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That's the way it should be done, for sure. Norway didn't make a bad fist of the Christiania Bank a few years ago either.

But it doesn't take away the need for funding by the "lender of last resort".

I sent in this LTE to the Guardian, so no chance of it seeing the light of day other than here!

Dear Sir

As Northern Rock teeters on the brink, we (Nordic Enterprise Trust - a Scottish Charity) hope that we may be able to communicate through your columns an alternative proposal for Northern Rock to the conventional "either" State = Nationalisation "or" Private= Plc: to wit, a "Northern Rock Partnership".

Using the simple and infinitely flexible UK LLP as a framework, Northern Rock's assets may be placed into the stewardship of a "Custodian" (noting - as exposed in the "Guardian" - that those in the "Granite" SIV were already placed into the unwitting stewardship of a northern Down's Syndrome charity).  The Northern Rock Foundation is a good candidate, since it owns 15% of Northern Rock Plc already.

A "Capital Partnership" may then be formed by adding an "Operator"  member ie a staff consortium, on the one hand, and an "Investor" member ie a shareholders/creditor consortium on the other.  

The "alchemy" derives, as Tim Congdon explained recently in the Financial Times, from the arcane role of the Bank of England as "lender of last resort". The interest and penalties currently being received by the Bank of England and Treasury respectively constitute "seignorage" (ie profit accruing to the taxpayer arising from the privilege of money creation) and we suggest that this continuing windfall may be placed into the stewardship of the Custodian in order to further fund a "Default Pool", thereby augmenting the existing shareholders' capital with a new class of additional "equity"

It is then simply a matter of dividing the net revenues of Northern Rock - after provisions into the Pool - into proportional units eg billionths and for the stakeholders to agree who gets what.

The Government (and the existing shareholders) may then sell this "Equity" in the Northern Rock Partnership over time to new investors, with the first port of call being to the Gulf, since the structure we have just described is, to all intents and purposes, a "Sukuk" or Islamic REIT.

Clearly there will be issues to overcome, but we see none of these  as intractable, as a simple continuous asset class of units in Northern Rock revenues replaces the irreconcilably conflicted claims of conventional secured Debt and conventional Plc "Equity".  

Yours sincerely

Moving the coal nearer the sardine again, Lieutenant! ;-)

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Jan 15th, 2008 at 07:40:19 AM EST
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