If you use Google Newsearch just now and type in ‘bailout’, the headline story is from Forbes: Some Bailout.

Vidya Ram for Forbes laments the £50,000,000,000 ‘bailout’ where the Bank of England exchanged it’s high-grade government bonds for low-grade/toxic mortgage securities and possibly other assorted debt in order to shore up the private UK banks which had been operating with poor/failed business models.

Forbes notes that despite the cash injection, the FTSE 100 fell 0.2%

This is the second time in six months the British tax payer has found themselves bailing out private banks. Previously taxpayer’s exposure to Northern Rock reached up to £100,000,000,000.

A British taxpayer’s individual exposure to private bank’s debt could now be £5,000 each.

According to Bloomberg, Northern Rock is to pull out of the UK subprime mortgage market.

The recently nationalised bank has been reducing it’s mortgage offerings over recent weeks.

This will no doubt come as something of a shock to the UK government who have been adamant thus far that there is no subprime crisis in the UK and that it’s all an American problem

The emergency bill for nationalisation of failed bank Northern Rock was debated to the end of it’s second reading last night in the House of Commons and some rather interesting facts were thrown at the government who were represented by chief secretary to the treasury Yvette Cooper.

First of all, the Guardian newspaper, back at the end of November last year discovered that 70% (some £53 billion) of Northern Rock’s loan book was held by an off-shore operation known as Granite based in Jersey. Granite is not owned by Northern Rock.

This, of course, came out last night in the commons and it became quickly clear that the public would not be receiving ownership of Granite which holds the ‘good’ assets of Northern Rock. A well prepared Tory pointed out, due to contractual obligations, Granite would also be able to pull in further assets from Northern Rock after the bank has become nationalised!

Conservative MP Ken Clarke said:

“The best assets are in Granite…

…It looks as though there is a contract enabling more assets to be drawn in and it is the rubbish in the assets that we are now nationalising.”

The best Yvette Cooper could do was attempt a truculent look which instead conveyed an expression of extreme discomfort. Clearly she was none the wiser and had been badly briefed on the Granite situation (if at all!). She was apparently unable to answer questions from members with regard to Granite.

Liberal Democrat spokesman Vince Cable put it well:

“What is going on here appears to be not public ownership of Northern Rock but an asset-stripping operation designed to benefit whoever, we don’t know. This is a very serious development.”

I don’t think there was a third reading for the Commons (I fell asleep) so the bill now passes to the House of Lords who will hopefully tear it to shreds and save us from being sold down the river (yet again).

Also of interest is the draft text [pdf] of the bill itself. It makes no mention whatsoever of ‘Northern Rock’. Effectively, the legislation could be used to nationalise any UK bank. It makes one wonder just how many banks Labour intend to nationalise.

The UK just bought itself a bank.

For a cool estimated £55-£100 billion of the taxpayer’s money, the UK government is to nationalise failing UK bank Northern Rock.

Northern Rock got into severe trouble late last year and had to borrow colossal ammounts of money from an emergency facility at the Bank of England. This in turn caused a failure of confidence in the bank by it’s depositors and a bank run.

The UK Labour government has now apparently decided that the taxpayer’s exposure to Northern Rock is so massive that they have no choice but to nationalise the bank in order to attempt to get back some of the money they have taken.

There had been various private takeover offers for the bank including one lead by Richard Branson’s Virgin group but they failed to materialise. It appears that the already hired former boss of Lloyd’s of London will be installed at Northern Rock to take control.

Whether there is any salvage to be had and whether the taxpayer will lose their money remains to be seen.

One would imagine that the UK chancellor, Darling, will now be about as popular with the British taxpayers as flatus in an elevator.

Update: Full details of the assets and shares nationalisation is to follow tomorrow (18th Feb)

Photo Credit: Alex Gunningham cc-by-2.0

The thing most likely to cause a change in texture of a Northern Rock shareholder’s undergarments today was the news that the UK treasury would prefer nationalisation of Northern Rock over a private deal if the decision had to be taken today.

The BBC cites a ‘banker’ who is said to be ‘close to the negotiations’ who says that the Prime Minister Gordon Brow (rather than the chancellor, Darling) is calling the shots on any potential deal. Apparently, Brown isn’t averse to the nationalisation of Norther Rock ‘at any cost’ now. He is said to feel that a partial nationalisation deal with Virgin involved may be beneficial but he wants more money in exchange for the billions (£100billion?) in support already doled out to the Rock.

You can read more in Robert Peston’s: Rock Nationalisation ‘back on’ article.

Photo Credit: Alex Gunningham cc-by-2.0

The Office of National Statistics has that the assets and liabilities (there seem to be more of the latter than the former) of Northern Rock must be added to the public balance sheet as of 9th October 2007. This is due to the amount of control the government/treasury has taken over the failing bank and the public-funded support that has been given.

This means that the taxpayer is now facing an official increase in their debt burden of about £100 billion (£100,000,000,000) whether Northern Rock is actually nationalised or not.

£100 billion is a frankly terrifying amount. That’s one-hundred-thousand-million pounds. If you had that much money in pound coins and you laid them flat, edge-to-edge, they’d stretch around the equator over 56 times and they’d weight 3/4 of a million tons. Of course, this little practical excercise would be impossible as it would require 67 times more pound coins than actually exist in circulation.

There won’t be any hard news on whether the bank will be privatised or nationalised until the end of march but even in privatisation, current plans would effectively leave the buyer with the business of Northern Rock while the public gets to continue holding the liability for the debt.

Photo Credit: Alex Gunningham cc-by-2.0