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BTLlivingthedream

Ft: The (un)charitable Core Of Northern Rock

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Does it get any worse than this?

http://ftalphaville.ft.com/blog/2007/10/08...-northern-rock/

The (un)charitable core of Northern Rock

Bore down into Northern Rock - deep, deep, deep…keep going - and you eventually come to this:

229.jpg

Granite, the immense, £50bn synthetic financial structure upon which the the stricken mortgage bank is perched, is itself balanced on a charity, the Down’s Syndrome Association North East (UK).

That will come as a surprise to many - and it certainly has to the Down’s Syndrome Association North East (UK), a family support group run by about 300 parent volunteers. The charity’s trustees have issued a statement:

In connection with the current problems of Northern Rock, we would like to assure our members and supporters that Down’s Syndrome North East (DSNE) has not been knowingly involved in any misuse of money. We are investigating why our charity appears to have been named as a beneficiary of a Trust without our consent. We have definitely not received any money from Northern Rock or affiliated companies, except for a one-off donation from a staff collection in 2001. Currently we have not received notification that any funds are being raised or collected by Northern Rock or affiliated companies on our behalf.

As is widely known, Northern Rock has been funding itself through a securitisation vehicle called Granite Finance Holdings, which has issued paper worth up to £50bn. Under a mind-boggingly complex scheme, Granite is not owned by Rock, but by a business services group called the Law Debenture Corporation, acting as trustee. Granite’s beneficial ownership is described as follows:

The entire issued share capital of Holdings is held on trust by a professional trust company under the terms of a discretionary trust for the benefit of one or more charities. The professional trust company is not affiliated with the seller.Any profits received by Holdings, after payment of the costs and expenses of Holdings, will be paid for the benefit of the Down’s Syndrome North East Association (UK) and for other charitable purposes selected at the discretion of the professional trust company. The payments on your notes will not be affected by this arrangement.

All this was dug up three weeks ago by Richard Murphy, a tax expert and forensic accountant, who runs his own blog.

While a piece on the matter subsequently appeared in Private Eye, he finds it staggering that no one in the mainstream media has seized on these details — and, reading through his detailed explanations of how Granite operates, we tend to see his point.

A charity’s name and status has been used without its consent to create an opaque financial monstrosity. Those doing the structuring presumably banked substantial fees - but not a penny of this has flowed through to the Down’s kids involved.

Murphy (no relation) declares the Granite structure to be a sham, where Northern Rock actually controls Granite, but pretends not to via a set of complex legal structures. He calls this three things:

a) An abuse of the charity involved, who (I stress) need not even have given their assent to be used in this way;

B) A contempt for those who take the real risk on financial markets, which is at the end of the day as this fiasco is showing, you and me and the government;

c) The construction of an arrival device to ensure that as few people as possible, almost certainly the Northern Rock directors included, know just how this deal works. I guarantee you it’s a tiny number that do.

And it’s this wholly artificial construction, seeking to shift liability and to avoid responsibility and abusing common sense decency with regard to the abuse of charity to achieve commercial aims that is pulling Northern Rock down.

Murphy’s full excavation work can be read here and the full Granite prospectus is available here.

Perhaps those who profited from Granite should reach into their pockets. Lead underwriters on the Granite programme were Lehman Brothers, Merrill Lynch, and UBS. Underwriters were Barclays Capital, Citigroup, JP Morgan and Morgan Stanley.

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I don't understand how NR benefited?

To be honest I don't fully understand that either but when people behave in such a bizarre and suspicious way there must be something underhand going on.

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This was in the last Private Eye.

Another for the 'funny if it wasn't so tragic' box.

http://www.taxresearch.org.uk/Blog/2007/09...eeding-answers/

In other words that trust is not real. Northern Rock controls Holdings, but pretends not to via complex legal structures for certain purposes to try to avoid some of the risk of ownership arising from doing so, no doubt. Why else do this?
I call this three things:

a) An abuse of the charity involved, who (I stress) need not even have given their assent to be used in this way;

B ) A contempt for those who take the real risk on financial markets, which is at the end of the day as this fiasco is showing, you and me and the government;

c) The construction of an arrival device to ensure that as few people as possible, almost certainly the Northern Rock directors included, know just how this deal works. I guarantee you it’s a tiny number that do.

