More on the Rock... why George ain't got a leg to stand on

This is George Osborne we're talking about here (rather than Dubya Bush) but both are equally clueless, and from suprisingly similar backgrounds: Gideon Osborne is a trust fund kid, Dubya had plenty of funds from his family oil business to buy coke and booze, dodge the draft and set up disastrous companies with names like Arbusto (Spanish for 'shrub').

But we digress... I don't normally take a rabid pro-Labour line in this blog as who the hell wants to hear that? But the Tories are so unbelievably clueless on Northern Rock that it's important to weigh in to point out just how duff they are.

There's plenty in the Northern Rock crisis that the Opposition could justifiably criticise: the government's dithering about, the desperate attempts to court lame-ass bids to asset strip the company from private equity hawks and Richard Branson, the regulatory slackness that allowed Northern Rock to overextend itself so ludicrously in the first place (although hindsight is a wonderful thing - for most of the decade the rock was being lauded as an example of genius financial management in the northeast by 'expert' commentators in the financial media). And indeed, Vince Cable for the Lib Dems has been doing a very good job of asking all the right questions of the Govt's approach.

By contrast, the official Opposition - the Tories - have revealed themselves to be economically illiterate on this one. On Monday when the news was announced Dave Cameron called nationalisation a "disaster". He thus revealed himself as a Tony Blair clone in a very real sense - both of them know shit all about economic policy. Now, this isn't necessarily an obstacle to a future Cameron government being successful - after all, Tony Blair won three elections whilst being an economic ignoramus. But Blair had Gordon Brown to do all the sums for him. Whereas Cameron has George Osborne, who is just as much of a numbskull as Dave is.

Where is the alternative Tory plan for Northern Rock? What would they have done instead of nationalise it? Let the Bank of England take it over? I'm sorry, that's the same policy slightly redressed. Let it fail in September when it got into difficulty? Ballsy, but foolhardy - a banking failure on that scale could have taken other financial institutions down with it and let to a major slump of a scale not seen since the 1930s. Of course, economic failure on that scale would have probably let the Tories in at the next election - and that is probably the point. But don't tell me that these guys have the competence to run a men-only private members' club in Mayfair, let alone the economy. New Labour is deeply unpleasant in many ways but the Tories are a f***ing laughing stock. Which probably explains why they are only about 10 points in front in the latest polls and not 25 or so...

Northern Rock: the biggest step forward for industrial policy in 30 years

Hooray! They've finally taken Northern Rock into public ownership.

It's about time too. The Government spent far too long faffing about with private sector "rescue" packages which basically seemed to involve giving billions of pounds to either private equity firms or Richard Branson, neither of whom floated my boat.

Still, while the Government was faffing about the share price was drifting down and down... so they (we) got a bargain.

Not since the heady days of British Aeropace and Shipbuilding in 1976 has nationalisation been used as a policy instrument in the UK. And it's nice to see it back. Primarily because, if done properly, Northern Rock could be the template for a new kind of bank... one that actually treats customers with respect rather than ripping them off with sky-high charges and piss-poor customer service at every turn. Despite being ostensibly competitive, the banking sector's record for customer satisfaction is appalling, and an innovatively-run public sector bank would have a lot to recommend it.

We won't get an innovatively run public sector bank, of course: we'll get a badly run approximation of a private sector bank. That's because this is a strictly temporary move, until market conditions return to "normal", at which point the bank will be sold off to the private sector. Which makes some sense from a public finances point of view, but is a real missed opportunity from the perspective of industrial policy. In fact, it's the fact that they were run just as badly as the private sector companies they were intended to improve upon which eventually gave nationalised industries a bad name in the 1960s and 70s.

What does any of this mean for the customers? Very little, probably. But in a pinch, they're probably safer with a government-run concern than with RIchard Branson. Now then, how long will it take for the public to get its £50 billion back? Still, more chance of getting that back than all the money that's been pumped into the railways to go to National Express shareholders...

Northern Rock on a roll... downwards

Big financial story of the day is that Northern Rock has asked the Bank of England for an emergency loan - which is a pretty unusual event. When this happens it's normally a sign that a bank is close to going bust.

If I had had my eye on the ball over the summer I would have been covering the current financial crisis a lot more closely than I have done. The 'sub-prime' mortgage defaults and consequent rise in the price of credit have left a lot of financial institutions - across the world - with big holes in their balance sheets. On its own I don't think this crisis is big enough to collapse the system completely - the bad debts are large but they're not THAT large - but it will give rise to a very different feel in the financial markets. The days when economic "growth" could be generated merely by massively expanding the indebtedness of a company, through the expansion of private equity (or indeed the consumer sector, through a housing bubble) seem to be coming to an end, at least for now. Of course, capitalism as we know it relies on credit markets to drive growth; but what we've seen over the past five years or so is an unsustainable expansion of credit, driven by a combination of lax regulation and that combination of greed and desperation which is at the heart of the capitalist mindset. Chickens are now coming home to roost.

My hunch (and that's all it is as the real data are buried somewhere in company balance sheets - after all I had no idea Northern Rock was in trouble until today) is that the US and Europe are going to go into recession on the back of this - probably next year. Maybe now's a good time for Gordon to have a general election (although it's certainly possible to win an election in a recession - just ask John Major) as I don't think the economic data will look anywhere near as good six months from now.

Advice for savers with Northern Rock: don't worry. The govt won't let a major financial institution collapse and will just surreptitiously bail out the companies involved unless they're particularly small and reckless (Barings springs to mind). These guys have all read about what happened in the 1930s. Mervyn King's assurances that the Bank will not bail out dodgy investors are bullshit - almost like a UK version of Greenspan, how does this guy get such kudos whilst delivering about as much economic insight as Tommy Cooper? King knows that propensity to do dodgy deals is the only thing which drives the UK economy forward these days, reliant as it is on the financial sector. The more recklessness there is out there, the better UK plc does - until there's a crisis like this. Then the backhander comes into play, bailing out the big financial institutions - the ones you'd notice if they went bust. Who pays for this? Smaller borrowers (through higher interest rates.) i.e. anyone with a variable rate mortgage. Or small businesses with bank loans. Or people with bank loans... the little guy just got screwed once again. Welcome to what our American friends would call "Real World Economics 101". I like the sound of that.

I'm thinking very seriously about desigining and delivering a course in radical economics for the Workers Educational Association - a useful project for next year. I'll let you know.