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on 2 October 2013
Iain Martin's account and analysis of the rise and fall of The Royal Bank of Scotland, and included in the hubris, Fred (The Shred) Goodwin, "Making It Happen", leaves no doubt that the underlying all-pervasive problem was allowing and encouraging an accountant, the said Fred Goodwin to be in executive control of a trade viz banking that as a professional accountant he had little or no grounding, experience or aptitude in.

Whist a good finance man and also a first class project manager as he exhibited with the integration of The NatWest Group into RBS, he alas was woefully inadequate to be a leading banker in charge of a large banking group, and he did not take the final few rungs up the ladder to move from 'dotting i's and crossing t's' to become a fully fledged canny Scottish Banker. He was far more at home burying himself in the minutiae of relatively trivial nit-picking such as office tidiness, colour of company cars, office design etc than the more vital banking fundamentals such as prudent lending policies, proper matched funding of its liabilities, and control of the investment banking, and other activities. RBS borrowed far too much, and lent the money very unwisely, and blundered headlong into the highly 'toxic' Collateralized Debt Obligation casino arena.

The author does, however, have a degree of sympathy for Fred Goodwin and asks 'why should he have all the blames, as a lightening rod for everybody else?'. There were plenty of opportunities to stop him, and yet hardly anyone at RBS really tried. Why? Money had quite a lot to do with it, with many staff claiming to be too scared of him to give him bad news or stand up to him, where in reality their reluctance to say anything related to the fact that they were trousering millions of pounds in salary, bonuses and share incentives.

This is an excellent, well written, informative and importantly a very readable book that manages admirably to give good perspective and balance to the circumstances leading up to the banks's insolvency and bailout by the British taxpayer. Yet again the weaknesses and gaping flaws in the Regulatory system and it's so-called 'responsible executives', are brought to the fore, with being named and shamed, high up on the list being the then Governor of the Bank of England, Mervyn King.

Presumably because of legal restrictions, scant mention is made of Mr Goodwin's affair with a high ranking RBS female executive, which occurred over the period when RBS was coming under severe pressure and needed firm, constant and concentrated management from it's CEO, and may well have been an unwarranted and catastrophic diversion at that time. The fact that a simple 'google' will readily name the woman involved and lead to a long video featuring her, illustrates the uselessness of the so-called super injunctions that the affluent resort to in the belief that their adulterous liaisons will be kept under wraps or should I say duvets!
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on 16 October 2013
Iain Martin's "Making it Happen - Fred Goodwin, RBS and the men who blew up the British economy" is a fine piece of investigative journalism and a beautifully written and very readable account of this sorry tale of corporate misgovernance. Whilst Goodwin is the main villain - rightly - there is nevertheless a sense of "Murder on the Orient Express" to the story. In Agatha Christie's detective story, you will recall, the denouement was that ALL of the suspects were guilty! The fall of RBS was the same. Fred the Shred brought down RBS, but he didn't achieve this without the connivance, neglect, self-interested actions, greed and incompetence of many others. Martin points the finger at Fred, of course, and provides the evidence. But others do not escape - there were many guilty men in this affair.

Fred Goodwin was born in 1958. This means that at the time of Margaret Thatcher's "Big Bang" in 1986 he was in his late twenties and ideally positioned to be one of Thatcher's children. He was making his way as a junior accountant at the time with Touch Roche. Less than ten years later he was Chief Executive of the Clydesdale Bank appointed by its Australian owners, Iain Martin says, because of his "ferociously logical approach to problem solving and the capacity to learn quickly". So Fred was not a banker and had no practical hands-on experience in a Bank at all. In a way, in the post Big Bang world, this was an advantage. Banks, especially maybe Scottish banks, were pretty conservative institutions and if they were to take advantage of the new financial freedoms they would need to change. On the other hand Fred Goodwin had none of the detailed understanding of bank processes and daily priorities that a career banker would have had. When growth in the good times is needed the Goodwins, gung-Ho and oozing self-confidence are what you need. But when things start to get difficult you want such people as far away from the levers of power as possible.

In the mid 1980s the Royal Bank of Scotland was dull, unambitious and pretty moribund - a "tired bit-part player" Iain Martin calls it. It was a takeover target for one on the far larger English banks. Lloyds had had a go as had Standard Chartered. It was at this time that the fervent Scottish Nationalist George Mathewson joined RBS - he was soon to become CEO. He formed an alliance with fellow Scot George Younger, the Chairman, and together they decided to do everything that was necessary to make RBS successful as an unashamedly nationalistic Scottish bank. A major step was the acquisition, in 1988, of Citizens Bank in the US. Mathewson and Younger succeeded in their ambition to transform the Royal Bank and by 1997, the year of Labour's return to power after thirteen years, Mathewson was hunting around for a successor. A year later Fred Goodwin, on the back of his success at Clydesdale, was hired. This was to be twist or stick time for the Royal Bank. True the Bank was out of the doldrums but to move onwards and upwards a step change was necessary. After a battle with their rival Scottish Bank "Bank of Scotland" RBS acquired the much bigger, but rather tired and complacent NatWest. Fred Goodwin led this successful coup and was rewarded with the CEO job when Mathewson moved upstairs as Chairman shortly after the NatWest takeover.

