måndag 18 februari 2008

Northern Rock nationalisation

The eventual nationalisation of Northern Rock was likely as soon as the decision to bail them out was made by the government shortly after the crisis blew up. That was the logic of situation.

It will, of course, be problematic for various reasons. What are the politics of repossession of people's homes by a nationalised bank? There is a substantial financial risk here, because Northern Rock was offering 125% mortages; what will the value of the collateral be if house prices take a really big tumble?

The lesson of this seems to be that the private sector is happy to take risk unless there is a prospect of loss, in which case the government is expected to bail out reckless behaviour.

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