Northern Rock: can the market heal itself?

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The FT has reported that:

Sir Richard Branson's Virgin group on Monday was confirmed as the preferred bidder for Northern Rock.

It is reported that:

Virgin said it would inject £1.4bn of cash, and its Virgin Money subsidiary, for a fully underwritten issue of new ordinary shares to existing holders, to be offered on a pro rata basis at 25p a share. Virgin's injection would be on the same terms and would see the group hold not more than 55 per cent of Northern Rock if the offer was fully taken up, it said.

I'm not ecstatic, I admit.

First I'm no great fan of the bearded one. Anyone who abuses the world's tax systems as much as he does (all his activities being ultimately based in the BVI) has no right to the status he claims in society. And as anyone who has looked at Virgin knows, transparency and accountability are not his watchwords.

Second, there is enormous moral hazard inherent in this bail out route for the government. As the Economist has put it:

The problem is that no private-sector buyer seems to exist [who will repay the government's loan straight away]; everybody relies on Mr Darling underwriting the deal for a considerable amount of time. Such a subsidised sale would give the bank's new owners most of the upside, should gains emerge, while leaving the taxpayer with most of the risk, if losses ensued instead. This asymmetry is more than galling: it might well create a perverse incentive for the bank's new owners to gamble even more recklessly than its old ones. And other banks would rightly complain of unfair competition.

I agree. Exactly right.

The Economist says:

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 (unless a credible buyer appears). And, in any case, the damage is half-done: in effect the state already owns a chunk of it.

And as I did the other day, the Economist goes on to say that nationalisation is exactly akin to what a hedge fund or private equity would do.

Surely when Left and Right agree that nationalisation is the best way forward the government (a Labour government, for heaven's sake) has to consider it as a real alternative?

And not just because I really cannot face the prospect of another gift by the State to Richard Branson. I'd hoped those days were over when Blair left office. It would be too much to realise Brown is in exactly the same mould.