The early years of the new millennium were to be bonanza time for the financial services industry. Tony Blair left Gordon Brown to run not just the Treasury but much of domestic policy as well. The growth of the banks was extraordinary. Interest rates set by the Bank of England were low. Lending was growing exponentially. Fred Goodwin strove to make RBS a leader in all this. Its size, with NatWest being integrated, made it a player on an international scale. And Citizens gave them a solid foothold in the rapidly growing American financial services sector. Most importantly financial regulation in the UK was not just "light touch" but confused and often non-existent. Iain Martin is excellent on how regulation fell somewhere between the Bank of England, the understaffed Financial Services Authority (FSA) and the Treasury. The key, of course, for Brown was to interfere as little as possible. He had a cunning plan which was that credit-fired growth would make the Financial Services sector so profitable that the taxes on the profits they paid would fund an expansion in spending on public services. Socialism (sort of) would be paid for by uber-capitalism.
It is instructive to look back and see not just how disastrous this regulation lacuna was but how Britain's opposition got it 100% wrong. Typical was David Cameron's speech to the Conservative Party conference in 2005 (the speech which got him the leader's job a couple of months later). Cameron said

"Everyone knows that business need deregulation to compete with China and India. Who is standing in the way? The great regulator and controller, Gordon Brown."

In fact the opposite was the truth. Far from regulating and controlling Brown (a disastrous Chancellor Iain Martin calls him) stood back and let Fred Goodwin and his like get on with it! For a while it worked. In his "Mansion House" speech in June 2007 Brown said the Government would ensure Britain stayed a "world leader in stability... by ensuring [her] macroeconomic framework remains a world benchmark". That was "delusional drivel" says Martin!

The uber-capitalism was alive and well in Fred Goodwin's RBS. Soon the now "Sir Fred" began to act like a "Master of the Universe". There were private jets. Fleets of Mercedes specially painted in RBS Blue. Sponsorship of a Formula one team, of the Rugby 6 Nations and all the usual trappings of power and privilege. "Compensation packages" for the head honchos escalated exponentially as well. Bankers' bonuses were born and reborn. A grand new headquarters building near Edinburgh Airport was planned on an 80 acre site and in 2005 it was completed and opened by the Queen.

Banking can be divided between the traditional retail and commercial segment, with its branches and its domestic and business customers (the Royal Bank's home territory for two hundred years), and "Investment Banking" the (comparatively) new kid on the block. The latter grew massively across the world in the 1970s and after - especially in Britain post big bank. It is in Investment Banking that the big numbers apply. The scale of the trades, the complexity, the innovation and - of course - the rewards given to the successful practitioners. In RBS's US investment banking subsidiary Greenwich Capital many employees had salary and bonuses in the high millions of dollars per annum! This company moved in a big way into collaterised debt obligations (CDOs) which, in theory, provided reliable income streams from repackaged mortgage securitisations. Iain Martin describes all of this in an illuminating chapter "Safe as houses". Mortgagees pay their monthly amounts and these find their way via CDOs to RBS, or its subsidiary. What could go wrong? Especially as Greenwich was at the upper end of the category with its AAA or "Super senior" portfolios. "RBS does not do sub prime" said Sir Fred. Well actually they did, and he didn't know. Probably.

Let's reflect for a moment on this world of around 2004/5. Gordon Brown opened American Investment Banker Lehman Brothers' massive new offices in Canary Wharf on 5th April 2004 and made a laudatory speech commending their "greatness" and "innovation". There would, he frequently said at that time, be no return to "Boom and Bust". Credit is the driver of business and the source of income to banks. Credit is what makes buying a property possible for private individuals. The banks make money on the spread - the difference between what they pay for money and what they can sell it for. And they made a lot. Interest rates are the key tool. Alan Greenspan, chairman of the Federal Reserve in the US would use interest rates to keep the financial economy booming along reducing rates (for example) if the Stock Market wobbled. Eddie George at the (newly responsible for interest rates and inflation) Bank of England did the same, as did his successor Mervyn King. The increased liquidity from this would keep people spending, and borrowing, and lending. By the mid 2000s Bank balance sheets, leveraged to the hilt, were approaching five times the size of the UK economy (GDP). In 1970, before the Big Bang and the "Loadsamoney" era, they had been at 38%. The Royal Bank of Scotland was sailing along on this boom, its profits growing every year and its business portfolio widening, especially in the Investment Banking sectors. It had a touch of the Lehmans, a lot of the Northern Rocks (home loans) and many, many other fingers in financial services pies from Insurance to Leasing. It was diversified in business and geography. But Sir Fred wanted more, much more. His eyes fell on the Dutch Bank ABN Amro.

