More banking madness

The government’s disastrous bank share buying policy has landed them with payment of a pension of £650,000 a year to the former CEO of RBS for the rest of his life. I doubt they can do anything about it, other than pay up,. It leaves them defending the indefensible. There is no way public money should be abused like this. They should not have bought the shares and lost so much on them.

Now they wish to compound their errors by putting the taxpayer on risk for up to £600 billion of bad and doubtful debts. Why? Can we afford it? Why should we have to fork out for other people’s mistakes? What’s in it for taxpayers?

None of the banks concerned is currently at risk. The Regulator is happy for all of them to carry on trading. They all have enough capital, we are told. There is no run on the deposits.

The government says it needs to take these risks on in order to get the banks to lend more money to people. Why do they want to do that? People and businesses are short of income, short of turnover, worried about their jobs, short of profit, short of cash. They are not short of loans. The whole point of this crisis is people are too much in debt, not too little. Companies near bankruptcy for want of orders will not be kept going by burdening them with more debt. They need revenue.

So why does the government want to force the banks to lend more? And why do it by offeirng to underwrite £600 billion of debts, when they could lend money directly to people and companies if they must at less risk and much less potential expense?

They are seeing nothing clearly. They are gripped by a collective governmental madness. They are ignoring all the warnings about excessive public sector debt. They are trying to cure a problem of overlending by more borrowing, and cannot see how foolish that is. They blundered into buying bank shares “to save the banks”, simply to lose most of the money. Now they are blundering in to buying or guaranteeing bad loans and debts to “get lending going again”. The poor old taxpayer is being wiped out, and the savers mugged.

Think again, government. Do not sign this rotten deal.


  1. duncan robertson
    February 26, 2009

    extraordinary popular delusions and the madness of crowds

    written in 1841 by charles mackay

    this fantastic book comes to my mind when i read in your post:

    They are seeing nothing clearly. They are gripped by a collective governmental madness.

  2. Ian Jones
    February 26, 2009

    RBS and Lloyds will LEGALLY FORCED to lend 40bn to businesses and householders. Obviously if demand for loans is low at the moment, the only way they can lend is to slash the interest rate. This re inflates the housing market in one easy go.

    Obviously it leaves the taxpayer holding 600bn of dodgy debt but the end result will be significant inflation to get rid of those nasty debts….

    We are back to the old Keynesian ways, we all know what the end result will be…….

  3. Sue
    February 26, 2009

    I’m at a loss of what to say. It’s unbelievable. We need to get this government out before they do anymore damage!

  4. Colin D.
    February 26, 2009

    Had the CEO involved got a scrap of honour, he would acknowledged that events have shown that such a vast pension was undeserved. He would decline to take it all. This outrage is indicative of what is wrong with this country – those who wield power no longer bother much about personal responsibility, accountability and blame. They do not, of their own volition, take the hit when things go wrong. The culture ruling the Establishment is ‘what can I get away with’.

  5. DBC Reed
    February 26, 2009

    Much of the problem is that all the political parties think that they have to keep up house prices to appease the homeowners (70% of pop.)who guarantee their election.
    (Some democracy we have when majority interests are so dominant.Is n’t there some constitutional convention about the preservation of minority interests ? I would say that democracy in this country has been hopelssly compromised since about 1972 after Nixon closed the gold convertibility window and Heath/Barber
    thought this gave them carte blanche to ramp up credit: house prices went up 70% in two years! And house prices have been roller coasting ever since-with the rest of the economy trailing behind).
    Brown is just continuing the political habits of his Westminster lifetime by seeing a rise in property prices and property market activity as keys to success in the next election. So he is anxious for more lending to the mortgage market. I doubt he is bothered about small business: he is so laissez-faire that he he probably thinks they can shift for themselves.
    Polly Toynbee laid down the marker on Tuesday in” Owners have to be weaned off house price drug”.Her idea of heavily taxing property in the future (but allowing owners to keep past gains) would ,in essence return the UK to the Fifties and early sixties when Schedule A tax kept house prices flat).
    Everybody is saying we cannot continue in the same old way but not recommending any serious changes . Controlling house prices in the ways Toynbee suggests would be one of those tough decisions to change which politicians always say they are paid to make –but never do.

