Franky on Finance

Today’s detailed plans to rescue Northern Rock involves converting the £25bn of Bank of England loans into bonds that would be sold off to investors. The bonds would be available for up to five years after which any remaining debt would be written-off.  Critics point out that the scale of the rescue package is highly risky. In the event of a catastrophic downturn in the housing market, with Northern Rock mortgage holders defaulting on their debts, the taxpayer would be left seriously out of pocket.  With this new deal, potential purchasers of Northern Rock will no longer be responsible for paying back the loan and will have until February 4 to make a renewed bid to the government.  In return for taxpayer support, the government will receive a percentage of the new owner’s profits.  If the government was unable to secure a sale, then nationalisation would become necessary.