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Bank Nationalisation (sic) in Britain
Cue up talks of pipers and calling tunes: what started as a bailout in September turns into a takeover as Britain's Northern Rock bank is nationalized.
The Financial Times on some of the reaction, from analysts, stockholders, and the private interests who wanted to buy the bank. As the Telegraph reports, the government says it hopes to be able to sell it back to the private sector at a propitious time in the future, "When the market conditions improve and when the housing market comes back."
|2.19.08 @ 1:48PM|#
I dunno -- they wanted a bailout, the government didn't want
them to fail, and the price was so high -- why not nationalize and
try to privatize later?
You can argue the government shouldn't have bailed them out, true.
But laying that aside, if the government IS going to bail a
business out of it's stupidity, the government should get something
for it.
It shouldn't come free, and the more they have to pay to
fix your problems, the more they should get.
|2.19.08 @ 1:50PM|#
So they are basically screwing any private interests that could have gotten a deal because the bank is weak. Will they be compensating those interests?
A patriotic Britisher workingm|2.19.08 @ 2:00PM|#
I liked the bit where they are offering depositors a higher rate
on savings than any of the private competitors...
In British law, a creditor can, in certain circumstances force a
debtor into bankrupcy. When that happens, all creditors can get
reimbursed for their losses but for pennies on the dollar.
In this case the creditors will get all their money, courtesy of
the British tax payer.
|2.19.08 @ 2:01PM|#
As the Telegraph reports, the government says it hopes to be
able to sell it back to the private sector at a propitious time in
the future, "When the market conditions improve and when the
housing market comes back."
So the government in Britain is getting into speculative
investments? Not a good thing. Sell it for what the highest bidder
is willing to pay.
|2.19.08 @ 2:02PM|#
What J sub D said.
The government is supposed to act in the public interest, not its
own interest as an institution.
Geotpf|2.19.08 @ 2:31PM|#
The choices here, as I understand it, were:
1. Let the bank fail.
2. Nationalize it.
The British government didn't WANT to nationalize it, but they
thought that was better than having it go bankrupt. Rock, hard
place.
javier|2.19.08 @ 2:45PM|#
The choices here, as I understand it, were:
1. Let the bank fail.
2. Nationalize it.
1. Let the bank fail.
|2.19.08 @ 2:51PM|#
How is this different from a corporation in bankruptcy where the government (for example, a bankruptcy judge) takes over the administration of the corporation?
|2.19.08 @ 3:04PM|#
How is this different from a corporation in bankruptcy where
the government (for example, a bankruptcy judge) takes over the
administration of the corporation?
The judge doesn't take over the bankrupt corporation. He appoints a
trustee to liquidate it, subject to court oversight which would be
flattered by calling it "nominal."
Of course, in bankruptcy "reorganizations", the owners stay in
charge and keep the business running - no trustee. Although there
is some nominal oversight.
|2.19.08 @ 3:20PM|#
"The government is supposed to protect our rights.
Period."
Too bad we need something to protect us from the government.
tarran|2.19.08 @ 3:26PM|#
mobile,
To add to what RC Dean said, in a regular bankruptcy the creditors
divvy up the assets. So let's say 10 creditors are collectively
owed 10 million dollars, but the company only has 100 thousand
dollars' worth of assets. Then the creditors will get 1 cent for
every dollar they are owed.
In this case, the British tax-payer will step up and pay the
creditors the other 99 cents for each dollar.
In a regular bankruptcy, the only people who are harmed are the
owners of the firm, and the people unwise enough to do business
with them. In this case, even the wisest businessman, the one who
wanted nothing to do with this failing bank will be forced to bail
it out. The unwise decisions of the creditors are rewarded while
the prudence of those who stayed away is punished.
Oh and I agree with joe and disagree with Tactix.
|2.19.08 @ 3:31PM|#
While they're at it waiting for "market conditions to improve," I've got a national passenger rail service (AMTRAK) they can buy.
|2.19.08 @ 3:45PM|#
While they're at it waiting for "market conditions to
improve," I've got a national passenger rail service (AMTRAK) they
can buy.
