Three observations today on Northern Rock:
1. The “temporary” nationalisation of Northern Rock has been forced on the Government as an implicit recognition that economically things are going to get worse before they get better. No one should assume that the uncertainty in the financial markets is a short-term phenomenon. For taxpayers to extricate themselves from Northern Rock without net losses is unlikely to take less than five years.
2. One of the biggest casualties in this whole affair must be Mervyn King, the Governor of the Bank of England, who has overseen this debacle. His credibility in the City has been severely damaged – it is difficult to see how he would be the right man to lead any Bank of England restructuring. By re-appointing the Governor for a further term so recently the Government has held in reserve a fall guy for the future.
3. Conservatives should be resolute in resisting the claims of shareholders for compensation. This especially applies to the hedge funds that piled into Northern Rock stock in the autumn hoping for a quick speculative return. They gambled and they lost. No more taxpayers’ money should be expended on bailing out Northern Rock shareholders. It may prove tempting in the months ahead for the Party to make common ground with what is likely to be a well-orchestrated, high-profile challenge in the courts by shareholders’ action groups. It is a temptation we should resist.
