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Incompetent fuckwit ideologues! (a rant)

by Migeru Tue Jan 15th, 2008 at 07:10:22 AM EST

This headline was staring at me from the top margin of my google mail inbox today...
CNN.com: UK government may nationalize bank

The board of embattled Northern Rock PLC faced shareholders Tuesday amid growing speculation that Britain's biggest casualty of the global credit crisis will be nationalized.

Hundreds of investors attended a meeting to vote on proposals by two key shareholders that would restrict the power of the board to reach a private sale -- proposals that analysts say could simply speed up the move toward nationalization.

That fear was reflected in a share sell-off in trading ahead of the meeting, pushing Northern Rock's already battered stock 11 percent lower.

I am getting rather angry at this. Of course they will nationalise Northern Rock, eventually, but it should have been done immediately. The government and the press are so full of neoliberal propaganda that it is news that the government will finally capitulate to facts and do its job.

A few years ago there was a case in Spain that might have led to a similar bank failure, but it was handled differently. If you don't know about the Banesto case, follow me below the fold.


In the late 1980's there was this young up-and-coming lawyer turned banker called Mario Conde who took this small, unassuming bank called Banesto and turned it into a giant with his aggressive management. A bit like Northern Rock's Applegarth.

Anyway, the equivalent of April Fools' Day is on 28th December in Spain, which also tends to be a quiet day on the stock markets, for understandable reasons. On 28th december one year, out of nowhere, the Bank of Spain dismissed the board of directors of Banesto and took over the bank, at the same time guaranteeing all the deposits. There wasn't a run on the bank, but its shares stopped trading on the Madrid stock exchange. A BBV executive was brought in to manage it on an interim basis. Within a month the shares were trading again, albeit at a discount. Within two months the bank was auctioned: BBV lost the auction to Santander, which I take as evidence of fair dealing. The bank still exists today. The end.

There you have it, a regulator doing its job. It's terrible, what these damn Socialist central bankers will do.

Now for the back story, which has some parallels with NR. It turns out Banesto had solvency problems, but this was not widely known. They presented a rescue plan to the central bank involving JP Morgan injecting capital. The central bank rejected the plan for unrealistic and immediately took over, as described above. In NR's case there was a rescue plan involving a capital injection but the Bank of England rejected it and then sat on its ass until there was a run on NR. And four months and who knows how many million pounds of loans later, they (and the press they take their marching orders from) are still wondering whether nationalisation would be a good idea.

So, yes, I'm pissed off at these 4 months of hand-wringing over whether to nationalise or not. Incompetent fuckwit ideologues!

Display:
With thanks to Colman for nudging me into making this a diary.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Tue Jan 15th, 2008 at 07:11:20 AM EST
What are the odds that the people making decisions in the UK actually knew about the Spanish case?
by Colman (colman at eurotrib.com) on Tue Jan 15th, 2008 at 07:12:44 AM EST
[ Parent ]
Close to zero, I think, but it doesn't matter. They don't make their decisions on the basis of economic history. They look at the FT editorial pages for guidance.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Tue Jan 15th, 2008 at 07:17:55 AM EST
[ Parent ]
And in other news...

I wonder if the two stories could be (indirectly) related.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Jan 15th, 2008 at 07:31:25 AM EST
[ Parent ]
BBC NEWS: Pound falls to fresh low on euro
A weaker pound against the euro will make travel to the continent more expensive for British holidaymakers.
That is the least of our concerns right now, mate! Did you see the retail sales figures for December?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Tue Jan 15th, 2008 at 07:36:40 AM EST
[ Parent ]
But for a British ex-pat living in the eurozone it's great.

schadenfreude

Money is a sign of Poverty - Culture Saying

by RogueTrooper on Tue Jan 15th, 2008 at 12:45:26 PM EST
[ Parent ]
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
[ Parent ]
When you consider the 'halfwit' Mervyn King, Governor of the Bank of England did nothing for 6 weeks when he was notified Northern Rock was insolvent; then it isnt surprising they would try to block nationalization.

