Chancellor announces nationalisation of Northern Rock

Northern Rock is to be nationalised as a temporary measure, Chancellor Alistair Darling has said.

A consortium led by the Virgin group was leading bids to run the beleaguered bank, while a management buyout had also been considered.

But ministers have decided that nationalisation - the first such move since the 1970s - was the only option.

"They felt that the offers on the table did not offer enough to the taxpayer," BBC business editor Robert Peston said.

Source: BBC News

So it seems the government has finally taken the plunge and nationalised the ailing bank.

In terms of guaranteeing tax payer's money and the jobs that Northern Rock provides this is probably the best way forward. And there's always the possibility that the government will make a decent profit if the bank is sold back into private hands in a few years.

Anyone with cable or satellite TV interested in this topic should see this program 'Dispatches: How the Banks Bet your Money' on Channel 4
(it's bound to be repeated on E4 during this week).

Frankly it's damned scary the way the bankers keep inventing what they imagine are clever wheezes to make millions when the outlook is good but (like all get rich quick schemes) at huge risk and eventually when the market takes a turn or slows down the chickens come home to roost (which is what happened at Northern Rock).

The really frightening thing is that they have not stopped with the latest sub-prime disaster and their latest scheme has resulted in far greater exposure and is a much much larger disaster looming
(with several UK banks up to their necks in it......Northern Rock may well not be the last UK bank in need of public funds and a period of public ownership).

(I'll post the link when it goes up on UKNova for those able to use that excellent site)

I am still trying to get my mind around why the Government would want to spend billions of Pounds of our money to bale out a commercial bank owned by shareholders that has failed because its management failed to have the proper controls on the business.

And have any of the senior management of Northern Rock suffered. No. They have received payoffs as part of the contracts rather than face the music.

This is knee jerk Government to the images of people queuing to take their money out.

Just think of all the better things this money could have been spent on?

We starting to see a morally bankrupt Government that would bale out a bank rahter that ensure we have the publics services we need and that our military do not lack for anything.

Originally posted by Freedom ERPWe starting to see a morally bankrupt Government that would bale out a bank rahter that ensure we have the publics services we need and that our military do not lack for anything.

- Freedom, much as that kind of glib comment is understandable (given the crass ignorance & stupidity of much of our politically biased press) it is just plain wrong.

There has not been a starving of funding from anywhere else to 'pay' for the NR episode.

You need to work out the difference between a Gov statement of financial 'guarantee' and actual expenditure.

While you are at it you might want to look up the difference between the Bank of England lending money and/or 'increasing liquidity' in the financial sector and the Gov using tax-payers money.

The Gov has not spent a penny of our money on NR so far, actually.

It has stood behind it guaranteeing it's savers & mortgage-holders.

Maybe you'd find it morally correct if they had done nothing?

Perhaps you imagine things would be better if they just let NR go to the wall & all the other enormously damaging knock-on effects that would have brought to everyone else in the wider economy?

TBH it looks to me like more than a few tory-supporters would love a severe recession & financial collapse......is that it?
Hoping Labour might be 'good sports' & hurry up & balance the 2 tory recessions with a real terrible one of their own?
Is that what things have come down to for them?
Hoping for a tory profit in an economic disaster (which has never been, incidentally, of this Gov's making)?

Here are the links I promised and the technical terminology for those interested in following up this sorry (and extremely worrying - and sadly not over yet - tale).

The 1st wheeze the bankers devised which is lagely responsible for the current credit squeeze - Collateralised Loan Obligations (CLOs) = sub prime etc etc.

The new star-turn is something called a 'Credit Default Swap'.

The bankers have an estimated £23/$45 trillion at risk on this new one & it dwarfs the sub-prime/CLO catastrophie.

Of course (as with Northern Rock) a large proportion of the liabilities are secured......which is great when everything is going well and values hold steady; if people start defaulting and repayments start getting missed causing widespread repossessions & a fall in values then that's when the trouble can really take hold & get going.

