Smile: It's a Co-operative Bank

It's been a challenging few weeks for those of us who hold an ideology to the left of the political spectrum. I don't know whether I was more astonished to discover that the road to serfdom goes via the Brixton Maoist Centre or that my apparently ethical bank was actually being run by the 'crystal methodist'. I'm only waiting to discover that Shelley was an incestuous just peadophile for my despair to be complete.

I would hazard a guess that you shared my frustration after the financial crisis to hear from many economists and their media supporters that the answer to the disaster was not fewer markets but more markets. So I hope you will forgive me if I will paraphrase this response and argue that the answer to the crisis in the co-operative sector is more mutualism not less.

Ed Mayo, Director of Cooperatives-UK has been quoting the Financial Times's comment that the problem with the Co-operative Bank was not that it was a co-operative but that it was a bank. I would take issue with this comment on the basis that the Co-operative Bank a co-operative in the sense in which I understand that term. It was the bank of the Cooperative Group but it was never a membership organisation and I could never influence it policy although I have had my account there for years.

As an earlier guest post on this blog demonstrates the bank was following its market competitors by engaging in a whole range of activities that I feel its customers and members would never have sanctions have they been offered a choice. The contrast between the activity of the Co-operative Bank and the Nationwide Building Society, a large but none the less mutual organisation, is instructive. The Nationwide, a genuine mutual which has more than doubled its 'profits' this year, is anxious that it is not tarnished by the problems at the non-co-op Co-operative Bank.

For me the principles of co-operation are not challenged by the antics of Mr Flowers. Businesses run by the members for the benefit of the members and that do not deliver services to external shareholders are still the ideal form of economic organisation in my book. I have an account with the Co-operative Bank because it was part of the movement that subscribes to these values; I was always disappointed that it was not a genuine cooperative.

The problems for the co-operative movement is that it appears to have lost it sense of purpose and its ethical stance is now under challenge. To save its reputation it needs to divorce itself from those who would influence it, whether market players or Labour Party insiders. We need the cooperative to become truly ours. It is our job to wrest control back from those who would use it in their sectional interest and to make it the truly mutual business sector it has always promised to be.
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What is Going on at the Co-operative Bank?

A longer-than-usual guest blog by Peter Pannier and begins a process of analysis of the troubles at the Co-operative Bank and their implications for UK mutual and/or financial institutions (questions and comments welcome via @peterpannier on twitter)

The idea that the Co-operative Bank and the 47 remaining building societies represent a positive alternative to mainstream banking been most enthusiastically pushed recently by the Move Your Money organisation as well as by anti-capitalist activists, Greens and supporters of the alternative economy. So where are we following the furore surrounding the Bank's 'rescue plan'?

Yesterday (17 June 2013), the Co-operative bank announced its plans to meet the capital requirements of £1.5bn (non-specialists might prefer the Guardian summary). This follows a decision earlier in the year to abandon a bid to take over 631 branches from Lloyds Banking Group, dramatic downgrades by Fitch, S&P and Moodys, and a changing of the guard at the boards of both the Bank and the wider Co-operative Group.

Some people have started asking some pretty good questions about what went wrong at the Co-op: Ruth Sutherland comes up with a dozen and more recently Patrick Collinson put forward another eight.

The problems can be traced back to the takeover (announced in October 2008 and completed in August) of the Britannia Building Society, where the issues were:

• A high volume of (mispriced) commercial property loans, made at the top of the market. With empty shops and low consumer demand, this portfolio seems unlikely to regain any value in the near future.

• A high volume of (mispriced) risky mortgage lending, also made at the top of the market. Again, arrears and repossessions are rising, real wages are falling (meaning making mortgage payments is getting harder), while we still have record low interest rates.

• The need to raise capital ratios because of higher capital requirements instituted since the financial crisis, and the difficulty of doing this through retained profits.

