|Brown: Tending the Garden,|
Thanks to the lasiz faire attitude to financial companies, as long as the money continued to roll in, no one cared where it came from. As a result, companies started to offer 100%+ mortgages, with minimum reference & financial check’s, and little adherence to salary multipliers. Northern Rock were chiefly involved in this market, but others moved into this area too. However, Northern Rock became the symbol of “Sub Prime” mortgages in the UK.
The guy who broke “The Rock” was the BBC’s business reporter Robert Peston (left), who reported that Northern Rock had asked for a loan from the bank of last resort. This seemed to send millions of people in a panic, as they worried about their savings – causing the first run on a bank in living memory. The report would have been fine, but for the two vital bits of information which was missing. Firstly, banks had received loans from the “bank of last resort” in the past – it was used to alleviate a shortage in liquidity in the banking system, so The Rock were not in as bad a situation as they would be. Secondly other banks had money loaned to them at the same time as “The Rock”, Barclays were rumoured to be one.
This data protection breech meant that banks and financial institutions were now going to be more reticent in lending to each other. Which meant that financial institutions that had bought into the supposed financial goldmine of “sub prime” were finding that it was now a mine field. One such company was the Bank of Scotland, who had become exposed to Sub Prime in the US as well as here, through it’s merger with Halifax.
Another company exposed to Sub Prime was the Royal Bank of Scotland. However what brought RBS down was the aggressive programme of takeovers overseen by their CEO Fred Goodwin (pictured right (on the left) with his chairman Robert McKillop). In 2007, Goodwin saw the takeover of the Dutch bank ABN Amro as crucial to the growth of RBS, and was very keen to land the bank, especially as there was a rival to win the bank, Barclay’s (with rumours that Santander were also monitoring the situation). Scottish politicians were also particularly keen to see RBS land ABN Amro, despite the growing awareness of sub prime and doubts surrounding ABN Amro’s exact debt position. Goodwin & RBS won the race when Barclay’s pulled out of the race (did they find out about ABN Amro’s position, or did they already know?). However Goodwin had not read his debt reports, as ABN Amro was heavily exposed to US sub-prime, and as a result was heavily in debt. With liquidity drying up in the wake of Northern Rock, RBS found itself on the critical list, alongside HBOS, Bradford & Bingley's, Alliance & Leicester and Northern Rock.
By September 2008, the situation had become so serious that the government had to act. Northern Rock, Bradford & Bingley, RBS and the newly merged Lloyds TSB/HBOS group were either fully taken into government ownership, or majority government ownership, as Alistair Darling baled out the banking sector, thus creating the current government debt. Interestingly, at no point did Her Majesty’s opposition query the course taken by the government. They did not question the lack of regulations, the bank bale out, the “nationalisations” of the bank’s, or did they press for criminal action against the heads of the banks that were brought down. Indeed, George Osborne was pressing for even less regulation in 2007, and Osborne was nowhere to be seen when Paul Myners gave Goodwin his pension. Since the start of 2010 though, the Tories & the Lib Dem’s have decided that New Labour caused the deficit with their policies and that it should be tackled. Tosh, utter tosh. New Labour caused the deficit by not reigning in the financial sector in this country. The real legacy for Gorgon Brown is that he created the conditions for the current government to come along and turn the clock back 50-100 years, and let others take advantage of the diminished conditions many people now, and will, live under.