Nationalised banks keep us poor

After losing us £24,000,000,000 last year, our very own RBS has managed to keep its losses down to a modest £850,000,000 in the first quarter of this year. Barclays made money for their shareholders.

You might have thought that after such whopping losses they had allowed for the kitchen sink and the basin plug. Apparently not. This is a Labour government bank, and like the rest of the government it carries on spending regardless of how much income is coming in.

We learn that LLoyds/HBOS is also likely to stay in loss this year, after HBOS’s losses of around £10,000,000,000 last year. At least these banks are consistent losers.

So what does that mean for everyone in the country? It means that these two monster banks lost every man woman and child more than £550 each last year, and will lose us some more this year.

They still dare to tell us every penny of this public money is well spent. If only they had listened. These banks could have been prevented from bankruptcy without any taxpayer loss, and could have been made to sort themselves out more quickly.

Why does the government tolerate these losses? Why aren’t the people in charge being sacked? Or if they have to stay, why don’t they at least get a big pay cut until their banks make some money for us? I bet that would concentrate their minds.

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13 Comments

  1. APL
    Posted May 8, 2009 at 7:11 am | Permalink

    Gordon Brown has a brother Andrew Brown.

    EDF is the French power company that has been getting all the British contracts, and buying half of the British power generating system. EDF has an Andrew Brown as a ‘senior executive’.

    Any connection, I wonder?

    JR: “Nationalised banks keep us poor”

  2. alan jutson
    Posted May 8, 2009 at 8:09 am | Permalink

    John
    They tolerate the losses because they think its not out of their pocket.
    They are wrong, because if you are a taxpayer it costs you, but since it is not itemised, it slips your mind.
    Also the figures when written in words (as most do) mean nothing to most people, but when written in figures (I notice you do that now) the true scale is really bought home.
    Simple question.
    Do any of the present Cabinet have any “proper background” in Banking or Finance?

    Reply NO

    • alan jutson
      Posted May 8, 2009 at 9:01 am | Permalink

      Thank you for the answer.
      Most of us would have guessed this was the case.
      It just about sums up the whole shoddy mess.
      If you have no actual backgound in any subject, then you are at serious risk of being taken for ride by advisors.
      Understand Sir Fred Goodwin was an advisor to the Government.
      Can you confirm.

      reply: Yes

      • alan jutson
        Posted May 8, 2009 at 9:50 am | Permalink

        Thanks very much.
        What more does one need to say.

  3. Simon D
    Posted May 8, 2009 at 8:22 am | Permalink

    It says a lot about the state of “democracy” in this country and the immature nature of the media that there is no sensible public debate about what to do with the banks. Perhaps the BBC should do an in depth analysis of the state of the nationalised banks and what is needed to put them in a state to re-enter the private sector. What should the Government’s game plan be? Does it have one? Perhaps we can bring back the famous band of 364 academic economists who wrote to the press in 1984 about the Conservative government’s imminent downfall.

    A good way to begin is to ask:

    1. What are these banks for and who are their target customers?
    2. If we were inventing the banks from scratch in June 2010 what would they look like?
    3. What are the main differences between the current state of the banks and where we want to get to with them.
    4. When do we want to re-privatise?
    5. What is the business plan to get to re-privatisation.
    6. What ruthless cost reduction plans are needed to eliminate losses and start paying dividends again.
    7. What do we do about casino banking and toxic debt.

    Given that it is often asserted in the media that the public is boiling with anger on the subject of the banks, why is there an almost total absence of intelligent debate either inside or outside parliament?

  4. Colin D.
    Posted May 8, 2009 at 8:24 am | Permalink

    On the ‘Today’ programme, someone was defending the bonuses for bankers where they ‘value add’. Surely everyone is employed to ‘value add’? If you don’t, then you should be sacked. When it comes to bankers why do they need to be regarded as so ‘special’? All we are asking is that bankers are subject to the same common sense rules of employment as everyone else.
    The Government has adopted the same approach to the banks ie ‘too big to fail’. So the banks themselves are treated as ‘special’ and the result, as Mr Redwood spells out so clearly, is that the rest of us are being asked to pick up the bill. Would that Brown were forced to properly debate and defend his bail out package so that ‘the court of public opinion’ could make an informed judgement on what has been done in our name.

  5. figurewizard
    Posted May 8, 2009 at 8:43 am | Permalink

    Lloyds / HBOS for example still run three head offices in London, Halifax and Edinburg – Why? Any business in the position the bank is in would have taken steps to rationalise its costs by consolidating these operations by closing one or even two of them long before now. As the London office could not sensibly be such a candidate that leaves the other two; both of which happen to be located in areas of great importance to the interests of the Labour party.

    If it turns out that this government has played any part in the maintenance of these expensive and redundant overheads it would be a clear case of them wrongfully using billions of pounds of taxpayers’ cash in order to protect their own tribal interests.

  6. Matt
    Posted May 8, 2009 at 9:58 am | Permalink

    These banks could have been prevented from bankruptcy without any taxpayer loss, and could have been made to sort themselves out more quickly.

