Monday, 18 February 2008

A Wunch of Bankers

So, congratulations are in order. I am now the owner of a bank.

Well, technically so are around 45 million other Britons. But still. Something to celebrate, don't you think?

Yes, that's right, the failed bank Northern Rock has now been nationalised and the government has become its only shareholder - not incidentally guaranteeing £110 billion (that's £110 BILLION) of taxpayers money in order to protect depositors and investors.

Now, I'm the first to admit, I know next to nothing about banking. But what I do know is, if a business fails ordinarily, there are generally pretty awful consequences for those concerned. People lose their jobs, CEOs get dragged over the coals, and legal action of all descriptions might result. And yet it is now apparent that the banking industry is different: a poorly run bank that makes idiotic choices about who to loan money to and gets involved in something as ridiculous as the sub-prime loans crisis not only survives but gets shored up by the taxpayer's money. The shareholders don't lose anything, the depositors don't lose anything, and the board escapes scotch free.

Seems a bit odd to me. In fact, it seems to utterly go against everything we know about free market economics. Isn't the whole point of buying shares that it's a risk? Isn't the point of a board accountability? Isn't it the point of a business that it can succeed or fail on its own merits? If a car manufacturer, say, goes out of business, the government don't nationalise it to protect shareholders and employees. Apparently that rule doesn't apply to banks.

In truth, I'm glad that the ordinary depositors who have savings in the institution are safe. But it seems to me that Northern Rock (and all banks) has a responsibility to its depositors to behave sensibly with their money and treat the implicit faith and trust they place in it with respect: it hasn't done so, and now it's got away with it. And we collectively have to shell out £110 billion. It's scandalous, actually. The board should be in prison, but instead they are, if you'll excuse the pun, laughing all the way to the bank.


zero_zero_one said...

As I understood an interview on BBC Breakfast this morning, the shareholders aren't happy because their shares lose even more value as a result of the nationalisation - they certainly don't feel protected as a result of the government's actions.

You raise a good point though: while any large business failing has a dramatic effect on jobs, shares, employees etc, the government shouldn't just step in and say "we've got it covered."

It's a rhetorical question, but if they're willing to do it with £110 billion for one company, why can't the government do it for any number of much smaller businesses that face difficulties every year?

Bilbo said...

Great post! I have long been offended by the way big banks (who have political power unavailable to Real People) are able to feed at the public trough when they get themselves into trouble through their own greed. I find this REALLY offensive, but it's not going to change.