It turns out that the plan to nationalise Northern Rock isn’t quite as straight forward as we were all led to believe. Although far from ideal, the government’s scheme to bring the bank into public ownership seemed like the best way to ensure that the country benefited from lending billions of pounds of taxpayers money to help Northern Rock survive its short term cash-flow difficulties. There are risks, but at least this way the taxpayer gets to reap the rewards, assuming the deal is as sound as the government would have us believe.Only, it turns out that a large chunk (£40 billion to be exact) of Northern Rock’s best quality mortgages (i.e. the non-subprime ones who are most likely to pay back their debts) are held by an offshore company called Granite, which is not included in the deal.
This is all starting to look very sleazy - the taxpayer is expected to take on the risky loan book, while some shadowy off-shore company gets to keep all of the best quality assets. By failing to be completely open about this, the chancellor now risks losing the support of the Liberal Democrats, which will be desperately needed if he wants to push his emergency plans for the bank into law. If their support is not given, and nationalisation is not approved by parliament, it’s going to be very interesting to see how Mr Darling plans to guarantee the safe return of those billions of pounds of our money that have so far been sunk into Northern Rock.
