£3,500 investment in Northern Rock (made on my behalf by the Government)

The Government has invested £3,500 of my money as a taxpayer as part of their £110bn rescue package for the Northern Rock. Whilst the popular press are rushing to print their articles on the potential risks of this being a bad deal for taxpayers I have to disagree.

Richard Branson and his Virgin group aren’t stupid, they saw possible returns of upto 75% if they could have bought the bank, and whilst the Government don’t have a good track record of running businesses if they can avert a recession and offload the bank to somebody else in the next couple of years they could make a tidy profit. The question then is whether us taxpayers would see any potential return on the risk being taken.

Looking passed the headlines, what interests me is that Northern Rock currently has 800,000 mortgage holders on it’s books so the Government now has a large vested interest in house prices. Arguably house prices needed to come down to more realistic levels to allow more people to enter the market without overburdoning themselves with debt, but this would cause huge problems for Northern Rock and the Goverment with people defaulting on their mortgages.

So you can bet your house that the Government will now try and do everything in its power to keep house prices up. I expect we will see several more interest rate cuts in the coming months.