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We're all bankers now

Robert Peston | 17:07 UK time, Monday, 7 December 2009

In my wilder imaginings over the years about the future of the public sector, it never occurred to me that one day as a taxpayer I would be financially liable for the overdrafts on 3.2 million UK retail bank accounts, £10bn of loans to British small businesses and a further £10bn of UK residential mortgages provided to 70,000 home owners.

Treasury buildingBut that is what the Treasury has unveiled today as just some of the loans and investments that we as taxpayers have insured under the Asset Protection Scheme.

This is the financial arrangement that helps to prop up Royal Bank of
Scotland: it's the supposedly clever wheeze that allowed the humungous ailing bank, which is 70% owned by the state, to survive without having to be fully nationalised.

The broad terms of the APS are that the public sector would become liable for 90% of losses on £280bn of loans and investments, after RBS has first incurred a £60bn loss on those loans and investments.

Put simply, it's a way of transferring financial risk from the private sector, or RBS and its shareholders, to the public sector, or you and me.

All of which has been known for weeks.

What we didn't know was precisely what we were insuring.

Well today the Treasury told us that - inter alia - we are now liable for £10bn of loans to small British businesses, £32bn of British property finance, £39bn of derivatives, £28bn of finance for highly indebted big companies, and so on.

If you are a sucker for horror stories, you can live out more of the gory detail of RBS's dodgy loans and investments that we've taken under our stretched belt by clicking here [3.98KB PDF].

But for me there is one big theme that emerges, which is the hopeless inadequacy of Royal Bank's risk controls under its previous management, led by Sir Fred Goodwin.

The sheer diversity of the assets that we as taxpayers are being forced to underwrite, to prevent RBS from going bust, is what stands out: everything from the complex investments manufactured by investment bankers to plain vanilla personal loans.

What is also dispelled today is the notion that a disproportionate share of Royal Bank's horrible loans and investments were contributed by the rump of the Dutch bank ABN, which RBS foolishly acquired in the autumn of 2007.

It is clear that at least half of the poor loans and investments insured by taxpayers - maybe a little bit more than that - were originated by Royal Bank, rather than ABN.

Or to put it another way, what we can now see is that one reckless bank with lamentable risk controls, RBS, bought the worst bits of another one, ABN.

This was a marriage made in bankers' hell.

There is another striking disclosure today - which is that the Treasury doesn't have a conspicuous amount of trust for RBS in the partnership they have formed.

It has made sure that the Asset Protection Agency - a new body set up to manage the Treasury's interest in the Asset Protection Scheme - can appoint so-called "step-in managers" to seize control of insured loans and investments if losses on those loans and investments are greater than expected.

What the Treasury fears is that RBS will have little incentive to limit losses on these insured assets, once it has burned through the £60bn loss that must first fall on RBS and its shareholders before taxpayers start to feel pain.

Or to put it another way, the Treasury has itself taken out a bit of insurance against the great danger inherent in the Asset Protection Scheme, which is that RBS will lose any incentive or will to make any recoveries from the lousy credit it extended before the bubble burst.


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  • Comment number 1.

    Bankers - has there ever been a more apt bit of cockney rhyming slang?

    Could be worse though Robert, the entire amount could have been derivatives...actually I know a few bankers and for the most part they're jolly good eggs!

  • Comment number 2.

    It seems we're also protecting £1.5 billion's worth of their undeserved bonuses. Caledonian Comment

  • Comment number 3.

    Does the Treasury not trust RBS ? Does RBS not trust the Treasury ?

    Have you read The 'Proposed accession to the Asset Protection Scheme and B Share and Dividend Access Share issues' Document Mr Peston ? Pgs 1-186 ?

    Is this a Protection Scheme or a Protection Racket ?

  • Comment number 4.

    Robert I do not mean to cause offence but your first foray into the world of banking seems to have gone amiss. you see you are not "financially liable for the overdrafts on 3.2 million UK retail bank accounts, £10bn of loans to British small businesses and a further £10bn of UK residential mortgages provided to 70,000 home owners." quite the opposite they are liable to us ! these are the Assets of the banks you are talking about... the liabilities are the contents of people with positive balances in their current/savings accounts. I know its confusing but the distiction is important.. at least when your trying to work out if your banks are solvent or not...

  • Comment number 5.

    Oh dear!

    Sadly, much as we thought.

    Albeit you speak of the "hopeless inadequacy of Royal Bank's risk controls under its previous management, led by Sir Fred Goodwin." The hopeless inadequacy of the government's triumverate financial services controls, FSA, Treasury, Bank of England, is equally shown here.

    And RBS were obviously taking on too much risk before Sir Fred got on his horse and went to take over ABN. That surely makes his position worse than we understood before.

    As to insurance for asset protection, it's only worth a candle if all the claims do not come in at the same time and the liquidity ratios are ok...

    Again it shows how badly wrong Gordon Brown was to change the role of the Bank of England from the faithful, competent regulator of the banks prior to Mr Brown's insistence on change, and another quango..

    Now we'll need a regulator to check on the insurers of the Asset Protection Scheme.

    Fiddling whilst London burns - thanks Gordon for ruin.

  • Comment number 6.

    Houseflogger wrote:
    "...actually I know a few bankers and for the most part they're jolly good eggs!"
    So do I but there are many Eggs in this packing station that is the U.K., when you look though the shell the inside is addled.

  • Comment number 7.

    After ABN Amro was taken over how there was initial positive market reaction - this is an idictment of the whole system not just Fred and co.

    George Osbourne announced today he would defend Britain's financial sector.

    I'm afraid we taxpayers need defending/protecting from the financial sector which is greater than the total GDP of the country - the guarantees run to £850bn and HMT has already pumped in £117bn - thats double the education budget. George please speak to some of the columnists at the FT and others such and David Einhorn (successful hedge fund manager in US) - they are not known for their anti-free market views but even they will tell you we need massive reform of the banking sector to protect the taxpayer.

    And another quick point - we have put in capital to RBS of greater the total Market Capitalisation of the bank. We have decided not to nationalise for political reasons and so in substance are subsidising the minority shareholders. The gov't have fiddled around with tax rules and the APS - all so that gov't hope they can say they sold for a profit in the future! If there really was profit to be made in RBS it would have been taken over by a private investor!

  • Comment number 8.

    3.98 MB Mr Peston, not KB. ^.^

    I would pretend to be surprised, but then I worked in RBS' Collections Department. I saw the 20K unsecured loans that went out to people a year before retirement on the grounds that the staff in the branches got another loan for their statistics and it met FSA free income requirements. (Net income - (rent/mortgage + loans and 2.5% card balances + 500 pounds for a single person, 600 for a couple, 800 with kids if I remember correctly)).

    RBS's insentive structure isn't just flawed in the investment offices, every bonus structure I'm aware of there encouraged bad practice (with the exception of Collections, funnily enough - although there is no insentive to do more than the minimum). Given that I got a phone call in October trying to sell me a savings account with a lower interest rate than my current account from my branch, all because I'm now a student and therefore easy pickings (apparently) suggests that nothing has changed.

  • Comment number 9.

    So we know that Fred Goodwin has famously walked the plank, but how many of the previous senior team and the 'investment' specialists are still in post? And claiming bonuses?

    And, as a matter of interest, in a normal takeover how many of the 'taken over' team usually remain in post?

  • Comment number 10.

    Apologies for mistake in my previous post as the markets were not in fact totally enthralled by the takeover of ABN by RBS even when first agreed - but my point is they also didn't think it was going to bust the bank!

