Leatherhead Matters

Footy fans know that every game Gordon Brown attends, the local team (including England) lose. Now the Government owns Northern Rock, Gordon is the new, official sponsor

of Newcastle United. So Newcastle fans, prepare yourself, your team is doomed!

When it comes to big business, appearances it seems, matter a lot. Companies tend to be more profitable if they have a chief executive with a face rated by observers as being more competent, dominant and mature. Similarly, companies with a chief executive judged to be a good leader, based purely on his facial appearance, also tend to be more profitable.

These associations still hold even after controlling for the influence of age and attractiveness. As Nicholas Rule and Nalini Ambady, who conducted the research, point out:
it isn’t at all clear whether chief executives with a certain kind of
appearance help their company towards profit, or if instead profitable companies choose to employ chief executives who look a certain way. What is remarkable though is that naive observers are somehow able to extract information (based on more than just age or beauty) from a brief glance at a chief executive’s face, which is in some way linked to his company’s success.

Rule and Ambady made their observations after asking 100 undergrad students to rate the faces of the chief executives (all were male) from the 25 highest and lowest rated companies for the year 2006 from the Fortune 500 website. Three students recognised one or more of the chief execs, so their data were removed.
Nick Rule told The Digest that it was too soon to speculate on what facial cues observers are using when they extract the kind of information shown in this study, but that more experiments are planned.
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Rule, N.O., Ambady, N. (2008). The Face of Success: Inferences From Chief Executive Officers’ Appearance Predict Company Profits. Psychological Science, 19(2), 109-111. http://dx.doi.org/10.1111/j.1467-9280.2008.02054.x

 So finally the Government have nationalised Northern Rock. What does that mean:

1. The Government now own the mortgages of thousands of voters mainly in the Labour heartland of the North East
2. If anyone defaults on their Northern Rock mortgage the Government will effectively own the property which is collateral for the mortgage.
3. That means the Government will be in the position of making people homeless! Will the Government do this over the next 18 months of run in to an election?
4. The Government will be in the position of taking ownership of property via a nationalised Northern Rock and then the Dept, for Work & Pension giving benefit handouts to those made homeless. There will be a tremendous political incentive for the Government to tolerate mortgage repayment defaults….at least until after an election. (Hmmm… perhaps we should ALL apply for a Northern Rock Mortgage?)
5. The Government have had to take ownership of Northern Rock’s debt. This is backed by the value of the properties in “2″ above. But what if we ever get into negative equity territory again like we did in the early ’90’s (ie if property prices fall, some properties may be worth less than the outstanding mortgage. What would the Government do then? (see conclusion to “4″…….perhaps we should all apply for huge Northern Rock mortgages!)
6. Now that Northern Rock is owned by the State the Company is …errr rock solid. You can’t find a safer haven for your money. Northern Rock has a business plan to grow its savings deposits from ₤10billion to ₤16 billion. I suspect one of the main banks will refer this to the EU competition authorities as “unfair competition”!
7. Perhaps most damning of all is that the Government has nationalised Northern Rock but, it plans to keep it fully operational. Instead of using state ownership to ensure an orderly shut down of Northern Rock, the bank will stay in business and continue to issue new mortgages & loans. Why is this wrong…..read this article by Anatole Kalatsky in the Times

And apart from the fiduciary and political conflicts of interest above…….finally, this damning political analysis in the Guardian today (if this is what friends of Labour are saying then there is trouble ahead for Gordon’s Government & Alistair Darling in particular):

“The political and financial cost of the Northern Rock affair are as yet incalculable. The bill to taxpayers will only become known once Northern Rock is broken up and sold - and that will be difficult if the housing market slumps. In the meantime taxpayers will fund billions in extra borrowing that could have been put to more constructive use. The political price will surely be higher still, even if nationalisation works. Black Wednesday was at least an economic success though a political disaster. Northern Rock just looks like a disaster. Voters may be persuaded that it is all the fault of global markets and city speculators, but Labour’s reputation for economic competence, the bedrock of success in three elections, has cracked if not shattered.”

Thanks to the BBC web site you can now track average house price movements in your area (last quarter and last 12 months). Its a nifty little tool  although, for England & Wales, the source is the Land Registry Office, so there is a lag of several weeks in the reported data Read THIS PAGE for the BBC small print on how to use the data and go direct to THIS PAGE if you wish to do a search.