March 20, 2009

Brown defends Northern Rock takeover

British Prime Minister Gordon Brown defended the government rescue of Northern Rock bank Friday after a government audit criticized the move.

The National Audit Office said the government knew of troubles at the bank for three years before taking action and allowed the bank to continue writing mortgages 25 percent higher than the value of homes borrowers were purchasing, The Guardian reported Friday.

Brown said the government, which took over the bank last year, took the action that was necessary.

In addition, the NAO originally endorsed the action, Brown said, adding the bank had paid back $23.2 billion of its government loan.

Business Secretary Peter Mandelson said the government allowed the lending to continue because it didn't want to create a situation where you were closing Northern Rock down, the newspaper reported.

The NAO report says, nothing was done until the crisis broke. It also said that disarray among government staff members handling the bank's affairs hampered the rescue effort.

Philip Hammond, a Tory Treasury spokesman, told The Guardian, a schoolboy could have told you if you take over a bank lending 125 percent of properties, the first thing you do is stop lending 125 percent mortgages. That should have stopped the day the public money went in.