties, stamp duty, insurance levies), and the government is facing a perfect storm in its finances, rather like the consumer with maxed-out credit cards.

Given the budgetary and inflation pressures building up, for how much longer will the government be able to borrow for 50 years at just over 4%? Those lending their money to Brown and co at this interest rate are taking massive risks with their capital.

Oh, and my other question is: does this mean the total national debt (referred to here as "public-sector debt") would be approaching £1,500 billion?!

In many affairs like this one feels as an outsider there is often " a lot we don't know because they aren't telling us everything"... which applies here of course.

The difference this time is that there also seems to be alot "they" don't know as well...or perhaps knew but miscalculated about, on the way.

The depth, severity and ongoing complexity of the credit problems across the World seems to be constantly catching them out.
The Lloyds TSB proposal seems a typical example of the decision making..... back then it was unthinkable...now there probably isn't a day that they don't think "Why didn't we do that!"

The possible on-off election may have impacted on the decsion.... which just illustrates the the other lesson of the whole crisis; the virtual impossibility of marrying hard headed business necessities and politcial calculation awithout creating anything other than a complete disaster.

What public committee did Alastair Darling/Gordon Brown consult before our hard earned money was handed over to bail out an imprudent bank? Since when did the BoE go from a lender of last resort to a gaurantor of last resort?

What incentive do I have now to declare all my earnings for taxation purposes, when the government plays russion roulette with it, whilst OAP's are left on trolleys and wheelchairs in hospitals, police officers are not paid their worth, and the transport system is at breaking point. The assets tied to the NR's mortgage book are about to have their bubble burst. Let's see what mess the government puts the taxpayer into when house prices start to fall and we an increase in defaults. It's time to turn off the ventilator on NR...

On a side note, excellent journalism Mr Peston!

If Northern Rock was in an opposition strong-hold it would have been allowed to flounder long ago.

Liquidate it, recover as much of the debt as possible and never again ride to the rescue of a bank which clearly had a very dodgy business model and a board of directors who were more interested in the price of their share options than establishing a sound business model.

#14 - I would certainly argue against intermediaries bringing down Equitable Life - more like their 'clever' actuaries who thought everything would be ok if they turned a 6 upside down and made it a 9 - surely nobody would notice...

Anyway, back on topic. With the potential taxpayer exposure up to £55 billion and at least £26 billion, allowing the Rock to fall into administration now would not represent best value for the taxpayer - it is way too late for that.

I do wonder, if the government can resist from meddling once nationalised, if nationalisation is infact the best way forward now. With a hands-off approach and decent new management, the Rock could easily stabilse and slowly shift it's business model over a carefully followed 3 or 5 year plan. By setting the correct rates, the mortgage book can be trimmed organically and a return to a reasonable situation can take place, with a more healthy balance between savings and loans.

The value would then be realised to the taxpayer as the Rock can then be sold off for a nice fat profit.

Once under sensible management, the taxpayer exposure is infact very little, as the business itself repays the treasury loans from the market over time, and the depositer's guarantee would no longer be required. In fact, if this was the case, there would certainly be a gravitation of new depositors to the Rock, hoping to become a good old-fashioned carpet bagger upon the sale.

Only problem is, I very much doubt tthe governments ability to not mmeddle in the running of the Rock once nationalised.

A nationalised Rock would also be a retail outlet potentialy for NS & I products, thus allowing the government to further trim down the number of post offices in the country. Fortunately, the government doesn't do enough joined up thinking to actually be this evil...

NR is a solvent business. It's procurement strategies were incorrect which left it with a wide exposure to fluctuations in the supply markets.

Demand is not the issue. That means that the debtors the bank has will continue to be debtors to who ever owns the Rock.

Why then are people talking about a loss of 55bn?! I think it was a prudent move to ensure that a large bank was not exploited by aggressive investment groups... groups who are now demanding a say in the way in which the business is run. The hedge funds that have been punting on NR deserve to be last in line for a pay back.

I find it a tad ironic that in a week that a US bank is putting a busted-flush of a Prime Minister on its balance sheet for $5m, another busted -flush Prime Minister is putting a busted bank's debt onto our balance sheet for £55m.

