Northern Rock to be nationalised

BBC says, "Northern Rock hit difficulties because of the credit crisis 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. The decision will be a blow to the bank's shareholders - who will receive next-to-nothing in the short term for their shares "It's a momentous moment. Nationalisation has become a dirty word associated with industrial failures of the past," Mr Peston went on. "Financial services, by contrast, have been considered the great British success story - so for such a seemingly growing bank to end up being nationalised is a big moment for the City and a big moment for the government."Northern Rock got itself into financial difficulties last year because its business model left it ill-prepared for the global credit crunch. It was forced to ask the Bank of England for emergency funding, triggering the first run on a British bank in more than a century. Nationalisation will be pushed though parliament with emergency legislation on Monday. Shares in Northern Rock will be suspended on Monday morning. Under nationalisation rules, shareholders will be offered compensation for their holding, at a level set by a Government-appointed panel. Investors could begin legal action if they are unhappy with the amount offered. UK taxpayers are now subsidising the bank in loans and guarantees to other lenders to the tune of about £55bn. The Treasury now feels that nationalisation offers the most certainty of securing these guarantees, Mr Peston said. It is thought that the business model it proposes will be similar to those put forward by the Virgin Group and the in-house management consortium. These were likely to see a downsizing of the bank, with job cuts likely, observers say The Treasury had already recruited the former boss of the Lloyd's of London insurance market, Ron Sandler, to lead Northern Rock, in case the bank were nationalised. Mr Sandler is widely regarded as having restored confidence in Lloyd's after its years in financial disarray. He is well known to Prime Minister Gordon Brown, and worked for the Treasury in developing the so-called stakeholder pension and investment products that were intended to help those on lower incomes save for retirement. Chairman of the Commons Treasury Select Committee John McFall said that he welcomed the Government's decision to nationalise."They have explored every avenue. At the end of the day the biggest issue is the safeguarding of taxpayers' money. If nationalisation saves that money, that has to be the correct step in the long term." Liberal Democrat treasury spokesman Vince Cable said that the right deicison had been taken, though "belatedly", and that the government should have walked away from the prospect of a private takeover some time ago. "The important thing now is to do the right thing and the government has got to immediately establish what the problems are with this bank.""

Is this the first step backwards to old Labour red in tooth and claw? Why should billions of our money have been put in this black hole unless the government is worried that a collapse would bring down the whole house of cards that is our the financial base of the West built on the flood plain of fractional reserve banking, a system of trust in thin air?

Adam Smith Institute says, "Tuesday, 19 February 2008
Anatole Kaletsky's take on the Northern Rock nationalization in yesterday's Times was spot-on:

Nationalisation... made sense only as a necessary legal stepping-stone to the orderly liquidation that Northern Rock required as soon as it ran out of money in September... To use nationalisation to keep the bank in business and its staff in state-subsidised employment would be a travesty of all the economic principles that “new” Labour has claimed to believe in.
His final paragraph is particularly telling:

All in all, what Mr Darling announced yesterday was a financial and political disaster of almost unimaginable proportions. The Northern Rock saga did not end yesterday; the fiasco has only just started, with the Government now officially in charge."