Northern Crock Losses

Most gratifying (in a morbid sort of way) to see that my guesstimate that the sale of publicly-owned bank, Northern Rock, will raise only about £1Bn for the taxpayer has proved to be pretty accurate - somehow. According to tomorrow's Telegraph, analysts predict that this is all the dysfunctional bank is now worth. Northern Crock is more crocked than anyone imagined.

The government's highly dishonest plans to split the toxic portions of the business away from the healthy sections and assets and then sell off the latter, lumbering the taxpayer with huge liabilities indefinitely, might not now be possible. The overall performance of the bank this year has been horrific, despite vast amounts of liquidity being pumped in to prop it up. With Brown keen to offload the bank before the general election to wrong-foot the Conservative Party, however, it seems there is still some likelihood that plans for the creation of a 'bad bank' will be implemented. This is sheer lunacy born of political desperation. Any sale at this moment would lead to massive losses for British taxpayers.

Northern Rock is expected to heap further embarrassment on the Government next month when it reports losses for the half in excess of £500m, putting it in breach of even specially relaxed regulatory rules.

The nationalised lender revealed yesterday that its capital base, the key measure of financial strength, “has now reduced to a level below its minimum regulatory requirement”. The breach occurred despite a special waiver from the Financial Services Authority (FSA) that allowed the bank to flatter its reserves levels.

This is a disaster for Brown. There is only one narrative about his premiership left that apparently people still accept, regardless of the reality that it is total nonsense - that his "bold action" (nationalisations) saved the banking system. As this Northern Rock problem becomes a crisis, it will gradually dawn on people that the Brown "semi"-nationalisation method, where the public owns the bank and guarantees its loans but the management of the bank remains almost entirely independent, has failed, with catastrophic consequences for the treasury. People will now ask, why wasn't that bank allowed to fail? Bankruptcy protection would have protected everyone, including shareholders. They will want to know who is going to take responsibility for losing incomprehensibly vast amounts of public money, thanks to a policy that deliberately exposed taxpayers to galactic levels of toxic private debt.

One thing you can be certain of, Northern Rock is insolvent. It is tens of billions in debt (of its notional £67Bn mortgage liabilities, it is still unknown how much of that is actually toxic, despite what the Telegraph says), it is not generating enough new custom, despite public backing and it still can't be seen as a safe place for savers and investors alike to put their money. The business has failed and a two-year long policy of propping it up has failed with it. No wonder the stress test results were covered-up in April.

We all know Brown's policy was motivated by politics, not financial sense. It's hardly worth repeating that the North East is a Labour heartland. If the bank had been called "Southern Rock" it would have been given the Cheltenham and Gloucester treatment. Brown's moral-free calculations are that shallow.

Such political dishonesty is always eventually revealed by stark economic realities. But that dishonesty, which runs right through Brown's government as Cameron accurately pointed-out, also means that when the public demands someone take responsibility for this total disaster, no one will step forward, least of all its cowardly, untruthful, chaotic chief architect, Crash Gordon.

But this time round the money has completely run out. There is nowhere left for him to hide.