Tuesday, 7 October 2008

Nationalise failing banks now

Within a few days, the UK government will announce its very own bank bailout. New Labour are preparing a capital injection that will see the government take up an equity stake in several high street banks.

The ironies pile up. In the mid 1990s, Labour, the old party of nationalization, rejected state ownership in order to become electable. It "embraced the market", and began a 12 year love fest with finance. However, finance betrayed Labour, and created the greatest financial crisis in a century. Like a lover rejected by his mistress, Labour reluctantly returns to his statist wife and begs to be forgiven.

The banks have also supplied their own ironies. Several are shamelessly queuing up for state ownership. Apparently, the Royal Bank of Scotland would "welcome" state funds. Other banks are just as keen.

However, a partial nationalisation is not the answer to this crisis. It is a bailout of undeserving bank shareholders and their irresponsible managers. Just watch what happens when the government announces the plan. Bank share prices will rocket, giving a windfall gain. However, that gain should rightfully and fully belong to the taxpayer, whose hard cash is saving these hapless banks.

This is why the government should only consider complete nationalisation. Wipe out the shareholders, fire the management, recapitalise the banks and then privatize them. This is the only way to secure the financial interests of the much abused UK taxpayer.


Anonymous said...

"fire the management"

Wouldn't "shoot the management" be more preferable?

Anonymous said...

Let them go bankrupt. Then nationalise the wreckage.

Alice Cook said...

anon 17:00

Better to nationalize before they are wrecked.

dearieme said...

It would be wise to find a way to nationalise them that leaves the taxpayer clear of debt if HMG discovers a nationalised bank to be insolvent.

Anonymous said...

Unfortunately the "wipe out the shareholders" has created its own monster. How do you raise finance? Sell some shares (perhaps via a rights issue). Who are going to buy those knowing they're going to be wiped out if something goes wrong?

As with so many things, the next step just wasn't thought through.

How many of our banks can survive unable to borrow, unable to issue more shares, and unable to issue bonds?

Any of them?