The events of the last few days are spooky. Parliament remains on holiday. We learn from the BBC Business correspondent that the Bradford and Bingley share price has fallen a lot and they are looking at “solutions”. We hear that the PM has not ruled out nationalisation, and it is the last resort proposal. Then we learn that they will announce Bradford and Bingley’s nationalisation.
We are not told what the problem with B and B is. Many companies experience falling share prices, but that does not mean they have to be nationalised. A bank can carry on trading with little confidence in its shares and a low share price, if people remain happy with it as a deposit taking institution, as people have done with B and B. If B and B needs more share capital it can seek new shareholders or ask exisiting ones to put up some more. If it is short of cash it can ask the Bank of England as lender of last Resort to lend it some, failing other sources of borrowing in the market. It can sell assets or seek a deal with another larger bank or a more cash rich institution. The BBC told us there was no need for any B and B depositor to panic.
Even more curious, we hear this morning from the BBC that the government wants to keep the portfolio of mortgages, the assets, but not the branch network and the deposits from savers, the liabilities. So what form will the sale of the liability side of the bank take? What will the government offer instead of the mortgages to a buyer so they can repay the depositors when they want their money money back? Will this sale take place by open auction? How do taxpayers know they get good value?
And why should the taxpayer have to end up with a £50 billion mortgage portfolio on top of the huge Northern Rock one? Why is government better able to manage this than the private sector? Are there any limits to how much debt the government wants to own? Why do we need another mortgage bank unable to lend anything to anyone at a time when there are too few mortgages? This looks like another very poor decision for British taxpayers, and another bad blow for the mortgage and housing market. Fewer new mortgages means a bigger house price fall, which in turn means more losses on exisirting mortgage books. The taxpayer is in for more bad news.