Tony Curzon Price (London, oD): Nationalisation, as a few of us have long claimed, was the only solution that satisfied the political constraints. Once the Bank of England had lent as much as it did to the Rock, and the taxpayer was explicitly providing it with the one thing any bank needs above all others to operate - credit-worthiness - then it was clear that in reality the taxpayer owned the asset. Whether in name or not, the taxpayer was doing the owner's job: nationalisation was just a way of making reality accord with law - by changing the law.
The intriguing possibility going forward is this: maybe we, the taxpayer, could be quite a good banking shareholder. After all, the current crop of shareholders have done a parlous job of keeping banking managers under control. Like pet-owners with dangerous pit-bulls - "they're very kind to the children usually" - the shareholders have been useless at the task of controlling their charge - preventing the misbehaviour that the world will pay for in lost jobs, unfulfilled hopes and improper indebtedness.
Martin Wolf points out that the "lender of last resort" guarantee that the taxpayer extends to all banks is anyway a kind of ultimate nationalisation of the entire finance industry. We the taxpayer provide ultimate credit-worthiness to the system. It is only natural - and entirely within the logic of the market economy -
that we should be the owners of the institutions that benefit from this dispensation.
Banks need owners because someone has to make sure their capital is put to profitable use. The capital of a bank is overwhelmingly made up of whatever is needed for people to trust its creditworthiness. If that is supplied by taxpayers, we should discharge ownership duties too. So let Northern Rock be an example of how well a financial institution can work when the reality of its risk-takers matches the reality of its ownership. And maybe we can then extend the good model from there.
