Holy crap!
Britain said on Sunday it will nationalize ailing mortgage lender Northern Rock (NRK.L) for a temporary period as it was not in the taxpayer’s best interests to sell it to the private sector now.
"In the current market conditions we do not believe the two proposals deliver sufficient value for money for the taxpayer," Finance minister Alistair Darling told a news conference. "So the government has decided to bring forward legislation to bring Northern Rock into a temporary period of public ownership."
A consortium led by billionaire Richard Branson’s Virgin Group (VA.UL) had been the front-runner, ahead of an offer led by the bank’s management team. Both were told last week to improve their offers because neither offered taxpayers a good enough deal.
Northern Rock to Be Nationalized By UK Government (Bloomberg)
UK nationalises mortgage lender Northern Rock (Reuters)
Northern Rock to Be Nationalized (Wall Street Journal)
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You may now resume our regular Sunday programming . . .
Great.
What does “value for money for the taxpayer” mean? I thought that the earlier UK govt guarantees for Northern Rock were limited to some additional backing of deposits with the bank? (in other words that there was no explicit public ownership of all Northern Rock’s liabilities?)
Or is this just a polite way of saying “we didn’t think the taxpayer was getting screwed sufficiently hard, so we went for the most irresponsible, morally backward thing we could possibly do?”
Good God, I’m finally driven to post on this forum. Here in the UK my levels of confidence in Gordon Brown sink to new depths. This move is a disaster. What message does it send – take whatever risks you like cause if you screw up bad the governement will sort out the mess – Oh sorry taxpayer. Better get that printing press running faster.
I think some of you who enjoyed the cartoon posted the other day may enjoy this: http://www.youtube.com/watch?v=SJ_qK4g6ntM
If you’re not familiar with George Parr, well John Bird & John Fortune’s creations are always good for cutting satire.
Free-marketers win yet another one. Soon the West will be East and the East will be West. Anyone know where to learn Cantonese on the cheap? Oh! I forgot everything has to be sold for top dollar these days. That’s a good way to clean out the system – keep the patient on life-support so that the cancer can grow larger, instead of letting a newborn grow in its place. Simplistic I know, but true.
Scary…. The world is going to shit real fast!
The big question I have is what does it mean to equity and debt holder of Northern Rock?
I just read the government’s public statement … thought this line was particularly sweet:
“Our financial adviser Goldman Sachs has concluded from a financial point of view that a temporary period of public ownership better meets our objective of protecting taxpayers.”
Y’think?
Let me be the first to welcome to the world brotherhood of nations a new country: The People’s Republic of Brittain.
I told you so folks. Lowering interest rates are not the only bullet those crooks have in their guns. They can buy and sell your lives if pushed to it.
I think this is more about keeping Branson out of the private cabal/club banking fraternity than anything else though. It is amazing how fast the governments of the world can move to take down the for sale signs when the Walmarts and Bransons of the world come shopping. There goes the neighborhood boys! Your money is no good here! Not that I respect Branson or his ways of doing things but this is supposed to be about free market capitalism isn’t it? HA! Good luck. Welcome to permission based capitalism comrade!
The UK did exactly the right thing for a change.
By nationalizing, the shareholders are toast,(they were anyway) and the bank can be recapitalized and brought public at a more favorable time and price to the benefit of the taxpayers.
Ross, it is just another form of inflation – price protection. If prices are not allowed to decline and seek their own levels, your basically paying tax-payer Peter to pay tax-payer Paul. With the added bonus of making it take longer to clean out the system. In the end what this is about is politicians and “Huge Money,” not wanting to lose votes and capital wealth.
I agree with DavidB. What’s wrong with the state owning a few banks…..the fractional reserve system may aswell benefit us all instead of just a few.
….oops sorry I guess I meant I agree with Ross.
Anyway, Labour parties do nationalise things….remember the old days? Keep the government out of manufacturing, but banking….hmmm…..it’s hard to argue that the private sector has it under control.
it’s hard to argue that the private sector has it under control.
