web analytics

northern crock

By ATWadmin On November 19th, 2007

Via Pub Philosopher:

The former CEO of the now almost worthless Norther Rock bank will get £800,000 and a £2m pension. As his company is now being propped up by the state to the tune of £900 for every taxpayer in the UK, some of that cash is coming straight out of your wallet.

It’s not as if Adam Applegarth needs the money. Over the last year he has been quietly selling his shares in the company, which enriched him by £2.6 million, and drawing £1.3 million in salaries and bonuses. All while he was urging people to invest in the bank yet, at the same time, steering it towards financial collapse.

This is robber-baron capitalism at its worst. His extravagant lifestyle has been funded at the expense of investors and now of the taxpayer too. Proof yet again that, once you make it into the upper class, there really is no such thing as failure any more. Whatever you do, the  money will just continue to roll in and someone else will pay.

45 Responses to “northern crock”

  1. Alison,

    I see you have posted this under the heading ‘Incompetence’, when really it should have under the ‘Fraud’ heading.

    That both the CEO and the Chairman, sat before the special commitee a monthh ago and pleaded that they were the victims of circumstance, was just plain laughable, when it was obvious to any semi-savvy adult that they were ‘working a scam’.

    That the Chairman had no experience of the world of finance, his forte, I believe being as a scientific advisor to the government.

    As for the CEO, well I do wonder how the ‘office boy’ ever got the job, in the first place, of course it would have nothing to do with all those ‘charitable’ donations to that deserving football club – could it?

    This whole episode is a direct effect of the so-called ‘liberalisation’ of the of rules which governed the financial markets in the UK, sure blame it on the Americans, they certainl took full advantage, but note that most of the monetisation was done through the City.

    When all those previously solid building societies, had such a yearning to ‘be just like the banks’, there just had to be some ulterior motive behind it, and so it has been shown.

  2. Ernest

    Thanks and good call. Ive amended the post. I chose from an existing selection but you are right it reads like a scam, a fraud.

  3. Alison,

    Thank you for the delete..

    I had much more to add, but my computer decided otherwise! I’ll save it for later….good post.

  4. was just plain laughable, when it was obvious to any semi-savvy adult that they were ‘working a scam’.

    the scam being modern banking.

  5. It’s more robber-baron corporatism. In capitalism, Northern Rock would have folded and its real assets would have been bought up by a more able financier. The fact is that real capitalism works, but this…..? It is actually rather offensive.

  6. allan thats exactly where i stand. yet somehow i end up getting labelled a "communist".

    there are flaws in our system, yet we are no better at self criticism or analysis than the soviets. anyway our governments work for the banks just like the rest of us, so dont expect change any time soon.

  7. DT,

    Let the buyer(customer) beware. It seems that the public’s general gullibilty is as much to blame, as the crooks who con them.

    This situation has been an accident waiting to happen since at least April, – and the CEO knew it, I bet he couldn’t believe his luck when it ran so long before collapsing.

    The politicians are so devious themselves, they just cannot see it when they themselves are the ‘mark’, always looking for ‘what’s in it for them’, they set themselves up for being suckered.

    In sales circles they say that the easiest person to sell to, is a salesman, – likewise with conmen…

  8. Allan@Oslo: What, pray tell, is the "robber-baron" capitalism versus "real capitalism?"

  9. Aw, it brings a tear to my eye to see Ernest and Alison being nice to each other!

  10. Let the buyer(customer) beware. It seems that the public’s general gullibilty is as much to blame, as the crooks who con them.

    i would accept that if people were informed of how the monetary system really operates. but if people knew, the system wouldnt work, because people wouldnt accept it. it demands our ignorance to function. debt is now at the very core of our economy and it is entirely rigged out of our favour.

    and if the system is allowed to carry on in its present form it pretty much guaruntees slavery, because everyone will be working, to produce goods or services of real value purely to pay off debt. we will earn no money that doesnt go into the banks pockets.
    in real terms they are half way there, though you could argue that they are already there considering 99% of all money already flows through their closed loop.

    plus there is no other system in the world that can legally create money out of nothing. if change isnt made then revolutionary arguments and solutions are going to eventually sound attractive, to everyone but the lucky few. id prefer change.

