It must be pretty humiliating for Gordon Brown to have had the first run on a British bank in more than a century, but even worse is the government’s subsequent failure to get a grip on the situation and the £25bn of taxpayer-backed loans that have subsequently been extended to the failing Northern Rock bank.
The government should have nationalised the Northern Rock when it became apparent that there was no way for it to continue in private ownership without substantial taxpayer support. The fact is that even under the proposed rescue scheme, we, the taxpayers of the United Kingdom, are still going to be heavily exposed to the Rock’s uncontrolled borrowing for the foreseeable future. Yet the taxpayer is not going to see one penny of the Rock’s profits (should it make any).
Of course, I can see why the government is reluctant to nationalise the bank. It will trigger legal action from shareholders (but, frankly, too bad… they should have kept their Directors under control, but instead they allowed them to borrow huge sums of money and as a result have created a problem of such a magnitude that it could now affect every man, woman and child in the land). But worse, it is likely to mean that as the housing market deflates, the government would be put in the unenviable position of having to repossess peoples’ homes. My guess is that it is that that is putting the Brown government off nationalisation, but that is no excuse for saddling us with all the risk and allowing private shareholders to run off with any profit derived from that risk.