I started this post yesterday and stopped before I’d finished. This blog was to have included items on the following:
Northern Rock
Pakistan
The military
Personal ‘stuff’ including the writing
Having listened to the morning news, a little more has been added about the Rock but the rest of the post will have to wait for another day.
Northern Rock is once again in the spotlight as a result of the bids made to take over by Sir Richard Branson and others and the mass resignations of its board of directors. None of the commentators quite seem to have the measure of the situation; there don’t appear to be any precedents for it.
This weekend there’s more talk of irreparable damage to the government’s reputation for economic and financial competence. This is possible because the government does tend to go on about how successful it’s been at managing the economy but most people don’t believe this (do they?); they see a government that’s presided over prosperity, not one that’s caused it, not that there’s anything wrong with presiding.
Commentators seem to agree that the problem that Northern Rock poses is becoming more serious there’s still no commercial banks willing to start lending to it. However, the reason for that reluctance seems to be that the commercial banks can’t afford to lend as much as they were up until August. There’s a sense in which Northern Rock was – and still is – the scapegoat for the entire UK financial system.
In point of fact Northern Rock’ mortgage ‘book’ is reported to be no worse and possibly somewhat better than other mortgage lenders’. This could change if there was a calamitous US-style drop in house prices but that doesn’t seem likely as we keep being told that the country has shortage of housing. The lending to Northern Rock actually brings the government a windfall in the rate of interest it receives from these loans. Will Hutton says that there are reports that bidders for Northern Rock want £2bn of interest payments to the government written off. Presumably, that £2bn of interest hasn’t been reached yet but if it does, it’ll no doubt be welcome to Mr Darling. Commentators have also raised the possibility that the EU will block the loans because they are anti-competitive but unless there’s a bank with a spare £20bn wanting to take over Northern Rock, I can’t see what alternative suggestion they might make. Are there any rules written for a situation of £100bn’s worth of ‘orphan’ mortgages.
Will Hutton recommends that the government should nationalise the bank on the grounds the current commercial bids are all a way of filleting Northern Rock and leaving the government with an unprofitable husk but a nationalisation followed by a privatisation is going to run into just the same problem. Will Hutton really seems intent on the punishment of Rock shareholders as if they were all City types out to make a killing. In fact the bank had 180,000 shareholders in September, many of whom acquired their shareholdings through the de-mutualisation in 1997. Even now there are, apparently, 150,000 small shareholders.All of the big ( 3% or more) institutional share stakes in the bank go back to before it ran into problems. Given the small number of really big trades in the shares since mid-September it looks as if a lot of institutions were simply caught out by the crisis and are simply sitting tight like a lot of the small investors in the hope that something comes along.
There is talk of shareholders mounting a class action suit against the company on the grounds that they weren’t kept informed of what was happening in the summer. This applies to a lot of what has happened since. Now that revelations about Granite are coming to light, not to mention the subordinated long term loan from the government, it looks as if keeping the stock market and the public informed about what is going on in UK banks is a sham.
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Absence of precedents seems to be the problem facing the politicians and commentators in Pakistan. The British press doesn’t seem to make much of the parallel but the civil disobedience by the lawyers and students echoes the campaign against the British in the Indian Empire in the 1940s.
The treatment being handed out by the security services is abhorrent and will do President Musharraf no good in the medium term. However, in some ways he has been too weak for the good of his government rather than too severe. Trying to make a deal with Benazir Bhutto seems to have been an admission of weakness and allowing John Negroponte into the country to make comments about when elections should take place and under what conditions scarcely seems to be acting like a ruthless tyrant.
Benazir Bhuttos public statements seem to be self-evidently self-serving. She needs the Pakistani people to forget about corruption under her government and to forget that she was willing to do a deal with Musharraf. The President’s greatest danger presumably comes from the army that everyone seems to want him to hand over control of. The Pakistani military still seem to have plenty of appetite for the power and influence that they wield. The conflict in the tribal areas may sap the army’s morale but it could take years to do so and allied success in Afghanistan could give the army an opportunity to re-establish proper control over the frontier. The greatest chance for democracy, though, could come about if the army became obviously disproportionately large for the tasks required of it. This would mean peaceful frontiers with Aghanistan AND Kashmir.
