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Is Northern Rock's nationalization a good thing?

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With news the embattled mortgage lender Northern Rock is being nationalized by the British government, until it can find a buyer, the question arises whether this is a good move or not?

Analysts at Bear Stearns said that the government's move is positive for the sector. The expected managed decline in the Northern Rock balance sheet should create less competitive mortgage market conditions," said analyst Robert Sage.

Who is this positive for? Certainly not the consumer. Competitive mortgage markets are the best thing that can happen to a consumer. Why should the consumer have to pay higher mortgage rates? Does this analyst think that the government setting mortgage rates is helpful in anyway? Let's not forget that the banks are responsible for this whole mess. Had they actually been careful in their lending practices, we wouldn't be in the mess we are currently in.

Don't forget that 10 years ago we had a similar banking crisis in Asia, Russia and Latin America, and it was then Treasury Secretary Robert Rubin, who basically created a government bailout for his Wall-Street buddies. Ironic that 10 years later again we need to bail out the banks. Funny that Rubin's current employer, Citigroup (NYSE: C), is at the center of the current crisis.

Why can't the banks be held responsible for their lousy investments?

This nationalization of Northern Rock once again will allow banks in the future to mismanage funds knowing full well that the government will come to the rescue. Look out for another banking crisis in 2018.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer has no position in any stock mentioned as of 2/18/08

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Last updated: November 12, 2009: 04:27 PM

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