Why some promises are more equal than others

It seems that all the United States Banks that received US Government tax dollars have repaid the money or will shortly repay the money in full. These banks needed what proved to be a relatively short term loan to help them get back on their feet an help the American economy on its way to recovery. The United Kingdom lent tax pounds to several banks but these banks have no chance of repaying the UK government in the short or even medium term.

It is hard to understand. When the banking crises arose Gordon Brown said that the United Kingdom was better placed than anyone to weather the storm. Events have proved that the United Kingdom was, among the major economies, the worst placed. His Chancellor, Alistair Darling, agreed.

So far the UK taxpayers have pumped in over £850 billion. I write “over” because the true figure is not known and will not be known for years to come. In return the UK taxpayers have 85% of the Royal Bank of Scotland and more than 40% of Lloyds TSB. The taxpayer already owns all of the Northern Rock Bank.

The taxpayer also received solemn and binding promises that the banks would lend to small and medium businesses at specific levels, which promises have been broken. The banks however, have been very keen to honour their promises to pay bonuses to executives who have been able to make money with the money that the taxpayer has invested in the banks. Some promises it seems are more equal than others.

Why is it that the UK banks have been worse affected by the credit crisis, which according to Gordon Brown began not in the United Kingdom but in the United States? Certainly when the banks across the world pay “pass the hand grenade” it might be a simple matter of bad luck if they are caught with the grenade when the music stops. It seems doubtful that two of the largest UK banks were the subject of such bad luck, and in any event, was not the job of all these highly paid bankers to manage the downside of risk?

The true answer probably lies in the lack of quality in the management, particularly the management at the very top, of these banks. It is clear that the fundamental judgment and ability of the directors has reached hitherto unimagined levels of incompetence. However they have suffered no detriment for their incompetence.

A director of a small business that went bankrupt with proportionally equivalent catastrophic results would be disqualified from ever being a director again, sued for the return of that part of the money that had wended its way into the director’s pockets, and probably sent to jail for fraud. Obviously directors of some institutions are, like their promises,  more equal than others.

One Response

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