The Confederation of British Industries (CBI), a powerful group of British business people has accepted that under the circumstances a period of temporary state ownership of Northern Rock mortgage bank “may well be the least bad outcome.” But at the same time, the CBI has criticised the government for delaying the decision for so long.

“An obvious question is, why it has taken so long for the government to reach this decision. Given that credit conditions have been deteriorating since the summer, and that the only two bids on the table were reportedly ‘out of the ball park’, this decision could and perhaps should have been made months ago. The new management now has a period of temporary respite to get the business in shape for a sale when market conditions permit, or for an orderly rundown.”

The CBI warned that state ownership of the bank should not be allowed to distort the savings market, through access to government funds on favourable terms.

The CBI said Northern Rock debacle has revealed very serious shortcomings in the regulatory system, and in government’s approach to dealing with troubled banks. Therefore, it said, consultations now under way to correct these failings were of vital national importance.”

Meanwhile, a research study reported by the Times said the Northern Rock episode has brought the City’s pre-eminence as a competitive financial centre under threat.

Every six months, the City of London publishes The Global Financial Centres Index, which ranks the competitiveness of 46 world financial centres. The research is carried out by Michael Mainelli, Professor of Commerce at Gresham College, and his Z/Yen consultancy.

London has previously outranked New York, the second runner, as the ideal place to carry out financial services. However, the next report, due out next month, will show that the City’s lead has been cut drastically.

More worryingly, the research was done before the botched sale of Northern Rock and last weekend’s forced nationalisation, which will have lowered the City’s standing still further. If the recent trend continues, London could end up on level with or even below New York in the the next study in the autumn.

The research takes into account a wide range of issues relating to how various financial centres conduct their business and produces an index for each. In the previous report, last September, London was almost 20 basis points ahead of New York. Figures reported by The Times suggest that this lead has been cut to less than ten points. The next entrant, Hong Kong, remains almost 100 points behind the two front-runners.

In the latest development on the issue it has been revealed that the nationalisation of Northern Rock will not include the £50 billion off-balance sheet vehicle called Granite which funds half of the Newcastle-based lender’s mortgages.

If Granite were to go under, the state-owned Northern Rock would be at the bottom of the queue of creditors, meaning taxpayers could face a £5.5 billion loss. The government confirmed that Granite, which is a Jersey-based trust, would not be covered by the nationalisation legislation.

Northern Rock set up Granite to fund about half its mortgage book. It owns an 11.5 per cent stake worth about £5.5 billion. As the bank is set to pass into public hands that liability will pass to the taxpayer.

The move to nationalise Northern Rock mortgage bank by the UK government has added meaning to a debate on the limits of capitalist system which had begun in the world’s economic capitals following the credit crunch triggered by the sub-prime debacle of last summer. Marxist socialism is not knocking on the doors but the failure of the market to intervene and stop the on rushing credit crunch and the looming global recession is making many economists question market’s ability to provide solutions.

Walden Bellow in an article (Capitalism in an apocalyptic mood) published in the Inquirer.net claims that an apocalyptic mood has seized the highest levels of global capital as the global financial system continues to implode. This implosion, in his opinion, is but the latest financial crisis to wrack global capitalism.

“Financial crises are inevitable since capitalist growth has increasingly been driven by speculative bubbles such as the housing bubble in the United States. The increasingly uncontrolled financial gyrations stem from the increasing divergence between an expansive financial economy and a stagnant real economy.

“This “disconnect” stems from the persistent stagnationist trends in the real economy owing to overproduction or overcapacity. The search for profitability is capitalism’s driving force, and increasingly, significant profits can only be obtained from financial speculation rather than investment in industry. This is, however, a volatile and unstable process since the divergence between momentary financial indicators like stock and real estate prices and real values can proceed only up to a point before reality bites back and enforces a “correction”.

“The bursting of the US housing bubble is one such correction, and it is leading not only to a recession in the US but to a global recession owing to the unprecedented level of integration fostered by corporate-led globalisation. It will not be easy to restore dynamism by fostering another speculative bubble, for instance, by resorting to “Military Keynesianism.”

“Skyrocketing oil prices, a falling dollar, and collapsing financial markets are the key ingredients in an economic brew that could end up in more than just an ordinary recession. The falling dollar and rising oil prices have been rattling the global economy for sometime, but it is the dramatic implosion of financial markets that is driving the financial elite to panic.”

Walden Bellow quoted World Economic Forum host Klaus Schwab saying: “We have to pay for the sins of the past.” “It’s not that the pendulum is now swinging back to Marxist socialism but people are asking themselves, ‘What are the boundaries of the capitalist system?’ They think the market may not always be the best mechanism for providing solutions.”