Monday, December 01, 2008

What a differenece 58% makes

The Royal Bank of Scotland the Taxpayer last week believed that in the event of a mortgage default it should seek to protect its depositors and share holder's assets by reclaiming the house.

Today, after the Labour government took a 58% stake in it it, suddenly it believes that it makes "commercial" sense to wait six months.

The result of this, if the housing market keeps falling for another year or more ( which seems indicated - but hey predictions haven't been too good so far, so who knows ? ), is that either the mortgage holder will have vastly higher debt to repay at the end ( equivalent to the asset price fall and an extra 6 months interest - which let us assume they can't pay or else what are they in arrears anyway ).

It could be that this is really a commercial decision and the bank being owned by the state, whose ministers and servants have been making menacing statements about the banks for the last few weeks. but equally that could be a flock of flying pigs heading past my shed window.

The net impact of this statement will be:
    1) Good headlines for the government - or at least the reduction of bad ones.
    2) Greater personal debt for those poor unfortunate people who lose their homes.
    3) Greater losses for RBS, depressing the share price and making greater losses for the tax payer.
This government's political ambition has too be the most expensive in UK history.


Letters From A Tory said...

It was reported over the weekend that the government has already lost £2.6 billion on RBS because they bought up all the shares that existing shareholders didn't want (which was pretty much all of them).

Man in a Shed said...

Yes I saw that.

For a short while, 9 months, I worked in the financial sector and what I was taught about the value of something in the introduction course was that its the price someone else will pay you for it. Of course the amount the government gets back depends on the day it sells.

The idea of the tax payers getting their money back is based on the government keeping its hands off the steering wheel. I think we can see that even if that is true back seat driving is certainly going to be the case. This will destroy the value of the company and hence the share holders ( 58% us in general, 42% small private investors and our pension funds ).

Of course this action looks like it goes against commercial common sense - and since it may very well be against the interests of the unfortunate people who lose their homes it may be immoral also.

This is "do something" socialism.

It seems the lessons of the 60's and 70's will have to be retaught to a new generation the hard and painful way.