'First of all, I'd like to know what kind of 'emergency funding' the Bank of England was actually providing Northern Rock. The whole point about emergency funding is to provide credit institutions with a temporary bridge over liquidity problems. However, the conditions for such funding are usually pretty onerous - the rates of a loan-shark and very strict collateral requirements, etc. This wouldn't actually have help any institution like Northern Rock, which appears to have suffered more than temporary cashflow problems.
Now, when the funding was eventually approved, thanks to the UK's excellent disclosure rules, the Treasury, the Bank of England and market regulator the FSA all jumped up with their megaphones to tell the whole world about it - creating panic. Is this any way to go about the business ?
Then it was disclosed that there were actually buyers who wanted to acquire Northern Rock, provided that there's a guarantee from the government. But our government sensibly turned the idea away ( taxpayers' money will not be used to bail out private institution ), only to U-turn later, and encourage outside bidders, once the run on the bank (which the authorities created) took place. Nice move!
While the government was wasting its time trying to figure out what to do next, it allowed certain investors to gather-up large stakes in an effectively worthless stock. When the 'solution' (read: nationalization) finally finally came to our leaders, the Northern Rock's shares became worthless, and the government now faces investor lawsuits and trial in the media.
Is this any way for things to be managed ? It hardly inspires confidence in a place which is supposed to be one of the world's leading financial centres'.
What's your view on the Northern Rock saga ? Please use the 'comment on this story button' below to send in your views.
READER COMMENTS:
1. 'I don't see what the huge fuss is all about. Nationalisation was the only sensible outcome - 6000 jobs were saved as were depositors' cash.
Technically Northern Rock was insolvent and bankrupt, which would usually mean lots of redundancies. The only people moaning about the situation are the shareholders, who should realise that the value of your 'investment may go DOWN', etc. SRM and others are only taking legal action because they have just lost their clients a fortune gambling in the wrong direction.
The government will be able to refloat the company anyway in a few years time earning them a very tidy penny'.
2. 'No, 6000 jobs have will not be saved as nationalisation will mean shedding jobs and scaling down operations, as the government will surely not be allowed to use its competitive advantages in funding to maintain Northern Rock's current business model of aggressive growth. Also, the rock wasn't technically bankrupt - positive book value if Jon Woods is to be believed...
The government made a hash of it - but that isn't surprising - after all, we only employ Brown, Darling et al to run a country, not a company'.
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