Ealing's Lending to Thurrock - when will they ever learn?
I found the report on this site about Ealing council's loans to Thurrock both compelling and unsettling. However, there was a serious omission in the article in that no mention was made of Ealing's previous problems with loans made to Icelandic banks.Without that history it could be argued that it was perfectly reasonable for Ealing to lend to Thurrock because the risk was close to zero but that is exactly what was said when they joined in the rush to lend to a number of Icelandic banks that nobody had previously heard of. Just like Thurrock, Iceland ended up with an unsustainable debt burden. I think in the end Ealing got most of its capital back but it was still a grave error of judgement.Hammersmith & Fulham seem to have dodged this particular bullet but that is probably because they put in proper oversight when their officers lost huge sums gambling on index swaps.The management of councils' spare cash seems to be an area that is desperately short of regulation. Time and again some council officer with visions of being a master of the Universe in the City forgets that there is an unbreakable relationship between risk and reward. If someone is willing to pay you a higher rate for the money they borrow from you then there will always be a reason.Thurrock looks set to unwind in quite a messy way. No council is going to be willing to roll over loans and the point will come when won't be able to repay their creditors. I don't know where Ealing will be in the queue but the prospect of a very nasty loss is there at the very time when it is least needed. The hope would be that the government can sweep this under the carpet and cover any losses from Councils that lent to Thurrock but the worry is that there are many other councils at the same game and a systemic collapse of inter-council lending is on the cards. When that particular tide goes out we will find out who hasn't got any swimming trunks.
Gordon Southwell ● 1791d2 Comments