  11. What, pray tell, is the "robber-baron" capitalism versus "real capitalism?"

    not to answer for allan but as i see it, its the notion that profit trumps everything. your health, your life your pocket, your savings, your everything. nothing should get in the way of making a profit. thats why they spend so much money lobbying for deregulation and the like. its pretty much becoming the dominant form of capitalism.

    and far from advocating a far-left position on economic reform, id just like to see a more equitable system for all. in in terms of "globalisation" i mean all. because if capitalism really works then explain why poverty is growing. its growing faster than the worlds population too i recently read.

  12. RC,

    Enough of your sarcasm – there is a difference between a robust discussion and venomous hostility, and as neither she nor I are ones to hold a grudge there is no reason to do otherwise than ‘get along’…

  13. DT,

    Having re-read my last comment in reply to you, the thought occurred to me that I was beginning to sound like you – imagining bogey men behind every rock.

    However, your 8.09 comment reassured me that I wasn’t quite as paranoid as your goodself. Where do you get such ideas such as:

    "there is no other system in the world that can legally create money out of nothing"

    Well for a start, the world of commerce couldn’t operate without some sort of transactional exchange system, they offer that facility ‘as a service’ for which we pay, – as with any other service.

    Any service you care to name ‘creates money out of nothing’, they neither produce nor manufacture, they do not ‘add value’ to the end product, you pay for the service, whether it be an accountant to do the books, or a driver to deliver the post, or a cleaner to clean your toilet, – all are services which create nothing, but charge you for the privilege of making your life easier, while you are making things and thus ‘adding value’ to the finished product. Facilitation has a value of itself and the provider has a right to charge a fee for that service. That is the way it is with banking.

    If yu don’t like being ‘in debt’, don’t borrow more than you know you can afford, – simple isn’t it? only you will enslave yourself, not the banks.

    All a bit like a hooker, she offers her services, and you negotiate a price, you can take it or leave it, and that’s why there are $10 hookers and $1,000 hookers!..

    Here ends the introduction to basic banking….for ten year-olds!….

    When you get into a rant you really do deserve to be called all sorts of names, for the bye, the comment under discussion really does sound like communism lite.

  14. Ernest,

    sarcasm? You misjudge me!

  15. RC,

    Moi? – non!

  16. Je vous assure, monsieur, j’etais sincere!

  17. By the way Ernest, take out a bank note from your wallet and check what it says – "I promise to pay the bearer on demand…" You know as well as I do the history of that line. They stole everyone’s gold, gave them receipts and then broke their side of the bargain, by printing a whole lot more receipts and passing that out, turning a hard currency into a fiat currency. Look what’s happening to the dollar right now.

    It’s nothing to do with communism.

  18. Ernest – you might want to rethink the hooker analogy if you’re actually going to give this lesson to a 10 year old. 😀

  19. How’re you doing RC? You sound mighty fine!

  20. Hi Daphne, I’m doing okay. I hope things are cool with you. I’ve gotta run now (I like your comment to Ernest!)

  21. ernest. im no expert by any means. but the fractional reserve system is creating money out of nothing.

    they dont own the money they give you. it never existed until you (the borrower) asked for it.

    and personally i have very little debt.

  22. Any service you care to name ‘creates money out of nothing’, they neither produce nor manufacture

    this is also untrue. the labour involved in the service provision is the real-value for which you pay.

    When you get into a rant you really do deserve to be called all sorts of names, for the bye, the comment under discussion really does sound like communism lite.

    only insofar that most of what is written by you and others is fascism lite.

  23. DT,

    "labour involved in the service provision is the real-value for which you pay."

