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The nationalisation of Northern Rock was inevitable after the Governments interference in the original crises. Interfering in the problems of Northern Rock at such an early stage, in the glare of publicity, with the market aware of the deteriorating situation, was always going to end at this inevitable conclusion. The Government maintains it had to support Northern Rock to stabilise the banking system, its customers and the economy, but in truth it did the opposite! In fact it looks like their actions have actually not achieved any of these objectives but confused the position and put the tax payer's money a risk.
Let's look at the facts. The Governments actions did not stop the flow of Northern Rock customers moving their assets away into what they think are safe havens. It did not stop Northern Rock continually needing to draw on loans to support its tenuous hold on its mortgage book. It did not stop its share price from plummeting. It did not bring a quick resolution to the problem. It will not stop redundancies and branch closures. This is as total a defeat for the Governments strategy as could be imagined! The future looks very bleak for Northern Rock's shareholders and employees. As there is no chance that shareholders will get much return on their investment.
However, the Government did draw out a couple of business entrepreneurs looking to turn the Northern Rock business around, but each proposal was not to the liking of either the investors or the Government, leaving the Government locked into a business situation where there was no key. Virtually any solution was going to be unattractive with our money being spent to support a bank that was rapidly losing value. That's not say that Northern Rock has no assets; they are just not worth what the Government paid for them! Any solution now is likely to be long term, having no end date when the tax payer can expect to see a return on their investment. If the Government was your Broker you would have sacked him by now!
One can feel a little sorry for Alistair Darling, as this appeared as he took over the watch and I suspect the previous watcher has had a direct hand in the decisions before and since, which led Northern Rock to its current disastrous position.
The conclusion to this episode now appears to be the extinction of Northern Rock in any case, as the Government winds up the business and sells off the remaining assets, for whatever price they can get. This still may not be enough to recover the Government loans. The probability is that the Government has been dealt a mortal wound by its handling of this situation, which will be terminal at the ballot box.
My previous blog was entitled "Northern Rock a Government blunder" and sadly we are not yet able to measure the true scale of this appalling mismanagement of an industry problem. I still maintain that if the Government had not interfered, Northern Rock would have been managed towards extinction, as has historically been the case, by the banking industry taking over the assets but also very importantly without using the tax payer's money and it would not have put the Government into a position it could not win from. History has shown that Governments interfering in business does not work and it is something that in the halls of the Treasury and No 10 they just might realise now.
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