A good deal or a heavy price?

The Government finally looks like it's cleared the way for a private sector buyout of Northern Rock. But at what cost, wonders Business Correspondent RICHARD BAKER

It's now more than four months since Northern Rock hit the skids. So how come taxpayers are still pumping billions into it and a buyer still hasn't been found?

In a word, politics.

The longer this saga was allowed to drag on the messier and more expensive it was likely to become.

There's a strand of thought out there that believes that the best thing that could have happened to Northern Rock was a quick death.

Why? Because it would have taught borrowers, savers, banks - indeed, the whole financial system in the UK - a sharp lesson about what can happen when you build a business model on a bet.

Politically, this would never have been acceptable, of course. Thousands would have lost their jobs at Northern Rock, savers would have lost money, borrowers would have suffered anguish and uncertainty (though their mortgages would almost certainly have been bought out of the wreckage by another bank).

Which is why the Government stepped in and pretty much made an open-ended commitment to keeping a ship holed below the water line afloat.

It certainly brought relief to the people in the queues outside the bank's Market Square branch in Nottingham.

But that's about all it bought.

The Government is now in the throes of a last-ditch attempt to get a private sector buyer to take Northern Crock, Northern Wreck, or whatever you want to call it, off the Treasury's hands.

It isn't just politics that has dragged out this saga. Prospective buyers emerged fairly quickly, but they weren't able to put together deals that satisfied the Treasury. As the credit crunch dragged on, it became less and less likely that this would happen.

What's emerged today is the bones of a deal that effectively parks the mountain of public money the bank now owes (and we're talking Everest proportions here) to one side. This should make a private sale much easier.

Some will call it an innovative financial solution. Others will call it an admission of defeat.

What you can't ignore is the fact that the Government's decision to rescue Northern Rock now looks a whole lot more expensive than it would have been to let it fail.

Jobs were preserved - yet there's no guarantee that a buyer will maintain them. Savers and borrowers didn't lose out - even though it was their decision to use a bank with a risky business model.

Whether the financial system has learned a lesson from the Rock fiasco - for fiasco is surely what this is - is open to question.

We'll get some sort of answer when banks respond to moves by the Government to bring in new regulations to stop another Northern Rock happening.

That has to be priority number one once the Government has disentangled itself from what I suspect will become a defining financial moment of our times.