Failed banks and unintelligent governments

The chaps at the Royal Bank of Scotland (which includes NatWest, Coutts, Ulster, Direct Line and Churchill Insurance) actually managed to lose £24billion in 2008. It requires a great deal of incompetence and mismanagement for a bank to lose nearly £30 billion in two years. Apparently only two thirds of the loss came from bad debts, although I have no breakdown as to how these bad debts arose.

The Chef Executive of RBS, Mr Hester, bemoans the fact that being unable to pay cash bonuses has meant that the bank has lost “some of our best performing people” and had they not lost them the bank would have lost £1 billion less – a mere £2.6 billion. These “best performing people” are in fact the best speculators and gamblers. They must have played a part in losing  some of the £30 billion.  As a taxpayer who has (like all the other inhabitants of the United Kingdom) been forced to borrow to throw good money at this wretched institution I wonder whether we really need to want our bank to gamble with our borrowed money. Gambling with money you have is bad enogh, but gambling with borrowed money is the sure and certain route to bankruptcy.

The Royal Bank of Scotland has been called “too big to fail” but this epithet is wildly inaccurate. The Royal Bank of Scotland did fail and failed big time with the largest insolvency in banking history. The £30 billion equates to around $50 billion in green-backed currency – nearly the same level of losses as Enron. Enron was a massive scam but RBS managed to lose the money without any fraudulent activity at all, we are told, which means we should give it some kind of award for complete incompetence.

So, RBS did really fail by any definition of failure. It continued in business because it was too important not to be rescued because it was so big. That being so, it would be logical if RBS were split into digestible chunks each one being small enough to be permitted to collapse, should in future any one of them should fail again.

It seems that the shareholders should direct Mr Hester to hive off NatWest, Coutts, the Insurance businesses and possibly split retail banking from the gambling businesses. It would be good for the shareholders and good for the economy, because if any single institution is too large and therefore too important not to be rescued, then the logical thing to do is to break it up into smaller institutions that singly are not too important not to be rescued. However the Government, which holds the shares on behalf of the taxpayer, gives no indication of giving any such direction, leaving us still with an enterprise too important not to be rescued.

A wise man once said that the definition of intelligence is learning from experience. I need say no more.

2 Responses

  1. I like the rest of the UK are fed up with the banks, they failed and have failed again, yet still pay bonus’s, like anything in the business world you have your successful businesses and you have your failures, the failures are weak un-organised businesses that deserve to fail and go out of business, leaving room for the successfull businesses to flourish, this should be the same for banking, let the failures fail, leave the market to the more successful banking groups, who have managed their business properly and ethically, at the very least the Government should stop the bank paying out a bonus to its staff in any form, otherwise I see it as a kick in the teeth for the hard working taxpayer, and it just creates a divide within the country, you have the bankers getting rewarded for failing and others losing their jobs because of the bankers failures

  2. I am more than fed up; their behaviour is scandalous. Today Lloyds announced a £6 billion loss. You have got to be either really stupid to make losses on that scale.

    Robert

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