21 January 2008
Time was when it was four-letter words you had to be wary of. These days, the two most-vulgar words in the Government’s lexicon are much bigger. First there is the "R" word – which comes in at 9 letters – then there’s the “N” word – a whopping 11 letters. Still, it makes a change from the US, where until recently one of the words banned from use in official US government documents, was polar bear.
But this morning, the Government announced its latest idea for keeping the word, nationalise, out. Now we know, £25bn worth of loans are to be converted to bonds – and the bonds, of course, will be guaranteed by the Government. Meaning, the British tax payer is far from off the hook, our exposure to the bank has not changed one iota.
Yet, the way is now open for the likes of Sir Richard Branson, to make their new advances.
Maybe, by the way, the door has been left tantalisingly open for the sovereign wealth funds, perhaps the Chinese, who were, after all, treated to the company of both Mr Brown and Britain’s most famous balloonist last week.
But here is the puzzle. If the British tax payer is still so heavily exposed, why are we getting so little back for our risk?
Profit is the reward for risk. It seems that we are being asked to put up the risk, in return for, at best, a miserly return – surely this has to rate as one of the worst deals of all time – even worse than Gordon Brown's decision to sell gold a few years ago, when the yellow metal was so much cheaper than it is today.
Shareholders in Northern Rock bleat about how unfair nationalisation would be, some even threatened to sue the government in the event of transferring ownership to the State; how do they have such gall?
The argument in favour of this deal goes like this. Sure, the taxpayer may not generate much in terms of direct benefit, but think of the damage to the UK’s most precious organ of wealth creation if the bank is nationalised, namely the damage that will be done to the City’s reputation.
Well that's true to an extent. But the men and women who make up the financial world – are not exactly known for their lack of ruthlessness. It seems they want one rule for the taxpayer, and another for their own business practices.
Maybe the right deal for Northern Rock, its shareholders and its workforce, would involve some kind of ratchet. The people who are being asked to guarantee this bond – that’s you and me, should be rewarded for our risk-taking if things go well. But, providing the performance of Northern Rock rises above a certain level, then new management and shareholders deserve a bigger reward still.