Prudence -where are you darling?

After all the criticism of Robert Peston revealing the NR saga first, opinions are now being promulgated that the NR 'whistle should have been blown' earlier.

By whom ?

Keep up the good work Robert, you are damned if you do and damned if you dont, it's tough at the top !.

A government's economic policy collapses and the little people get hurt and don't know why. Nothing new here.

the Treasury and media are never done telling us Inflation is under control along targets of 2%, however what they don't mention is that the inflation indicator CPI is of no use to anyone other than employers. In my opinion I regard inflation as my cost of living, my cost of living has risen on average 10%+ over the past 5 years, this has included rail ticket, council tax, gas, electricity, water etc. however my employer pays me on average a 2% annual increase in line with the inflation as a result I am losing on average 8% a year this has been made easier over this period by the cheap credit but this no longer exists. Now I can't possibly see how introducing 55 billion into the economy to assumes Northern Rocks debts added to predicted rate cuts to try and stabelise the economy are going to help inflation. However no doubt the Treasury will still insist on inflation being 2% because LCD tele's are getting cheaper (good luck to the people who buy a new tele each month). In short the good times created on cheap credit have masked the incompetant bungling of a Chancellor who's only real credential for becoming Prime minister was the economy. Gordon Brown should accept the fact that he is nothing more than a charlatan and join his former boss in leaving politics and calling on a few old favours to secure a steady income. The 2 of them have presided over a disaterous period for the UK we have crime out of control, immigration out of control, an entire society of people who manage their monthly income by juggling credit cards, several foot and mouth outbreaks, a lorry driver strike that crippled the country, a war on 2 fronts that look like going on forever, public spending projects that are blank cheques for cronies (NHS Database, Dome, Wembly, Olympics. and the list just goes on. New Labour has been nothing more a pack of lies and a money making scam.

I am most concerned about the Northen Rock fiasco and its implications longterm. Under local government rules Northern Rock is the holder of millions of pounds of local council money TREASURY MANAGEMENT - APPROVED ORGANISATIONS FOR INVESTMENT Northern Rock is the only one listed for investments of 10 million here in Plymouth. Any wonder the PR brigade is trying to hint its the intrest of consumers that come first....when in actuality its Councils that would suffer serious losses if Northern Rock went to the wall?...did't believe that the Government were altruistic

I can't help thinking that the posturing of the recent speculative institutional shareholders is making any commercial bidders walk away. The delay in getting an administration order is no longer acceptable as the Rock's incapacity to meet its cureent obligations is evident and the capacity for prospective solvency in future is well argued on all sides. As HMG are the only party able to buy immediately out of administration at a nominal sum (there are no bids requiring no government support) the admistrators should be appointed now and the government pay £1 to them to buy the entire business thus leaving shareholders rightly with nothing and the new management freedom to sell off assets at market rates when conditions allow. The administrators have a duty to preserve assets by getting the best and quickest deal to preserve any future prospects of value and HMG's £1 is the only game in town. Waiting till a review by mid February is nonsense and I hope lawyers for the directors and HMG are advising clearly on their liabilities, not to mention the absurdity of a continuing stockmarket quote in what can only be a false market.

Seems to be a case of deja vu here. Did the Labour Government in 1979 nearly bankrupt the UK?

Where is all the money going to come from? Economy is drifiting towards recession, Pound is low against the Euro, PFI about to bite hard, troops in Afghanistan for decades....

Think Mr Brown needs to bite the bullet and drop NR now.

I evisage J P Morgan will have another vacancy shortly.

Meanwhile the UK banking crisis is quietly getting more serious. Any UK bank with a European operation can go to the European bank who have been quietly making bazillions available in loans on a strictly confidential basis.

In the meantime the pound has disappeared down the flusher and so banks have effectively lost another 10 - 12% on their loans on top of the interest payments. But at least they can conceal where the bailout money is coming from.

The budget statement should be absolutely hilarious. Anybody want to speculate on the shortfall in tax receipts for 2007-8 and 2008-9? I'm going for 40bn not including Northern Rock for 2007/8 and 70bn for 2008/9.