• An inability to raise capital by issuing shares. Many people have suggested this is because of the banks mutual status, but this is wrong. The Co-operative Bank is a plc, hence its ability to convert bonds into listed shares (see this diagram of the ownership structure). The reason the Co-operative Group could/cannot raise capital through issuing equity is two-fold. First, despite the fact that its ownership model does not prohibit it, it has been trading on the idea of being a ‘mutual’ ‘alternative’, and shareholder equity doesn’t fit with this PR image. Secondly, if it tried to issue equity while in crisis it would likely experience the same problem as RBS – no-one wants to buy shares in your bank when it looks like they are going to be throwing their money away. Hence why it has converted bonds (which don’t count toward capital) into shares (which do) instead.

Before the merger with the Co-operative Bank, Britannia was the second largest Building Society in the country. Contrary to perceptions of building societies being safe, traditional, and guided by ethics and principles rather than profits and growth for their own sake, Britannia was following a business model not dissimilar to those of HBOS and Northern Rock: borrowing from the wholesale markets to fund asset growth, frequently via mispriced risky lending, with an increasing interest in (large) commercial property loans.

Perhaps the aspect of the Britannia’s business model that made it most vulnerable in the crisis was its high reliance on wholesale funding. In the UK, building societies face a regulation that means they must raise 50 per cent of their funding from individual retail depositors. Everything else (wholesale borrowing from the short-term money markets and longer-term capital/bond markets , combined with non-retail deposits from other organisations such as local authorities) counts towards the ‘Funding Limit’. Britannia had the highest funding limit ratio of any building society at year-end 2008, and in all but one of the previous five years (it was still the fifth highest in 2005).

Just as they face regulation on liabilities side of the balance sheet, building societies are also limited in the kinds of assets they can hold: they must hold 75 per cent of commercial assets (liquid assets are excluded from this calculation) in the form of residential mortgages. Here too, Britannia was pushing the limit.

In 2008, the lending limit ratio was the highest for a UK building society. Though this was not true in previous years, the trend line is worrying: the Britannia was rapidly increasing the proportion of its lending not in the form of residential mortgages. A particular focus was commercial property, and rather than building up a portfolio of small, relatively safe loans to B&Bs and flats above shops, £900m of the £1.7 bn of ‘impaired’ loans is from just 12 big loans (Collinson, 2013: url, paragraph 1).

This is not to say Britannia were not also making lots of mortgage loans: in terms of mortgage lending as a percentage of prior year loans, Britannia were the 7th fastest growing building society 2007-2008. It appears that the decisions about who to lend to were not well made: 'Impared loans on a book of former Britannia mortgages known as 'Optimum' are running at 17 per cent--way above the industry average--with £1.2bn. of home loans at risk of going bad . . . Across the Co-op Bank’s whole mortgage book, 6 per cent of lending is classed as impaired. A further £1.1billion of loans are in ‘forbearance’, meaning borrowers in supposedly temporary straits have agreed a deal such as a payment holiday.'

In hindsight, these graphs and statistics show that Britannia went into the crisis with pretty much the worst business model possible. It would perhaps be OK if there had been profit in this model, and it was all being put into capital in case of the eventuality that things didn’t turn out well. Unfortunately, as the next graph shows, even as it continued to lend more and more, and in areas theoretically more risky for a building society, Britannia was making less profit per pound of lending (in other words, mispricing risk on a grand scale). I cannot believe that these graphs were not considered as part of a due diligence process (but, if you read the PR from the time you might conclude otherwise).

According to my analysis there are three broad reasons why the merger took place:

• The Co-operative Group had long wanted to take on / offer an ‘ethical’ ‘alternative’ to the larger retail banks in the UK. It had identified various large building societies as routes to this objective, lobbied for the Butterfill Act and took the opportunity when it came, paying little or no heed to the realities of Britannia’s past or the unfolding financial and economic crises. This might also explain the wholly misguided project of taking on the Lloyds branches.

