All parties are insisting that it wouldn’t be for “ideological reasons” – that is to say, it would not be because they believe that there should be “common ownership of the means of production, distribution, and exchange, and the best obtainable system of popular administration and control of each industry or service”.
Rather, the nationalisation of Northern Rock would be a quick way of ending the crisis and allow the bank to be sold on with ease – though the government would face legal challenges from shareholders, this is thought less damaging than the continuation of the crisis.
The Economist, the Liberal Democrats, and now, the Bank of England itself?
Over to Faisal Islam of Channel Four News
The Northern Rock board does have two takeover bids on the table – but questions remain about the funding for both.
The Financial Services Authority has to monitor the Rock to ensure it remains solvent. Mervyn King at the Bank of England has underpinned the Rock’s liquidity with over £25bn of public money. Alistair Darling is left seeking a solution that protects the taxpayer… and the reputation of the government.
Senior sources within the tripartite negotiations say that the Bank of England now believes that nationalisation is the best option for the Northern Rock. One senior figure raising serious doubt that any bidder would be able to raise the billions of pounds required, in current market conditions. The government would have to make the final decision, but as it stands, there appears to be a growing momentum towards nationalisation.
Today the credit crisis crunched harder than it ever has amongst big European banks – a remarkable $10bn writeoff from UBS, one of the world’s biggest. And those banks remaining reluctant to lend to one another.
The model being pointed to at the highest levels of the financial system is the rescue of the Johnson Matthey Bank in 1984. It started as a gold dealer but got into trouble because of imprudent lending.
After failing to organise a City bailout, the Bank of England took control of JMB for £1, held on to it for three years and then sold it for a healthy profit.
Six decades ago a Labour nationalisation was a cause for celebration in the north east. It’s unlikely that a northern rock nationalisation would be quite such a vote winner.
Depositors would be rapidly refunded under a draft nationalisation bill being prepared by authorities. But it’s resistant shareholders who could lose out the most from nationalisation, and their legal team is ready for a fight.
The queues of savers from September, have not been replaced by queues of viable bidders. One strong contender dropped out on Friday saying that it could not repay repay the Bank of England’s loan, compensate shareholders, and turn in a profit.
The threat of nationalisation has been a useful tool in bargaining shareholders down, but enduring financial market misery means that it may well happen.