A dreadful mistake

Nationalising anything is a dreadful mistake if the intention, in the medium or long-term (pace Keynes), is to facilitate efficient administration. Anyone who can remember dealing with a nationalised bank in central Europe prior to 1989 probably still has nightmares about the frustrations endured. At best nationalisation should be replaced by an administrator charged with maintaining some shareholder value before business can become stable again.
You cannot improve banks by turning them into part of the state apparatus as the management incentive is irreconcilably different. It will be interesting to see if Northern Rock proves me wrong.
Banks occupy a very special position in our economy and allowing any of the major ones to become bankrupt would have a domino effect of catastrophic proportions for the UK.
A ‘bail-out’ with taxpayer’s money should be seen as an, admittedly unexpected, investment in the commercial blood supply of the economy – one which will, over time, be fully repaid. This ‘bail-out’ is only likely to succeed if those managing the banks can look forward to advancing their own personal wealth. Our tax system has benefited enormously from the financial sector and with the right future modulation and supervision will continue to do so. ‘Toxic’ assets are not entirely composed of unredeemable features and, given time, a fair proportion may be realised. Writing down is inevitable, but writing off is stupid.
If we had been privy to more information about individual banking activities regarding credit swaps and leveraging, market forces would have long ago forced a change in these practices. One thing we do need for future stability is up-to-date transparency.