Tuesday, February 19, 2008

If some are calling for Darling’s resignation over NRK, can we have Gordon’s resignation for 10 years of economic mismanagement?

Hamish McRae: The nationalisation of Northern Rock is no big deal (unlike the state of public finances)

"The economics of Northern Rock look better than the politics. The "n" word may still be toxic politically, but nationalisation is not only the least bad outcome to this sorry tale. It is just possible, with one huge caveat, that the taxpayer might end up making a profit on the deal. The real charge against the Government is not the mishandling of Northern Rock, though it has not covered itself with glory. It is the much bigger issue of its mishandling of public finances more generally."

Posted by blister soul @ 12:36 AM (616 views)
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6 thoughts on “If some are calling for Darling’s resignation over NRK, can we have Gordon’s resignation for 10 years of economic mismanagement?

  • Hamish said, “We are heading into a global downturn, with a bigger fiscal deficit of more than 3 per cent of Gross Domestic Product. That is bigger than that any other large developed nation. We have a government that spends £11 for every £10 that it receives in taxation, borrowing the balance at higher interest rates than the US, Germany or France. And there is every prospect of our national finances getting worse as our economy slows. Northern Rock is a mess-up; our public finances are a disaster”.

    When Hamish talks of deficits he doesn’t mention the largest one…..LEADERSHIP.

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  • “That leads to the caveat I noted above. There is one set of circumstances that would mean the taxpayer ends up losing a lot of money: if there is a housing crash.”

    Says it all really!

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  • You know, it occurred to me that in fact the era of PFI has come to an abrupt end. PFI is in fact an awful deal for the taxpayer, and one of the reasons the public finances are going to be in a truly parlous state. Why so? A takeover of Northern Rock by Virgin would have offered an effective PFI, reduced the headline borrowing figures immediately (albeit not by much), and created a path toward paying down the loans in future. But of course, as has been admitted, this represents a pretty poor deal for the taxpayer. The loans that would have gone bad would be the ones remaining on the government balance sheet. Nationalisation means that at least the taxpayer gets the benefit of the better mortgage debt even as it loses on the rest. The government previously acted as if it was important not to have public debt and rather a sleight of hand (PFI) where the taxpayer ends up paying a large amount to service a private company which took on the debt (off the government’s balance sheet) but in fact, none of the risk. If they are unprofitable – like Metronet – they quickly fall back into the taxpayers arms. When profitable, the taxpayer pays over the odds. In Northern Rock, we have a final admission that, under real scrutiny, PFI does not work. What’s alarming is the quantity of debt shifted toward the private sector in the past 10 years, these PFI’s that have been awarding themselves large dividends and bonuses, now face the only point in the economic cycle when their debt servicing charges can actually exceed the value of their public contract – just as their asset base is shrinking (property values tanking), which would represent a better deal for the taxpayer, if only for a few years. It won’t, however, because of course the minute the profit dries up, the original owners will put themselves in administration, safe in the knowledge the government (ie. the taxpayer) will step in, because they are held to ransom to provide these services. Which means, an enormous amount of debt is heading for the government balance sheet. Which would in turn mean, under the more severe of circumstances, the UK is bankrupt.

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  • C'mon Correction says:

    To be fair to Darling he has taken over from one of the worst Chancellors we’ve ever had. How he is even respected by some is baffling, they must be truly blind.

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  • I predict that the public (tax payer) will achieve a profit from NR in the same way that CPI is around 2.0%

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  • There is no way the government, and hence the BoE, will allow an HPC while they are in hock, and dependent on the HPI, if they are to make this nationalisation of NR work, expect IR’s to plummet , sterling to sink and imported inflation to rise markedly (ofcourse the figures will be massaged), and the debt fuelled bubble to be re-inflated. The nationalisation of NR is the worst thing that can happen to HPC and will cause huge inflation discomfort, but HPI to continue – ‘dead cat bouncing’, anyone.

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