Thursday, February 21, 2008

Northern Rock, Granite and MP's

I have tried really hard to keep up with the NR saga. I have a passing interest in finance and personal investments and up to date I have just been able to keep my head above water. However this Granite SIV and its implications is starting to get fiendishly complicated.

On the one hand we have Watt Tyler over at BoM saying its a mess and we tax payers are holding the baby. For example:

Are we all up to speed with Northern Rock's offshore financing vehicle Granite? It has featured heavily in the debate this week as it finally dawned on everyone that a socking great chunk of NR's mortgage assets has already been pledged to Granite as security for its wholesale borrowings, and they are therefore excluded from the assets being nationalised.

Now John B has a detailed post explaining how its not a problem:
The good folk of Commentisfree have gone even further to town, uniting socialist idiots and right-wing idiots alike in a chorus of “someone somewhere has carried out a rather large fraud and I would like that someone prosecuted“-type comments.

There’s only one tiny problem with this kind of commentary: it’s bollocks. The mortgages in Granite are exactly the same quality as the mortgages that stayed in NR, nothing untoward took place anywhere along the line (well, not involving SPVs), and NR isn’t liable for Granite’s debts.

These are just 2 examples from the blogosphere but if you turn on a radio TV or open a paper their is similar analysis, although most of presented in soundbite form.

I'm quite happy to let these 2 slug it out as they both have professional connections with the finance industry; but they can't both be right can they? And as an outsider with a bit more than a passing interest and a reasonable head for figures how should I work out who is right or even whether they are both wrong

Now, if I am confused how is the average MP supposed to decide whether or not taking NR in to national ownership is a good move or not? I have met many a city banker and they are all extremely sharp characters and this sort of arrangement is fairly easy for them. I have also met a number of MP's and civil servants. Well meaning as they generally are the vast majority have nowhere near the intellectual capacity of a city banker.

So, do we really want the Government, of any persuasion, dealing with something this complicated?

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