  6. alan jutson
    February 26, 2009

    Due dilligence comes to mind.

    How do you expect sensible reasoning to take place when many of those involved in spending taxpayers money have none or little experience of running anything other than a bath.

    They simply do not understand real business, where you start off the week assuming nothing, and have to go out and generate sales and revenue in a competitive market with all the costs involved in doing that.

  7. Tony Makara
    February 26, 2009

    “they could lend money directly to people and companies if they must at less risk and much less potential expense?”

    Exactly right. The government clearly does not understand cause and effect in the credit crunch. Wanton lending to those who cannot structure and manage debt has been the problem, now the chancellor wants to extend this problem rather than killing it dead.

    There should be a form of lending, short-term loans, paid for out of newly created money, from the state to solvent business, with the issue later recalled and destroyed before it can impact on money supply. This would allow a growth dynamic to occur in the healthy areas of our economy while at the same time ensuring that bad business and the bad debt it created is allowed to die off.

    If healthy business is supported with a transient loan system it will be in a position to expand its base by moving into the customer catchment areas of ailing businesses, buying up remaining infrastructure at reduced cost and as a result our economy will be stronger with bigger, more reliable firms.

    I feel that the abundance of fly-by-night SMEs over recent years has made our economy weaker and more prone to a credit crisis. We now need to look at creating a more concentrated economy, powered by larger business concerns who can handle credit and have an overall better strategy for enterprise. The SME culture has created a lot of amateur-hour businessmen, who, though well intentioned, did not know the ropes and could not manage credit.

    1. a-tracy
      February 27, 2009

      Your comments about SME’s on what facts are you basing these on and can you substantiate them?

      The last time I looked it was several large business concerns reporting huge losses contributing to the credit crunch – when one individual SME goes down nobody blinks (other than their family). However, Woolworths; LDV; Jaguar/Land Rover all were exposed due to their use of credit. Large house builders have had to refinance due to over borrowing. Then of course there are the true culprits such as RBS, Halifax, not SME’s by any stretch, who between them have left this Country reeling from their excess. I can’t recall a time when a Prime Minister has had to rise to his feet in the Houses of Parliament and report that Mr Smith the corner baker in some small town has gone into administration!

      1. Tony Makara
        February 27, 2009

        A-Tracy, more than half of SMEs are reported to have been exposed to bad credit with over one quater struggling with overdrafts and re-mortgages.

        Considering that this sector represents almost half the entire UK economy and is accountable for over a quater of all UK employment I think it fair that we express concern over the future role/strategy of SMEs.

        While continuing to offer support to small business, we should also be looking to strengthen our economic base by govt support for a more conglomerate-based economy.

        There are areas in which business concerns can cross-over and this will allow British business to consolidate, to grow in strength, and corner access to our domestic market, in contrast to the current situation in which British business is too small, scattered, disorganized, and cannot compete against foreign business.

        A national business strategy is essential if we are to become a nation of producers again, able to recover access to our home market, providing the jobs and services that our nation needs.

        1. a-tracy
          February 28, 2009

          Tony, have you got a link to the reports about SME’s being exposed to bad credit? I suspected that such a document had passed around to big businesses when they reduced credit terms in some instances to just seven days, whilst many of them take 60 to 90 days to pay.

          The draw back to ‘conglomerates’ is that they have the power to hold you to ransom.

          This country needs innovate SME’s to push boundaries, show how to control costs, try out and introduce new technology rather than stagnating (as is being suggested that the Royal Mail have been guilty of). They are the engine of growth in the economy and when they are being suffocated we all lose.

          The pottery industry wasn’t small they conglomerated and now they’re all shutting down, the car and van industry wasn’t small and still can’t compete on the world stage.

          In another model – Woolworths for example had many profitable stores but got dragged down because it was a conglomerate.

          By a national business strategy do you intend to force small businesses to merge when they get to a certain size? Or should a group of cafe’s all come under one umbrella brand and not stay unique.

          JCB and Dysons started as a small enterprise and remains a none conglomerate exporting all over the world.

