NRK nationalised

Posted by William M. Connolley on February 17, 2008
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In order to prove my financial acuity, when Northern Rock fell to about 200p and the govt guaranteed its deposits, I bought £250 worth, believing it would bounce back. Its now down to 90p, and the news now is that its to be nationalised. My shares are now worth so little I hardly care, but this looks to be a disaster in the making, or rather in the continuing.

I can’t see the govt making a success of running a bank. I guess the people who gain from the mess will be the vast numbers of lawyers and auditors who will spend the next decade crawling over the carcass sucking out any blood that remains.

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  1. #1 P. Lewis
    2008/02/17

    Well, no government ever ran the Bank of England particularly well, so I guess you’re probably correct.

    I can’t for the life of me see how, given the amount of public money involved in the nationalisation, that a government can operate it commercially at arm’s length, however good their intentions on that score may be. I don’t think there’s ever been a nationalised industry that didn’t suffer at the hands of the government (the two I was involved with certainly did).

    The only hope for your investment seems to be either that the nationalisation won’t get through parliament (but I can’t see that since, though the Tories will, the LibDems won’t oppose it) or Branson makes a silly, uncommercial (in the present climate) deal in the next few days (it might just be politicking, though I don’t think it is).

    I can see the headlines late this year, early next year now: “In the Brown stuff: government forecloses on 1000s of mortgages”.

    I almost dabbled, too, when the shares dipped below £1. Glad I didn’t now. Still, you should win your ice bet … unless this is the beginning of a losing streak.

  2. #2 Gavin
    2008/02/17

    You should have been reading the Economist: they’ve been predicting this (for very sensible reasons) for months….

  3. #3 Alex
    2008/02/18

    I don’t think there’s ever been a nationalised industry that didn’t suffer at the hands of the government

    Rolls-Royce.

    Mind you, they had to be bailed out after spending too much money on R&D and what turned out to be the RB-211 series engine, the biggest success in the history of aero-engines next to the Merlin. NRK spent too much money developing a really bad way of funding a mortgage book.

  4. #4 Gareth
    2008/02/18

    I hope your “acuity” on sea ice is no better…

    ;-)

  5. #5 P. Lewis
    2008/02/18

    Hmm. Rolls Royce.

    Most of the nationalisations were sort of successful in a limited way, more especially in the run-ups to privatisations under Thatcher, when suddenly productivities started rising (principally on account of large reundancies within the individual industries methinks).

    My point really was about political interference in the running of the company. I can’t imagine that was too different for Rolls Royce, waiting to get the govenment of the day and the Whitehall mandarins to make decisions requiring release of investment funds, etc. via the National Enterprise Board. Everything just moved ever so slowly or was of insufficient scale in the nationalised industries I was involved with. Perhaps it was different for Rolls Royce. But then …

    Tony Benn, as Minister of Trade and Industry after Labour returned to power in February 1974, had his first meeting with the Rolls-Royce Chairman in March of that year. Keith told Benn that when he had accepted the Rolls-Royce position in 1972 he had told the Prime Minister, Edward Heath, that he would “take it on so long as I am not buggered about by junior Ministers and civil servants and officials.” Benn responded that “while I am in charge I will not accept chairmen of nationalised industries indicating to me that they won’t be mucked about by junior Ministers and civil servants: Rolls-Royce is a nationalised company and must be accountable for what it does.” Source

    gives me reason to think it didn’t. And given the amounts of public money tied up, that is probably as it should be.

  6. #6 James Annan
    2008/02/18

    Heh. Maybe you shouldn’t have been so quick to give up cloistered academia for the cut and thrust of the commercial world :-)

    But I can’t be smug about NRK – I persuaded jules to put a bit it, we almost made a decent packet on the dead cat bounce but missed the sale and ended up selling out at a modest loss.

  7. #7 Andrew Dodds
    2008/02/19

    Some of the old Nationalised utilities didn’t do too bad, especially compared to their modern privatised versions. The problem here is that companies providing essential services (Railways, Water, Electricity, etc) always end up heavily regulated in the private sector anyway, and the Nationalised versions end up, paradoxically, with less political interference, since they can concentrate on service delivery over profit maximisation. The railway system is a case in point – privatisation has been a complete disaster.

