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."

Comments

Marcvs | February 19, 2008, 1:45pm | #

Britain taking cues from Venezuela now?

Morat20 | February 19, 2008, 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.

Lamar | February 19, 2008, 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?

Marcvs | February 19, 2008, 1:51pm | #

A stunning lack of knowledge of economics. Stunning.

A patriotic Britisher workingman named Ron Vibbentrop | February 19, 2008, 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.

tarran | February 19, 2008, 2:00pm | #

Oops, the above was me.

J sub D | February 19, 2008, 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.

joe | February 19, 2008, 2:02pm | #

What J sub D said.

The government is supposed to act in the public interest, not its own interest as an institution.

Taktix® | February 19, 2008, 2:06pm | #

I agree with joe.

Dangerman | February 19, 2008, 2:08pm | #

I agree with Taktix.

Episiarch | February 19, 2008, 2:12pm | #

4 out of 5 reason commenters agree: bank nationalization is stupid.

Nick | February 19, 2008, 2:14pm | #

The government is supposed to protect our rights. Period.

Geotpf | February 19, 2008, 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 | February 19, 2008, 2:45pm | #

The choices here, as I understand it, were:

1. Let the bank fail.
2. Nationalize it.

1. Let the bank fail.

mobile | February 19, 2008, 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?

Nick | February 19, 2008, 3:03pm | #

It's not that different, mobile, but both are still wrong.

R C Dean | February 19, 2008, 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.

R C Dean | February 19, 2008, 3:04pm | #

Oh, and I agree with joe and Taktix.

Tim | February 19, 2008, 3:20pm | #

"The government is supposed to protect our rights. Period."

Too bad we need something to protect us from the government.

tarran | February 19, 2008, 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.

some fed | February 19, 2008, 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.

J sub D | February 19, 2008, 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® | February 19, 2008, 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...

Your Good Buddy Johnny Clarke | February 19, 2008, 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 | February 19, 2008, 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.

Cosmotarian Overlord | February 19, 2008, 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 | February 19, 2008, 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.

R C Dean | February 19, 2008, 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."

joshua corning | February 19, 2008, 5:34pm | #

seriously...what does (sic) mean?

joshua corning | February 19, 2008, 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 | February 19, 2008, 5:47pm | #

Dear Mr. Doherty,
It is not necessary to use "(sic)" when you intentionally spell words correctly.

Thank you.
;)

J sub D | February 19, 2008, 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.

Graphite | February 20, 2008, 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.