Mini-case+7.4

** Mini-case 7.4: Another response to the 2008-9 crisis - nationalizing British banks**



 * > **Don't forget** ||> **...to sign with your group's name beneath your text when you upload your response !** ||

**1. Write a summary of this mini-case** (100-200 words)
Poor lending from the banks led to nationalization of banks such as Lloyds, RBS, Northern Rock and Bradford & Bingley. Since the 1980s, companies such as British Gas, British Airways and British Telecom have all been denationalized; however banks are so central to the functioning of the entire economy they cannot be allowed to fail, therefore resulting in nationalization.

[The Group, Tuesday 22/3/2011, 16:00-17:30]

To summerise the banking crisis was caused by careless leading otherwise known as the subprime mortgage crisis, were banks got alot of bad debt and because of this bad debt the banks didn't want to lead any money out which destroyed the flow of cash and caused the credit crunch. In the effort to solve this issue, nationalisation had to be put in place in order to prevent the banks from becoming insolvent.

[Team Dave, Monday 21/3/2011, 15.00-16.30]

The case study examines how in 2008 the worldwide banking system came to a holt due to careless money lending and the American sub-prime mortgage market. The banks were unable to continue lending money to businesses and each other and had to be bailed out by the tax payer because “private banks, because they are so central to the functioning of the entire economy, cannot, apparently, be allowed to fail – nationalization was, apparently, the only option”. To try and solve the problem, the British government invested huge amounts of money nationalising the banks.

[Team Keith, Monday 21/3/2011, 13:00-14:30]

Basically, this case study is explaining how, in 2008, careless money lending led to the collapse of British banks amongst other banks worldwide; this was referred to as the credit crunch. The outcome of the credit crunch was that the flow of credit stopped because the banks were in so much debt as a result of regularly lending a great deal to one and other, firms and consumers. Worldwide governments tried to fix the situation with authorities driving cash and guarantees into the UK banking sector. However, nationalization was the best option, and small, local banks such as Northern Rock were added into this category.

[Team Tanbean, Monday 21/3/2011, 10:30-12:00]

**2. Upload below your group response for each discussion question** (120-180 words):
1. In the United States banks have been allowed to fail - most notably Lehman Brothers. What might be the public interest in allowing a UK bank - such as Northern Rock - to go bust ?

Spending money bailing out the banks could have been spent elsewhere. Irresponsible lending was the banks fault; therefore the government shouldn’t have to bail them out

[The Group, Tuesday 22/3/2011, 16:00-17:30]

Smaller deficit because of smaller borowings less public taxes spent to bail them out.

[Team Dave, Monday 21/3/2011, 15.00-16.30]

- Centralize the money system more - Sacrifice few for the many - Costs too much to keep afloat

[Team Keith, Monday 21/3/2011, 13:00-14:30]

If Northern Rock went bust, the tax payers wouldn’t spend money on the recovery of the bank, which wasn’t successful anyway. If this money wasn’t spent on the bank, The general public could have spent it more efficiently, to benefit their needs. [Team Tanbean, Monday 21/3/2011, 10:30-12:00]

2. What are the risks posed by such a strategy ?

A lot of the population lose money from their bank [The Group, Tuesday 22/3/2011, 16:00-17:30]

Less taxes from banks and posible domino effects of banks failing.

[Team Dave, Monday 21/3/2011, 15.00-16.30]

The government chose to nationalize Northern Rock instead of failing them because it would aid the financial crisis, and general public would go bankrupt and want more benefits, resulting in the government having to pay out more benefits.

[Team Tanbean, Monday 21/3/2011, 10:30-12:00]