Northern Rock is nationalised

[CoteDAzur]

Government announces the nationalisation of Northern Rock this Sunday afternoon.

Shareholders are not happy campers. Neither are taxpayers, I imagine, who are footing the bill of Northern Rock management's incompetence.

cestlavie - If nationalisation was in the best interests of the taxpayer, all banks and industry would be in the hands of the state.

I agree that it was the right choice to save NR in the initial days, but I disagree that nationalisation is in the interest of the taxpayers.

Re "As the government didn't really have a choice but to prop it up in the first place with £25 billion, once that had happened to then let private speculators profit at the taxpayers' expense would be unthinkable."

A quick look at NR's income statement makes it clear that taxpayer will never recover this sunk cost. At 2006 profits of £443mn, it will take NR 56 years to make £25bn and 124 years to make £55bn.

This is why no future buyer will offer to pay taxpayers back for these sums. They can't because it does not make economic sense to buy the bank in that case.

You sound like someone who has some Econ education. If so, you must know that this £25 bn is to be considered sunk cost, and any decision now must be taken on the basis of future cost/benefit.

Except that proceeds will never be anywhere near £25 bn. Not if you wait another generation.

Let's put it this way. I want to sell you a car which is worth £5,000. But I have put in £50,000 into this car. Can I ask you to pay at least £50K because that is my cost? No. Will I ever find a buyer willing to pay £50K for a £5K car?

And now let's say I can't even drive well and am likely to keep banging the car up and end up paying more to fix it up. (As government's business is to run banks, and study after study has shown that nationalised companies don't thrive) Wouldn't it be better if I sold the car for its market value so that at least I would not keep sinking my own money trying to manage it?

Perhaps not the best analogy, but I hope you now see what I mean by sunk cost and that no buyer would pay it.

As government's business is NOT to run banks, obviously

You lot with the economics education - what do you see happening if the housing market continues to fall and all those people with 100%/125% NR mortgages end up with negative equity? What if the value of their supposedly solid loan book turns out to be significantly below what has been assumed?

BoE, ECB, US Fed are NOT commercial enterprises!

Assets of NR will deteriorate and gov will be kicking themselves that they didn't sell it when they had the chance.

In the previous post on BoE, I was trying to point out that it is not really a 'bank', does not even do the same things. Bank of England (just like European Central Bank, Fed in the US, etc) controls monetary policy. Sets interest rates, stabilizes liquidity, etc.

Especially pertinent to our case, Bank of England is NOT run to make a profit whereas banks in general do and NR in particular should.

I really feel this gov should in some way be charged in some way with mismanagement of funds or something. it is a disgrace!

Idlingabout, referring back to your EL question, in the end we were ok, but not through any conscious decision on our part. Dh had AVC's with his company, which invested in EL. When it all when nork's up we didn't have clue what to do because the paperwork was so difficult. So we just left the money there until a couple of years ago when dh bought out his AVC's and it actually paid up a not bad amount. We were lucky, others weren't so fortunate.

I think this govt has robbed people blind when it comes to pension funds and I wonder why on earth anyone should bother, tbh.

So now, next time someone complains about people on benefits, can I point out how your £100b+ of taxpayer money went to bail out shareholders of a private endeavour?

Who's the drop in the ocean?

Corporate welfare at its finest.

CDA

I agree that the amount invested in NR is a sunk cost

But looking at the overall position, there will still be a net cost to the taxpayer

ie me

Which could have been prevented by better financial regulation

Agreed that you (taxpayer) is the loser here.

I'm not sure that any amount of regulation could have prevented NR's downfall, though. They didn't do anything illegal. It was just bad management.

NR was a flawed business model, v similar to those companies which have folded in sub-prime US.
Barclays announce they have written off 1.6bn of bad debt last year....

NR is just the first casualty of this global total economic meltdown that will ensue...

the taxpayer is f**d tbh as the govt will definitely need to ercoup this to balance the books and GB and his cromies will just tax us for it BUT the amount of time it will take to right itself(if ever) we will all be long gone and will never be 'repaid'.Did anyone see dispatches?There are at6 least 6 other mortgage companies who have paid this game and lost UK much worse than US it just hasn't hit yet

annoyingly missed Dispatches

bet Darling and GB were grateful for Fayed's rantings yesterday, what a diversion!

from today's Guardian - "The upshot is, though, that when the chancellor stands up to present his budget on March 12 it will be clear that he has broken one of the government's two fiscal rules that Gordon Brown insisted after Labour came to power in 1997 were a "key requirement for long-term economic stability".

they are a joke!

Slightly off topic (but related): Anyone know how to protect the value of savings? We've been building up a nice house deposit spread between cash ISAs, stocks and shares ISAs, a PEP and a bank savings account... but I have very little faith that the stock market will do terribly well over the next couple of years, and sterling will surely suffer too... Where do you put your money if you're not a city trader who can buy pots of gold (or whatever) at the drop of a hat?

no idea - under the matress probably safest with GB and co running the eceonomy

it is difficult.It does depend on how long you plan to wait.We plan to buy this year and so have ours in teh nationwide which is the 'safest' bank atm in terms of exposure to sub prime etc and it also has a high ratio of savers to lenders but if you are planning a few years I would get some advice!no more than 30k in any one account though

re: my comment on reposession -- n.rock would have to had to hike its mortgage rates, which is likely to force some borrowers into default, especially if a general contraction in credit means they cannot refinance on more favourable terms elsewhere.

get an investment manager?