Why should the UK taxpayer take on Rock risk?

published 23 January 2008

Here's a list of words that have one thing in common: transparent, competent, efficient, capitalistic. The thing they have in common? You couldn't use any of them to describe the debacle that is Northern Rock before yesterday's announcement of a new solution' to the problem and you can't now either.

Four months ago it became clear that Northern Rock was effectively bust and that for it to continue operating in any form it would need a vast amount of government support. That is still the case. Brown would have us believe that should he be able to push through the Goldman Sachs solution whereby Northern Rock pays back its debt to the Treasury by issuing new bonds backed by the Treasury all will be well.

But nothing will have changed. The fact that the debt will be backed by the Treasury means that we will be taking precisely the same amount of risk as we are now: if the housing market crashes and cash flows from Northern Rock's remaining business is not sufficient to redeem the bonds it will be the taxpayer not the tooth fairy who makes up the difference. Let's not forget that the reason we are where we are is because no one in the private sector was prepared, despite the best efforts of Goldman Sachs, to stump up the cash to do a deal. So if they won't take the risk, why should we?

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I know it isn't remotely politically acceptable but I still think that the bank should be nationalised and run down it would be best if we could all hop in a time machine and start this process last autumn, but failing that now is fine too. The only people who don't think this are Gordon Brown (who doesn't want the debt on his balance sheet or the slur on his shaky reputation) and the many shareholders who have spent the last few months blithering on about their rights.

Shareholders do have rights. Of course they do. And number one on their list of rights is the right to the right to sell when it is clear the business they have invested in is a hopeless one. I wish they had all exercised it four months ago.

First published in The Evening Standard, 22/1/08

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.

Why should the UK taxpayer take on Rock risk?

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