[Smallfrog]

http://news.bbc.co.u...ess/7184813.stm

So, it now seems more likely that the thing that certain newspapers have been calling for for weeks will happen, Norther Rock being nationalised.

For those of you that don't know, this bank was the victim of the first run on a UK bank for about 50 years, when it fell victim to over extending into the US sub prime market, before the media made a massive hype causing a large number of people to withdraw their accounts.


Anyway, is nationalising it a good or a bad idea?

[Zharanda]

It's a wonderful idea. Hopefully one day all industry will be nationalised and under the control of the working class. I just hope the Marxists aren't gonna be involved.

[SynthFG]

Smallfrog, on Jan 12 2008, 12:38 PM, said:

<a href="http://news.bbc.co.uk/1/hi/business/7184813.stm" target="_blank">http://news.bbc.co.uk/1/hi/business/7184813.stm</a>

So, it now seems more likely that the thing that certain newspapers have been calling for for weeks will happen, Norther Rock being nationalised.

For those of you that don't know, this bank was the victim of the first run on a UK bank for about 50 years, when it fell victim to over extending into the US sub prime market, before the media made a massive hype causing a large number of people to withdraw their accounts.


Anyway, is nationalising it a good or a bad idea?

The rock wasn't exposed to the sub prime fiasco
Its problems stem from its entire business model being based on being able to get cheep credit on the international markets and then sell it on for a premium in the form of mortgages, when the credit crunch came along the rock found itself unable to obtain this cheep credit and had to go begging to the bank of England


The bank faced a choice of letting the rock go bust or propping it up, knowing that this would cause a run on the bank but avert a wider crisis in the industry, Tho it must be noted that had they guaranteed 100% of depositors money immediately rather than waiting 3 days as the run unfolded the panic would have been lessened

The main problem now is that the rocks shareholders, especially the hedge funds won't accept that the business is technically in administration and are fighting to maintain as much control as possible, It looks like this has put off investors who themselves need to raise the best part of 20-30Bn for a takeover and are struggling in the current market conditions

The likely outcome is that the rock will be nationalised within days, and the shareholders will get pennies in the pound, this will spark several years of expensive court fights as they try to use every device to get compensation

Meanwhile the gov, freed of shareholder interference will sell off the rock at a knock down price


And whilst I'm usually against nationalisation, in times of crisis such as this it is the last resort

Any one who argues in favour of general nationalisation 2 words
British Layland

This post has been edited by SynthFG: 12 January 2008 - 10:38 AM

[Arcturus Jefferson]

In general, I don't think the government should be supporting industries and companies that can't make it on their own - especially if said companies are doing something stupid. And investing heavily in the US sub-prime market seems stupid to me. It certainly didn't work out for us too well.

[Smallfrog]

Arcturus Jefferson, on Jan 12 2008, 04:57 PM, said:

In general, I don't think the government should be supporting industries and companies that can't make it on their own - especially if said companies are doing something stupid. And investing heavily in the US sub-prime market seems stupid to me. It certainly didn't work out for us too well.

So if the government had a choice between economic collapse and not interfering, or interfering and economic survival, which do you chose?

EDIT: And Northern Rock has been one of the most successful banks in the country recently. It probably would have survived without government help if the media hadn't started a hype about it.

This post has been edited by Smallfrog: 12 January 2008 - 11:02 AM

[Kenadian_2006]

If it is the sounder economic decision, go nuts.

[SoxNation]

Arcturus Jefferson, on Jan 12 2008, 11:57 AM, said:

In general, I don't think the government should be supporting industries and companies that can't make it on their own - especially if said companies are doing something stupid. And investing heavily in the US sub-prime market seems stupid to me. It certainly didn't work out for us too well.

this, is a company fails let it fail. Company's won't innovate and become more efficient and productive if they know they will be bailed out if they fail. what incentive is their to improve?


failure is just as powerful a motivator as success.

[Arcturus Jefferson]

Smallfrog said:

So if the government had a choice between economic collapse and not interfering, or interfering and economic survival, which do you chose?

EDIT: And Northern Rock has been one of the most successful banks in the country recently. It probably would have survived without government help if the media hadn't started a hype about it.

Is not nationalizing this one bank going to cause the UK economy to collapse?

This post has been edited by Arcturus Jefferson: 12 January 2008 - 02:01 PM

[Smallfrog]

Arcturus Jefferson, on Jan 12 2008, 08:01 PM, said:

Is not nationalizing this one bank going to cause the UK economy to collapse?

Well, the collapse could start a chain reaction and our main industry is banking. Also, this is the single largest mortgage lender in the UK, and its collapse would make acquiring mortgages rather harder, messing up the housing industry.

[SynthFG]

Arcturus Jefferson, on Jan 12 2008, 04:57 PM, said:

In general, I don't think the government should be supporting industries and companies that can't make it on their own - especially if said companies are doing something stupid. And investing heavily in the US sub-prime market seems stupid to me. It certainly didn't work out for us too well.