    #5 - i agree it was also a massive failure of FSA and regulartory regieme etc - how on earth did they allow the UK banks get bigger than the entire GDP of the country.

  • Comment number 11.

    If the RBS board all resign then the chancellor should accept their resignations with alacrity. They certainly don't deserve any bonuses. We need to split the banks into cautious retail operations that would not be allowed to fail and everything else such as investment banking that is not our problem.

  • Comment number 12.

    As house prices generally rise over time, if repossessed houses were rented out, rather than being off-loaded in a fire-sale auction as usually happens, these shouldn't be much of a problem. They could be taken on either by being private-sector managed or local council run.

    On a more general point, I can't for the life of me understand (apart from Gordoom's ego) why at least RBS wasn't / isn't being nationalised. Precisely what advantage does that hold other than keeping it off the official national debt? Equally can't understand why the investment management arm hasn't been disposed of - at a huge profit if the brilliance of its investment managers is as widely recognised as the RBS board believes.

  • Comment number 13.

    Guaranteeing all risks AND going on as usual is no recipe to achieve anything; it rather is following the path into insolvency, which as a country is nothing else but a currency collapse.


  • Comment number 14.

    Can I now lend myself money? Then not pay it back?
    Seems that what has happened to the cash. Or has it just gone missing?
    And if it has would we be told?

  • Comment number 15.

    and Sir Fred got an extra dollop of Pension, it isn't just God that is dead, Justice is too.

    How about some good old gesture Politics, lets tax by 100% all Politicians' pensions and 'didn't get elected' bonuses, on top of the 50% high earners tax and windfalls on the RBS men. BTW according to an agent, RBS have just started canning the recently advertised SQL server job, as they haven't got the money. Is this news?!!

  • Comment number 16.

    9. At 6:01pm on 07 Dec 2009, Wealthybutnomoney wrote:
    So we know that Fred Goodwin has famously walked the plank, but how many of the previous senior team and the 'investment' specialists are still in post? And claiming bonuses?

    And, as a matter of interest, in a normal takeover how many of the 'taken over' team usually remain in post?

    Would that would be a Gangplank to a Private Yacht that sped him away from the cess pit known as RBS? I'd walk a proper plank just for the additional pension he got , never mind the basic (if you are a politician or one of the Elite) pension he got.

    What is even more depressing, is if we think he was useless, just how much more useless does that make our Government?

  • Comment number 17.

    DO you think we need to redefine the word 'Investment', Gordon has alreafy changed it to mean, 'spend', but the 'Investment' Banks now seem to have pushed that definition into the Stratosphere. AN interesting thought, I always wondered about Brown's 'I've abolished Boom and Bust' statement, at the time it was odd, but now I reckon that he really believed it, I am convinced that the likes of Sir Fred Goodwin persuaded him it was true.

  • Comment number 18.

    No matter how angry the public gets, it clearly makes no odds. So, with no ranting, I'd just like to know: As we now know how much the actions of senior executives at RBS and at HBOS will cost everyone in the Country; and we know there was a big element of negligence and mismanagement by senior executives; CAN WE PLEASE KNOW WHAT THIS IS GOING TO COST THOSE BANKERS WHO WERE RESPONSIBLE FOR MAKING SURE THIS DID NOT HAPPEN? WHAT IS THE COST TO THEM?

    I know the FSA is investigating certain activities at HBOS including whether the top exec's mislead shareholders over the 2008 Rights Issue. Shouldn't the FSA also be investigating the legality of some of the huge gambles taken by Sir Fred Goodwin, Andy Hornby, Peter Cummings and Lord Stevenson? Or are we just going to pay for their mistakes while they walk away scot free?

    I hope Mr Darling has some answers for these questions and I hope it is not any more obfuscation about the global credit crunch and market conditions. Even the French are amazed at what happened in RBS and HBOS - in the case of those two banks, the problems were internal not global. If we must pay - and we have no option - at least we should know exactly who was responsible and what consequences their actions have had or will have on them personally.

  • Comment number 19.

    How can you have risk control when the staff are bonussed for taking risks?

    This is the price of chaos: chaos upon chaos upon chaos.

    Regulation was a shambles as nobody was in charge, the bank was a shambles because the people in charge were not bankers, but it was quite alright because there was no more boom and bust!

    It is not a case as to what were these people thinking at the time as clearly they were not. They were living the dream: weren't they? Money for nothing! Now they are famous for beggaring the nation. This has to be an offence under the Theft Act.

  • Comment number 20.

    Regarding DC visiting our soldiers in Alfghanistan. This PR man has just about run out of stints to win the next election. I suggest people realise that even with the world recession and the war we are better off now under a Labour Government than we were under the Conservatives. Although perhaps its a British thing where the grass is greener on the other side. Just wait till the Tories get in they will not be long in bankrupting the country but sometimes we need to be reminded by doing it but its a pity as the whole country will have to suffer to prove how bad it can get.

  • Comment number 21.

    It gets worse and worse.

    This just makes one think that as taxpayers we are going to be in for a thumping bill from RBS when all is said and done.

    I have no experience as a customer of RBS, but as a customer of both Halifax and BoS, who very nearly withdrew all my savings from both one eventful week last year, (and who is trying to move away from both now) I was wondering.....

    Do any of us individual customers of these banks have any case against the Directors, personally, for negligence in their fiduciary duty?

    Perhaps a lawyer acquainted with banking law can advise?

  • Comment number 22.

    Normally I enjoy a good debate but when I read the first comment:
    ".......actually I know a few bankers and for the most part they're jolly good eggs!"
    For once words fail me!!

  • Comment number 23.

    OK we are all bankers now but if hadn't bailed them out we would have been bankrupt by now thats if we would have had a Tory Gov. Thank goodness GB is in charge I have every confindence in his decisions. We will be back on course soon. Thanks to GB. The BBC bosses shouldn't be getting big wages afterall they are our employees and think they are talent but not as big a talent as GB who will successfully guide us through this recession and bring back int the red in no time.

  • Comment number 24.

    Well, would you trust them with your dinner? I don't think so. And the bankers dare to whinge!

  • Comment number 25.

    It would help me a bit more to understand the context of all of this. I've never imagined what £120bn pounds is I mean to my minumum wage (supposing I had a job) of £5.70 ok from which I'm feeding clothing and housing myself and paying council tax and income tax and vat and electric water insurance and gas, and have nothing left, well the process I am visualing in my mind when all this is happening is that the money is being collected and lent back to me like a hamsters wheel.

    When I've run on the wheel long enough and I've paid back my debt I can then go and do what I want.

    And the deal is that I do my little bit on the wheel everyone else does their little bit and i can just go to a supermarket and buy what I need for the next day. i don't have to reinvent everything and go and kill and eat whatever I need to. I get a computer and games and things to do to occupy and entertain my mind.

    So how is this affecting my existence? are you saying that I would have more or less or would be doing something else if this hadn't happened? And if this is wrong then what 'ought' to have been happening?

  • Comment number 26.

    #23 is that really you Meddlesome?

  • Comment number 27.

    As you were an unwilling investor in the banking and financial services scheme of uninsured assets you are now an unwilling investor in those bad assets. Sorry, no vote on the board of directors and no new regulations and also you will not receive a bonus....a limited partner. Thank your elected officials for being extremely stupid or irresponsible or more truthfully the facilitators of the scheme. We all own the bad debt but the banks own the good debt. You must wonder how they continue to spout out those phrases about non-governmental interference with the private sector or it will damage the system. This is similar to the later Qing dynasty. The banks provided the new opium and they sold it everywhere, with the same results for the people and maybe the governments.

