Saturday, January 12, 2008
British Treasury between a Rock and a hard place
Robert Peston, the BBC's business editor, reports that "a full plan for nationalisation of [Northern Rock] is in place." Of course the Treasury is making every effort to avoid it. A black eye on free-market capitalism, you know—not to mention the government's failure to exercise its regulatory authority in the lead-up to the bank's debacle.
Now a hedge fund holding 9.9% of "the Rock" is threatening to sue the government under a 1998 "Human Rights Act" if the bank is expropriated for less than "the book value of Northern Rock's assets at the last balance-sheet date - or more than 400p [$8] a share." I'm always gladdened when hedge funds develop an interest in "human rights."
Well, there's more. Alistair Darling, Chancellor of the Exchequer (equivalent to the U.S. Secretary of the Treasury), "pointedly refuses to give the ... commitment that he won’t erode the Bank of England’s powers relating to the maintenance of the stability of the financial system." It's as if Treasury Secretary Paulson had announced that the Treasury Department would be taking back some powers from the Federal Reserve.
It would be ironic if the British government decided to do the sort of thing Hugo Chávez is voluntarily attempting in Venezuela to the gnashing of teeth of neoliberal economists and the Bush administration.
What you may conclude from all this is that the British (and international) banking system is extraordinarily "fragile," as Fed Chairman Bernanke so delicately described the "financial situation" on Thursday.