UK's Bank Nationalization

The struggling UK bank Northern rock is to be nationalized and the stock holders are angry.

Rock nationalisation 'right move'

The Prime Minister Gordon Brown has been defending the government's decision to nationalise Northern Rock.

At a Downing Street briefing he called it "the right move at the right time for the right reasons.

I agree with the move to nationlize the bank. You just cannot allow the banking system to fail; the cost to prop the bank up is less than would be the damamge of letting it fail. But it is the reaction of the stock holders that is interesting.

The government's move has been fiercely criticised by shareholders who face losing almost all of their investment.

Here's why:

Under nationalisation rules, Northern Rock's shareholders will be offered compensation for their holding at a level set by a government-appointed panel.

The calculation will be based on the bank's value without government guarantees.

However, analysts say under those conditions shareholders will receive very little.

It seems likely that shareholder groups will take legal action over the government's move.

What nerve. The government could just stand back and let the bank fail. Let this be a lesson to all investors: the government is not a guarantor to your stock investment decisions.