  • Comment number 28.

    "Just wait till the Tories get in they will not be long in bankrupting the country"

    Surely the country's already on the brink (which you will probably put down to DC or Margaret Thatcher). Though I suspect the Scottish bloke in No 10 might have something to do with it.
    Bankrupting the country is a Labour speciality (Wilson/Callaghan) which led to the IMF being called in and the only time since its inception that NHS spending has been cut (1970s under Labour).
    Maybe you should ask someone a bit older than you to explain all this and good look with your GCSEs.
    PS: Just a tip, I think RP was talking about banks.

  • Comment number 29.

    I'm failing too to see why this model is better than nationalisation. Direct control would be more efficient in implementing controls and a focus on good old fashioned vanilla sensible lending to SME's indiviuals loans and mortgages. Surely a few layers of management is superflous here. If the government are concerned enough to make provision for the allowance of step in managers, shouldn't they be put in place before more mistakes are made rather than attempt to clear up a further mess

  • Comment number 30.

    So am I right in thinking that the RBS is running its section of the economy as if there is no tomorrow?

    Put it another way. The assets the bank has ended up with, failed property companies etc, will be worth nothing if they are to be liquidated so the bank continues to finance them with our, the taxpayers, guaranteed money.

    Nationalisation without any safeguards whatsoever. No responsibilities.
    The banks run the show. For themselves.
    No wonder they want big bonuses.

  • Comment number 31.

    Robert - never fear - guess what the Treasury have employed external advisers to do due diligence on the loan book supported by teams of trouble-shooters from FSA/BoE - making sure we only insure insurable loans! to quote :

    " 3.14 To deliver these objectives, HM Treasury and its independent external advisers, in
    coordination with the Bank of England and the Financial Services Authority, deployed
    experienced teams, to review the assets that RBS proposed for includionin the APS.
    3.15 HM Treasury and its advisers took a ‘bottom-up’ approach to the due diligence process.
    This required first a detailed review of the different classes of assets that RBS wanted to put in
    the APS. Then, the individual characteristics of each asset class were reviewed to produce an
    assessment of the risks associated with that class. And, finally, these were aggregated to build
    up an overall view of the risks for the APS as a whole."

    The Tripartite gang again looking out for the public....who are the external advisers and how much were they paid?

  • Comment number 32.

    #27 ghostofsichuan

    how is this similar to the qinq dynasty? what happened to them? Is everyone living in a fantasy world and thinking that everyone wants to be part of their fantasy?

    There are things happening in my life that I don't like. Ok so there are people bothering me for money and telling me what I ought to be doing or not and they are going off and doing what they like. People tread on me all the time and they act offended at the least slight when i should have to put up with everything that is served up to me.

    Is there something that 'should be happening'? that isn't? What?

    I would LIKE it if i didn't feel like the next person was going to slit my throat or start smacking me around but what 'I like' doesn't seem to be as important as what other person like?


  • Comment number 33.


    Bottoms up approach

    You're not suggesting they were talking out of their .....

  • Comment number 34.

    Government guarantee = no bonuses.

    How difficult is that to understand?

  • Comment number 35.

    ok so we're just going to be evil for the fun of it! do you wish me to be the same as you?

  • Comment number 36.

    Kind of blows a bit of hole in the 'it all started in America and down to the US sub-prime market' argument

  • Comment number 37.

    If i'm a banker wheres my bonus?

    RBS have just offered all thier branch staff a redundency package (and its not a brillent one)and rummer has it so many have asked to take it up that RBS has delayed the process while they rethink their position. ( in some branches over 50%have asked to go!)

  • Comment number 38.

    Dear Robert,

    I am a higher-rate UK taxpayer and feel enlightened by your insightful interpretation of economics and government.

    Can you please tell me how many tanks, hospital wings, police cars, schools and prisons I also "own"?

    As a humble non-economist, I'd also appreciate if any figures could be relayed to me in lay terms, say for example if all the schools I "own" would fit into a small country the size of Wales...

    This is all very difficult to understand and I can only thank you for the sterling work you do to present this to the UK public in your helpful manner.

  • Comment number 39.

    Or to put it another way, as you so often say, this bank, run by a dodgy CEO, took on dodgy loans and liabilities at the top of the market and the perpatrators of this shambles, well a lot of them now want a nice fat juicy bonus for sorting out the mess - the value of this - Priceless!

    It is just as well the govt has put in place some sort of failsafe scheme to stop them running off with the lot after writing off all the failed loans.

    Time to revisit Freddie's pension arrangements I think, not to try and reduce our loss but just make us all feel better that this Smart Alec can't live in quite the luxury he does at the moment.

    As for all the furore about bankers going elsewhere - hmmmm - I think we would all be quite a bit better off if this lot did!

  • Comment number 40.

    It has just occurred to me, OK late, that bankers can never be wrong.
    Either their borrowers were fickle.
    Or the regulators were asleep on the job.
    Either way no blame can be attributed to the bankers who were just doing their job. Being helpful even.

    What a marvellous position to be in.
    Almost as good as running a sweetie factory.

    Well better actually since you never get sick of sampling the product.
    And of course the taxpayer is always there for you.

  • Comment number 41.

    While it's true that we are all bankers now, certain things will change. As a shareholder, semi-skilled work involving gambling with unfathomable financial instruments will not be tolerated.

    As a shareholder, I will insist that all bankers are certificated as "competent persons", and will receive training on maths so they understand that "gambling is a zero-sum equation". The current set of bankers are unfit, and tainted.

    The new bankers will need to carry professional indemnity insurance to cover their employers (us) against the possibility of reckless or stupid behavior.

    Greedy bankers will be identified and removed from the register of "competent persons". Wages (not bonii) will be linked to long term performance over a 15 year time span. Measures will be introduced to stop chancers from making a living in the "profession".

    Banks will be scaled down to make them small enough to fail. The firms of the leading earners in the industry will be taxed heavily globally until the balance is restored to the public purse. Casino operations will be isolated from real banking.

    That's the start, anyway. Later, we'll turn the heat up a lot more.

  • Comment number 42.

    Well done on factoring ABN's role in the downfall of RBS which is so often dilluted. ABN was strong in many markets but when we were bought by RBS (and Santander and Fortis), it was RBS and Fortis that were desperate to do the deal at any price. They sacrificed those profitable pieces of the powerhouse that was ABN and kept only the slurry. Everyone has a slurry tank. Santander was laughing all the way to the ..... bank.

    A pity your insightful analysis doesn't go back just a tad further and recognise that the banks simply did what Blair and Brown wanted them to do; lend, lend lend. Don't care who, Don't care how. Just lend.

    New Sleaze didn't have to Tax and Spend because the money rolled in from increased VAT etc receipts and their own borrowing through PFI/PPP.

    A pity you still don't point out that PPP/PFI was always going to be for our children pay off, not us. How do you justify to yourselves keeping that fact out of the analysis ? And why do you still tow the party line on PPP/PFI not being part of the national debt? Make that another £56bn of debt and rising. It's more like £240bn than £175bn.

    Brown started the ball rolling when he split the BoE and FSA functions and apointed people he and Balls could manipulate. He expected to get the PMs job in the early 00s with Balls as Chancellor and bail out a hero before the wheels came off.

    Perhaps you and Mr Marr and others will one day have the humility to acknowledge the role the BBC played in creating the mess we are in by presenting New Sleaze as fit to govern with Brown as a competent Chancellor.