    2. Tony Makara
      February 28, 2009

      A-Tracy, BACS reported as recently as 28/02/2009 that:

      “Despite acknowledging the extent of the problems late payments cause, 63% of SMEs admit that they had failed to pay at least one invoice on time, creating a perpetual circle of bad debt that is undermining UK businesses”

      “For those that do manage to stay afloat, late payments have a considerable impact on day-to-day running and long-term business viability. 10% will not be able to pay their workforce if payment is a week late, while 38% of businesses with late payment difficulties struggle to pay their own bills on time”

      I believe we are on the verge of widescale SME collapse once the credit crunch takes full effect. The fact is SMEs are too small to weather shortfalls in cashflow. This makes our economy highly vulnerable.

      The post recessionary economy must have a more solid structure with local trade associations established to bring smaller businesses together, with tax incentives to encourage the growth of conglomerates.

      All regulation opposed to mergers must be swept away by a Conservative government, irrespective of pressures from the EU and other international forums.

      While it is true that even conglomerates can fail if poorly managed, their size and pooled resources make such associations more able to survive the storms and stresses of restricted liquidity.

      Our nation needs longstanding solid performers rather than relying on fly-by-night lightweight enterprise to serve as the base for our economy.

      1. a-tracy
        March 1, 2009

        Tony – how many of the SME’s that you mention in your post cannot pay their bills on time because of their dependence on the conglomerates that you extol who in turn are demanding 90 days from these businesses as they know their survival depends on the inter-relationships that have been developed over many many years. Did the BACS report detail how many large organisations, public agencies and government departments were also not paying at least one bill on time? Do you have a weblink to this article because I’d like to read it?

        Rather than the support that you seem to be requesting for larger organisations in the future of a British economy I believe it would be better to have a national settlement day every month where all businesses are contractually obliged to settle all outstanding invoices at the same time. If businesses were unable to meet these obligations then their insolvency would be highlighted much sooner and it would remove the threat of other SME’s trading with those which are poorly managed.

        Calling SME’s “fly by night lightweight enterprises” is paying them a diservice which I take as an afront to the many entrepreneurs that I know and value.

        During the 70’s when many of our services were met by large nationalised organisations we were held to randsom regularly by unions and corporations alike. It is the very fractious nature of our economy that has kept both big business and the unions at bay over the past 20 years and I for one do not wish to return to closed shops, 3 day weeks, blackouts, being told you’ve got to wait three months for a phone line and ever rising prices.

    3. Tony Makara
      March 1, 2009

      A-Tracy, when you state:

      “It is the very fractious nature of our economy that has kept both big business and the unions at bay over the past 20 years”

      You make a very telling statement confirming that British business is disorganized and lacks the unity of purpose needed to work as one to compete against foreign business. As long as our national economy lacks any sort of strength in numbers we shall continue to see foreign goods filling the stores while our people, who could be making these wares themselves, languish on benefits in the millions.

      You also make a very important point with regard to the Conservative party’s position on this. There is no doubt in my mind that many in the party still fear a revival of British manufacturing because of the implications for organized labour, a militant hard-left, and increased financial support for the Labour party.

      Likewise I do not want to see a return to the days of Red Robbo and others of that ilk. However that is an issue that has to be countered through trade union reform and the de-politicization of all unions, with ultimately trades unions replaced by guilds comprised of workers representatives, management and government. Providing the organized approach to make British business competitive.

      We must not allow fear of organized labour to stand in the way of economic revival. Mistakes were made in the 1970s, the unions were undemocratic and represented ideological goals rather than the best interests of workers. The shift to a union-free service economy has not been the panecea that many predicted. Our economy is now seriously unbalanced with too many services and too little manufacturing and agriculture. We need to restore that balance and not let ideological fear of organized labour get in the way.

      1. a-tracy
        March 1, 2009

        Thank you for taking time to respond but could you please explain to me how in this age of the minimum wage and social legislation which engulfs the EU do we compete with well managed, well organised labour rich companies in China, India and others who pay the equivalent of 42 cents per hour for six, 12 hour days to produce many of the manufactured products that we in the West have come to depend on to maintain our lifestyles. This has nothing at all to do with small enterprises and all about large enterprises relocating – as our pottery industry did to Indonesia – not because there were better skilled workers. It was purely because the labour costs were considerably cheaper and in these days of big business profit comes first and Country comes second.

