How serious is the £2bn Rock loss?

 
Hundreds of Northern Rock customers queue outside the Edinburgh branch The 2007 crisis saw customers queuing to take their money out of Northern Rock.

The National Audit Office's estimate, that the government will ultimately lose £2bn on the privatisation of part of Northern Rock and the winding down of the rest, may sound painful for taxpayers.

But actually it could have been a lot worse.

The government is expected to get back all the cash it put into the bank - some £37bn - and quite a lot more.

What it won't get back, says the NAO, is enough to compensate the public sector either for the risks it ran in saving the troubled mortgage bank or for locking up its money in loans to the Rock for many years.

Think of that loss as the equivalent of what you would lose if you lent money to a friend at a low interest rate rather than getting a higher interest rate by putting that money into a savings account (of course I am assuming you can still find a high-interest account in this world of artificially depressed interest rates, but I think you know what I mean).

For the NAO, that notional £2bn loss is probably a price that was worth paying: it prevented a banking collapse that could have been contagious and could have led to the demise of other banks; also the survival of the Rock maintained the supply of mortgages at a time when other banks were reining in lending.

That said, the NAO points out that in 2010 and 2011 the state-owned Rock supplied fewer mortgages than it promised - £9.1bn of them, or 39% less than the £15bn of its business plan.

All that said, the NAO's criticism of the nationalisation and break-up of the bank is largely restricted to a failure by the then Labour government to fully investigate the financial consequences of breaking up the bank into a so-called good bank and a bad bank.

But even that charge is not too embarrassing for the chancellor of the time, Alastair Darling, because the NAO says the oversight has not led to any significant additional costs for the state.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • Comment number 308.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
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    Comment number 307.

    G8 riding to the rescue.
    Bound to have a few good ideas, after all they are the most gifted politicians around.
    They may even get around to discussing the awful situation in Syria.
    We all live in hope??????????????

  • rate this
    0

    Comment number 306.

    The £2bn is a paper loss. That's good. Worth every penny for all that tough regulation we now have to ensure that banks don't over-expose themselves ever again and for the legislation that ensures that bankers are held personally accountable for their actions. Not to mention the actions government has taken to rein in the absurd levels of remuneration at the top of financial institutions

  • rate this
    +1

    Comment number 305.

    Comrade@302
    First-rate Question

    For NAO et al, fine-print somehow 'excuses' from duty to 'define & audit' democracy, 'for The People'

    Maybe circular fiction: 'answerability to parliament', 'assumed' 'pinnacle of democracy

    Sadly, failure makes at least suspect

    'Auditors' NO substitute for freedom of conscience, allowing Those Who Know The Field to make the running, in Shared Public Interest

  • rate this
    0

    Comment number 304.

    300 of 600.

    Better odds than doing nothing, yet enough to scare people into doing nothing.

    Persuading people not to be afraid isn't simple.

  • rate this
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    Comment number 303.

    big@301
    Shared?
    Beware apoE4
    Risks more than suggestibility!

    Sobibor 'Nazi Death-Camp': 300 of 600 'recruited survivors' escaped in concerted effort

    Film 'Escape from Sobibor' shows both submission & rebellion, directs 'responsibility' upwards, as long as conscience & readiness survive?

    'We' can do better, much, in 'our' chosen 'regime'?

    Most will rise to expectation, given chance & time

  • rate this
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    Comment number 302.

    Who do the NAO represent, and how? What area is theirs? What are they about?

    Simply because they are apolitical in party terms, should we assume they are neutral?

    Their concern is money. Their remit is the accounts. They arbitrate when competing groups claim the best value for money. And the economy of course.

    Who concerns themselves with other values? Quality of life? People?

  • rate this
    +1

    Comment number 301.

    300 afa

    Too deep for me on a Friday night after a flaggan of red

  • rate this
    -1

    Comment number 300.

    big@295
    "morals fine"
    Escape from Sobibor?

    Watch & see, if can't imagine: 'impossible' recruitments, for sake of survival, memory, hope, revenge

    All will be 'born ignorant', but each generation 'will inherit The Earth', each individual reflections of 'cultural momentum'

    Psych-sociopathy one day preventable / curable?

    Apparent defeats always a risk

    Blue-sky genius, lazy, criminal?

    'Our' call

  • rate this
    0

    Comment number 299.

    Toodle pip faux

  • rate this
    0

    Comment number 298.

    remember@293
    "again"
    Constant topic
    Democratic deficit

    From educational deficit, democratic rule 'of, for, by The People', can mean near anything

    'People's Despot', 'People's Persuader', 'Equal Representative'?

    Equal Democracy given agreement, equal Germans might value democratic Greek holidays as much as 'cheap' tourism elsewhere

    End to 'loose talk' of 'uncompetitveness': all FREE to bike-it

  • rate this
    0

    Comment number 297.

    295 - Arf

    No I just think they are demonstrably All In It Together.

    I sort of miss WOTW's moral certainty - I genuinely don't share it - but I do think that if you follow the money - cui bono - its pretty obvious what's going on. And with that I am afraid I must wish you a good weekend

  • rate this
    0

    Comment number 296.

    294 fauxgeordie
    that post belongs on the sticks and stones blog

  • rate this
    0

    Comment number 295.

    My moral concepts are fine but others are not, fact! In your world there would be no need for police or any level of authority as everyone would play by the rules.

  • rate this
    0

    Comment number 294.

    292

    The burglar - clearly. Do you struggle with basic moral concepts? Is it the house owners fault for having a pension sorry I mean a house sorry I mean something worth nicking? Probably that's exactly what you do think ;-)

    Unless the burglar had bought off the policeman of course in which case they are both culpable and should have been banged up in 2008 sorry did I say that out loud?

  • rate this
    +2

    Comment number 293.

    How serious is the £2bn Rock loss?
    About as serious as not doing anything to prevent it happening again ans again. The 'greedy bankers protection party' currently ruining the country have done absolutley nothing to reign in and control the rampant greed which drives these monolithic institutions. As a result the UK economy is getting weaker every quarter. No disposable income = no growth.

  • rate this
    +1

    Comment number 292.

    Fauxgeordie

    If your house was burgled and you later found out that it was by a serial burgular, who the police knew about but had done nothing to stop him. Who would you blame the most? The opportunist or the authorities who should have stopped it before it happened?

  • rate this
    0

    Comment number 291.

    285 - You did say it then and no question you were right. And are right.

    But who has benefited?

    The CoL has run even more completely out of control off the back of the taxpayer guarantee but you keep blaming 'government'

    Its like blaming a community support officer for a mugging carried out round the corner by a pin-striped Rupert whose dad is a judge

    And by god they are certainly mugging us

  • rate this
    0

    Comment number 290.

    Discussing automation I'd like to point out the threat that high frequency trading represents. There have been two major incidents --that I'm aware of-- regarding that technology. Millions or even billions of micro-transactions driven by logically unsound and/or technically faulty implementations has the potential to do significant and irreversible damage.

  • rate this
    0

    Comment number 289.

    "The taxpayer might not have needed to bail out Northern Rock if the run on the bank in 2007 had not been engineered by Robert Peston himself. But what does a distant northern financial organisation matter to a London journalist who is only concerned about his career?"

    Utterly utterly wrong and irresponsible too - and I live in the NE. The Crock was an ineptly run disaster waiting to happen

 

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