Index Nationalization of Northern RockPrivatization of Northern RockWhat is Private Finance Initiative?Market FailureBail Out of Northern RockCompetitions FeeDeregulationThe UK nationalized the famous Northern Rock bank in 2008, the reason is due to the mortgage crisis. Two years later, the bank split into business and banking to attract buyers and convert it back into the private sector. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay Nationalization of Northern Rock Nationalization can have a large effect on a country's economy, nationalization occurs when the government turns a private sector company into a public company and becomes part of the state. Governments nationalize industries in their interest, there are many reasons to nationalize, they can be externalities, failure of free market, bailout of banking system…etc. Major industries in the UK were nationalized in the 1950s until they were privatized in the 1990s, examples: the Bank of England, the coal industry, the railways... and many more. Northern Rock was nationalized in 2008, mainly due to "credit". crunch'. In 2008 there was a massive increase in subprime mortgages which led to a lack of funds for loans, so it became almost impossible to get loans from banks. Northern Rock had a high percentage of loans at risk, when the crisis hit they failed to raise enough funds and had to ask for emergency funds from the Bank of England, customers felt that Northern Rock was asking for help and they withdrew all their savings, at this point daily customers have withdrawn more than £2 billion. The Bank of England treated Northern Rock as a public company with around £100 billion added to the national debt, just days after announcing that Northern Rock would be nationalized and losing more than 90% of its shares. Privatization of Northern Rock Privatization occurs when a public business sector, meaning a business owed by the government, is transformed into a privately owned business (private sector). Over 95% of the UK's GDP is made up of privately owned businesses. In recent years the UK economy has shifted from the public to the private sector. Some high profile businesses have moved into the private sector, for example: British Gas, British Airways, British Coal… and many more. The reason why the British government decided to privatize these huge industries is all the benefits that come with privatization, it is known that private industries always try to improve technology to reduce costs and make more profits, in other words privatization increases efficiency, a manager in a public sector company does not receive any profit from the company, his salary is fixed so he will not make any effort to cut costs and make the company more efficient. The other major advantage of privatization is that private sector industries are not influenced by politics; it is the exact opposite of state-owned companies where they employ double the employees to increase the employment rate and have a positive image around the world. Not long before the nationalization of Northern Rock, the British government announced that this nationalization would not be permanent. In 2009, many rumors suggested that Northern Rock would be sold by the end of the year, when such suggestions became public they attracted large industries and banks bought Northern rock, including Santander,Blackstone, National Australia Bank and Virgin Money. Shortly after, one of the largest financial services companies in the world, called Credit Suisse, advised Northern rock to split into 2 sections; One part called "asset" and the other "bank" to separate the bad part of the bank from the good part, the bad part of the bank was full of subprime mortgages with an incredible rate of 125% of the value of a house. At the end of the year, Virgin Money decided to buy Northern Rock from the government for £700 million in 2011. After Virgin Money acquired Northern Rock, there was massive job loss, with more than 2000 jobs lost. When Northern Rock was sold to Virgin Money, taxpayers owned more than £1 billion, so that means the taxpayers donated that money and won't get it back. What is the Private Finance Initiative? The private finance initiative appeared in 1992, which is a specific project financing procedure in which private companies are entrusted with financing, managing and completing the project. PFI companies have built more than thousands of schools, hospitals and prisons. The main advantage of PFI is that taxpayers do not directly fund these projects, the private company will finance and build the infrastructure which could be a prison, hospitals, schools, railways, roads…etc. The government will then repay the private company with long-term payments with interest, usually a PFI contract can last up to 30 years. There are many advantages with PFI, one of them is how efficient private companies are, they will always try to reduce costs to make more profits. The second advantage is the speed with which the project will be completed, the government will pay the PFI company for the completion of the project but if there is a delay in the delivery of the project, the PFI company will pay additional costs towards the government, so the PFI companies I am usually quick to complete the project to escape additional costs. There has been a lot of controversy about PFI companies, around 17 schools built under PFI projects were closed due to discovery of construction defects, PFI companies built them cheaply with dangerous design and poor material, now the government must fix those mistakes which will cost them a large amount of money. Market Failure Market failure occurs when the market fails to produce the ideal outcome for society in the free market, there is complete and partial market failure. Complete market failure: This happens when we cannot find the product in the market at all. Partial market failure: This means that you can find the product on the market but at a high price and in low supply. There are many ways in which a market can fail, the first is called information failure and occurs when demerit goods are consumed more than produced and merit goods are not produced enough to meet high demand. The other common failure occurs when consumers don't pay for a public good, but will use it anyway. Monopolies can be a market failure by having expensive goods and lack of production, so they will have a negative effect on consumer welfare. Bail Out Of Northern Rock The Bank of England bailed out Northern Rock because the NAO said the bank was too big to collapse, and taxpayers will pay to bail out the bank, later the government announced that taxpayers will lose £50 billion and there could be more. Northern Rock must pay around £15 billion to the UK government and £27 billion to taxpayers. The government has spent an astronomical amount of money on the.