Newspaper article The Journal (Newcastle, England)

None of This Excuses the Recklessness with Which an Institution Was Run. in My View

Newspaper article The Journal (Newcastle, England)

None of This Excuses the Recklessness with Which an Institution Was Run. in My View

Article excerpt

Byline: Rt. Hon. ALAN BEITH MP

IF you drive round a blind corner at 80mph and crash into a broken-down bus, it is no use saying "the police should have stopped me from speeding" or "I could not have known that the bus was there".

Yet that is the case put by the apologists for those who drove Northern Rock into its present desperate situation.

It was the job of the directors to manage the company with care and with proper assessment of risk. Clearly, it would have been a lot better if the Financial Services Authority had warned them that their excessive reliance on market borrowing was not a sound business plan, better if there had been no credit crisis, and possibly better if the Bank of England had done more to put money into the system.

But none of that excuses the recklessness with which an institution, which has been of immense importance and value to the North-East, was run. No wonder many of the shareholders are threatening to vote next week for a major challenge to the board which, with its previous membership, failed to protect their interests. However, they are shareholders in a company which is now in hock to its bankers - the Bank of England - on a scale equivalent to half the budget of the NHS, more than the entire income from corporation tax or two-thirds of the whole GDP of Ireland.

Some of this is in the form of guarantees, and some of it is secured against good assets, but it still involves a potentially enormous call on public money.

Forget the idea that this massive commitment is the result of a Labour plot to save MPs' seats in the North-East: this money is only coming north because the nation could not afford a general collapse in the banking system.

What it means, however, is that the Treasury will call the tune and it may not be the tune which either the shareholders or the region want to hear.

The interests of the North-East are conspicuously absent from the Prime Minister's stated list of objectives for dealing with the crisis. …

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