Darlings,
When is a rock not a rock? The Bible tells us we should build our houses on rock, but I guess it doesn't work too well if the rock is resting on a dream - the dream of everybody having everything they want, whether they can afford it or not, as the day of reckoning will never come. But it has come, and the Newcastle-based Northern Rock Bank, the UK's fifth largest mortgage lender which holds the savings of 1.5 million people, an amount totalling some £24 billion, has had to go cap in hand to the Bank of England to "ride out the crisis in global credit markets".
In a scene we could imagine coming from Dad's Army, with Captain Mainwaring looking on as Corporal Jones runs amok, the investors are being told: "Don't panic!" Well, permission to speak, sir? I don't think they like it up 'em!
Shares in Northern Rock have slumped more than a third following the news, wiping billions off the stock market value of the firm. Chief executive Adam Applegarth claims the loan is just: "a backstop in case we need to use it," and says: "My advice to customers is, with the Bank of England providing this liquidity, they should be greatly reassured. If I was a depositor I would be reassured if the Bank of England was behind me."
Er . . . So he is not an investor himself? That doesn't exactly inspire confidence, does it? I wonder if that is only a recent state of affairs? Perhaps it accounts for the long queues of people at every branch today, all wanting to take their money out. The term: "run on the bank", like something heard in a Wild West movie, is already being bandied about.
We're told Northern Rock has run into difficulty because it relies heavily on the wholesale money markets to raise cash for lending, as well as its asset-backed securities - the sales of bonds based on its mortgage debts - and neither of those two commodities has any good news for them at the moment. The rates at which the wholesale money markets are now trading are penalising, and the housing market isn't good news either, not here or in America where the subprime mortgage financial crisis began last year. Our Citizens Advice Bureaux (CAB) reports seeing a massive 20% increase in people struggling with their borrowings, with an 11% rise in people falling behind on their mortgage payments.
If we add to this the news that the number of four-bedroom houses coming on to the market has halved in many areas following the introduction of the government's Home Information Packs (HIPs) on those properties, and that now the scheme has been extended to apply to three-bedroom properties they are faltering too, along with house prices in general which overall have started to fall, I think at this time I'd rather invest in Blackpool Rock before Northern Rock. All the ingredients are in place for a housing market crash, and whether or not there is one may only depend on how the mixture is stirred.
Of course, if another bank doesn't soon snap up Northern Rock for a song in some merger or take-over - and fortunately for those with deposits there that does seem to be a likely scenario - it will all depend on just how far the Bank of England is prepared to go to support it as to its future. The Bank of England governor, Mervyn King, has stated that emergency funds would be made available to any British bank requiring them, but at a penalty rate to ensure those who had made bad lending decisions suffered disadvantages to those who had made sensible ones. But would they provide a further back-up should there be no short-term recovery in the bank's fortunes?
As far as I am aware, eligibility to two bites at the cherry isn't actually mentioned. In an agreement with Alistair Darling, the Bank of England might be game - but would Gordon Brown veto such a move? Prudence wouldn't want to be creating a precedence, would he? There are other banks struggling too. Besides, borrowing money "at a penalty rate" isn't going to do a lot to help any business hoping to "bottom-out" before everything is lost, is it? It is like being kicked when you are down.
To repay their loans at penalising rates will not be easy. Interest rates on their current lending to some 800,000 owners or homebuyers will undoubtedly have to rise, and should this promote an exodus of people to other lenders with more favourable rates it will only exasperate their problems. It does seem this bank has landed up with a catch-22 situation, so despite all the reassurances and trying to talk it up, I don't think anyone will be surprised should it collapse in the coming days. Maybe what is on many a mind is: will it be the only one to go under?
The new Chancellor of the Exchequer, Alistair Darling, has accused our banks and financial institutions of lending money too freely. Consumer debt has spiralled to record levels where the total amount now outstanding is more than £1,345 billion - and with more than four-fifths of that debt being secured on property, imagine the havoc a housing market crash and the associated negative equity would create at this time, especially when our personal debt exceeds the country's gross domestic product by at least £15 billion. Sell the gold reserves? I don't think we can, can we? Didn't Gordon Brown all but give them away in his first year as Chancellor?
The mirrors have cracked and the smoke has gone, the illusion is over, and we can now see the true strength of the UK economy. Gordon Brown's philosophy, where by giving the financial markets a free rein borrowing became so easy that even if we noticed all the punitive stealth taxes being imposed on us we weren't too bothered, we could have anything we wanted and not even a meagre pay rise disheartened us, has finally come to an end. The economy, when you unravel the figures, has only appeared to be strong because it has been supported by our money taken in unfelt, but soon to become crippling, taxation. Perhaps Gordon never believed it, but there is a point where the balloon cannot be blown any bigger without there being a disaster. I believe we may have reached it. Prepare yourselves for the farting sound - and we shall only hear that if there is no big bang!
With taxes at levels never before seen in this country, yet with everything still failing around us, Gordon Brown is faced with the possibility of "a Winter of Discontent" as the unions are talking of coordinated industrial action. Backing down and making a small concession to the health workers may not have saved the day. There are the teachers, civil servants, local government workers, prison officers, police, and many others all still looking for extra money - and unless it is substantial, they don't want it staggered where it loses its value before they receive it. Where will all this money be found? At a time when interest rates are rising, and our debt is out of control, who could afford to pay any more taxation? The alternative is Gordon Brown standing firm and confronting the unions head-on. Could he do it?
The prime minister has two hour talks with Baroness Thatcher. British troops are being withdrawn from bases in Germany. In Iraq British troops have withdrawn to Al-Basrah Airport. That's all very handy, isn't it? Should Gordon's chickens come home to roost, so could our troops on the next flight home!
And this is a Labour government?
"The Bitch!" 14/09/07.
About the Author
"The Bitch!", a weekly UK News Review column, is hosted by the author and columnist Michael Knell. These articles appear on the Blackpool Gay Directory website, but are not usually specifically gay in content. More information on the author: http://www.michaelknell.com and on the directory: http://www.astabgay.com.
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