The madness of this mess is that the governmnent chose to break the normal rules of play. If depositors money is safe then that is ring fenced.
As far as the book of mortgage business that woulkd have a value and would (in any other industry) be sold to the best bidder.
Creditors including shareholders would rank in their accepted positions as is always the case.
Northern Rock should never have been treated as a special case.
We now are in a bind that has turned a natural and tried response into a major political issue, caused by the incompetance of the FSA and a government desperately seeking to use spin as 'the answer' when it never has been nor ever could be.
The world has moved on, unfortunately this government is still stuck in a dream world using economic applications of 50 years ago and not those that are mandatory to maintain our western economies.
No one chose to accept the Govenor of the Bank of England was right when he insisted banks should not be bailed out from their imprudent lending.
So politicians with no real time work experience and senior bureaucrats at the FSA joined forces to create the biggest fiasco for generations.
What ever happens this mess will take years to calm down.
Those who say Robert Peston should have said nothng are deluding themselves, this issue was always going to come out because teh level of incompetance was so great and teh numbers to large to hide.
I just hope that when matters calm down we will not forget who got us into this mess and penalise the decision makers accordingly.
One final point: Does this all mean that poorly run companies with hopeless management will now never go to the wall because the government thinks it knows better?
I doubt it but then I am not the great Gordon Mr Prudence and economic wunderkid manager..... not!
and thank heavens for that.
I like the rest of the country have to live in the real world not some doolally self serving protected pension and over inflated salaries westminster gossiping village enviromnment.
Perhaps its about time those residents got out and saw what was happening to thsi great country as a result of their incompetance.

"Saving Northern Rock may bust the government's books"

Ah, so this is what flogging this story was about all along. You weren't necessarily after the scalp of NR, your target was much bigger....

"Well it would be a big stick for the opposition to use in beating up Brown and the Treasury"

Must be political, your economic arguments have never stood up. £2k per taxpayer was never going to materialise, even today you concede "it shouldn't affect taxation and spending policy".

Given the results of the EGM today, it might hole a couple of hedge funds rather more than the UK PLC. Well, unbless UKPLC decides to pay anything over the real value of NR shares (nil as you noted Robert, given that the debt is trading at 65p).

If the Govt has been handing out our cash in a reckless way, can a complaint be made to the National Auditor and would there be surcharges as they often put on local government decision-makers?

Thought not.

Re #37 and LCD TVs

I work in that field. The prices of LCD TVs are near bottom. Many come from China (or Turkey). There is big inflation in the big cities of Southern China (some estimates are as high as 20%) and continuous worker pressure for higher wages. Along with pressure on the Chinese government to change the official exchange rate RMB with US$ to make goods more expensive, do not expect further price cuts from China. Chinese factories are wanting to increase prices as their workforces are transient and they can't train people (as they soon leave)due to the inflation.

While the Chinese government is trying to move some of the factories out of the big cities of southern China to more rural areas(which will reduce costs) that will take several years.

I don't know about other industries but prices in televisions are near bottom.

The honourable thing for the Government to have done, would have been to allow Northern Rock to go into administration last autumn. The only reason this did not happen, is that Labour is worried about its northern seats (i.e votes). So this Labour Government has played fast and loose with taxpayer's money to shore up its own position!

Chris Cook #31 does us a great service ... 'creato ex nihilo' indeed.

However, many subsequent posters simply ignore this and Chris himself asks why politicians and the press have not made more of it.

Remember when you were growing up and asking for some pocket money?

Dad would invariably reply with something along the lines of 'moeny des'nt grow on trees, you know'.

And that is heavily ingrained into us, i.e. the notion that we have to work to get some money, we simply cannot get our heads around the idea that it might 'just appear'.

Well, for the Bank of England, money literally does grow on trees because the bank is the tree, and even its founder several centuries ago recognised that was its real power 'to create moeny out of thin air'.

Of course there will be consequences if enough money is created out-of-thin-air by the BoE and a commeasurate amount is not withdrawn from the system but hey, who is really counting the beans that closely?

What really gets me is that the Government were happy to let Equitable Life pension holders get stuffed but are prepared to bail out the risky business model of Northern Rock and to bail out company pension schemes that have failed! Where is the balance in this Governments thinking? Or is it all don to political expediency?

