Worm in the Darling bud

Seeing that the news-stand by the civic centre was out of my usual dose of tit, bum and show-business gossip (otherwise known as Roger Alton's "Independent"), I took the opportunity to buy the Financial Times.

(Incidentally, it is a pity that the Chancellor did not take more notice in 2006 of the warnings issued by Jane Croft, Gillian Tett and others on the FT staff, of the impending failure of the wholesale market for housing credit. If he had, then the worst of the failures in mortgage companies over here could have been headed off. I confess that I was not aware of these warnings at the time; it was a fellow LibDem who is more involved in finance than I who pointed them out this time last year. As I implied, the FT is not my usual journal of choice, but surely it is required reading for our financial lords and masters.)

Jane Croft reveals today in an article headlined "Rivals to share cost of failure" that Alistair Darling's ripping wheeze, for seizing the mortgage book of Bradford & Bingley at virtually no cost to the taxpayer, includes small print which makes both banks and building societies liable to cover any shortfall after the mortgages are finally wound down, and a Treasury - the preferred creditor - loan repaid. The Financial Services compensation scheme will be forced to levy the banking industry in the event of a failure. This includes not only the clearing banks but also the only remaining independent building societies. These are, of course, mutuals who did not open themselves to failure by borrowing on the wholesale market in order to finance mortgages and who largely had relatively conservative lending criteria, thus avoiding both the traps which brought low Northern Rock, Halifax, Alliance & Leicester and Bradford & Bingley.

The risk is theoretical, in that, poor though the B&B mortgages are, they should still overall pay for themselves at the end of the day. However, the risk is still there and it seems unfair that the mutuals should share it, while Santander makes off with the cream of the undoubtedly viable parts of Bradford & Bingley.