From The Observer. An astonishing tidbit (of which there are several, including a proposal to concert Northern Rock from a “bad bank” to a “good bank”) from the article:
The priority now is tackling banks’ toxic debts, after last week’s rout in bank shares which wiped 27bn pounds off the value of Barclays in one hour’s trading.
Brown ready to risk billions on debt insurance
In a critical bid to revive lending, Labour is to underwrite toxic assets and use Northern Rock to boost the mortgage market. Gaby Hinsliff, Ruth Sunderland and Jill Treanor report
Gaby Hinsliff, Ruth Sunderland and Jill Treanor
The Observer, Sunday 18 January 2009
Gordon Brown is preparing an unprecedented multi-billion pound plan to insure British banks against future losses from so-called toxic assets, creating a safety net under the financial system which could unblock lending to homeowners and businesses.
The scheme would force out any bombshells still hidden in the system, but risks exposing taxpayers to huge losses if the bad loans decline more sharply than expected. However, ministers hope it could restore confidence by setting a floor beneath which banks know they will not fall, and could be less of a gamble than proposals to create a “bad bank” into which lenders simply dump unwanted debt.
Ministers are also considering investing 10bn pounds in the state-owned Northern Rock, turning it into a “good bank” lending freely to plug current gaps in mortgages and commercial lending. Since it was nationalised, Northern Rock has wound down its lending, but MPs want the government to exploit its holding.
The prime minister yesterday hinted at the plans, which will require lengthy negotiations but could be sketched out as soon as tomorrow, when he demanded banks disclose the true scale of losses they are harbouring. He told the Financial Times that “where we have got clearly bad assets, I expect them to be dealt with”.