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There is a major misconception, as I said here.

Bank Of England Unplugged

The "Government" has not lent a penny, and the "tax-payer" is not risking a penny.

As Tim Congdon said in the FT (so it must be true!)

The explanation is that the Bank of England can create money "by a stroke of the pen". Parliament has made it the UK's only issuer of legal-tender notes, and it can expand the note issue or credit a balance convertible into notes at virtually nil cost.

Because of these special powers, the Bank does not need to borrow in the interbank market at a positive interest rate.

That is what leads to the <head explosion> in fact. People literally cannot comprehend the truth of fiat money.

The facts of the matter are - as Congdon explains -that the Bank's (base rate) income of 5.75% on its lending to Northern Rock is a wind-fall to the UK tax payer. The "penal" amount of 1.25% on top of this is not in fact being paid to the Bank of England but is being allowed to roll up as a "subordinated loan" by the Treasury to Northern Rock.

ie the Bank of England is essentially gifting this "investment" to the Treasury on behalf of "tax-payers".

What happens if it all goes "pear-shaped"?  

Well, the first people to take the hit are Northern Rock shareholders. Then it's the Treasury, but they would only be losing money they have been "gifted" by the Bank of England.

What about the billions upon billions of tax-payers' money exercising the politicians and the press?

Well actually it's as though the Bank Of England took back a few more skip-loads of time-expired bank notes and burnt them in the usual way. ie the tax payer loses NOTHING in the event of a default.

It is rare indeed that the mask slips in relation to the truly surreal nature of the vacuum at the heart of a fractional reserve banking system. The truth is that the longer this goes on, the better off the tax-payer will be, and if the tax-payer can lose, then I can't see how.

My proposed solution would be for existing Northern Rock shareholders to transfer their shares to the Northern Rock Foundation (who already own 15%) as a "Custodian".

These shareholders, the Bank of England, and any oither creditors who wished to join in would then all exchange their debt for "quasi Equity" by being allocated units/ proportional "Equity Shares" in Northern Rock revenues.

Northern Rock PLC would become an employee Co-op, a la John Lewis, receiving an agreed share of revenues for operating the business as an "Operating Partner"

A Northern Rock LLP would serve as a framework for this process.

And my fees are very reasonable!

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Nov 21st, 2007 at 09:06:06 AM EST

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