    Do you really suppose that there is no labour involved in keeping track of all that cash flow, even though it is now done electronically – someone had to write the software…and then there is the investment in infrastructure such as the branch offices, the ATM’s etc, etc.

    Every business has it’s fair value and price for it’s product, whether manufactured or for a service, it is when it becomes based on the ‘what the market will bear’ model, rather than the ‘value for money’ model that problems and distortions arise..

    As we have had the fascism argument before, – you didn’t know what it meant then, anymore than you know now…

  24. Daphne,

    That’s a ten year old, going on thirty!..or is it a thirty year-old, going on ten?

  25. Funny man!

  26. Oi, Alison, where’s my link?

  27. Do you really suppose that there is no labour involved in keeping track of all that cash flow, even though it is now done electronically – someone had to write the software…and then there is the investment in infrastructure such as the branch offices, the ATM’s etc, etc.

    youre on fairly weak ground now ernest. that is not what im talking about, and you know it. which is probably why you have no rebuttal for my 9:42.

    banks are the only industry that can literally and legally make money out of thin air. everyone else must have something of value to trade. banks dont.

    demonstrate to me how this is incorrect.

  28. In fat-cat corporatism, the fat-cat always wins and the customer and shareholder lose. A prime example of this is the destruction of GEC by Lord Thompson et al. GEC had been built up as Britain’s best engineering company. It paid well, paid dividends and Arnold (later Lord) Weinstock managed it on sound principles: it even built up a cash mountain of about £1,000 million (a lot of money 15 years ago). Weinstock retires and Thompson and his city boys move in: the cash mountain is blown and the company is brought to ruin. The employees lose their jobs and the shareholders see value plummet, but Thompson and his city boys have all profited well. Those scumbags should have been jailed but they walk away with wads of cash. What Weinstock did was capitalism in action: what Thompson did was robber-baron corporatism. It couldn’t be more clear-cut and we see similar with Northern Rock. The Board of Directors must be made accountable and have their financial fate linked to the company which they govern. No director should be able to make bonuses out of a company has been brought to its knees by his policies.

  29. DT,

    "they dont own the money they give you. it never existed until you (the borrower) asked for it."

    You really don’t know very much about anything do you?

    Cash that you bank is the tangible form of your worth – your credits, – and that will always exist, even if only electronically, until the day you decide to spend it – if that makes it easier for you to understand.

    Of course they don’t ‘own’ what you deposit, but they do use it and put it to work, they use their expertise to make a profit, out of which they pay you an interest, the rest is their profit.

    If you go to the ATM and withdraw 100 pounds in notes, that cash has always existed, as has your right to make the withdrawal, it is your money, and as such is not ‘borrowed’.

    If you ask for an overdraft, then you are a borrower, and should expect to pay for the privelege of borrowing someone else’s cash. As interest rates have been at an all time low for some time, I fail to see why you are whining so much…you would certainly have a grievance as a depositor, in that the interest paid to you is minimal.

    That they abuse the differentials between what they make and what they pay you, is not denied, but somehow I don’t see you as the type to keep your cash under the mattress.

    I note that you are pretty well debt free, – good for you, I would judge that you are also pretty well aset free also…

    I thought you of all people, – as a computer technician, would have some concept of dealing with the epehemeral, but apparently that is not so…

    Your 9.42 was at best a stupid remark, and I am only responding because you asked….end of lesson 2 in elementary banking…

  30. Allan,

    Yes the spivs really are in the ascendancy at the moment, – but that is the basis for the Brown boom. It all changed when he robbed the pension funds, and got away with it.

    The day of the private individual shareholder has all but gone, which is why the property market is booming.

    In the case of Northern Rock they are less a bank than a mortgage company, they may well have some banking facility, but their business model was pure loan sharking…

  31. I see that Paragon, the ‘buy to let’ company is having a spot of bother on the borrowing front, rather similar to NR, – it is bound to happen to all those companies who borrowed short and lent long, and there are quite a few of them around.

    Just think of all those rental properties coming on the market in short order, and the effect that will have on property values.

