Balneus

Australian Lefty on Politics, Governance, Science and Info Management

“The Economist” wants to nationalize a bank! What the…

Posted by Dave Bath on 2007-11-27


I found out you can laugh when your jaw hits the floor.  I couldn’t believe my eyes reading The Economist (2007-11-22) arguing that nationalizing a bank in an advanced economy may be a good thing.

"Pulling the plug" discusses the way the Bank of England is propping up the Northern Rock bank, (until recently, the UK’s fastest-growing mortgage lender) and has the following doozy of a quote:

This newspaper has, to put it mildly, never been a fan of nationalisation. But with Northern Rock this increasingly looks like the least bad option from a taxpayer’s point of view

The analysis points out that the state is throwing cash at the bank to cover liabilities, but has no control over risks, then points out what private enterprise would do in this situation:

Were the government a distressed-debt hedge fund, it would be trying to assume control, squeeze out existing shareholders and get back the money it is owed.

Jaw dropped.  Head fell off I was laughing so hard.  Never thought I’d see that!

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2 Responses to ““The Economist” wants to nationalize a bank! What the…”

  1. Raf said

    It just shows how little understanding they have of the banking system, how it works and how money actually comes into existence.

    It makes absolute sense to let Northern Rock go under like any other business. However, banks are not like any other business. Have you ever looked at the balance sheet of a bank? Well have a read through this paper if you want to understand it

    http://sustento.org.nz/why-it-is-necessary-to-have-confidence-in-the-banking-system/

    If a carpet manufacturer goes out of business its no big deal to the industry as a whole. People will still buy carpets from other providers. If a bank goes under the whole system is called into question because the whole system is based on confidence in a worthless piece of paper or computer entry.

  2. […] "The Economist wants to nationalize a bank: what the…" (2007-11-27) argues for simple equity. The analysis points out that the state is throwing cash at the bank to cover liabilities, but has no control over risks, then points out what private enterprise would do in this situation: Were the government a distressed-debt hedge fund, it would be trying to assume control, squeeze out existing shareholders and get back the money it is owed. […]

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