Oh, c'mon. AMTRAK stopped getting subsidies years ago. They, and
the government, promised.
Taktix®|2.19.08 @ 3:46PM|#
I agree with joe, J sub D, R C Dean, and javier, disagree with
mobile and Geotpf, partially agree with tarran, nominally agree
with the implied snark of some fed, and agree with Taktix®.
Oh, wait...
|2.19.08 @ 3:50PM|#
Yeah, and Camobdians will be able to get cell phones with G3 in
10 years or so, after the government decides their "morality has
been strengthened."
Ain't holding my breath.
Mr. X|2.19.08 @ 3:51PM|#
The problem with letting the bank fail is that it frightens
people vis a vis other banks. Once the Bank of England started
guaranteeing Northern Rock's deposits, they held all the risk of a
bank failure, but none of the profits should the managers be able
to bring it back from the brink.
Now the Bank of England has all of the upside to go along with the
downside.
|2.19.08 @ 4:02PM|#
"The problem with letting the bank fail is that it frightens
people vis a vis other banks."
Now I happen to be a kingmaker, my relatives and I have owned the
biggest banks in the world for generations.
The last thing we want is for some start up competitor to scare all
the people away from trusting us good hearted banks. We enjoy
lending out money(the governemnt gives us the license to print it)
and we just lend it out at the rates the government suggest and we
pretty much determine who is in the government. So if a silly
little bank gets itself into a bad spot and starts to go bankrupt
when we orchestrate a little monetary tightening then we like to
swoop in and take possession of the bank. This helps limit the
nasty dog-eat-dog competition. We like to make sure people don't
get scared, we love the people, that is why we do it. Trust us, the
gold standrad is what caused the great depression, the central bank
is beautiful.
Bob Mologna|2.19.08 @ 4:34PM|#
"While they're at it waiting for "market conditions to improve,"
I've got a national passenger rail service (AMTRAK) they can
buy."
The British government already has one of these. They nationalised
Railtrack a few years back.
Brown and Darling have made a complete mess of this. The bank was
failing and the UK deposit insurance system was inadequate to
prevent a run on the bank. They were right to bail out the
depositors, but the shareholders and employees are another matter
entirely.
Now, instead of closing down operations, liquidating the assets,
and making depositors whole, they intend to continue running the
bank. They will continue to accept deposits and write mortgages
whilst competing with other banks. This is unfair to other banks
and outrageous from the perspective of the taxpayers.
The funny thing is that they will run the bank poorly, pour good
money after bad, and eventually sell it at a loss to some clever
huckster like Richard Branson who will reap a fortune.
|2.19.08 @ 5:14PM|#
The problem with letting the bank fail is that it frightens
people vis a vis other banks.
The problem with not letting the bank fail is it
encourages the other banks to be stupid. See, also, "moral
hazard."
|2.19.08 @ 5:36PM|#
Oh, and I agree with joe and Taktix.
I agree with joe, J sub D, R C Dean,
and...
WTF is wrong with you people!?!?
Kunal|2.19.08 @ 5:47PM|#
Dear Mr. Doherty,
It is not necessary to use "(sic)" when you intentionally spell
words correctly.
Thank you.
;)
|2.19.08 @ 5:49PM|#
seriously...what does (sic) mean?
sic - Used to indicate that a quoted passage, especially one
containing an error or unconventional spelling, has been retained
in its original form or written intentionally.
|2.20.08 @ 8:38PM|#
R C Dean, we don't have the *luxury* of worrying about "moral
hazard" when the stock market has fallen 10 percent from its
all-time highs. I mean, hasn't joe told you? All of this overblown
concern for moral hazard might tip us into a
R E C E S S I O N ! ! ! ! !
Anything we can do to avoid that most catastrophic of outcomes
(including monetization of non-performing bank assets and
hyperinflation of the currency) will surely be better for us in
both the short- and long-term.
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