Monday, September 29, 2008

Is Gordon heading into Moron country?

After weeks of reasonably sensible actions, suddenly the Government has made a complete howler. The £22.2 billion savings part of the Bradford & Bingley business is being sold to Santander for between £400 million and £600 million, whilst we (the taxpayer) gets to be exposed to the £41.3 billion mortgage business consisting mainly of "toxic" assets including the self-certified and buy-to-let horde.

Let's understand this. The taxpayer is going to cover the £22.2 billion savings business by providing a £20 billion loan. It should be remembered that B&B was technically in default and the savings business should have been covered by the financial community through the FSCS. However, instead of this, the Government has loaned this entire amount (the £14+ billion from the FSCS and an additional £4+ billion required). This loan will be paid back out of the sales of the £40 billion of dodgy mortgages.

However £14 billion of the assets realised will go to paying back the loan which the Government gave to the FSCS to pay its dues. Basically we've lent them a pile of cash to pay for something which they owe and we will recover the loan by selling assets which weren't theirs in the first place.

You can also bet that all the good mortgages have already been securitised (estimated at over £15 billion). So, it looks like we have £25 billion of highly "toxic" mortgage assets to cover a £20 billion loan, of which £14 billion is "guaranteed" by the FSCS even though they already owe that money. However we don't know what all the other liabilities are, so not only are the members of the FSCS probably jumping for joy but we could end up losing quite a bit of cash.

I'd have been happier if we picked up the savings business at a knock-down price (including £14+ billion paid by the FSCS and guarantees that the first asset sales from the mortgage business would cover the outstanding liabilities) and put the mortgage business into ordered administration. To pick up the liabilities including other banks liabilities is just plain nuts.

The Government's job is look after the interests of society and not to bail-out the financial community. Stop wasting tax-payers money.

P.S. Before anyone says it's a good deal for tax-payers, if it was a good deal then Warren Buffet or some other investment guru would have "effectively" bought out the mortgage business and the £14 billion guarantee of the FSCS with a £20 billion loan. It's a sucky deal and bad business.

Post a Comment