It is a sure sign of how far the credibility of Britain’s “tripartite authorities” – the Treasury, the Bank of England and the Financial Services Authority – has fallen that the government’s public statements on the nationalisation of Northern Rock give a prominent mention to the plan’s endorsement by Goldman Sachs.
It used to be the case that the UK authorities’ own authority was such that they didn’t need to lean on a private-sector institution for support, at least in public. But the British people’s suspicion of the government, central bank and regulator was demonstrated by the queues that formed outside Northern Rock’s branches last September when the tripartite authorities “reassured” savers that there was no need to panic. Under the circumstances, the imprimatur of one of the dwindling band of global financial firms not to have found sub-prime bodies in its basement counts for more than that of the British establishment.
That is a double-edged compliment to Goldman, however. The investment bank doesn’t “do” politics. That is underlined by the UK government’s statement, which says Goldman concluded that temporary public ownership was the least worst solution “from a financial point of view”.
But the bank is in the line of fire in the short term for the fee it is charging (never mind that it is likely to be lower than for similar advice to private-sector clients), and could yet be dragged into a long and messy process of litigation about who said what to whom and when. The opposition Conservatives are already asking the government to publish the advice it received from Goldman.
A bank as careful with its reputation as Goldman will have weighed those risks before taking the mandate. But the truth is that when a G7 government asks for help, it is hard for a bulge-bracket bank to turn it down – almost irrespective of the consequences.