    They never were. They never will be. But that won't stop you peddling the Fat Cat Bankers story to try and get them re-ellected next year will it?

    How about explaining the simple truth behind 'Terminal QE syndrome' to your readers ?

    - Banks told to shore up Capital ratios by buying Gilts.

    - Banks refuse. If there is one thing they can smell a mile away upwind, it's a future bad debtor wanting a loan secured on a promise to pay

    - So BoE prints the money, calls it QE and lends to the Banks on condition the buy Gilts with it.

    Utter, utter, utter GENIUS

    The coupon on a gilt without QE would need to be 20% plus and we, Joe Public, just aren't up to that. We are financial dead ducks my friend. The Germans are laughing. 2014 should see them achieve what they started 100 years ago. The French are tickled pink at the propsect of UK plc in the gutter.

    Where is the man now the hour has come ? 'cause it ain't Georgy or Cameroooooon or Darling or Vince or Mandy or .....

    Who is our Obama because we do rather need one old bean.

    Enjoyed your book hugely and love listening to your pieces.

  • Comment number 43.

    Quote: Robert Peston: 'But for me there is one big theme that emerges, which is the hopeless inadequacy of Royal Bank's risk controls under its previous management, led by Sir Fred Goodwin.'

    Spoken like a true Government supporter.
    What emerges to everyone else is the hopeless inadequacy of the FSA's and the Government's risk controls, led by Gordon Brown !

    The buck and the blame stops at GB, not FG.

  • Comment number 44.

    #21 + #23
    Catherine, there is only one explanation for your posts. You are upstairs at No 11 Downing St and Mummy has left her computer on again.

  • Comment number 45.

    Am I right in thinking RBS fought a huge battle with Barclays to be the buyer of ABN? As I remember, RBS and Barclays spent millions fighting to buy the bank, and the Barclays board were seen as big failures for eventually losing out.
    Now the RBS board are rightly chastised for this terrible acquisition, but noone mentions the Barclays bid. Surely it's a great example of how chance-based the banking world is. Had Barclays won in 2007, might they be in RBS's position now??

  • Comment number 46.


    Hypothetication is a double edged sword? I don't think so. We pay and we don't own. They own and don't pay.

    Britain has to many too big banks (for us to support now) and that is both to our advantage on the upswing but also to our huge detriment on the downswing. The facts is that we the taxpayer cannot afford to support these (greedy) international banks and they must live or die on their own.

    We need to shred banks (and bankers) perhaps Fred Goodwin or Lord Ashcroft could advise!!!

  • Comment number 47.

    To Devils Advocate & other bloggers

    Nick Robinson on his politics article said:
    'Good to see that our politicians are taking seriously talk of a crack-down on inefficiency'

    I reckon that's the most comical line, I've read this year.

    What do you think?

  • Comment number 48.

    "If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." Thomas Jefferson, Letter to Treasury Secretary Albert Gallatin (1802)

  • Comment number 49.

    I think we should have all banks apply for a gaming license - actually perhaps we should look into what the penalties coud be for not having one!

  • Comment number 50.

    2. At 7:22pm on 03 Dec 2009, jauntycyclist wrote:

    there is no shortage of people to work in investment banking. put any ad up and you'll get hundreds of phds, mas and what not applying.

    as long as merv does QE the bond market has been a one way bet. as has the interest rate market and usd and gbp devaluation. how many brains do you need for that. also 60% of the market is done by algos not humans.

    if these people were SO smart why did the banking crash happen in the first place and when it did why are they not trillionaires.

    basically they depend upon the public's or rather MP's ignorance for their the narrative of being 'indispensable' to work.

    i'm sure you know the turtle experiment paul? where a guy took 20 people off the street gave them a strategy to trade the markets and proved any bozo could do it if they had the discipline.

    for some reason it is still legal for anyone through a reckless system to bring the uk to its knees. the is no punishment if someone does this.
    the bankers have destroyed factories and jobs and the living standard of the uk just as surely as any of mass bombing of cities by an enemy would have.

    terrorists can only dream of giving the uk a near mortal blow as the bankers have done?

    also the financial world in the uk is very much a club. everyone knows each other. they inter marry etc. if you were to make a list of all the names, the schools they went ot, the clubs they visit i think you would have a good idea of the inner empire that has brought this calamity upon ordinary people.

    actually the bonuses are a symptom of the govt continuing failing to regulate.

  • Comment number 51.

    48. At 10:37pm on 07 Dec 2009, economoaniac
    Very good post sir.

    Right well I'm going to vote for Thomas Jefferson then, even though he is dead.

  • Comment number 52.


    Can you explain why the government didn't nationalise the banks? What drawbacks remain?

    ALSO: Why does the government resist Mervyn King's call for the banks once again to be confined to either retail or merchant banking? This measure alone (while not solving everything)would go a long way to securing the banking system and curtailing speculation (the merchant banks would have less money to play with).

  • Comment number 53.


    When the guys at the top do wrong and don't get punished, the guys and gals at the bottom do likewise ;-)


  • Comment number 54.

    when are you and the BBC going to admit that the real problem is the monetary system as a whole. It is purely set up to see private individuals such as the Morgan's, Rothchilds, Warburgs, Rockerfellers etc dominate the worlds wealth at the expense of the rest of us. When money is created out of thin air by bankers and the owners of the BOE or FED and interest has to be paid back when only the principle is created it results in defaults being built into the system. As result the bigger business is able to buy up smaller companies at a fraction of its price.

    Fractional reserve banking of modern money mechanics must be abolished immediateley and the control of currency must be returned to the government. The regulation of "money" should be in direct proportion to the goods, services and labour in the market. There would be no inflation and prices would remain stable.

    The real reason that the credit crunch came about is not because of greedy bankers per se. It is because the only way to pay off previous loans with their interest attached is by making new loans to other people. The banks do this by creating money out of thin air not because they actually have that money in their bank but by creating it due to the fact that there is a demand for such a loan. Banks only require to have 10% of the money in the bank for the loans that they create. That is why we can have a run on the bank. (see Northern Rock). Once the banks have run out of good borrowers to "lend money" they have no alternative but to go to bad. They knew this and that is why the tried to sell off the mortgages as so called derivatives. Overly simplified I agree but this is the essence of what happened and has been happening for years. It does not matter who is in power as long as there is bankers this will continue. It is now almost at the point of collapse where we cannot afford to pay off the interest on the national debt. The QE has only staved off the inevitable for what is to come. A giant pyramid scam that is about to end. Something that started years ago in this country and was sealed after the 1916 federal reserve act in the US.

  • Comment number 55.

    As many have pointed out already refering to previous statements by the Government and BOE. The banks became bigger than the entire GDP of the U.K.

    Does that not really indicate how value less the U.K economy really is that the banking sector can agressively expand its assets and liabilities until they exceed the net worth of the whole nation.

    What a parlous state our international manufacturing and service industries must be in that one sector can outweigh a whole economy.

    If this is not the case then it surely illustrates the extreme failure of the regulatory regime.

    A pox on you Mr Brown, you bare ultimate responsibility and blame. Booms always come with a reality checking bust, but you allowed the biggest boom in 50 years to precede the biggest bust in 50 years.

    The election campaign slogun for the Conservatives needs nothing more than UK wide bill board and newspaper advertisements with a picture of a contrite looking Mr Brown and his war cry 'No return to boom and bust'.

  • Comment number 56.