        Most small enterprises on the other hand have no choice but to employ local labour and you should be celebrating that fact instead of denigrating the owners. It is unlikely that we will agree on this only time will tell which of us is right.

        You haven’t answered my main question on where you got access to the BACS report and if there is a web link or address where I can obtain a copy from. I want to know whether this report was balanced because I don’t believe it was.

        1. Tony Makara
          March 3, 2009

          A-Tracy, British business, and for that matter Western business, will always find it difficult to compete against sweatshop wages. For this reason, and to create, at the very least, an even playing field, Western governments must agree to impose a wage-equalization-tariff on all nations that undercut Western trade through the use of sweatshop wages.

          This would end the unfair advantage that the emerging economies have. In fact this has to be done to stop China in particular, which has stated that it aims to end ‘Western economic preeminence’. Those who object to tariffs on the grounds that they feel it restricts competition and choice, need to understand that while sweatshop wages undermine Western wages, there is no choice or competition.

          On the matter of the BACS report, I’m sure you will find any information you need on the BACS website. Interesting that you claim the BACS report wasn’t balanced when you say you haven’t read it? Do you claim to have a more extensive pool of reference resources on cashflow than BACS?

  8. Brian Tomkinson
    February 26, 2009

    If the bank was in effect insolvent and had been put into administration then Goodwin’s pension would likely have ended in the Pension Protection Fund and given his age would have been limited to little more than £20,000 pa. It seems obvious that when we were told that he was leaving without any compensation that was incorrect as it is now reported that his pension pot was increased by an additional £8m!
    Whilst agreeing with the sentiment of your posting is it not the case that many profitable businesses are suffering from the bank’s calling in loans and/or increasing the cost of lending? Is it not the case that the banks are trying to re-build their balance sheets and we are all suffering in one way or another for their previous irresponsibility? How would the government lend money directly to people and companies except through a vehicle such as a bank?

    1. Brian Tomkinson
      February 27, 2009

      Why is my comment sent at 9:10am yesterday still awaiting moderation?

      Reply: because I have been very busy and there are so many comments

      1. Brian Tomkinson
        February 27, 2009

        Pity, as I was hoping you might answer some of my questions.

        Reply: I have caught up now, and haven’t found the item.

  9. a-tracy
    February 26, 2009

    “None of the banks concerned is currently at risk”. Oh I don’t know about that, the RBS have annoyed many people with this news. It’s a real shame the Natwest got themselves tied up with this bank.

    February 26, 2009

    “Think again, government. Do not sign this rotten deal.”

    We have to go on repeating this line and MAKE them listen.

    Are there no lengths to which this government will not go to defend their leader’s gross incompetence?

    He and his chancellor are plainly way out of their depths and it’s we taxpayers who will be manning the lifeboats for decades to come unless we cast them adrift now before they take us all under with them.

  11. Publius
    February 26, 2009

    Absolutely, Mr Redwood. There is no shortage of loans, unless by “loans” you mean loans to the feckless and irresponsible. Is the government saying that loans must now be extended to unviable businesses and uncreditworthy individuals?

    On the level of the individual (and that is where this analysis belongs) no one wants to go on a spending spree when they are already saddled with debt, and are faced with rising taxes and rising prices (for all the blather about deflation).

  12. Deborah
    February 26, 2009

    For once, the BBC report tells the story:

    “Stephen Hester, RBS’s new chief executive, said that the pension arrangements for his predecessor came under a legal agreement that the government was part of.

    “I understand this is legally binding on all parties,” he said.

    However, Chancellor Alistair Darling said that government lawyers were looking to see what could be done to claw back some or all of the pension.

    “You cannot justify these excesses when you have a failure of this magnitude,” he said.

    “On a voluntary basis Sir Fred could resolve this,” he added. ”

    Yet another triumph of optimism over experience.
    Yet more negligence.

  13. Simon_c
    February 26, 2009

    It seems to me as if it’s not just the Bank of England MPC that is looking in the rear view mirror. It looks like the government are still trying to get banks to lend more, when we really need to stop running up more debt.