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• The Co-operative Group was interested in growing its banking operation (consistent with above). The senior management at the Co-operative Bank did the due diligence on Britannia, and decided that the risk was worth taking on. Such a conclusion would rely on an expectation that the UK economy would recover strongly and quickly, and that the turmoil in financial markets would end soon.

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• The Co-operative Group did the due diligence on Britannia and, given this and the deteriorating economic environment and continuing turmoil in financial markets, decided it would rather not take it on, but gave in to pressure from the FSA and government to persuade it to do so.

As far as I’m concerned Option 1 amounts to hubristic foolishness, Option 2 amounts to naive optimism and Option 3 amounts to dangerously craven weakness. The Co-operative Bank was facing a capital shortfall of £1.5bn. I personally cannot see how selling off great chunks of your business (life and general insurance arms), ceasing lending to new business customers, and undermining your brand by introducing external shareholders to what had been considered a ‘mutual alternative’ are going to combine to create a business model that can ride out the problems that remain.

Just about the only shining light for the Co-operative Bank is that, thanks to a reputation for customer service and an ethical stance, it has in the words of Frances Coppola 'an amazing customer base which has been astonishingly loyal'. Some of the Co-operative Bank’s customer base will remain loyal. However, for new customers (of whom there were apparently as many as 100,000 last year) this loyalty will be very shallow. Anecdotally, such customers feel betrayed and are already leaving. Even old and traditionally loyal customers may reconsider their relationship with the Bank following the introduction of shareholders and the associated incentives to maximise short-term profits, not to mention the revelations of previous bad management. If I were a retail customer, I’d certainly be thinking twice. Perhaps more to the point, I’d wager that larger borrowers and investors aren’t feeling too positive about the Co-operative Bank at the moment, and that won’t help them one bit.

But this isn’t the bad news. The bad news is that the UK financial crisis of 2007-8 was not solved, but merely deferred (much like the crisis of the 1970s that lies at the root of our current problems). The problems at the Co-operative Bank are just the beginning. Your money is probably safe (assuming you haven’t got very much), but our financial and economic systems still very much are not. The storm that is coming is as likely to selectively avoid particular ownership models in finance as nature’s storms are to avoid houses on the basis of whether they are owned by the occupier, a landlord or the local authority.
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Co-operative History Tour

Radio 4's Farming Today recently focused on the role co-operatives might play in supporting the incomes of farmers, especially dairy farmers, and increasing their ability to withstand the oppressive power of the supermarkets. In the Year of Co-operation this is to be welcomed, and the comparisons with the situation in other countries, where more than 90% of dairy farmers sell their milk through co-operatives, are particularly useful. However, it is not just a question of transferring a business model: we need to understand how our politial and economic history has left us with a different attitude towards co-operatives.

Rather than milk co-operatives, until 1994 UK farmers had the protection of the Milk Marketing Board, which set a national price for milk and thus supported production and farmers' livelihoods. Like defence and energy, milk was considered a strategic resource - too vital to national well-being to be left to the vagaries of the market. This was a typical example of the statist approach to constraining the power of the market that was favoured in Britain in the post-war period, and no doubt an interesting comment on our changing food culture to vegan readers of this blog.

The vision of socialism as being exercised through one party and at the state level was particularly strong in Britain, where the Fabian socialists fought and defeated the guild socialists during the early years of the 20th century. I have written a longer academic piece about the intellectual links between the guild socialists and the modern green movement. Take, for example, this quotation from William Morris's 1890 pamphlet News from Nowhere:

'that individual men cannot shuffle off the business of life on to the shoulders of an abstraction called the State, but must deal with it in conscious association with each other ... Variety of life is as much an aim of true Communism as equality of condition, and ... nothing but an union of these two will bring about real freedom.' (Morris, 1890).

As the centralised state bastions were challenged and defeated one after another through the Thatcher years, both consumers and producers were left up vulnerable to the chilly winds of untrammelled market capitalism. This has led to excessive market power by banks, supermarkets, developers, and energy companies. In other countries where the market had always been more powerful, citizens had already combined to defend themselves. We are now in a situation of having to catch up.

