Wednesday, 16 January 2008

When will it end?


Recently, I've resisted the temptation to post anything on Northern Rock. The reluctance stems from a mixture of boredom and anger. I just wish that someone would put the old nag out of its misery.

Today's news that the share price fell another 20 percent forced me sign in and write something. It must now be obvious that there is no "private sector" solution. It is time to wind the thing up.

Nationalization is a bad idea. Should the government take it over, the shareholders might have an opportunity to take legal action. Nationalization also sets a dangerous precedent. Before this housing bust is over, other banks will probably go under. Will they be nationalized too?

There is, thankfully, a very simple solution available that would put an end to all this nonsense. The Bank of England is a creditor. It should call its emergency loan, and put Northern Rock into bankruptcy. It should cease operations immediately and an administrator should be appointed rescue whatever value remains. As solutions go, it would be merciful; it would be all over in a day.

The newly appointed administrator should sell the assets, make redundancy payments to Northern Rock staff, clear off any outstanding tax bills, and use the rest to pay off depositors. If there is anything left, it should go to the Bank of England. If the remaining assets are insufficient to clear the Bank of England's loan, then Mervyn should send the invoice to the Treasury.

Hopefully, the shareholders will get nothing. As the owners of the bank, they took the profits when times were good. Now that the company has failed, it only seems reasonable that they should accept their losses with good grace.

Northern Rock would then do something useful. It would demonstrate to all other banks that failure has consequences. It would show that stupidity and excessive risk-taking has a price. Although, the tax payer could well end up paying out, if it prevents some of the banking sector excesses of the last ten years, it may well be money well spent.

5 comments:

Omar Cruz said...
This comment has been removed by a blog administrator.
amigauser said...

You are very naive if you think the government will allow a major employer in an area where their is 26 labour MPs to go bankrupt.

Northern Rock will be bailed out, if not by the government directly (Nationalization),indirectly by say Blair new employers (J.P.Morgan) or Goldman Sachs, since helping the government now will no doubt be rewarded later with some profitable contracts later.

Towjam said...

"Northern Rock will be bailed out, if not by the government directly (Nationalization),indirectly by say Blair new employers (J.P.Morgan) or Goldman Sachs"
Or the Saudis. JP is suffering like the rest feeling the sting of housing

Anonymous said...

Alice, you really should be writing for a national newspaper.

The Rock has 100,000 small investors in the NE, which of course is in Nu Labour heartland. They are only trying to save votes !!

The Tories let Bearings Bank go bust, which is the way it should be for a private company.

Ian (London)

ukhousingbubble said...

Thanks for the careers advice, anonymous. I have a couple of journo friends. It is not for me, "there's nae money 'n it laddie".

They are poor, usually miserable, and typically regret their choice of profession.

I'm a blogger not a writer.

Alice