The reason they don’t have it under control is because daddy warbucks comes running to wipe their noses every time they spill our pot of money. If they actually had to qualify a loan with the real potential risk of losing their bank’s capital(In other words if all they could loan out was depositors money) instead of printing up money out of thin air then they might be a little more careful with the money.
NRK have a small percentage of the savings/mortgage market so financially if they were to go to under it wouldn’t matter that much. Personal savings in the UK are guaranteed up to 35,000 and anyone with more than that has had months to withdraw their money.
The three reasons the government have to nationalize NRK are:
1 – Allowing NRK to go under with the loss of 6,500 jobs in a key labour constituency wasn’t an option.
2 – Allowing NRK to be sold to Virgin with the requirement to pay significant amounts back to the treasury within three years would have required large job losses – see reason-1 as to why this wouldn’t happen.
3 – With so much tax payers money ‘invested’ they really don’t have any choice but to nationalize the company rather than let it go under.
This is a classic example of the UK governments financial and economic incompetence (CGT rule changes and non-domicile tax changes being the latest screw ups). They got involved in August to saveguard jobs, but completely underestimated the scale of the problem. They now have little choice but to make the best of a bad situation as the taxpayers finiancial exposure is so high.
in the u.s. it would have been sold to dubai. would that be better? at least britain is looking out for its own interest.
Yes DavidB…..daddy warbucks has nationalised the downside and privatised the upside, which is something you’d almost excuse from Moscow’s fledgling attempts at capitalism.
I guess it’s hard to see how any system will be successful with a government so broken.
Never mind baseball the US has become a sad example of capitalism on steroids.
Back to the UK….what if Northern Rock became a success under the governments wing (afterall with all the suspistion and distrust in the banking world it’s probably the safest place to do business with now) will this bring the nationalisation argument back into the public’s consiousness and a viable option?
Interesting times.
So, um, before the futures start trading again, anyone want to take a stab which way the market trades?
Socializing risk is the ultimate put – how can the markets not bounce with the great unwashed masses always there to be piss boy to the nobility?
It’s good to be the king.
Gee, I thought it was the American financial institutions that were on the verge of insolvency. Now where did I get that idea?
Goldman Sachs has taken over the British government!
British Chancellor of the Exchequer Alistair Darling’s statement on Northern Rock says:
“Our financial adviser Goldman Sachs has concluded from a financial point of view that a temporary period of public ownership better meets our objective of protecting taxpayers.”
Well, isn’t that just dandy. Goldman Sachs directing the British government. Goldman Sachs advising how to deal with a collapsing bank. The same Goldman Sachs that was a ringleader in creating the financial scams that led to the world-wide banking crisis.
Outrageous!!!!
The British are known for understatement. Here’s a translation of British Chancellor of the Exchequer Alistair Darling’s darling statement:
“Our financial adviser (financial master) Goldman Sachs has concluded from a financial point of view (that is, what is best for Goldman Sachs finances) that a temporary period of public ownership (til the twelfth of never the public will be paying to bail out rich bankers with golden parachutes) better meets our objective of protecting taxpayers (better meets Goldman Sachs objective of robbing taxpayers to bail out reckless bankers).”
Wait…the robbing of the taxpayers is getting even worse. Excerpt from the Telegraph online Feb17, 2008:
“Investment banks and lawyers advising the board of Northern Rock are in line for a £90m taxpayer-funded fee bonanza – news which may spark a new political row over the ailing mortgage lender.
“The Rock’s investment banking advisers Blackstone, Merrill Lynch, and Citigroup and the board’s lawyers Freshfields Bruckhaus Deringer are in line for a total payout of between £60m and £90m…”
“Virgin, the single remaining commercial bidder for Northern Rock, is understood to be concerned about the level of fees, although the Virgin consortium’s own advisory costs are also underwritten by the taxpayer.”