    Seems that the next big winners in The City are the gilts traders who have been making large amounts of money off the QE exercise. Now what exactly is the "talent" involved in buying low on Tuesday and selling high on Thursday? Basically these people - none of whom appear to be more than jumped up barrow boys - are now raking in multi-million pound bonuses by virtue of having been so "talented" as to park their bottoms at the gilts desks while they plunder money supplied at the largesse of the British tax payer. I'm sick and tired of hearing about how this talent is all going to leave the country if we don't let them have all the money they want while our public services are bled dry to sort out the mess they made. They should all go.

  • Comment number 57.

    Anyone wondering how much confidence they should have in the due dilligence process need look no further than page 32 of the document. This page of the document appears to start off talking about overdrafts but half way down the page becomes a copy of page 31 and repeats the details for personal loans. Oh well it's only 3.3 billion of our money being discussed on that page I suppose it was too much to ask that somebody actually checked the data.

  • Comment number 58.

    I'm a bit perplexed. I'm told that taxpayers have bailed out the banks and are additionally liable for £billions in funny money - but the tax I pay has not chaged by so much as a jot, apart from perhaps one or two insidious, creepy little Brownian taxes that slipped under the radar.

    I shall start screaming if the gov actually starts taking money off me to cover these bailouts. In fact I shall take out a few loans so that I'm effectively lending to myself while only charging myself interest at the base rate.

  • Comment number 59.


    Firstly, you still have the same number of pounds, but they ARE WORTH LESS! That's QE for you. Its a modern day spun version of devaluation!

    Secondly, you WILL be paying more taxes after the general election whoever wins.

    Thirdly, you WILL be getting less services too after the election.

    ... and that all assumes that there are no more icebergs in front of the titanic. It'll get worse .. trust me ... MUCH worse

  • Comment number 60.

    This is disingenuous to report it like this.
    Firstly it is not at all likely that the bank would incur losses at all.
    They have been demonstrating their ability to generate big profites throughout this whole time.......Yes they have!
    Windfalls profits are windfalls, they are not scandalous losses.
    Robert, you are so 2008!
    Remember that bankshares have more than tripled since the start of the year...that is a sign of recovery, admittedly from a catastrophe,but recovery nonetheless.
    The vast majority of last year's losses have been on writedowns of assets which have not been sold, and their viability wavered partly because of the lowered value of their shares, partly fuelled by media speculation which also triggered the huge withdrawals which the government had to step in to guarantee.
    Now is not the time to sell off bank assets as to do so would generate a loss.
    Secondly it is highly unlikely that the government would be left with 200bn of debts either.
    For a group of sophisticated economists like yourself and your staff at the BBC to write articles advocating silly spending cuts in a recession , and pound-for pound bank assets backing up liability is plain stupid.
    Stop pretending you do not understand how banking works.
    Leverage, risk assessment, risktaking and even bravery are necessary.Look where all this regret and "reality" and criticism is getting us.
    All this carping on about the government and the banks has done more damage than the loan problems in USA.
    I know you are not shorting bank shares but you might as well be!
    ......But they never write in, as they do not want to draw attention to this..... because their neighbours are mourning the loss of savings interest interest at the bank.
    There are millions of silent beneficiaries of the crisis, just as there are millions of loud losers.
    Here's an interesting fact ....from 2008 to 2009, in the middle of this doom and gloom, the surrender value on my endowment policy has increased by 13%, and that is a sign that we are getting out of trouble if ever there was one.The endowment is likely to terminate at 350% of the initial hoped-for-sum.
    That is why the government does not mind reinsuring the banks' liabilities..... because they are fast returning back into being assets....why else would LLoyds want to avoid the scheme?
    Do not jeopardise the country's future by reporting the country down and down!
    Come on Robert, your tune is now sounding a bit ragged.....the economy and the country have actually moved on since last year.....start admitting it and your copy will sound a lot truer.

  • Comment number 61.

    You consistently (and conveniently) neglect the impact of Greenspan's lax monetary policy throughout the mid-2000's, accentuating the joke that was "mortgage regulation" within the US. When one considers the incredible job the ratings agencies performed, with the FSA failing to retain any sort of control over the financial sector it by definition was meant to regulate, all of a sudden it doesn't come as much of a surprise we're in this fine mess. Oh, and of course, there are the bankers. Who could forget them?

    Nutshell for those that can't understand: It wasn't JUST the bankers.

    We then move onto remuneration within the financial sector. The entire sector continues to be tarred with the same brush, and I'd like someone to relate the functions of an FX desk (for instance) to the financial crisis. I can extend that further: credit (cash), rates (cash/vanillas), equities, commodities - oh and of course IBD. All those dastardly bankers with their DCF models plotting the world's downfall. Please. 99% of the people that comment on your posts have simply acquired the ability to regurgitate what they've read in The Sun, let alone the notion of free-thought.

    In turn what most here believe, is that the likes of the lowly cash equities trader trying to hit his VWAP while lifting Vodafone shares doesn't deserve his bonus, because someone on a different floor decided they liked the word "tranche".

    Within the context of RBS, bail outs and of course "bonuses", no one here actually (ever) quotes the empirical success the bank has had in 2009. If you exclude RBS credit related losses (cash/derivatives), according to Morgan Stanley, RBS the 5th best performing bank within fixed income currencies and commodities, globally.

    Must be a bunch of amateurs running it then?

  • Comment number 62.

    You say the Taxpayer is collectively liable. Surely this places the Taxpayer in the position of being the effective depositor and accountholder of last refuge. That is, the Banks are pretending to be building societies in order to survive.

    Which suggests that their financial future might be better served by mutualisation in favour of the depositors. The shareholders can be given a token £1,000 to pay them off. Such is the quality of transaction that Banks supposed was equitable in the illusory boom years.

  • Comment number 63.

    Could it be that the whole thing has been a secret socialist plot all along to finally overthrow capitalism ?
    I mean these are clever people and yet they would have us believe they are incompetent and self-serving.
    I mean no-one can be that dumb. Right ?

  • Comment number 64.

    Most of you on here know I have no time for labour however, I share some sympathy with catherine hughes viewpoint.

    Frankly (and I have a long memory), the Tories TERRIFY me!

  • Comment number 65.


    I posted that very thought more than two years ago, would make for an interesting debate :-0

  • Comment number 66.

    Dear Robert, the function of Risk is to challenge the risk taker and provide senior management with a second opinion. The failure of RBS was not so much in its Risk Controls since they were aware of the risks. Instead the failure is directly attributable to Fred. He verbally dressed down people who challenged him and was directly responsible for a decision to gear up the bank after prices had initially fallen. RBoS already knew that the credit environment was as good as it was ever going to get. Your analysis needs to know when did RBoS start to acquire some of these dogy assets. I think you will find that Fred, realising that ABN was a disaster zone, played double or quits (and given his payoff it was really quadruple or double). He bought a lot of distressed assets cheap under a policy that his supine board was probably ignorant of and then had a liquidity problem.

  • Comment number 67.

    Surf Red the king of the good buy wave always said that banking was just a sAAAusAAAge machine , not sirprizingly Labour wallowing arround in the trough behind , was allways happilly on the recieving end of Freds smoked sausaaage extrusion zone with the dellayed taeasir on the end of it.

  • Comment number 68.

    Surely we are not actually liable at all.

    If all these debts went bad then either the government would print so much money that the debts did not matter and we would ll float away to inflation heaven.


    UK would declare itself bankrupt.


    We would leave and move to another country. Until such time as 1 or 2 would have to happen.

    If debts don't go bad then no problem.