What is the difference between the UK government investing in Northern Rock, and the Singaporean government investing in Citigroup? (not to mention all the other Asian sovereign wealth funds investing in US banks to the tune of several tens of billion dollars over the last 6 months)

re: #62 ParanoidAndroid - perhaps you're right? Much as I have enjoyed Robert's blog and commend him for running a much-needed commentary and forum on this vital economics story since last year perhaps the proper perspective on NRock should, as you say, have been political all along?

Tony Blair, Peter Mandleson, Stephen Byers, Nick Brown etc., so many of the most prominent front-bench free-marketeers of the New Labour intake of 1997 (and again in 2001) represented North East seats, what better way to 'carpet-bag' Old Labour than to kick off with abandoning the collectivist mutualism that democratic socialism was supposed to be founded on, and exchange it for a spiv-economy targetting old Labour's deluded, incapacity benefit-claiming, right-to-buy, council tenant voters with 'ninja' mortgages?

Perhaps the defining event of the first year of Blair's spiv administrations will come to be the demutualisation of NRock rather than the death of Diana. Instead of a creed of protected pensions and cradle-to-grave welfarism New Labour copied Adam Applegarth's model of; get-rich quick schemes, bugger-thy-neighbour-and-buy-and-rent out-your council flat, short-term roll-over Weimar-style loans etc. Then retire with a hefty pay off just as it all collapses.

Add to this the revelation that Labour's secret sponsors are allegedly 'property developers' from Newcastle and one has to wonder if New Labour isn't 'nationalising' the entire Poulson Scandal rather than just NRock.

Or perhaps New Labour has just been bailing out its supporters and backers by plundering 6% of our nation's GDP from the state coffers?

And to think General Abacha and his cronies only managed to filch 3% of GDP at most from the Treasury of 1990s Nigeria, what amateurs they would be feeling today eh?

Toodle Pip (and well done throughout Robert!)

ENOUGH! What we have here is not a question of what should happen to NR going forward... what we have is question of who will bare responsibility -economic, political,moral!- for the NR going forward.

The government has held off Nationalisation -dispite that being the only viable course of action since the end of August because it does not want responsibility for NR. This bank has become the mother and father of bad smelling turds, not least because its arse has been wiped with £55billion of this country's cash to make it so.

Remember... once nationalised the the only chicken in the boardroom will be a chicken called Darling. Darling doesn't want to be a chicken tonight or anyother time soon!

A bit disappointing this one Robert.

You have kind of tried to blame Northern Rock for breaking UK public sector debt GDP rule, but it's not that exciting.

Is there a way you can link NR to the rise of fascism in Germany in the 1930s, or the sinking of the Titantic, or perhaps the disappearance of Lord Lucan?

On the plus side, your blog has managed to stir up the usual ill informed and quite amusing comments about how Northern Rock has stolen two grand off every man, woman and child in the country and these loans will probably cause hyer inflation and the spread of MRSA throughout the land.

(For those of you who believe every word on Peston's blog I better point out I am being sarcastic.)

For those asking why the Rock was not just allowed to go bust....recall back to late autumn there was a run brewing on a couple of other UK banks (not just Northern Rock)... A&L (and a couple of others) were also rumoured to be in trouble and then a NR run could easily have become a full scale UK banking crisis.

The Govt were right to step in... it is just a shame that the Rock's antics were not properly regulated in the run-up to the crunch.

Like a D:Ream things can only get better.

The unelected First Lord of the Treasury and his understudy, poor Darling, are going to make sure it happens to you, sometime soon.

this company does have a value it may well be negative when you consider the credit extended by the bank of england and therefore some company / bank will offer to take it on if the right arrangement can be made
the major problem for the government is the financial guarantee that it will have to make to any buyer for a deal to be done
the government will end up nationalising this bank to conceal its major error in guaranteeing its status in september also in the hope that the whole mess wiil be mitigated by the effects of time
the whole unedifying spectacle of the nr is the amount of public money invested in this bank by local authorities and by the public that this government is trying to protect through the bank of england and in the process is risking tax payers money in a venture which is beyond its remit (ultra vires)
the governor and board of the bank of england must resign in protest at this use of his office to support an illiquid company

I was talking today to a friend who has recently joined the Scottish National Party and asked him why he is so much in favour of Scottish independence.

