Breaking: UK nationalises Northern Rock Bank

I blogged previously about the bad omen that was a run on a bank--Northern Rock Bank--here in the UK. A bad omen indicating that the subprime loan crisis and the credit crunch are worldwide phenomena.
Since then the UK government offered the troubled lender unlimited credit from the public purse to stop the run on one of the nation's larger banks from continuing. They are now into the UK government for at least £25 billion (that's about $50 billion in US funny money). A consortium led by Goldman Sachs (irrational exuberance personified) and another led by promoter disguised-as-business Richard Branson have been in negotiation with the UK government to come up with competing buyout plans. Nationalisation means these have been rejected.

We have recently learned (last week) that Northern Rock is one of the top companies foreclosing on housing loans here in the UK, and I can't help but thing these things are connected.
Perhaps more pertinently, financial reporters have been taking apart the two buyout plans and finding that neither of them provided much in the way of protection for the taxpayers.
Part of the problem is that Northern Rock, like other banks, is holding a lot of overvalued paper--structured investment vehicles, yes, but also massively overvalued real estate. This is a particular issue for Northern Rock, which holds mortgage loans on lots of property in the NE part of the UK. How massively overpriced? Well, in the NE city where I lived for my first 6 years in the UK, the price of properties in some neighbourhoods made up of slum housing and empty ex-council housing went from literally £0--unsalable--to £150,000 over 5 years. The price of properties in the neighbourhood where I used to rent went from an average of £60,000 (affordable in a area where the average income was around £15,000/year) to over £250,000 in the same time period. Nothing was done to most of these properties to make them worth more, the difference was pure speculation, driven by media messages that "you can't lose by investing in property." Many of the subprime-style loans in the UK went to homeowners, but an even greater amount went to "buy-to-let" (BTL) investors, as becoming a BTL landlord has been sold as a recession-proof, theft-proof way to invest your pension.

Nationalising Northern Rock may be the best option for the British taxpayer.

The fact that its holdings are apparently not worth enough to attract realistic buy-out plans from anyone says volumes about the spread of funny money economics in the finance sector, however, and not just in the UK.