We also need to remember the political lesson from the Blair years: while unity is strength, uniformity is weakness. The centralisation of the model of state ownership and democratic control by one party left a whole range of organisations from the Milk Marketing Board to the Labour Party itself vulnerable to takeover by those who sought to neutralise rather than reform them. The co-operatives, for all the snide criticisms they faced from the Fabians for compromising with the market, have proved more resilient. It is now the Green movement rather than the socialists who maintain this tradition of mutualism and local control.
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John Lewis University

Given the coalition government's support for co-operative and mutual forms of economic organisation, some colleagues recently suggested the adoption of a stakeholder ownership model along the lines of the John Lewis partnership for the higher education sector. Universities, they argue, have weak governance structures, enabling managers to extort excessive salaries:

'The governance roles of university councils or boards are formally similar to those of shareholders. But they are a poor proxy for shareholders - as they make no financial investment, they have no financial vested interest to defend. If shareholders cash out, this can signal falling market confidence, threatening managers' jobs. But if members of governing bodies resign, there is no market to register doubts over organisational performance.'

They propose instead that the assets of universities should be placed into a non-revocable trust who aim is defined as 'the happiness of all its members, through their worthwhile and satisfying employment in a successful business'. As in the John Lewis group model, employees gain the value from their work, although in this model the management of the university remains with the hiearchy.

It is important that a new and consensual model for university governance is found. The removal of most government financial support for courses is a major step towards privatisation. Over the next few years, as income to universities falls, some will be faced with closure and external or management buyouts will become a serious threat. Meanwhile the private and corporate universities (such as the prototype Hamburger Degree launched by McDonalds last year) are reducing still further the requirement for education rather than training from our higher education providers.

So ownership matters; but so does control. Why leave the management of the universities in the hands of those who have managed to best compete in the internal bureaucracy? Why not move beyond the trust model towards a fully-fledged multi-stakeholder co-operative? Who is better placed to decide the strategy for the university, and the content of its curriulum? A manager, or the academics and their students?

Co-operatives-UK recently commissioned some market research to demonstrate just how well co-operatives are doing in terms of public perceptions. Nearly 80% of those questioned knew that co-ops share their profits, 75% considered them fair and 73% knew they were owned by their customers. Around two-thirds thought co-operatives could be trusted and operated for the public good. They were also thought to be honest (63%), open (59%) and democratic. What better people could there be to take charge of our young people's education? Tweet

Vote for the Original Red Robbo

Robert Owen was a paradox. A self-made millionnaire entrepreneur who is considered to be the father of co-operation. A pioneer of mutualism, all of whose schemes failed, and who was only able to be successful by using capitalist methods. With his 'silent monitor' system at the cloth mill in New Lanark he could also be considered a pioneer of modern managerial methods, and yet he is considered to have liberated the working man.

Owen was a living manifestation of the truth of Oscar Wilde's epigram that the truth is rarely pure and never simple. I wonder if the two ever met. I like to think of Owen in his Manchester days, possibly rubbing shoulders with the radical thinkers of the day, who congregated in the unitarian chapel. Did he influence the philosophies of Marx and Engels? Did his work experience find its way into the novels of George Eliot?

The English are rather embarrassed about Robert Owen and not only because he was a fan of naturism. He is claimed by the Scots, because of his stature as a businessmen in Clydesdale, although he was actually a Welshman. His greatest popularity today is in Japan, where the Robert Owen Society keeps his memory alive and the country's co-operative sector flourishes.

And now, perhaps the greatest paradox of all, there comes a petition to call for Owen to be commemorated on a Scottish banknote. Owen saw through the iniquities of the banking system and how it was used to extract value from working people. His Equitable Labour Exchange and his time-based money were established precisely to end this exploitation. So should we support the campaign? I think so, if only because the paradox would probably have amused Owen himself. Tweet

Come On You Reds!

