Tuesday, February 19, 2008


At the time of the original Northern Rock crisis, I diverted from usual blog subjects to politics just because the hype and public opinion and even the news were so divorced from economic reality. That time has come around again.

After much consideration, the treasury has decided to reject the option of selling out to one of the interested parties, it has also rejected the idea of letting the bank collapse into bankruptcy, and has instead decided to nationalise it.

And for taking this decision, nothing but opprobrium.

Fair enough, the result will be risk to the taxpayer, loss of shareholder value and possible loss of jobs. All points accepted.

Yet in analogy with marketing, the absolute result is possibly less relevant than the comparative result. What were the alternatives? It is well documented that even the sale to the bidding consortium necessitated huge taxpayer guarantees. In fact, those guarantees were what prevented the sale. Also the offered price was less than the compensation expected from the government, so the shareholders also benefit from the nationalisation. The third option, liquidation, would have even more drastic effects on shareholder value and on jobs, and the government would still have been left with huge liabilities.

So really, at this moment in time, was there any need for the sudden outburst of anti-government vitriol? Only if you have an anti-government agenda anyway.

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