UK to Nationalize Failing Northern Rock

The US is usually ahead of the British in various political, economic and business trends. One remembers when President Reagan introduced the Tory Party to the teleprompter. However, the government of Gordon Brown may be pointing out a solution to America’s banking problems with the proposed nationalization of troubled Northern Rock mortgage bank.

In the last half year or so, Northern Rock fell on its backside due to some very bad lending practices, not unlike many American banks. As interest rates rose, Northern Rock’s business fell. However, as it provided 19% of all new mortgages in Britain as late as this last summer, it is too important an entity to fail. Some kind of bail-out became needed.

The first choice was a private sector rescue. Sir Richard Branson’s Virgin Group made an offer and the management of Northern Rock (the bozos who crashed the company in the first place) came forward with their own bid. Neither measured up to the Exchequer’s standards.

Chancellor Alistair Darling (one still feels odd not typing Gordon Brown after that title), stated, "The government has now completed its review of the two detailed proposals on the table. We have made our choice after considering all proposals. Last autumn, the government stepped in to save Northern Rock to stop its problems spreading to other parts of the banking system. But in current market conditions, we do not believe that they deliver sufficient value for money for the taxpayer. So the government has therefore today decided to bring forward legislation to take Northern Rock into a period of temporary public ownership.”

Naturally, the Tories are howling because this is the first nationalization in a generation, and they are congenitally unable to admit that the market occasionally fails. The Liberal-Democrats are taking a different tack, namely that it took Labour too long to step in. Be that as it may, Mr. Darling has made an excellent choice in administrator for Northern Rock, which will continue to operate as normally, Ron Sandler. He’s the same guy who bailed out Lloyd’s insurance market in the mid-1990s. Should he succeed in fixing Northern Rock, and one expects he will, the role of the state in business crises will be reaffirmed.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

Kensington Review Home