THE ROCK DID NOT INVEST IN US SUB PRIME

It was the secondary credit crunch triggered by sub prime that dumped the rock into do-do

and as SF suggests the government had to step in to avoid a wider crisis in the UK banking industry

This post has been edited by SynthFG: 12 January 2008 - 02:06 PM

[SoxNation]

Smallfrog, on Jan 12 2008, 03:04 PM, said:

Well, the collapse could start a chain reaction and our main industry is banking. Also, this is the single largest mortgage lender in the UK, and its collapse would make acquiring mortgages rather harder, messing up the housing industry.

and saving a company that has messed up will mess up the economy as well


look at the US Car industry, they have stagnated, a lot of it has to do with high healthcare costs and unions, but they've also been bailed out before and the Fed. Gov. has made it clear it would bail them out again. This does not provide the proper motivation to innovate and better your company.

[Smallfrog]

SoxNation, on Jan 12 2008, 08:06 PM, said:

and saving a company that has messed up will mess up the economy as well


look at the US Car industry, they have stagnated, a lot of it has to do with high healthcare costs and unions, but they've also been bailed out before and the Fed. Gov. has made it clear it would bail them out again. This does not provide the proper motivation to innovate and better your company.

Having your company bought out at a fraction of the share value before the crash, with no say in the price is probably the motivation here. The money provided to Northern Rock is at above inflation rates. If nationalised the share holders will get a bad deal. Is this enough motivation?

Quote

THE ROCK DID NOT INVEST IN US SUB PRIME

It was the secondary credit crunch triggered by sub prime that dumped the rock into do-do

They had interests in the US financial market though. Basically they borrowed to lend, taking short term loans payed off by long term returns. They needed short term money, not available when the market fell, so they couldn't pay the money they where lending. Basically a cahs flow crises.

A smaller scale would be you not being able to pay your rent as your paycheck was late.

[Arcturus Jefferson]

Quote

Well, the collapse could start a chain reaction and our main industry is banking. Also, this is the single largest mortgage lender in the UK, and its collapse would make acquiring mortgages rather harder, messing up the housing industry.

Quote

and as SF suggests the government had to step in to avoid a wider crisis in the UK banking industry

Meh. Might as well nationalize everything to make sure there's no problems ever, then. Failure's a good teacher - Northern Rock's not going to the same thing again that got it burned (whatever it ultimately is). Having the government clean up everything mess is going to introduce more inefficiency into the system, because it's going to bail out the inefficient.

[SynthFG]

The government had to prop the rock up to prevent a banking crisis
this was intended to be a short term measure whilst the rock was sold on to new owners, the government essentially acting as an administrator as well as a creditor

But further problems in the market along with shareholder intransigence are forcing the gov to take the next step to end this fiasco quickly.

[Smallfrog]

Arcturus Jefferson, on Jan 12 2008, 08:16 PM, said:

Meh. Might as well nationalize everything to make sure there's no problems ever, then. Failure's a good teacher - Northern Rock's not going to the same thing again that got it burned (whatever it ultimately is). Having the government clean up everything mess is going to introduce more inefficiency into the system, because it's going to bail out the inefficient.

Basically what SynthFG just said, but the problem is only the treasury and the bank of England can raise enough funds to cover the government loans.

They have two choices.

1.Flog of the mortgages in a hope of recovering their money, and destroying the bank in the process.

2. Use BoE money+Treasury money to hold up the bank until the long term investments in the mortgage market pay off.

And Northern Rock can't change the way it works, as its not set up to be able to change markets.

It ran by taking out loans to give out mortgages, meaning it had valuable long term assets backing short term loans. However, when its mortgages in the US markets stopped looking so rosy (and yes it did have some) banks stopped lending, so while it had plenty of assets, it couldn't pay its short term bills. This lead to a massive drop in confidence, meaning people withdrew their money, and it founds itself losing the only capital it actually had.

[Emperor Mudd]

Nationalizing industry and banks are a great idea if you don't care about the health of the economy or making money.

[Zharanda]

That's why capitalism ought to be abolished in the process of nationalisation.

[steodonn]

lots of bank were in that spot but the media overhyped northenrock.

What happened to Virgin I taught they wanted to buy it

Anyway unless some one buys it and invest ALOT in it the Bank of England is going to lose the loan (tax payers money)

This post has been edited by steodonn: 13 January 2008 - 08:31 AM

[Smallfrog]

steodonn, on Jan 13 2008, 02:31 PM, said:

lots of bank were in that spot but the media overhyped northenrock.

What happened to Virgin I taught they wanted to buy it

They weren't prepared to pay the extortionate prices the shareholders demand. In reality, the bank is only worth anything long term, and no-one can really cover the shrot term costs needed to pay the loans except HM treasury and BoE

Quote

Anyway unless some one buys it and invest ALOT in it the Bank of England is going to lose the loan (tax payers money)

You misunderstand. The BoE is not backed by taxpayers money. its an independant organisation, rather like the BBC.

[deSouza]

Zharanda, on Jan 12 2008, 11:53 AM, said:

It's a wonderful idea. Hopefully one day all industry will be nationalised and under the control of the working class. I just hope the Marxists aren't gonna be involved.

QFT. And lol.