A sweet rock for british finance

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22 January 2008

After months of protesting that the billions loaned by the Bank of England to Northern Rock would be repaid very soon, without taxpayers having to bear the cost, Darling has finally revealed his real plans. And whichever way the bank's bail-out is done, the cost will definitely be borne by the taxpayer.

If it is via the government's "preferred option", that is, a private consortium buying a majority share, Darling will still provide the state's guarantee for a total of £55 billion worth of loans (if not more, because no-one can be sure about what Darling is really cooking up). This means that if the bank fails to repay any of its loans on time, which is likely, the taxpayer will have to pay.

But if the bail-out is done via the "last resort option" considered by Darling - nationalisation, which Labour would rather avoid, for fear of upsetting Middle England - this will make no difference. The shareholders will be paid off, well above the value of their shares, and the biggest among them will be able to walk away without having to disburse any of the fat dividends they earned in the past. Besides, under this business-friendly government, nationalisation will merely cover up the state's largesse to the bank, under the veil of state secrecy.

The government protests that its only concern is to protect Northern Rock's depositors' savings. But, in that case, why weren't the bank's assets sold to allow depositors to switch to another bank?

The truth is, that Labour's real concern is for the bigger fishes living in Northern Rock's muddy waters. Among them are the few big players which own more than half of the bank's capital, with just two of them sharing almost 20%. Then there are the small number of big banks which have loaned dozens of billions of pounds to Northern Rock and would be very upset if they were not paid back with interest. And then there are the aspiring profiteers, like Brown's mate, Richard Branson, and the bank Goldmann Sachs, which stands to make a big profit, by selling £25 billion worth of bonds on behalf of Northern Rock, as part of the bail-out.

Next time Brown or his ministers tell us that we must agree to "wage restraint" and be satisfied with underfunded public services, we will remember their generosity to the wealthy.