    It is the annual deficit that needs brought under control - not this sundry balance sheet nonsense - this is just enabling the banks to carry on trading (and paying those damned bonuses!!!).

  • Comment number 69.

    Why do we have to have a defecit? why can't government just spend what it gets in tax receipts? In short live within its means.

    Debt creates interest, interest is wasted production, wasted work, wasted effort and wasted money, for the majority of the population.

    It's high time this debt culture went out of fashion.

  • Comment number 70.

    ".... striking disclosure today - which is that the Treasury doesn't have a conspicuous amount of trust for RBS ......

    It would appear from the newspapers that a large amount of the loans, we as taxpayers are underwriting for RBS, were lent in late 2007, early 2008. In view of the fact this is the period of the Northern Rock debacle and signalled the end of the Brown boom, how could you trust their judgement's now. They clearly ramped up the size of RBS (which at one point became the largest Bank in the world by Assets) to takeover ABN Amro. RBS's lack of judgement and sheer stupidity defies belief. Incidentally I was told by a friend that a RBS Banker had applied for a job recently at his establishment. He didn't get the job, in spite of his track record because....wait for it... he was too arrogant. QED

  • Comment number 71.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 72.

    #70 dontmakeawave

    Perhaps, it was not poor judgement, but a deliberate strategy to make the bank too big too fail.

    The only other alternative, to my mind, is not incompetence, but insanity. Think about it, just who loads themselves up with so much debt when the financial world is falling apart as demonstrated by the first run on a UK bank in how many years?

  • Comment number 73.

    Moderators, BBC web security needed to sort out #72.
    This is the first spammer I've seen here.

  • Comment number 74.

    The board of RBS claim "market forces" when talking of their own pay rates and bonuses - OK - fair enough BUT if they had been left to market forces in the last 12 months, surely RBS/HBOS would now be closed - with NO Money for any of them other than Redundancy payments from the Insolvency Service at legal minimums.......these banks, as corporate entities, were a few hours from closing their doors - and their ATM's - and ceasing to trade.....where where the cries of "leave us to the market" then - or are their beloved market forces only relevant on the upside ??

    In treply to the "value for money, are they worth it, it's the going rate", banking question - the fact is there is very little one person can do that justifies a six or seven figure payment......they rely on admin staff, HR and logistics that sit below them in the banking system, none of whom get these "glamour" payments. Yet - without the infrastructure, they could not function.

    They have no humility.

    The bailout kept certain banks from closing - and saved others from the tsunami that would have followed - so the likes of Goldman Sachs, who currently whinge that "we got no bailout, so give us our bonus" are simply ignoring what would have happened if the market had got its way.....they were next in line.

    Its a house of cards - fueled in the large part by "money from nowehere" in the form of house price inflation and company percieved value on the markets - paper shuffling exercises that are not viable in the long term - hence the "big adjustments" every now and then.

    Finally, and this relates to Public sector pay as well - No One needs £250K a year.... no one - let alone a bonus of this, or more.

    In reality, this country should regard any salary above £75,000 or thereabouts as exceptional. Go back a couple of decades, and the pay gap - which will always be there - was not the pay chasm it is today. GP's, Senior Teacher, Policemen, Senior Professionals (bank, law, engineering etc etc) would earn perhaps two or three times the national average. Exceptionally four. So today, with £25K being about UK median - £100,000 would be exceptional. Therefore £40 - £80K would be the natural territorry for the higher paid - but there are Council Leaders all over the country earning twice this, and yet they run deficits each year, and fail to deliver the services they are paid to provide !!!

    Todays differentials- where mutliples of five or ten between shopfloor and MD - or bankteller Director - or secretary and Salesmanager - are fairly commonplace, is simply not a long term option IF we wish to live in a civil, inclusive society.

    Someone please explain to me, and then tell the Corus workers in the North East, why 1000+ City bankers - whose industry this time last year was, literally, "bankrupt" - can now be paid £1million EACH in bonuses - on top of already high six figure basics ???

    Shameful they can even consider it.

  • Comment number 75.

    Moderators, BBC web security needed to sort out #72.
    This is the first spammer I've seen here.

    sorry, I didn't type properly! should be #71 is the spammer.

  • Comment number 76.

    #60 Sorry, stopped reading when you tried to spin RBS share price at 30p as a recovery.

    #63 and #65 never underestimate the consequences of stupidity...

  • Comment number 77.

    Robert said:

    "In my wilder imaginings over the years about the future of the public sector, it never occurred to me that one day as a taxpayer I would be financially liable for the overdrafts on 3.2 million UK retail bank accounts, £10bn of loans to British small businesses and a further £10bn of UK residential mortgages provided to 70,000 home owners"

    There you have it folks - from the BBC's business editor. We are no longer in the realms of 'financial reality' but in a world of fantasy finance and Government gullability.

    It's time to tear up the 'rule book' and start to question the people who are trying to convince you that "everything will be alright - we are in control".

    The sad facts are they never were in control, it's just the uncontrollable beast we had unleashed just happened to be going in the direction we watned it to. Now that beast has turned and even the might of trillions of dollars cannot reverse it.

    "Dubai is just a glitch" - well the 20% knocked of their stock market in 2 weeks doesn't make it look like a glitch.

    "Recovery is imminent, recovery is underway" - based on the financial markets, not based on any evidence in the real economy - not based on anything which hasn't just had the 'bailout boot' up it's backside.

    I mean seriously - why doesn anyone believe people who make statements like this:
    "Although the US economy is improving, it is too early to say that the recovery will last, Federal Reserve chairman Ben Bernanke has said"

    Here's a weather forecast from me in the same vein - "although it is sunny, it may well rain later, or maybe stay the same, in any case there will be several different types of weather today - and it may not last for too long, although it might last all day"'s just like 1929 all over again - the politicans flounder on the beach of reality like washed up fish from the storm - the truth is that they were never in control of Capitalism - and now the public are angry because they have been fooled into thinking the beast had been mastered.

    Most of the Economic theory of the last 20 years can be thrown in the bin, most of it merely analyses the symptoms of the problem, none of them analyse the cause. Modern Economists should be ashamed of themselves - they adorned their walls with certificates and yet not one of them can explain what is happening and why at the moment with any sort of clarity. They have made a classic mistake of mixing up 'pricing theory' with 'value theory' - and as most people have worked out the two are not synominus.

    They simply cannot face the harsh truth which is profit is scraped from the back of the working man or woman which is not sustainable and will eventually lead to collapse. Too many of us have been given a 'chip in the game' and consequently cannot face this fact either.

    Self interest is unsustainable and our entire Economy is based on it - ergo the Economy is unsustainable.

  • Comment number 78.


    In my simple way I just don't understand the numbers. I assume that RBS is worth, in terms of the stock market, a great deal less than 60bn? So if it is responsible for the first 60bn itself when is the point along the losses scale that it goes bust? Say they have 40bn of losses. Do we just pump more money in so that our share goes up to 90% or 95% or 100%? And if the amount of money they have in real losses equals more than 100% of the equity is it bust? If not, why not? Are accounting rules suspended? And with it reality?

    Which all suggests to me that we stand to gain nothing ever from this deal, that the 60bn they must bear themselves under the APS is at present reckoning 70-80% at the very least the nation's debt as shareholders, and therefore we are in it for virtually the lot. How does it ever recover?

  • Comment number 79.

    69. At 09:37am on 08 Dec 2009, Dempster wrote:

    "Why do we have to have a defecit? why can't government just spend what it gets in tax receipts? In short live within its means."