Biggest mistake by Labour but the price they paid to be finally elected in 1997 was giving the Bank of England its 'independence'. 'Independence' being a euphemism for a handful of companies and movers and shakers controlling the bank with no recourse by the electorate or their elected politicians except for the few nominees Brown or whoever is PM is allowed to nominate.

Brown, Blair and the whole new Labour crowd guaranteed the powers that be they would act and be 'corporate Labourites to go along with the 'corporate Tories'.

Unfortunately in England; its not just the ultra rich who control the BofE but the ultrarich and the 'inbred toffs' who figuratively and for all I know literally, Mervyn King comes from.

Which makes it potentially much worse in England when compared to just having to threaten the 'ultrarich' in the US before the Fed becomes aggressive. It is very possible in England, the recession(depression) will be far worse than in the US; not because the systemic problems are greater but because the capacity for pain is far greater for the 'ultrarich and inbred' toffs in England.

by An American in London on Wed Jan 16th, 2008 at 09:28:15 AM EST
[ Parent ]
I was just thinking that the inflationary pressures and the slide of the pound against the dollar and euro would require raising interest rates, but that would just make the credit crunch worse. So the UK will be hit hard, very hard.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Wed Jan 16th, 2008 at 09:31:20 AM EST
[ Parent ]
It's terrible, what these damn Socialist central bankers will do.

Great story. Succinct.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Jan 15th, 2008 at 07:35:05 AM EST
At 526 words it's just perfect for a newspaper column if I replace "fuckwit" with "dimwit".

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Tue Jan 15th, 2008 at 07:37:55 AM EST
[ Parent ]
You should consider emailing it to some newspapers, just in case they're having a day where they print things without referring to the censor first.
by Metatone (metatone [a|t] gmail (dot) com) on Tue Jan 15th, 2008 at 08:39:48 AM EST
[ Parent ]
Off topic: did you follow those links I gave you the other day Re: out of control money creation?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Tue Jan 15th, 2008 at 07:54:39 AM EST
[ Parent ]
You evidently havent' realised that, just as with the US government, "reform" means the abdication of responsibility for anything and everything. Interfering in the way you describe is "bucking the market" and has fearful overtones of regulation.

keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Tue Jan 15th, 2008 at 09:52:29 AM EST
Helen:
has fearful overtones of regulation.

It has even more fearful overtones of having to take RESPOSIBILITY to resolve and actually manage a situation - something viscerally opposed by the Anglo civil service culture

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jan 15th, 2008 at 10:09:14 AM EST
[ Parent ]
We give government officials broad powers so they can take decisive action in time of crisis, not to see them philosophize about moral hazard as they dither looking to the editorial pages of the FT for guidance.

Maybe I'm just old-fashioned. I don't get this New Economy™ thing.

We have met the enemy, and he is us — Pogo

by Migeru (migeru at eurotrib dot com) on Tue Jan 15th, 2008 at 10:14:57 AM EST
[ Parent ]
I don't know about the K but the concept of a civil servant taking responsibility for anything is almost an oxymoron in Ireland

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jan 15th, 2008 at 10:18:39 AM EST
[ Parent ]
The UK has always been an odd mix.

There is a top crust of useless upper class twits that Helen identifies in another section, but then there's a section of very competent, very dedicated administrator types. [Prejudicially I'll point out that these mostly come from the parts of the UK away from London.]

It can be seen in the railway industry in the UK, now privatised, the strongest companies are staffed by the best of the old government workforce.

The tragedy is that the Thatcher years enshrined government inaction as a good in itself. Whereas before the twits at the top were spineless idiots who were blamed at large for failing Britain, now they are individuals of high moral standing who protect us from the horrors of "over-active government."

by Metatone (metatone [a|t] gmail (dot) com) on Tue Jan 15th, 2008 at 01:59:55 PM EST
[ Parent ]
ohhhh Banesto...... ohhh Banesto

But there you had a perfect storm combination.

A central bank willing to do what its supposed to do adn a banker who was hated for the rest of the banking system....

I doubt you have any of those in the UK...

Actually, seriously,.. Do they even know that they can do it? :)

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Tue Jan 15th, 2008 at 09:58:45 AM EST
Just some thoughts.