    The big failure in Northern Rock was the failure of the FSA to stop them giving 125% mortgages on stated income.. part of the general stupidity of the last few years of the housing bubble.

    Alliance and Leicester, and Bradford and Bingley look like they could be next.. having funded lots of the fantastically overpriced BTL city center flats in the north over the past couple of years. Could be interesting.

  8. #8 Hank Roberts
    2008/02/19

    Yup. I’m already seeing stories about how many immigrant families can be packed into ‘apartments’ cut out of one repossessed and resold McMansion — lots of those in California’s outlying cities that built up grotesquely with those huge crackerboxes. I think so far it’s a horror story more than a reality, but if the places aren’t occupied they get stripped of wiring and plumbing for scrap metal pretty fast. And some of the new developments are mostly empty.

    The USA has reached some kind of inverse pinnacle, I read that the number of foreclosed and repossessed homes is about equal to the total number of homeless people nowadays.

    Vaporware — we invented the concept for software, expanded it to hardare, and then to housing, and then to bundled misrated financial securities. You’ve got them, whether you know it or not. There’s some in everyone’s account.

    Coming soon to a “reality” to be offered in your neighborhood or company. Look for the “Puffed in the USA” label. Puffery is our most important product.

  9. #9 Andrew Dodds
    2008/02/20

    Hank -

    When it comes to house prices and personal debt, I can (proudly??) announce that the UK has managed to beat the US – by most measures we are more indebted, and our house price bubble more insane.

    We have a situation where a £5 toaster has more safety and compliance testing then a multi-billion dollar ‘financial product’. And the sellers of these products get vast bonuses for selling them, with no comeback should the financial products turn out duds.

    Our version of US subprime is the city center flat BTL scam. Lots of people have been suckered into buying them as an ‘investment’ with rent barely half the mortgage payments; prices have collpased, and in the UK, you can’t just post the keys back… so people are losing their main homes and going bankrupt.

    Had the same sums of cash been directed into the energy infrastructure over thge past 10 years, we would be closing in on a zero carbon economy by now. But that would be bad economics, just ask any AGW-skeptic.

  10. #10 Munin
    2008/02/20

    William, I never took you for a speculator. What made you think you knew better than the markets?

    Interesting take on “nationalisation” from Will Hutton in today’s FT:
    http://www.ft.com/cms/s/0/54f0fda8-df56-11dc-91d4-0000779fd2ac.html

  11. #11 Hank Roberts
    2008/02/20

    hmmmm

    http://arxiv.org/abs/physics/0303028
    2000-2003 Real Estate Bubble in the UK but not in the USA

    hmmm
    http://www.springer.com/math/quantitative+finance/book/978-3-540-27264-9

    “… quantifying the complexity of many natural and artificial processes in which a growing emphasis is on the role and importance of extreme phenomena…”

    but:
    http://www.ess.ucla.edu/faculty/sornette/prediction/index.asp#prediction

    I dunno. I didn’t bet my retirement money on his predictions.

    > Had the same sums of cash been directed
    > into the energy infrastructure over thge past
    > 10 years, we would be closing in on a zero
    > carbon economy by now.

    Amazing, isn’t it? The amount of vapor-money that’s just evaporated is way more than the expected cost of stopping climate change.

  12. #12 Dean Morrison
    2008/03/01

    One of the beneficiaries of Northern Rock was Matt Ridley – former chairman of Northern Rock, and Science writer. Although he does indeed write well on evolution his right-wing free-market ideology has also led him to be one of the few global warming ‘sceptics’with some scientific credentials. He appears on the cover of Bjorn Lomborg’s latest work of fiction as a prominent supporter.

    Rather ironically, a year before the Northern Rock debacle blew up – Ridley wrote an article for ‘The Edge’ on the subject of ‘What’s your dangerous idea?’ – his dangerous idea wat that there was far too much government regulation of industry (and banking) – and government should but out of such matters and let the free market reign… ?????

    http://www.edge.org/q2006/q06_11.html#ridley

    [Well I can go for all that other than that Ridley has any sci cred :-) -W]

  13. #13 Mike
    2008/03/17

    Shame on you William. Trying to cash in by speculation with capital rather than by the honest fruits of your labor!

    [I'd have a hard time living off honest fruits :-) -W]

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