  14. Hermes
    February 26, 2009

    Absolutely right, these spectacular idiots that failed to regulate properly and failed to predict this crisis when warnings were everywhere now have given themselves authority to spend hundreds of billions of our money for no benefit to the people that elected them. In a logical world they would be removed pending criminal investigation and be replaced with the people that did see this all coming.

  15. Rare Breed
    February 26, 2009

    “They all have enough capital, we are told”

    But what HAVEN’T the banks told us????? Or each other?????

    Could this possibly be why the banks are still not lending to each other at lower rates since the interest rate cuts??

    But banks wouldn’t lie about thier balance sheets would they??

  16. rachel lynch
    February 26, 2009

    John, after listening to a spot on Radio 2 today, Ros Altman quite rightly pointed out that RBS would be insolvent if it were not for the taxpayer, therefore Sir Fred Goowins pension would have landed up in the pension protection fund which limits the amount of yearly pension to £20k per year, i like so many others are incandesent with rage about the hole we have found ourselves in, i have worked and saved all my life… i have had enough.

    In my personal view the Conservatives could do worse than engage with Ros Altman, she always seems to talk a lot of sense which is just what we need.

    An upset voter (Wokingham)

  17. Ian
    February 26, 2009

    It’s unbelievable. One thing that seems clear is that RBS was appallingly badly managed and not just a victim of some unforeseen credit crisis. Surely there is a case for just cutting the bank loose and leaving it to its fate, rather than saddling taxpayers with a bill of potentially astronomical proportions.

  18. GJTory
    February 26, 2009

    According to FT Alphaville the government haven’t only been landed with it, they explicitly agreed to this payment to Goodwin in October. Unbelievable. At least it should be unbelievable – but I’d believe in almost anything after this government

  19. "East Anglian Troy"
    February 26, 2009

    I was also reading today that the banks will have monthly lending targets. So I assume as they reach the end of each month they will be desparate to meet their targets. So will the last week of each month be special “sub-prime loans” meaning yet more bad debt down the line for taxpayers?

  20. Waramess
    February 26, 2009

    Oh my god, they keep making life look like another chapter out of Monty Python.

    Yvette Cooper announced they would be going through all RBS employment contracts with a fine combe to establish whether bonuses were part of a legally binding contract, but they are now admitting they had not bothered to look at Goodwins contract and, if they had, he would not be walking away with his pension.

    This is incompetence layered with even more incompetence.

    Are they truly unaware of the different contractual consequences between early retirement and dismissal for cause.

    Clearly Yvette when checking contracts started with the most junior and when she reached Fred’s she was too tired for it to register.

    If this is not a resignation issue then it should be a good reason for dismissal (for cause)

    1. Waramess
      February 26, 2009

      …and it gets worse with the published letter from Fred that implicates the entire treasury team.

      Hope you get someone with this amunition John

  21. Harry Fredericks
    February 26, 2009

    This is a very clear sighted indictment of governmental stupidity that is becoming habitual.

    There is reputedly in excess of 100 trillion pounds of bad debt around the world. This translates as beyond the type of action being undertaken. Debt forgiveness and write downs and renogiation of loans made irresponsibly are necessary.

    Beyond that I do seriously believe that the money supply at present managed by private bank credit hand in hand with leveraging should be taken into public control, as the process has been severely abused. I am informed that we do not even know who actually owns the Bank of England.

    Britain needs to duplicate the actions undertaken by President Kennedy. They led without doubt to his assassination yet his policy was the correct one. The government should issue currency free of interest. There never has been justification for borrowing from private bankers followed by taxation to pay the interest indefinitely. Time to call a halt to this ultra sleazy practice.

    Last point is that from where I am standing, these mega sums disappearing into the banks for zero gain look to me to be a preparation for bubble No2. Where the hell is the political opposition to all this financial incontinence?.

  22. Puncheon
    February 26, 2009

    This will not be the first time that an incompetent, self-serving and wrongheaded socialist government have prepared the way for an extremist nationalist take over. The BNP will sweep the board at the next elections. Labour will blame everyone but themselves.

