Northern Rock - Temporary Public Ownership

BUSINESS AS USUAL
Temporary Public Ownership: What It Means For You
The Government has announced its intention to take Northern Rock into temporary public ownership.
The Government believes that this is in the best interests of customers and taxpayers.
Customers are not affected by this change.
Your savings with Northern Rock continue to be safe and secure, protected by the Government guarantee arrangements.
The terms and conditions of your mortgage, savings and other products remain unchanged.
All branches, call centres and other operations remain open for business as usual.

Here is what customers can read on the homepage of Northern Rock website.

The story started on September 2007 when Northern Rock received a bail out from the Bank of England, following the problems in the credit markets caused by the US Subprime mortgage financial crisis.

On 22 February 2008 the British government announced the nationalisation of Northern Rock after it had acquired all the bank's shares. Mr Darling said the government had rejected two private takeover bids for the bank from Richard Branson's Virgin Group and Northern Rock's own management team because they both do not offer "sufficient value for money to the taxpayer". According to him, this temporary public ownership is the best solution to safeguard taxpayer's money and for the Bank of England to get back the ₤26 billions lent to Northern Rock. This is a temporary measure and the aim is that the bank return to private sector once the market conditions improve and the value of the bank grows.

But this decision marks the first official nationalisation since the 1970's and forces the British government to deal with several critics: The shareholders criticize this measure because they will receive only a little compensation for their shares which were suspended on Monday. George Osborne, the shadow chancellor, underlined that the nationalisation will allow Northern Rock to borrow and lend more cheaply than its rivals because of the government backing. And finally, the rivals bankers believe that the government should limit his action to ensure taxpayers do not lose their money.

Now the Northern Rock's new management team headed by Ron Sandler will draw up a business plan for the bank to reinvent Nothern Rock as "a profitable, vibrant and sustainable business" with a view to selling it to private sector.

Has the capitalism system become crazy?

Is the worldwide financial situation about to worsen? The economic climat is definitely not good: the growth is slower everywhere in the western countries and the US is about to start a recession.

The Attali Commission has choosen this unstable period to propose 316 mesures to help the French economy to survive through the worldwide crise. Jacques Attali suggets more freedom and more security to reach an equilibrium favourable to growth. It is time for the French government to make decisions! This difficult period with no forecasted elections is the perfect ooportunity to choose the adaptation rather than the decline. Indeed, the French challenge is huge: In 40 years time, the French growth wnet from 5% to 2% per year. In 2008, the French Balance of Foreign Trade deficit is around E40 billion and the increase in gaz and oil prices are not the responsible! French people consume more than they produce because the globalization allows people to go abroad to buy cheaper... It is the reason why Jacques Attali emphasis on the topic: Education and Research through which France will become more competitive. The strengh of the Euro allows to buy cheaper abroad and then prevent France to suffer seriously from the financial crise consequences.

The subprime crise started in the US in 2006 and now it repends itself as a virus which contamines the whole international financial system.

In the US, the subprimes are financial mortgage with high interest rates, given to people with a weak solvency. Real success! but in 2006, the interest rate increased because lot of people are not able to pay back their credits. The main problem is that the US banks have minised their risks by using money they had not. Indeed, they shared the risk with others American and foreign banks such as the Societe Generale in France or Nothern Rock in Great Britain. It is the whole financial system which is weaken as a consequence of the financial globalization.

The Fed cut its interest rate twice to reach 3% in order to boost its economy with no garantee of sucess because the American economy survival rest on a weak dollar.

At the same time, the Societe Generale, a big French bank, looses E5 billion... The financial market is no longer under control and could be easily compared to a casino economy. The only internal control is not enough! Now the only goal of banks is to make still more money through risky financial placements that the deregulation makes possible. The case of the Societe General is not unique! The governments need to make more ethical the capitalism system and ask for more transparency on the financial markets.