    How could this have been done? I don’t know if John has time to respond to comments, but maybe a long-time reader could point me to an earlier post?

    reply: yes there’s lots in back numbers of what to do with wayward banks – cut costs, sell off , slim down

  7. Brian Tomkinson
    Posted May 8, 2009 at 10:44 am | Permalink

    Many MPs and Labour ones in particular have the belief that “public money” i.e. taxpayers’ money is their money to do with as they wish. That is why they don’t care about bank losses and liabilities being taken over by the state. The way they have totally abused their expenses’ system is the clearest example that they regard our money as theirs. Please don’t let one more MP tell us that they didn’t go into politics to make money. For years I wondered how so many of them seem to become millionaires – we are just beginning to find out. Outrageous!

  8. mikestallard
    Posted May 8, 2009 at 11:22 am | Permalink

    Let us just get these figures into perspective.
    Under the John Major Conservatives, I believe, the country was in debt to just £22 billion (today’s article in the Daily Telegraph).
    I believe that the government then had a national budget of some £400 billion – and that was for everything, defence, schools, NHS.
    Before the crunch, under the New labour government, the annual budget had crept up to about £650 billion.

    Now you inform us that the one bank has lost an astronomical trillion pounds!

    (:<)

    • Fraser Malcolm
      Posted May 8, 2009 at 10:33 pm | Permalink

      22 Billion? Er no – 350 Billion! Public spending 400 Billion – yes but every hospital, school, road in the country was falling to bits. Look I despise new labour but there’s no point deluding yourself. The disaster we are facing was created by the deregulation of the banking/financial sectors. The Conservatives would have deregulated with even more vigour. We have blown billions in Iraq and the war on terror but the Tories would have been right in there with Bush also.
      Likewise lets not crow over MP’s expenses – Cameron was playing with a very straight bat today – let’s not forget Derek.

  9. Denis Cooper
    Posted May 9, 2009 at 9:48 am | Permalink

    I’m not sure that by themselves these losses say anything about the efficiency with which RBS is now being managed.

    If a bank writes down the value of previously acquired assets – by about £5 billion in this case – then of course it may record a loss even if its present operations represent the acme of banking perfection.

    To be fair, if you want RBS and other banks to come clean about their bad assets, then you must expect them to record losses while they do that. Wouldn’t it be far worse if they continued to over-state the value of their assets, in order to report headline profits?

    However, I’ve seen various comments suggesting that RBS are still not being straight, and there has been some very questionable “engineering” going on to produce even these figures.

    I also read here:

    http://www.opendemocracy.net/article/economics/rbs-back-to-normal

    “RBS states further that they expect 75-85% of these impairments to count towards the first loss (retained) tranche under the UK government’s asset protection scheme. The bank’s participation in this scheme is still being negotiated and will need the approval of its non-government shareholders. It is not normal for an insurer to allow losses incurred before a policy starts to use up the policy excess (think about trying that on with your motor insurer), but this appears to be what RBS expects. There is, however, insufficient information here to judge whether the cost to the government of these pre-policy-losses is to be recovered somewhere else.”

    I realise that any taxpayers’ money paid to RBS under this scheme will increase shareholder value, and so should increase the market value of the shares, and that the Treasury owns 70% of the shares, and so from the point of view of the government’s accounts it will be holding a more valuable asset.

    However government workers and contractors, and state pensioners etc, expect to be paid in cash, not in RBS shares; so until the government sells those shares, it will have to borrow more.

    Unless it paid RBS in gilts, rather than in cash, in which case it would increase its difficulties in issuing more gilts … making it necessary for the Bank of England to print more money, so that it can continue to prop up the gilts market.

    I wonder how the interests of the taxpayers can possibly be protected, when hardly anybody can fully understand what is going on.

  10. Denis Cooper
    Posted May 9, 2009 at 9:51 am | Permalink

    I’m not sure that by themselves these losses say anything about the efficiency with which RBS is now being managed.

    If a bank writes down the value of previously acquired assets – by about £5 billion in this case – then of course it may record a loss even if its present operations represent the acme of banking perfection.

    To be fair, if you want RBS and other banks to come clean about their bad assets, then you must expect them to record losses while they do that. Wouldn’t it be far worse if they continued to over-state the value of their assets, in order to report headline profits?

    However, I’ve seen various comments suggesting that RBS are still not being straight, and there has been some very questionable “engineering” going on to produce even these figures.

    I also read here:

    http://www.opendemocracy.net/article/economics/ rbs-back-to-normal

    “RBS states further that they expect 75-85% of these impairments to count towards the first loss (retained) tranche under the UK government’s asset protection scheme. The bank’s participation in this scheme is still being negotiated and will need the approval of its non-government shareholders. It is not normal for an insurer to allow losses incurred before a policy starts to use up the policy excess (think about trying that on with your motor insurer), but this appears to be what RBS expects. There is, however, insufficient information here to judge whether the cost to the government of these pre-policy-losses is to be recovered somewhere else.”

    I realise that any taxpayers’ money paid to RBS under this scheme will increase shareholder value, and so should increase the market value of the shares, and that the Treasury owns 70% of the shares, and so from the point of view of the government’s accounts it will be holding a more valuable asset.

    However government workers and contractors, and state pensioners etc, expect to be paid in cash, not in RBS shares; so until the government sells those shares, it will have to borrow more.

    Unless it paid RBS in gilts, rather than in cash, in which case it would increase its difficulties in issuing more gilts … making it necessary for the Bank of England to print more money, so that it can continue to prop up the gilts market.

    I wonder how the interests of the taxpayer can possibly be protected, when hardly anybody can fully understand what is going on.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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