It was this image of David Beckham, wearing the green-and-gold blazon of the gathering campaign against the ownership of Manchester United by the Glazers, which made it clear to me that the move towards football supporters' trusts was more than a minority sport to warm the hearts of those of us on the mutual fringe of economic life.

Here is evidence that capitalism has overplayed its hand. The working men of this country ignored the way it destroyed their workplaces, their families, even the music they enjoyed. But now it is serious: now it has reached the place closest to their heart. Capitalism is destroying football, and that hurts. The billionnaires who have moved into the game are wrecking the sport, but also wrecking our football clubs as businesses.

Marx theorised the commodification of aspects of life that we value as being central to the social process of alienation. The products of our labours are usurped by the owners of capital who employ us, and something of our essence is stolen too. 21st-century capitalism extends this process by what is known as 'financialisation', so that every aspect of economic life is hollowed out, its meaning being replaced by the empty token of money. In work we see the hegemony of the accountant; in music the rise of the manufactured band.

But it is for football that people are apparently prepared to stop whingeing and take action. New research commissioned by Co-operatives UK indicates that 83 per cent of Manchester United fans and 72 per cent of Liverpool fans thought their club would be better off as a co-op. The YouGov poll found that 56% of all the football fans who gave an opinion agreed. Manchester United fans were willing to invest about £600 each, which could raise the £2.34bn. needed to buy the club.

The latest plan afoot to save Manchester United from becoming a hollow icon has been inspired partly by the example of Barca - always a co-operative and arch-rival to the formerly pro-Franco Real Madrid, who Beckham chose to play for - which has always been a co-operative. The 'Red Knights' plan to raise investment finance to buy the club and then sell shares to its own fans. Whether they seek to gain from this financially is hard to assess, but we might hope that the sense that ownership matters it brings could spill over from the terraces into the workplaces of this country. Tweet

Ten Ways to Challenge Capitalism That Wouldn't Frighten Your Grandmother

It appears that the salesmen of capitalism have not been entirely successful. Despite the many years of propaganda we have not abandoned care for our fellow man or woman. We still overwhelmingly support a health service paid for from taxation and would rather a decent pension for all was organized along the same lines than be left to the wolves of the financial markets.

Money is at the heart of the economic system that is not called 'capitalism' by accident, and this is the place where you can begin to extract your own life from that destructive and damaging system. It has also been most conspicuously displaying the tendency towards inequality that is the beating heart of capitalism in the past year.

Below I list some further ideas for challenging capitalism in your everyday life in practical ways. It is important not to be daunted and to maintain your awareness that, as you extract your energy and money, along with millions of others, you are weakening the system. From my perspective everyday actions against capitalism, aside from being less risky and more morally acceptable, are far more threatening than violent revolution.

Those who oppose capitalism have the advantages of creativity and imagination, as well as mutual support. It will always be impractical to oppose capitalism by taking on the state with violence, since the state will always be far better equipped in that department than we are. Such action will actually give energy to the growth dynamic, through policing and medical care of the injured, not to mention sales of weaponry.

So here are ten ideas in domestic subversion. Start today and within a year you can be in the clear for a large part of your daily life.

1. Arrange to buy your vegetables through the nearest organic box scheme
2. Switch all your bank accounts to the Nationwide or Co-op/Smile Bank
3. Shop at the Cooperativebetter still, join your local coop.
4. If you work in the private sector, cut your hours of work at least by half
5. Cook more at home, for yourself and your friends
6. Don’t vote, unless the party you vote for has stated anti-capitalist economic policies
7. Whenever you are talking to somebody involved in business, ask them if their business is a cooperative, and have something to back yourself up if they ask why you asked this question
8. Get an allotment
9. Cut down on your coffee intake, and make sure that what you do buy has been fairly traded
10. Before you buy anything ask yourself how much you know about who made it and how, and move towards products where you have more information and closer ties Tweet

Establishing a Mood

Last week two of the credit rating agencies - Moody's and Fitches - downgraded the rating they award to a slew of mutual financial instutions in the UK - the old-style building societies which have survived the current turmoil well and are taking in massive levels of new lending from members.

