Tuesday, November 20, 2007

Northern Rock and the Little Sods

Nicola Horlick just appeared on BBC Breakfast to talk about Northern Rock and private equity. She said private equity was good because it made companies more efficient and NR shareholders should be looked after as well as its investors and borrowers. The efficiency argument about private equity is irrelevant as the critics of this industry do not attack it for inefficiency but for acting against the public interest, which is not the same thing. Her justification for protecting the NR shareholders was that they would be pension funds looking after the savings of borrowers and investors. This is, of course, completely stupid as, by the same logic, every company in difficulty would qualify for a government bail-out. Horlick was blandly advocating a policy in which the state would underwrite every risk, or communism as we used to call it. (She wasn't challenged on either of these points so I turned the TV off - I intend to do this more often for health reasons.)  Horlick said these things because she had to, she was speaking for the City and she knew she only had about one minute on screen. This is fair enough if you accept that it's okay to say intellectually dishonest things just because you know how television works. But what struck me as odd about what she said was the extremity of it. This was blind market fundamentalism, so blind, in fact, that she appeared to be happy to hand the economy over to the state in the name of free markets. But this is, of course, just another way of playing the markets - in this case the market in question is political. The City is bargaining with the government. Both sides are embarrassed, but, currently, the City is doing a better job of hiding it because of its startling willingness to deploy either capitalist or communist rhetoric as the occasion demands. The government can't deploy any rhetoric at all because of the deep conviction of the Little Sods that everybody who isn't rung up by Gordon Brown every morning is a moron.


  1. This is another, when a bet is not a bet, in the family of the Esso-Valdez-Macmurdo Lloyd's fiasco. The proper issue in this situation is that this NR horse succeeded in getting that far along in the race with out mishap. That the stewards allowed it to run. But most important, we should thank God, that this runner rammed itself into a fairly simple hurdle before the remainder of the runners did exactly the same stripped down banking, smashing up the racetrack.

  2. I don't know enough about this situation to permit a full blown rant but things that I (tentatively) think are very badly handled by the media on this story are a) conflating Bank of England lending with 'the taxpayer' (Larry Elliot, I'm looking at you); although there is a sense that BoE money belongs to 'us', as far as I know, the funds lent to Northern Rock were not raised through taxation and do not come out of the government's budget b) the idea that bailing out Northern Rock was pure corporate welfare, helping rich investors. As far as I know, the man on the street depositor loses in a bank run, and the BoE acted to product savers.

    I'm not sure what the question of whether BoE should give Northern Rock breaks has to do with the merits of private equity involvement in the situation (can't private equity buy Northern Rock out of bankruptcy, or something, if the BofE decides not to cut it any slack?).

    Talking of having to walk away from media for health reasons, on Saturday I opened the Independent and read the opening paragraph in its lead story which informed me that experts fear the decline of the dollar has become irreversible, and had to go and lie down.

  3. Lots of bleating too from NR small shareholders in the NE who say they didn't know anything 'bout the shares they got from demutualisation or purchased for their pensions. Tough. Maybe the government will now organise baleouts for the sad looking punters coming out of my local Corals or Ladbrokes. The reason HMG is pouring OUR money into NR is a) because they took their eyes off the ball, and then panicked, because of the build up to Brown's non-election and b) because they don't want the rot to spread to Alliance and Leicester among others. The fact HMG is pouring out sumss that will soon equal the defence budget is a disgrace and Darling should be sacked asap. And while we are ranting, Nicola Horlick is but one manifestation of the 'fat mommas' who seem to be colonising the media. Your own paper's News Review is like the Momma's Mag......must dash to catch a rat. Gnash, gnash, rip, rip.

  4. Is there a difference between "intellectual dishonesty" and just plain dishonesty?

  5. Yes, Susan, there is. The first requires a cunning plan. [See Blackadder, E., Autobiography of] The second is more of a situational or spontaneous sort of thing [See Hacker J., Diaries of the T. Hon.].

  6. And captainb, because there are an awful lot of Nu Lab MPs in the N.E. of England who might feel the wind if N Rock were to go where it deserves to be - in the hands of liquidators. But it is no longer (if it ever was) a private business matter.
    The first 10% of the Rock's profits supported numerous 'good causes' in the North East and the loss of that largesse
    will have enormous effects oop 'ere.

    N Rock's demise seems to me to be the tip of an ugly iceberg and I think it will mark the high point of the hubris of the last thirty years or so of cheap Greenspan money, entirely designed to extend the life of the dollar. The dream is turning into a nighmare.

  7. Philip Walling wrote: "The first 10% of the Rock's profits supported numerous 'good causes' in the North East and the loss of ..."

    Now, the NR issue seems to depend very strongly on money, its value when invested, even the meaning of value, and the understanding of people (especially government ministers, bankers, shareholders) of the as to what is that particular value.

    Much has been written as to the understanding of various persons potentially benefiting from what that value is, and the simple and complex conditions under which that value might be placed at risk.

    From the above quotation, it seems now that the persons benefiting should be extended to all those residing in the North-East of England. And that not only should certain persons be protected against capital loss, but also protected from deprivation of their assumed profits.

    However, I am wondering what to make of those who believe that the 'first 10% of the Rock's profits' is in any way better than (or even distinguishable from) the nine other ten percents?

    Best regards

  8. Happy to be a moron ...

  9. I might agree with Nigel Sedgwick if I understood what he was trying to say.

    I was merely pointing out that the fallout has wider consequences than just for the depositors, shareholders and direct employees of NR.

    I am not saying there is any difference between the first ten percent and the rest of the profits: if there are no profits it doesn't matter which part of them you are entitled to. And I do not think the taxpayer should be obliged to protect anyone who has lost money from being involved in such a commercial enterprise as NR.

    The problem is that allowing it to go bankrupt would have had unpleasant consequences for this government and the whole credit, housing and consumer markets upon which our economy now depends. But it seems to me that it (and all those involved) should have to pay the price now for greedy and foolish management rather than put off the evil day by spreading the loss across the whole of British society.
    It is just postponing the day of reckoning. But what do you expect of Nu Lab and the generation of those it represents?

  10. Back, please, to the Little Sods and Polly's plea for Brown's competence. The HM Revenue and Customs lost data fiasco is bungling of Wodehousian proportions. I see Brown as a bullying Roderick Spode and Darling as the strangely sinister Catsmeat Potter-Pirbright. It's rather wonderful watching NuLab implode. I've waited for this ever since Blair shouted 'Weak! Weak! Weak!' at John Major. It's karma.