Call that a crisis?
Sir: Ian Hay Davison (‘How to rescue a bank’, 19 April) is right that the Northern Rock episode was far from unprecedented. But there is much more to say. The difficulties of a number of relatively minor institutions in the early 1990s, including National Mortgage Bank (to which he refers), were small beer compared with the crisis of the mid-1970s.
The classic account was given by Margaret Reid in her 1982 book, The Secondary Banking Crisis, 1973–75. Using banking industry sources, she suggests that the total amount of finance exceptionally provided to support banks in trouble was three billion pounds. In the end all the loans were repaid and all depositors got their money back. However, the Bank of England did have to cover the losses of some of the more delinquent institutions. Reid’s estimate, based on the Bank’s own annual reports, is that these losses totalled £100 million.
Now £100 million and £3 billion may seem like trifles compared with the Bank of England’s loan of over £25 billion to Northern Rock. But one has to adjust for the growth in national output and inflation. Money national income last year, at £1,384.8 billion, was 16 and a half times larger than in 1974. So to make the secondary banking crisis comparable to the Northern Rock affair (in terms of the financial gravity of the decisions as they seemed to policy-makers), we need to multiple the 1974 numbers by 16 and a half. That brings the exceptional lending to about £50 billion, twice as large as the Northern Rock loan, while the eventual resolution of the crisis cost the British state more than one and a half billion pounds.
At the moment, it seems likely that the government will escape from the Northern Rock crisis without a financial loss. Indeed, the effect of the penalty rate on the Bank’s loan and the guarantee fees owed by Northern Rock to the government will be that the government’s finances benefit — to the tune of several hundred million pounds — from the episode. Northern Rock will prove much kinder to the taxpayer than the secondary banking crisis was in the mid-1970s.
Tim Congdon
Huntley, Gloucestershire
Anticipating the crash
Sir: Rod Liddle (Liddle Britain, 26 April) welcomes the predicted 25 per cent fall in house prices, and so do I. But comparisons with the last property crash do not take into account the malign effect of the buy-to-let market. Landlords will buy more property as prices fall, renting to more tenants who cannot afford to buy, so limiting price falls.
The 1988 Housing Act removed controls that discouraged residential lettings. The reforms were surely intended to allow the rental of empty flats above shops, the rental of homes where owners were abroad or in care, but not to undermine owner-occupation. The last few years have seen enormous growth in the rental market and now nearly every buy-to-let is a house or flat lost to owner-occupation.
Politicians like to talk about making homes affordable, so it is sad to see that Conservatives, once the party of home-ownership, have missed the connection between an expanding rental market, shrinking home ownership, and our unaffordable house prices.
Ian Thorburn
Brighton
Last call
Sir: Charles Moore asks (The Spectator Notes, 26 April) when the Times might be running a correspondence on ‘the last cuckoo’. Alas, I tried this back in 2001 when, having for several decades noted the arrival date of the first cuckoo, we for the first year ever heard no cuckoos at all in our part of Somerset. I thought this historic moment was worth a mention in the paper which used to glory in its annual letters recording ‘the first cuckoo’. But I fear that ‘the last cuckoo’ wasn’t of interest.
Christopher Booker
Litton, Somerset
The BNP’s purpose
Sir: Trevor Phillips, in his mission to ‘break the ice’ surrounding the immigration debate (Diary, 26 April), is selective in blaming the continuation of Enoch Powell’s belief in the ‘dangerous delusion’ of racial integration on white supremacists alone. The hatred of British society by Islamic supremacists is as prevalent, equally as much to blame, and demonstrably more dangerous in a practical sense. In addition, to dismiss the BNP as outside ‘conventional politics’ is naive and irresponsible. Whether or not one agrees with their politics, and thankfully most don’t, the BNP are democratically mandated (unlike a certain mainstream party leadership) and a relevant part of the British political landscape, if only to act as a warning of public support for their own skewed viewpoint.
Martin Sharman
Newcastle upon Tyne
Pregnant with meaning
Sir: There is yet another use of the phrase ‘going forward’ which Dot Wordsworth neglected to mention in her wonderfully entertaining recent column (Mind your language, 12 April). It is one that my wife learned in 1960 when she went to visit her aunt and uncle in Buwalasi, a small hilltop village in Uganda. Her uncle taught at the nearby theological college and her aunt ran a small informal clinic from their house. She was also heavily pregnant with her first child, much to the delight of the villagers, who constantly congratulated her on the fact that she was ‘going forward’.
My wife returned to Canada before the birth took place, but her uncle was informed that contractions were beginning when the houseboy came down the hill to the college and stated, ‘Sebo, Madame wishes to produce.’
James P. Carley
Toronto, Canada
Dover and out
Sir: Alex James’s navigation is even worse than Father John Thackray thinks (Letters, 26 April). Mr James thinks he can cross from Cap de la Hague to the white cliffs of Dover in a light aircraft in ten minutes. Since Cap de la Hague is on the Cherbourg peninsula, far to the southwest, he must be confusing it with Cap Gris Nez, which is about 22 miles from Dover.
Nicholas O’Brien
Wotton-under-Edge, Gloucestershire
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