The system is rigged stem to stern to favor the ultrawealthy; they control ANYTHING, governments included, that are worth controlling.

Since the beginning of the Bu$hCo administration, has there been JUST ONE major event which didn't work to favor the ultrawealthy?  I can't think of one.  Question: Where is the incompetence?  ANS: All going according to plan.

So what's to get mad about?  It's ALL very predictable.  Getting angry at this situation is like getting pissed off at gravity.  What's the point?

Recommendation:  Don't get angry.  Organize to CHANGE THINGS. (I am SO '60s/'70s.  When will I grow up)

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Tue Jan 15th, 2008 at 10:26:11 AM EST
There are two types of nationalization.

One is when workers' interests are protected by ensuring credit organizations are publicly controlled, so that credit can be granted both transparently and equitably and resulting prosperity of the credit organization, if applicable, is returned to workers equitably.

Another is when the interests or shareholders and of the well-to-do are protected by ensuring their stakes in a credit organization, the fruits of the prosperity of which they alone appropriate for themselves in good times, are subsidized by the taxes on wages of workers in inevitable bad times like we are seeing today.

One is called socialism, the other is called corporatism and is an aspect of fascism. We can play semantical games about the dynamic, but economic liberlism necessarily leads to the latter.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Tue Jan 15th, 2008 at 10:56:53 AM EST
The glory of capitalism meets own ruins:

Shanghai breaks with market principles

[In] plain language, the Shanghai government demands the relevant authorities to consider launching a policy to restrict non-Shanghai residents from buying housing in the city. The circular goes so far as to stipulate clearly that it overrides any previous rules. If Shanghai implements the measure, it will be the first city to impose a ban on non-local Chinese buying housing in its territory.

The country has already imposed restrictions on foreigners and overseas Chinese from buying housing in major cities, one of the measures taken to cool the urban real estate market.

How Wall Street broke the free market

[Less] than two decades after the collapse of the Soviet Union and the West's gleeful jig dancing on the grave of communism, state capitalism is suddenly threatening the autonomy of the global "free" market. Wall Street's elite banks, longtime freedom fighters for deregulation and scorners of all government intervention in the marketplace, are now begging, cup in hand, for aid from a gallery of regimes that includes some of the most authoritarian and undemocratic governments on the planet.

[For] some conservative commentators, the clash of civilizations isn't just about geopolitical control of crucial assets, but raises serious ideological questions that many thought had been decisively settled. Wringing their hands with a flutter bordering on hysterical, they worry that the influx of cash from national governments making decisions for strategic reasons, rather than purely economic, will upset the efficient workings of global markets.

[It would be accurate] to say freer markets lost the day. The root of Wall Street's woes leads back directly to their own strategic missteps, greed, speculation-run-amok, and lack of appropriate supervision. The brightest minds in finance had exactly what they wanted, a playground where the monitors were looking the other way, and they blew it. When the China Investment Corp. pumps in $5 billion to Morgan Stanley, we are not witnessing the triumph of state capitalism, but rather, the embarrassing, humiliating failure of Reagan-Thatcher style unregulated capitalism. So now the U.S. buys Chinese toys at Wal-Mart, and China uses the resulting cash to buy American banks. Hey, anything's fair in love and war and free markets.

by das monde on Tue Jan 15th, 2008 at 08:42:34 PM EST
not just for the interesting and entertaining story, but also for the plain warning:  In the Anglo countries, bankers and central bankers are ABSOLUTELY INCOMPETENT (by reason of ideology, apparently, but who cares why) to manage the crises that they create.  

RULE OF KATRINA applies:  Think carefully, plan your strategy, and absolutely ignore and evade the authorities, if well-being or survival is your goal.  

The Fates are kind.

by Gaianne on Tue Jan 15th, 2008 at 11:24:49 PM EST
It would be interesting to know what percentage, real estate equity was of the median net worth of the US per person compared to the % of the UK per capita. The UK will suffer equally or more than the US in real estate values declining. Obviously; it wont be in the exact same time frame but in parallel.
by An American in London on Wed Jan 16th, 2008 at 09:48:29 AM EST


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