It's been a big week for fiscal wrist-slapping. First there was the US Congress move to put a 90% tax on big bonuses at companies that had received taxpayer bailouts. Now our own Treasury has got it in the neck for allowing Northern Rock to continue high-risk lending even after it had been propped up by our public purse.
The National Audit Office's report into Northern Rock was published today, and was highly critical of the amount of high-risk mortgages it continued to dish out, some as much as 125% the value of the home in question, into 2008, after it went into public ownership. ‘What harm can it do?' the top-brass may well have been asking.
The NAO found Northern Rock lent £1.8bn in ‘Together' mortgages - which lent borrowers up to 125% of the value of their properties - between September 2007 and February 2008, exposed the bank to swift losses if house prices fell. Not good given that all its punters were queuing up outside to withdraw their cash at the same time.
All in all, not a good morning for the Treasury. The NAO report attacked its over-reliance on advisers such as Goldman Sachs, highlighting ‘weaknesses' in the initial contract with the advisers, which included a £4m ‘success fee' without a definition of ‘success'. Gordon Brown doesn't come off lightly either. His ‘tripartite' regulatory structure, in which the Treasury, the FSA and the BoE share responsibility for regulating banks, was found to be flawed. Taxpayers, who will pick up the £78m bill for advisory fees and bidding costs associated with Northern Rock, can of course expect an apology from the PM soon.
On the plus side, the report found that nationalising the bank had protected taxpayers' interests, and that the Treasury had ‘successfully met its objective to protect NR's depositors and stopped the run on the bank'. Small consolation to taxpayers, perhaps, who may feel that's hardly adequate consolation for being exposed to greater risk.
They'd be better off across the pond, where the government has now voted in favour of a bill to levy a 90% tax on big bonuses from firms bailed out by the taxpayers. This after outrage over the decision by AIG to award its employees $165m (£113m) in bonuses after taking $170bn in aid. President Obama welcomed the vote.