A sad day for the U.K.
Yesterday’s announcement by Chancellor of the Exchequer Alistair Darling to temporarily nationalize Northern Rock was a black day for the U.K. Government which is known for its economic competence.
This was the first such move by the Government to take such action in over 150 years. The argument behind the bad business decision was the decision by Darling that private bids for the bank were too low and not satisfactory.
Since when does any Government in a capitalistic society decide how much a publicly traded company is worth?
Virgin and Northern Rock’s management both put bids on the table for the bank but the government interfered and decided to take over which translates in more than 55 Billion Pound Sterling of liabilities for tax payers.
Who asked if tax payers even want those liabilities?
The government decided to act like a company. Fine, but they did not ask their ‘shareholders’ if they would agree with the ‘takeover’.
What would happen if a company would ignore its shareholders and proceeds with a takeover?
The government would react and shareholders would possibly file many lawsuits so why did the government break the rules and bypassed its ‘shareholders’?
The simple answer is that the ‘takeover’ would have been rejected and the bank would have accepted one of the two private offers on the table. The best solution to the Northern Rock situation would have been to let the bank’s shareholders decide which private offer to accept and let business be business.
No markets want or needs the interference of any government. The U.K., which is known to make good business decision, just took a big hit as far as confidence is concerned but one event should not completely derail trust. It is worth to mention that severe misstep comes only months after another bad decision on capital gains tax. This is two in a row which means one more and you’re out.
Darling ‘hopes’ that this is the best option to protect taxpayers and claims that every single pound will be repaid but what does Darling really say?
That he does not trust the private sector would be able to take care of Northern Rock better than the government which is a very sad development.
The best solution for every party involved would have been the bid by Richard Branson and his Virgin Group, both short-term as well as long-term.
We can all just hope that this was only one of a very few terrible decisions by the government and that steps like this will not be repeated. The markets have worked brilliantly without the attempt to interfere with them.
Please, for the sake of capitalism, let markets do what markets do, let businesses do what businesses do and the government should never interfere but rather focus on the issues they need to focus on.
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