Not too hard, Darling February 17, 2008 at 8:33 pm

SandbagsGood grief, Alistair, there was no need to react that way. One minute I’m calling him a wimp and the next he’s nationalised a bank. That, to be fair, does show backbone, and is probably the best thing for the public purse. Certainly if the Virgin and management bids did not offer value to the senior creditors, notably the Bank of England, Darling was right to nationalise the bank. Undoubtedly there will be lawsuits from shareholders who are still under the (mistaken) impression that the stock has any value, and there may well be a judicial review of the tripartite authorities’ actions, which could provide further embarrassment to FSA. But for the moment Darling has done the best thing he could to stem the flow of public funds into the rock. Further coverage from the FT is here and Darling’s statement is here. The crock is dead: long live the crock.

Update. It appears that the government is going to let an independent assessor decide what shareholders in the Crock are going to get. How about this for a way of making the assessment: shareholders can either take max(0,PV(current assets) – PV(current liabilities)) [which is probably zero], or they can hang on to their shares until the son of the Crock is floated in two, three, four or whatever years time. Anything more than that is simply a taxpayer subsidy to the hedge funds. As Martin Wolf says

Shareholders live and die by the judgment of the market. In this case, they have died. That is what “risk capital” means.

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