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Northern Rock debt to be ’sold as bonds’

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This is hilarious. According to Reuters, the British government is working on a plan to repackage the £25 billion loans given to Northern Rock by the Bank of England as government backed bonds to be sold on to private investors. Now, correct me if I’m wrong, but this sounds like exactly the sort of tricky financial shenanigans that caused the whole sub-prime mess in the first place – repackaging bad debt as a much more attractive sounding investment and flogging it off to some other sucker? (Some other sucker being the Great British Public in this instance.)

It’s unclear to what extent the government will back these bonds, but if it’s going to underwrite them 100% then it seems a bit pointless. Surely if Northern Rock fails to repay its loans from the Bank of England, then the taxpayer loses twice, because the government then has to spend money baling out the bond-holders in addition to the loans it poured Northern Crock in the first place. Please feel free to set me straight if I’ve got this wrong.

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