He said "Northern Rock - it's now been proven without a shadow of doubt that its the lunatics that are running the asylum. We have to escape the asylum as quickly as possible"

Some might think that this NR saga is Robert Pestons finest hour ... but he may have an even bigger story if he can dig up what is really going on behind-the-scenes with 'other' banks and alledged covert central bank support.

I am nowhere near the 'the city' but you can almost smell the fear now ... maybe even bigger fish than NR are having some 'problems'.

It is salutory to recall when in the late 1980's, the Midland Bank got into difficulties, the 'magic circle' of wealthy people were tipped off and bailed out well before Midlands problems became public knowledge.

You can bet your last penny that it'll be the same story this time around, the wealthy will already have exited any dodgy banks.

That is how they stay wealthy.

Post 75 re the SNP. The lunatics running the asylum?

That would be the Scottish lunatics messrs Brown & Darling then!

I agree the sooner they go back north of the border and stop messing up the economy in Britain as a whole and bring their expertise to bear on the newly independent Scotland the better!

On the subject of the £26 billion or £57 billion the real figure is as follows.

The UK taxpayer has lent £26 billion to NR against loans it had to repay. These loans are guaranteed against assets that may or may not be worth £26 billion if the mortgages aren't repaid or mortgage forclosures don't recover the amount owed. Our possible liability is the difference between that amount recovered and the £26 billion lent.

In addition to this the government has guaranteed the payments to various other financial organisations that had lent to NR so that they do not call in their loans. Had they called in their loans the government would have had three options.

1) Liquidation.
2) Nationalisation.
3) Buy and secure the debts as well. Currently these debts stay off the government figures and are as yet only a potential liability.

Had the government had to do 3) above we would have breached the 40% rule by now.

Like a pair of gamblers that don't know when to quit Brown & Darling are gambling with our money chasing their losses.

If people are looking for a figure on the losses we will end up paying my gut feeling is as follows.

On the £26 billion guaranteed I would expect losses of between 10% and 15% i.e. £2.6 and £3.9 billion.

On the financial guaranteed debts, to be honest no one really knows but I expect there to be a huge black hole left at the end where there may be a shortfall of between £10 and £15 billion.

If people think this is bad just wait ttill the real financial nightmare of Gordon Brown's main off balance sheet financial scam i.e. PFI comes home to roost. This will make NR look like a small local problem.

I was wondering, as the Government bailed out Northern Rock, would the government now step in to other businesses to help them out as well, or is Northern Rock a special case? Does the chancellor have investments with them? Remenber Lloyds Names and BCCI, the government didn't help out the British investors in those corporations, my father lost all his savings of 30 years in BCCI.

I wonder how much all the whingers would complain if they had deposits or mortgages with Northern Rock?

As a supported of the Labour party all my life i am not about to change since the alternatives are too frightening to consider. However, i think the government is wrong to bail out NR to the extent proposed. I have no problem with the Treasury securing savers and mortgage holders investments but i cannot agree to a plan that will see shareholders investments also secured. These people took a calculated risk when they bought shares hoping to make a profit on them, only to find incompetent management failed them. It is not the business of government to protect the private sector against market forces in this way.

Why can't the Northern rock just collect mortgage payments from all of it's borrowers and allow the company to run down by not lending any more mortgages.
The company still has large assets in the form of mortgaged properties which will provide income for years to come. Why does it have to trade.
The company can cease to be a mortgage lender and just act as landlord of properties until all the mortgages are completed.
The taxpayer has no obligation to keep a company in business.

This bank was run by the same sort of private business individuals that the Tory party has always held in such high esteem that they even believe that more of Government e.g. the health service should be run by them. Well that management has run a bank into the ground, it has show a lack of prudence, business acumen and basic lack of common sense in it's risk all strategy. What a political embarassment for Cameron, Osborne et al. Seems to smack generally of the same risk all, greed ridden policies that the tories have always followed themselves.