And it’s this wholly artificial construction, seeking to shift liability and to avoid responsibility and abusing common sense decency with regard to the abuse of charity to achieve commercial aims that is pulling Northern Rock down.

Of course it’s not alone. This type of deal is constructed every day off shore. It’s the bread and butter of international finance.

It’s why we can’t trust markets. It’s why regulation is needed. It’s why ownership has to be revealed. It’s why declaring where you’re working is so important. It’s why accountants have once more to put substance over form.

Now I know that for a change these Northern Rock entities were on balance sheet but most aren’t. And can you see as a result why no one will lend inter-bank now? They’ve all been so busy creating these sorts of artifice that no one dare do so - because they all know the warts in their own system, so presume there must be as many in everyone else’s.

It makes me believe, more than ever that the City is rotten to the core. Prove otherwise is my challenge.

Edited by JimmyMac

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Good news if you have an NR mortgage.

Just ask for a copy of the accounting proving where the money came from for the mortgage, signed under penalty of perjury and >poof< no more repayments!

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I haven't got a clue what this is all about. Can someone please summarise? Cheers in advance.

I dont know... its confusing if NR have lied about where the money is going, can you trust someone inst siphoning money out of the system for personal benefit? Could a complicated set of sub companies allow them to move money round and round in circles printing/issuing there own money to the value 40 billion?

Edited by moosetea

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I haven't got this issue of private eye anymore (I always leave it on the train after finishing with it, hoping some otherwise unenlightened person might pick it up and have their eyes opened, even just a little) and I can't recall the exact details, but I'll try to remember some.

What it doesn't say in the article quoted in the OP is that Granite (or one of the NR subsidiaries, there are many) was using the charity ruse to carry out some offshore operations in Jersey (I think it was Jersey anyway) for some purpose or other I can't remember, but it wasn't an honest purpose, put it that way.

Anyways in order to do this, the offshore entity for some reason had to have a reason for existing outside that of the parent company. So they set it up and said it was in aid of this charity. Only said charity knows nothing about it and have received no donations (or maybe a token £50 I think).

Sorry I'm not being much help, I think the copy of PI it's in is still on the shelves so you could still give it a read (lots of other juicy stuff in there for us bears too, in all honesty it reads like a HPC wnak mag).

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Page 3 (Labour Honeymoon Issue) - yes still on shelves this morning.

One bit.

"Northern Rock's use of an unsuspecting local charity, without its consent, in a multi-billion pound international financing scheme shows just how contrived financial engineering has become"

Was this the cheap route - have other lenders done the something similar by creating little offshoot mortgage companies that are neatly isolated from the parent company for when the shit hits the fan.

I think so.

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I haven't got this issue of private eye anymore (I always leave it on the train after finishing with it, hoping some otherwise unenlightened person might pick it up and have their eyes opened, even just a little) and I can't recall the exact details, but I'll try to remember some.

What it doesn't say in the article quoted in the OP is that Granite (or one of the NR subsidiaries, there are many) was using the charity ruse to carry out some offshore operations in Jersey (I think it was Jersey anyway) for some purpose or other I can't remember, but it wasn't an honest purpose, put it that way.

Anyways in order to do this, the offshore entity for some reason had to have a reason for existing outside that of the parent company. So they set it up and said it was in aid of this charity. Only said charity knows nothing about it and have received no donations (or maybe a token £50 I think).

Sorry I'm not being much help, I think the copy of PI it's in is still on the shelves so you could still give it a read (lots of other juicy stuff in there for us bears too, in all honesty it reads like a HPC wnak mag).

here's a scan of the article

http://bp3.blogger.com/_PB5-El7se4s/RvqCke...1600-h/Peye.jpg

Edited by BTLlivingthedream

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come on guys, I flagged this one up almost two weeks ago........

......While the pathetic BBC do " aw the nice" charity stories about Northern Rock on todays website, Private Eye does some real journalism on how NR used a Downs Syndrome charity to create a shell company in the Channel Islands for the usual creative acounting scams, without the charity knowing or benefiting in any way.

They also take apart the Murdoch Times Katelsky with a review of his column over the last year, says that he makes Mystic Meg look like a sure bet !

LOL ..........

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Is it any wonder the banks won't lend to each other ? The relationships between those front firms is mind bogglingly complex. What are they trying to hide ? Of course I'm sure the old buffers at the FSA have things under control.....

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