Remember all those official assurances about how our £100bn would be safe with the Crock? The huge deluge of "comfort" from our rulers and betters that the guarantees would cost us nothing?
Well, here's a reminder (and see all previous Crock blogs gathered here):
- FSA - "We believe [Northern Rock] is solvent, meets all capital requirements, and has a good quality loan book." (FSA chairman Callum McCarthy 17.9.07)
- Darling - "Bank of England lending is secured against Northern Rock's assets such as high quality mortgages, assessed by the Financial Services Authority as being of good quality" (21.01.08)
- Brown - "Most people agree that Northern Rock has a quite high-quality loan book and I can assure you that our aim in all of this is to secure the best deal for the British taxpayer." (20.01.08)
- Cooper (Yvette, not Tommy... or was it the other way round?) - the guarantees "have not been called upon, so they've not actually created any cost for the taxpayer"(18.2.08)
Wellwaddyaknow? The Treasury has finally admitted what we've all known for well over a year. With the Crock's mortgage arrears having quadrupled since December, its repossessions soaring, and 20% of its loan book anticipated to be underwater (ie negative equity) by next year, HMT minister Lord Myners now says:
A big round of applause for his Lordship: a Treasury minister recognising that truth is a first step to gripping the real crisis (NB Myners is new, so this may well be his first and last essay in candour).
"Foreclosures are higher in Northern Rock than in other mortgage lenders because its lending was more irresponsible. It is as simple as that."
But of course there's a much bigger issue now: whereas the Crock was a measily £100bn of exposure, we're now effectively guaranteeing the entire UK banking sector. And its liabilities weigh in at well over £6 trillion, including a very scary £3 trillion of foreign currency liabilities (ie the stuff HMG can't print).
So how good is their loan book? How good are all those impenetrable securities they've piled up?
I think we can guess the horrible answer.