    The Government is broke and has been for years - don't forget this isn't the first time comapnies have been bailed out by Government only for the resulting profits to find their way back into the private sector (Rover, British Leyland, Johnson Mathey etc)

    The simple explanation is that the Capitalist system produces a tendency for diminishing profit through technology replacing labour power (the source of profit).
    As a result something needs to be done to fill this hole - and that is where private debt comes in. It allows the tendency to be put off for a bit longer - albeit resulting in an even bigger collapse. When the private debt is exhausted (like when NR couldn't borrow any more on the LIBOR) - the Government has to fill that gap - hence the ever increasing public debt.

    When you add into the mix the Government's insistence on passing responsibility by involving private companies in their public schemes (PPP, NHS contractors, Local authorities contracting out etc) you can see why all this debt builds up.

    So the next time you see an NHS contracts manager driving around in his Porsche - you will now know he has made his little contribution to that massive public debt - and I bet you he moans about how much tax he has to pay!

    I hope you also remember this the next time you see a politican peddling his lies in the street about how the private sector is more efficient.

    The only efficent part about the private sector is it's efficiency in taking wealth from the public sector.

    Unfortunately the disease which makes the private sector collapse will infect Governments soon and they will start collapsing as well - especially as someone thought 'globalisation' was a good idea and these collapsing companies are in fact bigger than the states themselves making it easier for them to bring us all down.

  • Comment number 80.

    #77 Another goody WOTW
    See what you can do when you stay off the sauce ?

  • Comment number 81.

    "The direct cost to the taxpayer from the APS is therefore expected to be nil."

    We're underwriting over £300bn across a range of assets and administering it all at no cost? Can anyone explain how that works? Do we get the benefit of any growth in the Asset values too?

  • Comment number 82.

    #77's just like 1929 all over again.

    Unfortunately this is all too true.

    The parallels between the two are so obvious. In fact I think CH4 had a documentary a while back highlighting the similarities.

    There is no way to reverse a £200 Billion deficit without job losses, public and private. When this kicks in proper, I predict the riots outside Tesco’s, the banker bailout was supposed to prevent, will happen anyway.

    I really really hope I'm wrong.

  • Comment number 83.

    Yes and the biggest banker is in No.10.

  • Comment number 84.

    48. At 10:37pm on 07 Dec 2009, economoaniac wrote:
    "If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." Thomas Jefferson, Letter to Treasury Secretary Albert Gallatin (1802)

    50. At 10:53pm on 07 Dec 2009, DebtJuggler wrote:
    terrorists can only dream of giving the uk a near mortal blow as the bankers have done?

    So the banking system is the real enemy within. Call the police!!

  • Comment number 85.

    79. At 10:44am on 08 Dec 2009, writingsonthewall

    Well unless the BOE are intending to write off the gilts they've bought, and those that they may well be buying next year, logic suggests that this country will ultimately default on its debt, or the interest on it, or more likley both.

    Now if a humble joe like me can arrive at that conclusion, what for the usual purchasers of fixed interest gilts?

  • Comment number 86.

    #77 WOTW

    'Self interest is unsustainable and our entire Economy is based on it - ergo the Economy is unsustainable'.

    Self interest is a fact- in a fundamental human flaw if you like- but a fact nonetheless. Are we not confusing stability and sustainability?

    Economic cycles are noted in any economic theory. The query is always over where we are in any given cycle, and how severe the 'curve' will be. There is an issue over stability, clearly we are in an unstable period- but does that mean the model is unsustainable? To me the suggestion is all a bit too doomsday to be applied in reality.

    I fear you'd have us all working in a commune- working the land and tilling away. But hang on- who would direct us? Would they do less 'real value' work? Wouldn't that be/make it easier 'work'? So isn't it in everyone's self interest to aspire to that point? Not a lot of social mobility in that model, a manufacturing based model incidentally.

    We all feel detached from control at the moment- we are not masters of our own destiny in the sense that we've agreed to guarantee some blokes mortgage...whats he done for us? This wasn't a problem while the good times rolled and he was handing out fivers via his mates- but now we don't like the downside.

    The figures illustrate that less than 30% of the loan liabilities reflected within the APS are derivatives based. The remainder is based on company lending and/or property based lending. Guess who was buying the properties? Joe Bloggs, Joe the Plumber etc etc. Not the fat cats at RBS as the New Labour Spin machine wants you to believe.

    People there is an election next year and it is in the policians' interests to maintain 'bash a banker'. Yes what happened shouldn't have happened but if a prisoner escapes you don't blame the prisoner for developing 'a cunning plan'- you blame the prison service for not doing their job properly.

    The treasury, FSA, BofE etc all let us down- as did our elected officials, but they don't want us to focus on that right now. They want us to congratulate them for capturing the prisoner and want us to blame the other prisoners for the escape. Except there's an argument that after the most expensive search in history they've got the wrong man. There's nothing to say that the search will prevent further escapes- and the bailout monies may fail to prevent a further correction Q2/3 next year.

  • Comment number 87.

    Have I missed something? Are these the same dodgy investment folk that are now worth £2Bn in bonuses? Maybe we should just add the £2BN to the front of the £60BN to provide a bit of incentive to make sure the rot stops. In other words, the first losses the bank suffers will be the bonuses, then the 60BN bank liability and then finally the tax payer steps in. Maybe we should add next year's bonus in as well, just to be sure we focus their minds.

    Alternatively, maybe we pay any bonuses in insurance guarantees. Bonus starts getting paid once the bank stops losing money on bad debts.

  • Comment number 88.

    Everyone should read this if they haven't already.

    It appears that the GBP 6 bilion in profit for the Investment Bank at RBS is actually a big loss but they have chosen to ignore all the rubbish which they have conveniently hidden away hoping no one notices as "non core".

    And people still trust them with their money!

    If I was a builder and made GBP 500,000 on building contracts but lost GBP 2,000,000 on selling the said buildings is my profit for the year.

    a) GBP 500,000? It would be if I was an Investment banker at RBS and decided that property development was "non core" and building the properties was "core" business.

    b) I didn't make a profit I actually lost GBP 1,500,000.

    Anyone with any common sense would say b) but common sense and Investment bankers have never been the closest of buddies.

    No doubt if I was that builder and I had banked with RBS they would have called in my overdraft and shut me down and made my staff redundant. Also quite probably thrown my family out of our house as they would have demanded that as collateral.

  • Comment number 89.

    #88 Ian_the_chopper

    An absolutely brilliant reference. Thank you.

    I'm astonished by what that article says- and how, even in the face of such public scrutiny and political pressure- RBS dare try to pull this one off at present.

    Why why why has RP not mentioned this?

    The bonuses' even when based on merit (and I appreciate how controversial that term is at present) were questionable- the only argument being that they were needed to pay hot shots (needed to make sure we get our money back). That information re accounting practice shows that any bonuses should be paid based on the loss included figures...but the same argument still remains that some bonus, if earnt (again controversial I know), should be paid- for the same reason.

    Very very concerning that this hasn't been more widely reported. And the lack of any apparent public scrutiny of RBS is extremely disconcerting. Where is UKFI Ltd in all this? Full disclosure please.

  • Comment number 90.

    88. At 11:43am on 08 Dec 2009, Ian_the_chopper wrote:
    Everyone should read this if they haven't already.

    I've now read it, thanks, can this really be happening?

    Well if I was in charge of government there would be hell to pay for this.

  • Comment number 91.

    #88 Ian the chopper

    you are correct the link a must read.