    ‘Is that a chaos I see before me’… It seems that that a Brown paper bag isn’t waterproof after all. Didn’t Tony ‘cut and run’ at just the right time?

  32. Allan

    I agree with your view of GEC. But with Northern Rock you overlook that the same board which presided over its collpase in the last few months also drove the success of past years which saw the share price reach £12 at the start of 2007. Their strategy of funding mortgages via the money markets was hugely successful in terms of creating shareholder value in Northern Rock, until the sub-prime crisis in the USA caused the money markets to seize up in July.

    I have no sympathy for fat cats who get rewarded for failure, but in Northern Rock’s case they were mostly successful until an international crisis holed their business model below the waterline. Maybe they should have seen it coming, but nobody else did, including the Bank of England.

  33. Peter

    The Northern Rock boss sold £2.6m of shares while urging employees to keep buying – so he had seen in coming.

  34. Alison

    In that case it could be insider trading. However, no-one has ever been convicted of this in the UK. The law is an ass.

  35. Peter,

    Funding mortgages through the money markets was one thing, and risky enough on its own, but giving 125% of equity mortgages is another. That is pure loan sharking.

    Their problem was that they got greedy and the balance of money on deposit was vastly overshadowed by the funds derived from the money market. They were gambling on property prices continuing to rise for the long term. As supposed ‘experts’ I would have thought that they would know that doesn’t happen.

    That this was the first run on a bank in 140 years rather contradicts your perception of success.

    The Board in general was composed of people who had, – to put it kindly – had more failures than successes in their history. They were a disaster waiting to happen!…and so it is with seeveral others…

    As happened with the pensions industry a decade ago, when problems reared their ugly head, the various Boards of Directors looked for the ‘expert’ among them for the solution, and then realised that, of a hundred or so ‘Directors’, none had any experience of the pensions business, – they were all sinecures for the ‘Good ole’ Boys’, – and they do love their gravy!!

  36. "The Northern Rock boss sold £2.6m of shares while urging employees to keep buying – so he had seen in coming."

    Exactly: that is a prima facie case of insider dealing.

  37. Cash that you bank is the tangible form of your worth – your credits, – and that will always exist, even if only electronically, until the day you decide to spend it – if that makes it easier for you to understand.

    then explain how they can lend more money than they have in the vaults or is tied up in assets and demonstrate where this money comes from?

    and then explain what a "run on the bank" is?

    if you can explain how all this occurs without the bank conjouring money out of nothing, im all ears.

    the rest of your post is irrelevant until you answer these questions

  38. DT,

    " explain how they can lend more money than they have in the vaults or is tied up in assets"

    They can lend more money than that in the vaults, (that in itself is a very juvenile way of describing a bank’s assets), because they borrow it from other banks, when they cannot borrow, they get into trouble as per the NR. They borrow the money against assets i.e. the value of the mortgages that have written, which have an intrinsic value. When the underlying assets decrease in value, as when property values fall, so their borrowing ability falls.

    Even an ignoramus can see why NR was riding for a fall, especially when they started writing mortgages for 125% of the asset value – the were in fact gambling on prices continually rising in a steady progression, rather than erratically. They were the triggers of their own destruction.

    A ‘run on the bank’ is when depositors all want to withdraw their cash at the same time, thereby reducing the banks liquidity and ability to have enough cash in hand to pay everyone. That is not to say they do not have the assets, just that they do not have the ready cash, and assets take time to liquidate.

    If the bank could ‘conjure’ money out of thin air, as you so blithely suggest, then logically they would never have liquidity problems, while as we have seen they patently do. But I guess that is a step too far for you to assimilate in one go.

