Northern Rock Redux - Wisdom in hindsight, paralysed by inaction at the Treasury, and indecision at the Bank
"Nothing appears more surprising to those who consider human affairs with a philosophical eye than the easiness with which the many are governed by the few, and the implicit submission with which men resign their own sentiments and passions to those of their rulers. When we inquire by what means this wonder is effected, we shall find that, as force is always on the side of the governed, the governors have nothing to support them but opinion. It is, therefore, on opinion only that government is founded, and this maxim extends to the most despotic and most military governments as well as to the most free and most popular."
David Hume, 1758, "Of the First Principles of Government"
Is part of an anonymous comment to a post "(Northern) Rock - Paper (Tiger) by Prof. William Buiter at his blog "Maverecon" last week.
In this , Buiter made clear his view on the solvency / insolvency of Northern Wreck which he only hinted at in interviews on TV / radio ...
" ..... it is by no means obvious that Northern Rock (total assets £113 bn as of 30 June 2007) suffered just from illiquidity rather than from the threat of insolvency. The organisation has followed an extremely aggressive and high-risk strategy of expansion and increasing market share, funding itself in the expensive wholesale markets for 75% of its total funding needs, and making mortgage loans at low and ultra-competitive effective rates of interest. No matter how efficient you are, or how safe your assets are, if the effective interest rate on your borrowing exceeds that on your investments, you are unlikely to be a long-term viable proposition, no matter how impressive the growth of your turnover. Northern Rock’s share price had been in steep decline since February of this year, well before the financial market turmoil hit."
The same anonymous (and most likely American based) commentator also makes some penetrating observations about the way things are seen in the Brave New World of the Internet... (original capitalization)
"as the internet seeps further into mass use it dissolves the glue that has held together the nation state which itself has been concocted and held together through the control of opinion.
the internet is one large truth searching machine chewing through every scrap of data separating as it goes, the real from the fairy tale. anyone with a desire to find out what is what and who is really who can do so at little or no cost. this forces all governments and central banks to forsake widespread fraud, lies and deceit in the creation of their policies. a reality regrettably they have not yet figured out. washington, greenspan and wall street are emblematic of this principle.
they all wove and spun gigantic lies and frauds which have either collapsed or in the process are collapsing. washington with its lie based middle east pageant, greenspan whispering into the ears of homeowners to use their abodes as an atm machine and wall street for knowingly creating fraudulent derivatives and then flogging them to anyone and everyone while eschewing the risk.
we have reached a david hume moment of credibility.
welcome to the new world disorder."
It is increasingly evident that the Directors ( belatedly we notice the Chairman is a journalist - the pompous Matt Ridley) rude provincials to the core - and evidently proud of it, have prepared false accounts, declared themselves handsome and increased dividends, (which it appears they still inentd to pay themselves) continued (and continue) to trade whilst insolvent and gulled the BOE / FSA by cleverly allowing the politicians to conceal the truth of their folly.
The Daily Telegraph today
" ...the Bank has admitted that it is struggling to determine the impact of the credit meltdown on the economy.
Charles Bean, (known apparently as "Charlie. ed.) chief economist, said assessing conditions in the economy is "subject to considerable uncertainty".
(We will pass over the fact that Mr Bean ***(evidently well versed in the direst of platitudes) is in charge of the economics section - the plainly incompetent Sir John Gieve , who left the accounts at the Home Office in such turmoil that the National Audit Office would not sign them off, is one more useless civil servant than is necessary to run a Bank)
The Telegraph go on to report that ..
On Wednesday the Bank is due to publish the details of its new quarterly survey into credit conditions in the UK. The survey was launched in the 2nd quarter to help monitor conditions in the consumer and corporate lending markets, the first time the Bank has monitored the credit markets in this way.
The US Federal Reserve first introduced a similar survey in 1967, while the European Central Bank introduced its own in 2003.
That the German banks could, within ten days, resolve the almost identical problems that arose in the Saxony state bank demonstrates not their more efficient and effective monitoring , but the abitlity to make and take decisive action. It is claimed that Mervy King is a distinguished academic ... he gives the impression that he cannot really decide which shoe to put on first in the morning.
*** It appears - this is true, that Mr Charlie Bean was a classmate of Mr Griff Rhys Jones and te now sadly departed Mr Douglas Adams. Evidently a natural comedian.