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/02/17/cnrock117.xml
Well, isn’t that just double dandy. Citigroup and Merril Lynch advising the collapsing bank. And Goldman Sachs directing the British government and advising how to deal with the same collapsing bank. The same Citigroup, Merril Lynch, and Goldman Sachs that are ringleaders in creating the financial scams that led to the world-wide banking crisis.
Talk about chutzpah! Talk about conflicts of interest!
And these New York crime families,…er, New York investment firms are now being financed by TAXPAYERS to continue their scams and Ponzi schemes. The fox is not only in the henhouse…the hens are paying the fox to rob their nest eggs and rape their chicks.
God may save the queen, but it is the English public who keeps the Rocks from getting crushed.
“Investment banks and lawyers advising the board of Northern Rock are in line for a £90m taxpayer-funded fee bonanza – news which may spark a new political row over the ailing mortgage lender.
“The Rock’s investment banking advisers Blackstone, Merrill Lynch, and Citigroup and the board’s lawyers Freshfields Bruckhaus Deringer are in line for a total payout of between £60m and £90m…”
“Virgin, the single remaining commercial bidder for Northern Rock, is understood to be concerned about the level of fees, although the Virgin consortium’s own advisory costs are also underwritten by the taxpayer.”
This is outrageous to say the least. Don’t tell me that the British Gov. could not tap into the expertise within its own ranks. Hell! they could very well have approached their best and brightest econ scholars to AT LEAST, double-check what GS and compadres have suggested.
Plus, they could have played hardball on the fees and tell them to take a hike if not happy about it.
Back to the UK….what if Northern Rock became a success under the governments wing (afterall with all the suspistion and distrust in the banking world it’s probably the safest place to do business with now) will this bring the nationalisation argument back into the public’s consiousness and a viable option?
That’s a brilliant observation pj! You might be right. That may have been the plan from the start. What better way to sour the public to private ownership and open them up to public control. We’ll have to keep our eyes open to the possibility that this is what the game plan is. I liken it to a sports team that can’t win no matter what the coach does but the minute the coach is fired they pull off a run of ten straight victories.
When you are controlling the flow of capital in the world it is easy to set up a situation like this especially with an also ran bank like NRK
By the way, if anybody is wondering what is happening here, the name of the game is bailout. If you want insight into how the game works the book to read is called
The Creature From Jekyll Island. They deal with that topic along with many others surrounding the political/banking system
Is Basel the problem?
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/15/cnbanking115.xml
Peter Spencer, of the Ernst & Young Item Club, said conflicts caused by the Basel system of banking regulations, which determine how much capital banks must raise to keep their books in order, are the root cause of the crunch and were serving to worsen the City’s plight.
The regulations meant that banks forced to take off-balance sheet assets from troubled structured investment vehicles on to their books had little choice but either to raise money from abroad or cut back dramatically on their spending, he said.
He warned that, if London’s money markets remained frozen and the authorities retain the strict Basel regulations, the full scale of the eventual credit crunch and economic slump could be “disastrous”.
Dismissing the assumption that banks are not lending to each other on the money markets because they lack confidence in each others’ potential solvency, he argued that they were, in practice, prevented from lending the cash at all because it could leave their balance sheets falling foul of the Basel regulations.
“If these funding routes are not reopened it will have massive consequences for the economy as a whole,” he said. “It will make 1929 look like a walk in the park.”
Reckless banking practices got us into this mess, and here is someone wanting to pour gasoline on the fire:
“Peter Spencer, of the Ernst & Young Item Club, said conflicts caused by the Basel system of banking regulations, which determine how much capital banks must raise to keep their books in order, are the root cause of the crunch and were serving to worsen the City’s plight.”
Yes, my good man, maintaining reserves and keeping a bank’s book in order are the root cause of the crunch!
Yes, my good man, maintaining reserves and keeping a bank’s book in order are the root cause of the crunch!
It’s the straight jacket m’lord, that’s what’s makin’ me crazy!