As always what is admitted to begin with is never the full picture but the amounts are staggering.
For example AIG (the American Insurance Group - the world's largest individual insurance Co.) are currently admitting $5 billion losses on CDS and the reports are that several British banks are up to their necks in it.

Even the senior banking management don't understand what their staff are devising & doing - which is where blaming the UK Gov for these messes gets absurd
(of course it's a 're-active' situation, how could it be otherwise when the bankers are the ones devising new ways to exploit or get around our existing laws?).

Here is the UKNova link for the excellent recent current affairs program on the matter - 'Dispatches: How the Banks Bet your Money'.

www.uknova.com...

and for those not members here is the Pirate Bay link

thepiratebay.org...(Ch.4)_2008_02_18_avi

It's well worth a look for interested in what has been and is still going on.

(.....and IMO it's a fairly comprehensive answer to those who imagine it would have been safe (for the rest of us) if the UK Gov had just let NR go to the wall)


[edit on 21-2-2008 by sminkeypinkey]

reply to post by sminkeypinkey


If we accept that no money has actually changed hands as yet in support Northern Rock, these funds has still been allocated in the case they are needed. Are you suggesting that the Government has double allocated this money and hopes it does not need to use it to support Northern Rock?

And what about the loans made from the BofE to Northern Rock as it could not raise funds on the open market. That is still tax payers money being used.

So can we now expect the Government to back all funds held in UK banks, so this seems in the commerical banking sector to give Northern Rock an unfair advantage. Northern Rock depositors are not backed by UK PLC. If I had money, I would invest it in Northern Rock until it is sold back to the private sector. This is as cast iron as you can get.

On the point on seeing Northern Rock go under. I expect commerical enterprises to live or die by the sword and if Northern Rock's management were so poor and inept in discharging their duty as managers, then so be it. If any business in the UK is failing, they have every justification to ask the Government to back them. What makes Northern Rock so special?

Ahhhhh - It's a Labour heartland. No Government baled Bearings out when that went under and that was based in the heart of the City of London.

And would Northern Rock going under have caused a mass panic and an even deeper economic downturn? I do not believe so. If a bank is being run in such a poor way that Management does not have a handle on the risks being taking, then the bank should pay the price. That is what a open marketplace is about and now this Government have changed the marketplace. I would expect to see serious pressure and even some legal actions from the other UK banks to ensure that Northern Rock does not have an unfair competitive advantage. It was good to see the House of Lords making changes to the bill to nationalise Northern Rock to ensure fair competition in the banking sector.

And can we expect to see the senior managers and directors of Northern Rock being investigated? And those companies House Directors struck off as directors?

Originally posted by Freedom ERP
If we accept that no money has actually changed hands as yet in support Northern Rock, these funds has still been allocated in the case they are needed. Are you suggesting that the Government has double allocated this money and hopes it does not need to use it to support Northern Rock?

- No.
I am saying you can't have it both ways.

The Gov has pledged to back the savers and mortgage holders and in doing so has ended up nationalising the bank.

Not only have the NR liabilities ended up getting a special entry on the national accounts but so too do their properties acting as security
(which are very considerable - almost covering the £24 billion originally mentioned).

What they have not done though is they have not 'pumped in billions of tax-payers money' and thus starved other parts of the public sector.

Originally posted by Freedom ERP
And what about the loans made from the BofE to Northern Rock as it could not raise funds on the open market.

- You should read up on how the independent central banks work.

Originally posted by Freedom ERP
That is still tax payers money being used.

- .....and this is the first bit I'd suggest you check out.

No it isn't.

When the BoE 'increases liquidity in the financial sector' (as they would put it) it is not a case of using tax-payers money.
That is a pure fallacy.

The Banks themselves really can 'create' money/credit/liquidity (within rules).

We don't have a nationalised banking system, we have just a single nationalised bank now.

