I suggested the shareholders of Northern Rock might be given 5p a share compensation this morning. They apparently think they deserve £4. I note Martin Wolf in the FT thinks I am too generous. He has said:
There is no good reason to compensate them at all. The question to ask is what would have happened if the government had not been willing to provide the finance private markets refused to offer.
The answer is that Northern Rock would have had to go into administration. It is extremely unlikely, given the cost of the funding by the Bank of England, the only willing lender, that the shareholders would then have ended up with anything. That is the market's judgement. Shareholders live and die by the judgement of the market. In this case, they have died. That is what "risk capital" means.
I wonder how they can argue with that?
I also agree with Martin Wolf's argument that:
The bank should be nationalised and then closed for new mortgage business. That is the only way to ensure that its continued existence does not distort the mortgage market as a whole. It would be the least bad end to this depressing saga.
It is a failed business. Nationalisation cannot change that. Nationalisation is an option exercised to recover the government's money. That is it.
If a buyer can be found for some bits, that would be good. But to allow this bank to continue in operation to support 6,000 jobs makes no sense. Its day is done. Let's face the reality that it has failed. And that was the director's fault.