The building societies are actually in a strong position, since they own real assets - houses - rather than the phoney assets owned by banks. The agencies explain this downgrading on the basis that these assets are less valuable because of falling house prices. Yet the stress-testing of the Britannia that preceded its recent merger with Co-operative Financial Services indicated that even a house-price fall of 60% would not threaten the solvency of the business.

So is this a genuine concern about the solvency and viability of these businesses or a political move by the capitalist businesses that are seeing their credibility shattered and money move into the co-operative financial sector?

The official version is that the credit rating agencies take an objective look at the market and then provide a neutral assessment of the financial health of various companies. The reality is that they are making the market. If they downgrade a company it finds it harder to borrow money and must pay a higher price. They are actually manipulating the value of companies - and even countries - and in a time of such uncertainty this gives them anti-democratic power. Questions are being raised about their role, which now appears more political than forensic.

We can begin to see how they are using this power. They downgrade the UK, which is creating money to pay back our national debt, but not the US, which is following the same policy. Back in January the French financial regulator called for political regulation of the activities of credit rating agencies. At that stage concern was that they were too optimistic about the money-generating activities of the companies that created the boom. Their attempt to undermine viable and democratic institutions and governments should raise even greater concern. Tweet

Bowled for six

This morning we see the final act of the asset-stripping of local communities that began when the Abbey National gave up its mutual status, under the pro-market encouragement of the dying Thatcher government, in 1989. Wikipedia helpfully provides a list of the spate of demutualisations that followed: it shows that many of our building societies are now controlled by Spanish bank Banco Santander.

I imagine the original founders of these societies as bewhiskered gentlemen in Batley or Huddersfield, but the reality is that they were more likely to have worn flat-caps than top hats. They were working people clubbing their savings together so that one after another they could save themselves from rapacious landlords.

The building societies were part of the mutual society that developed in response to the growth of capitalism. As a challenge to domination by rentier interests it is unsurprising that the high tide of capital power saw their dismantling. In the loadsamoney culture of the 1980s the members who voted for the paltry £1500 or so of shares (most of which they turned into cash) had lost their sense of the way that owning assets protected them. Their ancestors had learned this the hard way; they may well be learning that lesson in the years to come.

Mr Bradford and Mr Bingley, those sober, suited gentlemen in bowler hats would never have gambled their investors' money on self-certified mortgages and buy-to-let cowboys. We have, perhaps, been dazzled by the proliferation of multi-coloured bowler hats, a classic piece of financial illusionism, but the hard realities of a capitalist economy remain. Money means power and the more assets you control the more powerful you are. Trying to take on the big boys in property speculation was a sting perpetrated on the foolish by the confidence tricksters. And the building societies that working people worked so hard to create now belong to banks which follow only the interests of capital.

In my home community of Stroud we are going back to learn from our ancestors. The recession does offer us opportunities as a community, since assets such as empty property and even - conceivably - land will fall in value. Although we are poor, we are many. Just as the Miners’ Welfares and working mens’ clubs of Northern Britain were built on the sixpences of their working-class members, so we are establishing a ‘tenner a month’ fund which we hope will generate enough cash to buy community farms and workshops. Tweet

Buying at Rock Bottom, Darling?

In the industrial era the slogan was 'Where there's muck there's brass'. For the post-modernist entrepreneur this slogan has been replaced by 'Where there's risk there's brass'. For such a person Northern Rock is seeming increasingly interesting. This was the appeal for Philip Richards, who bought shares in the ailing bank at the bottom, sensing that the value of the stock would be determined by politics and not by the market.

Richards is Chief Executive of Hedge Fund RAB capital. This has a hugely profitable Special Situations Fund which Richards manages. The fund almost doubled in size during 2005 and by the spring of 2006 controlled more than $1bn. Richards identified a very special situation at Northern Rock and moved in for the kill.