    As far as irrelevance goes, I now remember why I rarely ever read your rants… they are – as you say, usually so irrelevant!…

  39. DT,

    " explain how they can lend more money than they have in the vaults or is tied up in assets"

    They can lend more money than that in the vaults, (that in itself is a very juvenile way of describing a bank’s assets), because they borrow it from other banks, when they cannot borrow, they get into trouble as per the NR. They borrow the money against assets i.e. the value of the mortgages that have written, which have an intrinsic value. When the underlying assets decrease in value, as when property values fall, so their borrowing ability falls.

    Even an ignoramus can see why NR was riding for a fall, especially when they started writing mortgages for 125% of the asset value – the were in fact gambling on prices continually rising in a steady progression, rather than erratically. They were the triggers of their own destruction.

    A ‘run on the bank’ is when depositors all want to withdraw their cash at the same time, thereby reducing the banks liquidity and ability to have enough cash in hand to pay everyone. That is not to say they do not have the assets, just that they do not have the ready cash, and assets take time to liquidate.

    If the bank could ‘conjure’ money out of thin air, as you so blithely suggest, then logically they would never have liquidity problems, while as we have seen they patently do. But I guess that is a step too far for you to assimilate in one go.

    As far as irrelevance goes, I now remember why I rarely ever read your rants… they are – as you say, usually so irrelevant!…

  40. Ernest, then put simply ive got the basis for fractional reserve banking wrong. and im only too willing to admit it if im wrong.

    im not a politician afterall.

    i still dont see how somewhere along the line though somebody doesnt conjour money out of nowhere. afterall if all banks are lending more than theyve got then it has to come from somewhere. even the term you use yourself, "borrowed short and lent long" suggests this.

  41. Ive just read Bradford and Bingley are next.

    Interesting discussion guys. Im following with interest!

  42. Alison

    I didn’t know Bradford and Bingley were still going. I haven’t heard about them since their annoying TV adverts in the eighties.

  43. yes, and i meant to reply to allan. a perfect example. and ive been a victim of this same excess. i used to work for Nortel that design and produce some of the finest telco equipment in existence and was proud to be a part of the process.

    my eyes were opened when we were told that 21 billion dollars had just been written off. making and selling excellent product just wasnt enough for these people. no they had to finance their own customers and buy up every carpetbagger tech startup that had the best sales pitch. a scam of awesome proportion that cost me my personal investment and my job. Punishment for doing everything asked of me and more.

    so if i sound a little too skeptical of capitalism at times (or nausiatingly too often) its because ive been a victim of its wildest excesses. and i dont think its too much to ask that these people be brought to justice and stripped of their wealth, instead of beng elavated and rewarded. it sends the completely wrong signal about our entire system and as i said before is allowed to carry on unchecked will drive more people towards "revolutionary" alternatives.

  44. DT,

    Something we can agree on – at last!

    There is little doubt that ‘greed is good’, has been the CEO’s mantra for the past decade, yes, blame that film, it gave the seal of legitimacy to any scoundrel that breathed.

    But don’t make the mistake of throwing the baby out with the bath water, we all need a banking system, we all need a Stock Exchange, we also need an intelligent system of oversight. Whether it is self-regulated, – surely an impossibility with the sums involved, – or some sort of independent federal system. There has to be someone to answer to…

    One thing is for sure, while the crooks get away with large payouts and big pensions, and are seldom held to account, the trend will be hard to reverse.

    When the US bought in tighter regulations (Sarbanes-Oxley), after the Enron debacle it resulted in the guilty parties serving time and repaying of much of their ill-gotten gains. So if they can do it – albeit imperfectly, then surely we in the UK can implement something to regain the trust and respect that is so essential in any financal system.

    Given that politics and high finance are so closely linked, I won’t hold my breath for any rapid or meaningful change…

  45. DT,

    Re fractional reserve banking…
    "When a bank is in possession of bank reserves this means that it is able to lend more currency to others than it has on deposit.

    It isn’t making money out of nothing, because it has reserve security should it be called upon to unwind all the transactions involved…the profit is from the interest charged whenever a loan is made…

    The only people who can make money ‘out-of-nothing’ is the Treasury, who can just print more when needed, and that’s called inflation…