Today was a fairly bad day to be a shareholder in the United Kingdom. The idea of property rights - something that is vital in a modern democracy - seems to have been damaged somewhat.
Property rights are a central tenet of a modern economy. Without legal rights of ownership with a solid enforcement system, the strong will simply take from the weak. In such an environment, those with wealth, influence, power and ambition can easily overpower the rest.
Don’t believe me? Just think about what has happened in Russia since the fall of the Soviet Union. Under the Soviet system, Russia did not have a single billionnaire - now it has dozens of them. By many different means, those with ambition, a mind for opportunity and ambition have become fabulously wealthy at the expense of the Russian state and people.
This type of “takeover” or “transfer of wealth” might relate to private businesses, stock market assets, property or cash.
So why I am I getting into a tizzy about this?
Today, former shareholders in Northern Rock plc found that they cannot make further appeals for compensation against the British government for nationalising the company. In the defence of shareholders, it ought to be said that the nationalisation was not exactly a smooth affair. In defence of the government, the last bank run was about 150 years ago, so they might not have been very well practiced in fixing such problems.
As this article from the BBC discusses -
- the game seems to be up for shareholders and their appeal. It would seem logical that this appeal goes on to the European level. Who knows how it might turn out?
Either way, the idea that a government can nationalise a company and then simply say “No” to appeals from the owners is not a good sign. This was not the best day in the history of the London Stock Exchange.
This idea is more worrying because in the last decade or so, stakeholder pensions have been launched as the big idea to enable everyone to participate in the increase in national wealth. Therefore, the general population has directly through lost ownership or indirectly through state ownership taken a hit on this.
None of this is good. More worrying is that with all the bailouts and rescue packages that we have seen over the last few months, is that this might become a model for the world to copy.
Of course, I have only dealt with this from one side. After all, I could be complaining about all sorts of other things if the bank had not been rescued.
A real problem is that Northern Rock - whilst being a big UK mortgage lender - was not really a financial powerhouse. Not when compared to HBOS that found itself in trouble a few months later. In an ideal world, the government would probably have let Northern Rock go completely (also not good for shareholders!) and used the funds to save HBOS. But this isn’t a perfect world and they needed to do something.