    I actually thought this type of soppy accounting was outlawed in the 80s Also most companies have either learned or are physically prevented from paying bonuses when they are racking up losses.

    even my generally calm blood is boiling now

  • Comment number 92.


    Ah, akin to the ever-so-successful-not Enron - just juggle and shift to allow some spin.
    Is anyone truly surprised?

  • Comment number 93.

    85. At 11:24am on 08 Dec 2009, Dempster wrote:

    "Now if a humble joe like me can arrive at that conclusion, what for the usual purchasers of fixed interest gilts? "

    Ah - this is the dilemna that faces us all - surely they cannot be that stupid

    Well, it's not about stupidity, it's about alienation. Each banker, trader or fund manager is but a cog in the machine, each one doesn't realise what the cog next to him does, and each one doesn't realise the consequences or product of all the cogs doing their jobs.

    When you simplify your world to 'me and my immediate surroundings' - it's very easy to miss the bigger picture. This is how selfish behaviour works.
    (A good example being all the people who drive to work, and then complain about the roads being congested in rush hour)

    Oh they will be just as shocked as the politicans when the UK gilt market collapses under the removal of QE - but that's because they play the game of poker without actually understanding the rules properly.

    Each Gilt trader will carry on in the belief that they can 'beat the system' - but as all good (or bad) gamblers know too well - the house always wins

    ....and the house is Capitalism - and it's version of winning is recession and the capital destruction which must occur to reset value and price on equal terms.

    What mankind needs to learn is that every action has a consequence, and just because that consequence isn't immediate, or in fact vested upon yourself - it does not mean that consequence did not exist.

    Bankers thought they could pay themselves a value far in excess of the actual work being done (which is neglegible) and there were no consequences. However in a finite world there must be consequences to inequality (it's logical) it's just that they were not immediate and they have been imposed on the public and not the bankers specifically.

    However there are and will be consequences - mark my words.

  • Comment number 94.


    Some information that emerged today...or maybe I'm just behind the curve. RBS is the lead investment bank behind the attempted takeover of Cadbury by Kraft Food. So the British taxpayer is funding the speculative takeover of a successful British company with all that will bring in terms of plant closures, job losses, transfer of HQ functions etc. This surely illustrates that the question of "where does the supposed value-add of the city come from?"

    In an open economy the buying and selling of companies is healthy. The City propaganda for years has been that this is essential to the well-being of the British economy..."just think of the tax revenues from the City" etc etc. But how much of this tax revenue is an illusion, 25 - 30% of the spoils of progressively devouring the productive elements of the UK economy.

    In terms of the trading of companies, the UK has been up for sales for years and the traffic has been largely one-way...underpinned by the self-defeating mindset that foreign owners will always run a company better. This has seen companies like BOC inexplicably snapped up by smaller competitors...usually financed by UK based investment bankers. Were BOC or Cadbury to attempt large scale acquisition in the opposite direction they would encounter significantly higher regulatory opposition (except in the US) plus, their share price would crater as the investment institutions "priced-in" the cost and risk of the acquisition. It's a one-way street!

    Perhaps it is finally time that commentators and analysts cut through the jungle of spin from the Masters of the Universe and exposed them as simply vultures feeding on the corpse of corporate Britain.

  • Comment number 95.

    Post 88.

    Thanks very much for alerting us all to this, and thanks to Ian Pollock of BBC Personal Finance for the analysis in the first place.

    This is outrageous.

    Robert..... please get on the case!

    A 'Today' special on this at the very least.

  • Comment number 96.

    But the real question is what sort of banker are we?

    For example, I am a loyal and faithful banker who will do my best for the British Banking and Financial Industry?

    Or am I one of those fair-weather friend types who will only hang around while I'm being fed big bonuses and as soon as those dry up threaten to sling my hook to (allegedly) greener fields?

    Do I recognise that the incompetence of the profession and the bail out of the industry has led many many people to forego bonuses, employment, homes, and even led to family break-ups?

  • Comment number 97.

    I have the answer to my dilemma at 78 about when RBS goes bust. The market cap of RBS is 17.53 bn - under the APS they pay the first 60 bn themselves...

  • Comment number 98.

    # 94 Anglophone,

    As i understand it, the reason why this is only now emerging is that Cadburys have been a client of RBS for decades, those loyal and wealth creating people at RBS deliberately kept their change of support to Kraft and their attempted hostile takeover, from Cadbury.

  • Comment number 99.

    86. At 11:37am on 08 Dec 2009, pawns_or_players wrote:

    "Self interest is a fact- in a fundamental human flaw if you like- but a fact nonetheless."

    Maybe for you - but I can live without self interest, you just need to see 'self' as mankind and 'mine' as 'ours'.

    Just because your mind is conditioned to act in a selfish manner - don't suggest it's a 'human flaw'.

    Let me ask you - have you ever lived under a different system to Capitalism? I bet you 'fear you'd have us all working in a commune' - because lazy and feckless people would struggle in the face of 'real work'. You mention 'social mobility' - which is an admission that we live in a social pyramid - without inequality there is no need for social mobility - but don't confuse social mobility with inspiration and aspiration. Maybe it is in your world - but have you ever seen a scientific genius worried about what car he drives? Only the fickle and materialistic require the promise of riches to motivate themselves.

    I meet people every day who are not self-interested, but you won't see them on TV, they are not politicans, they are not lauded around the city as being 'geniuses' - the unselfish are the ones who bare the brunt of this crisis.

    In addition to the argument above - the desire to act violently may be a human flaw however the majority of people manage to control it - so why would self interest be any different.

    If you have never lived in a system which does not promote self interest - how can you confidently suppose it is a 'natural phenomenon'?

    What you actually mean is "why should I stop being self interested - I mean no-one else bothers to"

    ...and there lies the foundations of a self interested society. Maybe you just need to meet a grown up before you realise that the world is not naturally self interested.

    "We all feel detached from control at the moment" - no, we were never in control the control was an illusion because the market just happened to be heading in the direction we were - we did not control it. I don't know if you noticed but 'we' didn't take on some blokes mortgage - it was a bank, which has since collapsed and passed the responsibility to us. They were never in control either.

    "Yes what happened shouldn't have happened but if a prisoner escapes you don't blame the prisoner for developing 'a cunning plan'- you blame the prison service for not doing their job properly."

    Yes we do - unless you're only looking at the instance, the symptom and not the cause - just as the Economists do. The prisoner comitted the crime to put themselves in a position to make their escape - why would you blame those who are simply trying to do their best and not the true perpetrator (literally).

    The old arguments still arise - "oh we can't help it we're all selfish" - and yet you want less Government (assuming you're a Libertarian) because you 'should be able to make your own decisions'.

    "oh it was the regulators who failed us" - but have you ever considered why regulation never works. Using your own analagy, do you blame the policemen for the high crime rate - or is it actually the criminals?

    The regualtions get in the way of the fundamental principle of the market economy - i.e. we're all in this to make a profit. Therefore when the regulations intefere they will be circumvented or removed completely by market participants.

  • Comment number 100.

    . . . And these are the 'high-flying' bankers we are supposed to be rewarding with large bonuses to stop them jumping ship?
    Perhaps we should junk the bonuses entirely and employ only the low-flyers instead. They couldn't possibly cost us any more money than the clever ones did.
    Personally, I can't see any reason why bankers (and for that matter public servants) should be paid bonuses for doing their jobs well, when teachers, doctors, and engineers have to do that for a (very) basic salary. Remunerations do seem to be horribly out of kilter with reality, don;t they?


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