Originally posted by Freedom ERP
So can we now expect the Government to back all funds held in UK banks

- Private savings funds?

Yes.

That is exactly what they have said they will do.
The rules/law is to be amended to make that new reality universal.

Originally posted by Freedom ERP
On the point on seeing Northern Rock go under. I expect commerical enterprises to live or die by the sword

- Which is fine in theory but if it precipitates a general financial collapse (particularly at a time of great uncertainty & financial difficulty) then it's not only crazy it's a pretty ridiculous and unnecessary & a wholly inappropriate maxim to try and force on the nation.

Fortunately these days we have a Gov in power that is far more interested in the practical and the pragmatic and not 'blind ideology'.

Originally posted by Freedom ERP
What makes Northern Rock so special?
Ahhhhh - It's a Labour heartland.

- Actually the Northern Rock is the UK's 6th largest bank
(specialising in various mortgage & property ownership deals).

Hardly the little provincial outfit where a narrow interest could prevail.

Nice try but no cigar.

Originally posted by Freedom ERP
No Government baled Bearings out when that went under and that was based in the heart of the City of London.

- .......and could hardly be more different.

Barings collapsed at the end of a recession, in 1995, as things were starting to pick up.
It did not occur during at a point where banking generally was in deep trouble & it might have provoked a recession

(and if it had - just like when the stock market crashed in 1987 - the central bank - at that time the BoE was not independent - would have pumped large amounts of money/liquidity into the markets......you'll find that Mrs T's conservative Gov did just that & authorised the BoE to pump in billions back then).

Again, nice try but no cigar.

Originally posted by Freedom ERP
And would Northern Rock going under have caused a mass panic and an even deeper economic downturn? I do not believe so.

Ask the Egg credit card holderswhether they have the same cheery outlook and whether a worse financial environment would be acceptable or welcome.

I have yet to see any serious financial commentator underplay the current outlook.

We'll be lucky to get away with a mere slowdown in growth
(which sure as hell beats a recession, or 2)

Originally posted by Freedom ERP
If a bank is being run in such a poor way that Management does not have a handle on the risks being taking, then the bank should pay the price.

- Which, as I said, is a lovely neat ideological idea but sadly the wider realities are far from so neat.

One of the reasons we have the benefit of such a (historically) secure and stable banking system is precisely because the very worst shocks & possibilities to the system are deliberately designed out through a series of various Governmental & industry-wide support networks

Originally posted by Freedom ERP
And can we expect to see the senior managers and directors of Northern Rock being investigated? And those companies House Directors struck off as directors?

- I would welcome new tighter restrictions and legal constraints, unfortunately that is the eternal 'tug of war' match between absolute freedom & the responsibility and consequences inherent in such freedom.

There will never be a perfect system and as always we will fix and mend as we go along, sometimes learning some harsh lessons but we have no need to make those lessons any harder or more difficult (particularly for those poor customers totally unconnected with the terrible decisions at the heart of such problems who would suffer great hardship).


[edit on 22-2-2008 by sminkeypinkey]

I think the government has emerged surprisingly well (compared to how it could have been, anyway) from the nationalisation. The biggest losers are probably the Tories and the winners are the Lib Dems.

The Tories lost because their strategy was poor - they focused on trying to embarrass the government rather than putting forward what they would have done instead. It backfired, and fed the perception that Blair began to stoke up; that the Tories are all bark and no bite. It's hard for the electorate to imagine the opposition party in power if the party itself doesn't act as if it had viable alternatives to the government.

The Lib Dems (or, more specifically, Vince Cable) were the winners because they had consistently been arguing for nationalisation, and had advocated this from the beginning... whether through sheer luck, astonishing foresight or a combination of both, the Lib Dems have placed themselves in a strong position over the issue. No one can accuse them of either dithering (since they called for the bank to be taken into public ownership months ago) or trying to hedge the issue.

[edit on 22/2/08 by Ste2652]