  23. mad tony
    February 26, 2009

    Keep it Fred! You will pay at least 40% tax on it. You might even give some of it to charity. You were quite shrewd in giving up your severance pay and I am envious.
    Having said all that, I am sure you would have liked the chance to sort the mess out and if the competition authorities had let RBS merge and work more closely with Santander earlier (eg in 2004) when Sir James Crosby (who also probably has a very big pension being a succesful actuary) all but pleaded with the authorities in the UK and EU to stop it. Also if Lloyds had taken over Abbey all those years ago then none of this might have happened. 2 or 3 years ago everybody rated you highly (except those who lost their jobs or were not paid enough).
    All the best, at least you will discover who some of your true friends are (others will just like money).–crosbys-ambition-sinks-spanish-love-affair-755109.html

  24. mike stallard
    February 26, 2009

    And so it will always be when parliament is suppressed. The slackers in charge of big decisions need not really think things through.
    The Labour party is funded by people with a lot of money, or block votes and not by its grass roots. So no real discussion is allowed either in Cabinet or anywhere much else. The government is in its own little bubble and not listening.
    That is why this blog is so very important. You, our host, actually are in touch with power and you listen. I have noticed how sensitively, too, over the years, you have changed your tone to reflect our collective views.
    If only the Labour Party had a similar blog and, no, Mr Draper, Labour List just doesn’t get it.

  25. Jason
    February 26, 2009

    As I have written here before this is a robbery on a grand scale never before seen in the history of the UK. The government should be hauled in on some aspect of anti-terror legislation (similar to the one brandished in the Icelandic collapse)…there must be some provision in law somewhere to stop the govt from ruining our country…at this stage it wont matter who gets elected next as the country will be on the rocks in any case. I am not hearing enough about alternative approaches being debated in parliament or in the press and as such the govt is allowed to do as it jolly well pleases – unchallenged. Their own failure to discuss issues of such critical national importance, now and for generations to come, is negligent and IS criminal – though there may not be laws written to prosecute this. I certainly think that the population will judge them for this – in place of a court. But this most dangerous criminal is not being held awaiting trial despite overwhelming evidence of crimes against the British people. A bank robber would be held pending trial. A rapist would be held pending trial. A terrorist would be held – if they represented a danger to populous. If an army commander showed the same dereliction of duty and responsibility, or ignored very obvious warnings and his troops suffered heavy losses – he would be removed from active duty awaiting court marshall. In our broken excuse of a democracy – the (unelected) criminal is empowered to commit crimes…indeed he is lecturing other nations on how to commit crimes against their populations…the criminal is espousing views and actions that make extremist clerics in a madrassa look benign. Yet their preaching would be silenced under anti-terror legislation. Our criminal, beyond all law and reproach, in broad daylight, is rampaging, unchallenged through the populous – condemning generations to be debt slaves. Like a reckless gambler on a losing streak – the bets keep doubling up – instead of the appropriate action which would be to leave the table.

    I have also written here before questioning the validity, moral or economic, of the decision of government to favour bondholders (who made investments on their own volition, without coercion and at their own risk – many of whom are overseas) over local taxpayers – (who are not acting out of volition, have not taken risks (except by tolerating unelected criminals in a de facto dictatorship) and are being threatened under considerable duress as is the norm under conditions of a dictatorship). I have not heard any such debate on these very important issues, nor the details of what the current policy means for bondholders in terms of haircuts. The taxpayer has the right to know and it is the responsibility of the opposition to ask such pertinent questions.

  26. Socrates
    February 27, 2009

    Whilst it wouldn’t hurt as much as taking away the egregious pensions and golden goodbyes of various of Gordon’s cronies, revoking their various Knighthoods and Peerages would give at least some indication of the nation’s displeasure.

    Here’s a few candidates to be going on with :- Sir Fred Goodwin, Sir James Crosby (Late of the FSA), Lord Stevenson of Coddenham (HBOS) and Sir Tom McKillop of RBS.

    The Select Committee hearings of the last couple of days have been very informative. The blame is getting nearer and nearer to the chief culprit in No 10 and I suppose that defrocking the banking culprits might lead to awkward questions about which bozo gave them their various gongs, which in turn would draw further attention to his own lack of judgement – so he won’t be suggesting it.

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