He has now emerged into the media to exert political muscle. Unlike most of us he has the power to be able to produce a comment piece in the Observer and to have a chat with the BBC's business editor on the Today programme. His view that shareholders should have their investments underwritten by the government to allow the bank to continue as a going concern is in reality a request that we should pay him for an opportunistic business investment.

He argues that if shareholders are abandoned then 'the most important role of banking' which he defines as 'to take short-term deposits and lending and turn it into long-term capital and finance' would no longer be attractive because it would not yield sufficient secure returns. In other words, the government should use our money to prop up a financial system that works against our interests and those of the planet; if it does not, the credit/debt that is the lifeblood of a capitalist economy will drain away.

The affair of Northern Rock is becoming an object lesson in how financial value is fought over in a capitalist economy, a process that is usually concealed behind scenic drapery. As with most companies, the citizens of the UK are 'stakeholders' in Northern Rock, some of us as depositors and mortgage-holders. Unusually in this case many more of us (all those who pay taxes) because we have each loaned an average of nearly £1000 to the Bank. Without handy media contacts we have to rely on our elected representatives to ensure that we receive a fair share of the value we have invested.

The affair also makes clear that, in spite of all the rhetoric privileging the market above all institutions, in a democracy power still lies with politicians. When the shit hits the fan it is the job of politicians to make choices and, no matter how large the tent, somebody will be disappointed by those decisions. That is what politics means: either/or not and. Vince Cable for the Lib Dems has suggested nationalisation; in another blog I propose a mutual solution, but it is the Chancellor's job to decide which side his political bread is buttered.

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Rock and Roll Suicide

The immediate crisis at Northern Rock has passed, but only because the government has spent an estimated £40bn. of our money preventing the bank from collapse. This was a desperate strategy, only resorted to because of fears that the collapse of Northern Rock might lead to the failure of other banks and eventually the collapse of the whole banking system.

This is a huge public investment, of the same order of magnitude of the whole of health spending in one year, which is somewhere above £50bn. these days. It raises several questions about the meaning of a democratic society. Perhaps the most important is why a reckless financial institution, that produces nothing of value, can be bailed out in this way, while countless manufacturing companies which produce useful goods and employ many more people have been allowed to fold to conform to the iron law of the market. Clearly, the interests of capital carry more weight than the interests of labour.

The most important questions to be decided now are who should bear the loss of the bad investment decisions taken by the bank's board, and who should see the value of the assets it still holds. Should the British public really be asked to compensate shareholders who made poor judgements? They see the gains when their tricks pay off; what sense can there be in calling this a financial market if they do not also see the losses?

In terms of the assets the vultures are circling hoping to prey on the carrion at the expense of the British public. An offer to pay £1 for the bank is not a generous bid but rather a grab for the significant assets still owned by Northern Rock. Of the 'bidders', Branson and Flowers have both been the beneficiaries of government largesse in the past and scent the opportunity to make a killing. The fee for saving the government's political bacon can be a generous one, giving new meaning to the phrase 'laughing all the way to the bank'.

A financial institution that was once a staid and responsible building society, operating for the mutual benefit of its mortgage-holders and depositors was transformed by demutualisation into a victim of destructive financial speculation, mediated by greedy shareholders who believed in returns to-good-to-be-true and the wideboys to whom they relinquished control of financial destiny.

As an alternative to a state-sponsored corporate buy-out, nationalisation of the bank has been mooted. But rather than a nationalisation resulting in state ownership surely a remutualisation is a better solution. Shareholders, whether instutitonal or personal, can lose their stake as a lesson to themselves and others about rapacious expectations and dodgey dealing. The government can limit public investment to ensuring the value of depositors investments, while the remaining assets of the bank will be the homes of its mortgage-holders.

Governance can revert to an board elected from among the lenders and borrowers of the building society, as was traditionally the case. Calls for independent financial experts to play a major role have surely been utterly undermined by the disgraceful performance their have displayed thus far in this and other banks the world over.

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