There are many, particularly on the right of the political spectrum, who seem to think that there is some sort of unwritten law that states all nationalised companies makes losses, are badly run and cannot compete with the private sector. In truth, there is no reason why this must be so, and with good management a nationalised company could be run just as well as a private company with the profits returning to taxpayers rather then overseas owners or shareholders. So you would imagine that labour would want to set a benchmark by showing Northern Rock, now nationalised, to be the very example of a well run state owned company.
So why is it that they are reporting on TV this morning that Northern Rock are repossessing houses at twice the rate of other banks and building societies ? The reports on the BBC this morning suggest that it is nothing to do with Northern Rock having more mortgages in debit, but the fact that the nationalised Northern Rock is less willing to work with those mortgage holders to keep them in their homes.
When the government are desperate to stop the housing market spiralling downwards at a greater rate, the Northern Rock's decision to repossess homes at an increased rate throws more cheap houses on to the market and makes things worse.
So what is the governments response to the Northern Rock doing what it is doing ? Silence. Where is Gordon Brown, the saviour of the world now ?
9 comments:
Nich, you make an excellent point. If Broooon & Co insist that banks do not pay a dividend for five years, why can't they insist that NR work with homeowners rather than against them? Oh, yes I forgot, this NuLab where the only thing that matters is the headline...
Roll on the election.
So you think there's no reason why nationalised companies should make losses and be badly run. Yet you've noticed yet another one that isn't being run in the best way. How many, exactly, do you need to see before you accept that nationalisation doesn't work? Or will you just continue to deny the evidence?
With all of Northern Rock's decent assets owned by a company outside of the UK, it is no surprise that the government wants them to get their money back as quickly as possible.
"with good management a nationalised company could be run just as well as a private company with the profits returning to taxpayers rather then overseas owners or shareholders"
I dare you to learn enough Russian to say that, then come and stand on Red Square and do so through a loudhailer.
The point is that NR is being run like a plc still.
When people slag of nationalised forms they foret that BT was making healthy profits before privatisaion, and its projected profits were likely to be just as healthy as they were when they became a plc. Alos, Cable and Wireless, Amersham International, Qinetiq, and any other number of government owned comapnies did well as nationalised businesss.
Then, of course, there is the is the example of France where a large number of nationalised firms (BNP, EDF, CDE, Thomson CSF, etc) all seem to do very well operating as private firms but with government majority ownership.
I seem to remember when BT was state run, you had to wait three months to get a phone.
High loan to values of up to 125% and falling asset prices mean quite a few NR home owners will be in negative equity. If they then get into arrears (probably due to discount rate periods ending and not being able to take their mortgage elsewhere) it gets added to the mortgage, and with no equity to absorb the arrears they get into more debt, quicker.
Aggressively repossessing homes is better for the defaulting home owners with low or no equity, though it certainly won't seem that way to them or to outsiders. The number of months in arrears is kept to a minimum and the sooner the home can be resold the better (as house prices are falling), to minimise the outstanding debt the borrower will be left with.
I vaguely recall when Northern Rock was being nationalised it was said the numbers of home owners in arrears had been massaged - some had been given repayment holidays rather than class them as in arrears, so the mortgage book looked better then it should have. If this was true I don't think they would be willing to do this now the Government is running it.
I'm unsure whether some kind of housing association or council funded shared equity scheme would be of help. They have drawbacks of their own, largely that as the value of a house falls it's your share of the equity that shrinks not the other party's.
Anonymous - You remember wrongly. My father was a manger at BT.
There are many, particularly on the right of the political spectrum, who seem to think that there is some sort of unwritten law that states all nationalised companies makes losses, are badly run and cannot compete with the private sector. In truth, there is no reason why this must be so, and with good management a nationalised company could be run just as well as a private company with the profits returning to taxpayers rather then overseas owners or shareholders.
There are a number of reasons that will always make it more difficult for large nationalised industries to be well run including:
1) Very few nationalised industries are run by experienced industrialists, as high grade leaders are not typically interested in working in an environment where they are overseen by politicians
2) Poorly run nationalised industries do not have the same urgency to reform, as unlike public companies, there existence is largely assured even if they underperform their competitors
3) The taxpayers who finance nationalised industry do not have any real ability to influence the running of the companies except through general elections, when many other factors have greater weight. Large scale shareholders (such as pension funds) do have the ability to influence (for good and bad) and thus public companies are subject to more external influence.
4) The increasing tendancy towards career politicians means that nationalised industries are have their direction and strategy set, and their leaders selected by, people who have no real world business experience.
5) Nationalised industries (along with the public sector) often provides the last bastion of union power. Unchecked unions are as bad for the economy as unchecked management, and in most nationalised industries there seemed to be little check on the union's power.
In theory, nationalised industries could be as well run as public companies, in practise they are not. NR is a classic example of confused political leadership. It is nationalised for political reasons (they were not "too big to fail"), the Govt were outwitted by sharper minds who have hived off all the best assets, leaving the taxpayer with lots of crap. They decided to keep it running because of political concerns about unemployment in the North East, and then claim it's run at arms-length when it starts reposessing homes faster than any other institution despite having directly appointed the new boss of NR.
While I don't normally find myself in agreement with the Lib Dems on the subject of economics, Vince Cable has been spot on most of the way through this one - why? Because he is one of the few senior politicians with a background in big business.
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