It has just been
announced that Northern Rock, the bank that prompted the first run on a British
Bank in over a hundred years, is to be nationalised.
This means taxpayers
will give the shareholders a “fair price”, set by an arbitration panel, for
The only really fair
price is nothing.
Just as the man who
bets on horses – see earlier blog – must take responsibility when his gambles
do not pay off, so must those who invest in bank shares.
entrepreneurs should – and usually do – take responsibility for their wrong
business decisions. Why should there be one law for small businesses and
another for big banks?
were trying to get rich by using a business model that was fundamentally
flawed: any half-competent businessman should know that financing long term
loans with short term borrowing can only work for a short period.
Their greed having led
to a predictable result, the shareholders then showed incredible arrogance in
their attitude to restructuring proposals that might have kept the bank in the
By rights, the bank
should be in receivership, like any other business that cannot pay its debts:
then the shareholders would count themselves lucky to get anything back after
the creditors were paid.
However, after the
government intervened – sensibly – to guarantee deposits, in order to protect
the stability of the British banking system, but – foolishly – neglected to
secure those guarantees against assets, the shareholders held out, secretly
hoping that nationalisation would follow. Do not be fooled by their protests: taxpayers’
money is what they were counting on – and what they do not deserve.