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Extra Credit, Friday Edition   The Bar Fight on the Titanic
Oct 11 2008 11:43PM EDT

HBOS, RBS to be Nationalized

Gordon Brown shows how it should be done:

THE government will launch the biggest rescue of Britain's high-street banks tomorrow when the UK's four biggest institutions ask for a £35 billion financial lifeline...
The British bank rescue could leave the government owning 70% of HBOS and 50% of RBS. As a result it could take board seats at both companies and exercise control over future dividend payments.
The way in which the money will be raised has also been simplified. The government may have to underwrite an issue of ordinary shares. This would give pre-emption rights to existing investors, and those shares not taken up will be owned by the government. These could be placed in a new bank reconstruction fund that would hold them until conditions improve.

I like this a lot. It's simple, it's intuitive, and existing shareholders can't complain because they have the right to buy as much stock as they like at exactly the same price as the government. But it's still sobering to absorb the fact that two of the largest banks in the world are about to get nationalized. They won't be the last.

(HT: Tim Coldwell)

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