Gordon Brown and Alistair Darling’s decision to nationalise the struggling Northern Rock bank last weekend ensures the government’s humiliation over the issue is almost complete.
The near collapse of Northern Rock in the wake of the crisis triggered by subprime mortgage defaults in the US showed the fragility and vulnerability of City finance.
Brown’s rush to provide £55 billion in loan guarantees to Northern Rock demonstrated the emptiness of rhetoric about the “free market”.
Last week the Office for National Statistics said the bank’s £100 billion worth of debt must now be added to the government’s balance sheet.
Brown had hoped that a private sector buyer could be found to take on the debts.
However the greed of Virgin and the other bidders was so blatant that even this most neoliberal of governments had to reject their offers.
The government will now try its best to get rid of the bank by selling it to the private sector at bargain basement prices.
New Labour will also bear responsibility for the house repossessions of Northern Rock mortgage holders who cannot keep up their payments and the expected 3,000 job losses at the bank.
As the Financial Times newspaper comments, “Anyone who thinks that the Labour government has gone back to 1970s socialism deserves ridicule.”
Brown has appointed his friend and serial business boss Ron Sandler in charge of Northern Rock. He will be paid a ridiculous £90,000 a month to prepare the bank for re-privatisation.
And there are plenty more embarrassments for Labour still to come.
Many will ask why the taxpayer is being forced to bail out banks when Labour does not properly tax the profits of the banks. It is a good question.
This week Barclays is expected to reveal profits of £7 billion while Lloyds TSB will pocket £4.5 billion.
And many will also ask, what is so special about banks?
In 2005 New Labour let car manufacturer Rover go bust, and flogged off its remains to asset strippers because the £1 billion that could have saved the company was deemed “far too much” by the government.
According to Brown, the profits of the banking system are far more important than peoples’ jobs, houses and communities.