The synergies between ABN Amro and RBS were questionable to say the least. It was a big bank, with international interests, but a far from coherent structure. Iain Martin describes it as a "conglomeration of various inefficient units patched together". It was an unappetising mix of the good, the bad and the decidedly dodgy. There were bits Fred Goodwin definitely wanted and bits he certainly didn't. Part of the problem was that he wasn't sure of which bits fell in which category! When he heard in late 2006 that Barclays was interested it became a battle and Fred engaged in earnest as it was announced that Barclays was in formal talks the following Spring. He wanted to be bigger than Barclays it was, astonishing as it may seem, as simple as that! Goodwin put together a consortium which comprised RBS, Fortis the Belgian Bank and Santander from Spain. By June there was a deal which was, Iain Martin emphasises, approved by every one of the RBS Board. Iain Martin lists all 17 of them to make sure that we get the message that this wasn't just Fred Goodwin being cavalier! Meanwhile there was bad news from the US. In February HSBC said it was providing for $10 Billion of losses relating to the American mortgage market. It soon became apparent that the RBS American subsidiary was deep into this mess as well. "...the CDO machine at Greenwich was disintegrating". In The UK by September 2007 Northern Rock was in trouble. Around the world financial markets were in turmoil and financial institutions were under threat. The extent of that threat was unknown but no prudent Bank would surely go for a grandiose acquisition at this time. Surely?

RBS's takeover of ABN Amro was completed in October 2007. Iain Martin's "It was obvious... that RBS had completed the purchase of ABN Amro at an extremely difficult moment" is a masterpiece of understatement! The Royal Bank's balance sheet had doubled overnight! At £1.9 trillion it was "bigger by at least £400bn than the output of the entire British economy"! Well the rest of the RBS story really follows on inevitably form the position it found itself in after the Dutch acquisition and given the global financial circumstances gathering pace. Only a £12bn Rights issue in April 2008 stopped the bank from going under as money haemorrhaged away in the US and elsewhere. This was temporary relief. In September Lehman Brothers went bankrupt to be followed by a raft of other financial institutions on both sides of the Atlantic. The game was up. A month later RBS had to rescued by the British Government - eventually to the extent of £45bn. £750 from every man, woman and child in Britain (or £9,000 from every Scot!).

As I said at the beginning of this review although Fred Goodwin was the main villain of the piece in this sorry story it is fairer to call it a collective misjudgement. Unlike with Enron (and Arthur Anderson) eight years earlier nobody went to jail because, extraordinary though it may seem, no laws were actually broken. That there was fiduciary incompetence and irresponsibility on a massive scale by Fred and others is not in doubt. But they didn't break the law! The only conclusion from this is that the Law was an ass! Gordon Brown was proud of his light touch regulation but that it was so light touch that nobody was legally guilty in the RBS story is surely a scandal in itself. Brown failed. The Bank of England failed. The Financial Services Authority failed. Britain's political leaders on both sides of the House failed abysmally. The media failed. Accountants and Auditors failed. Risk managers failed. All the highly paid employees of RBS failed as did those charged with monitoring and guiding them. That they did not, as in "Murder on the Orient Express" wilfully slay their victim is by the by. The effect was the same. The Bank was dead and bereft of life due to the negligence, greed and incompetence of many. It wasn't just Fred.
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on 2 February 2015
This book could not have been written without the active participation of two people - Gordon Brown, and Fred Goodwin. I am seldom lost for words, however on reading parts of this well researched and easily readable book, I was left literally shaking my head and open mouthed.
Whilst Brown is a bit player in this book - the book of course is not about him, but without his policies as Chancellor, Goodwin might not have been in such an easy position to have gone from being an accountant with no banking experience whatsoever, then after a couple of years at the Clydesdale Bank, to within the space of literally a handful of years, transformed the similarly provincial Scottish bank RBS into a monster with a toxic balance sheet of £1.9 TRILLION - £400 BILLION larger than the entire UK economy. There are of course many other culpable figures in this story; members of the parochial and at times nationalistic Scottish establishment who wanted a Scottish bank to one of the world's biggest. Many others were either too afraid of being `shredded' to speak out, or merely happy to keep the bonuses rolling in. Alex Salmond even has a couple of cameo roles - including when he wrote Goodwin a nationalistic `thumbs up' letter on the takeover of ABM Amro, a venture which took place when the warning lights on the control panel were flashing and the klaxons sounding as in any good disaster movie one minute before the music finally stopped. (Ironically, Banco Santander - one of RBS's partners in the venture, unknown to Goodwin, immediately sold off their profitable part of ABM Amro, making them a profit of 2.4bn in three weeks - leaving RBS owning a third of the bank, but 70% of the balance sheet).
Much of the entire financial services industry - and many who sailed in her, were existing in a money- go-round of targets, investments, take overs, and the design and sale of financial products that hardly anybody understood, which were all there for one purpose - to make money, particularly for themselves. Everybody was at it. Bankers, accountants, regulators, auditors & ratings agencies. The more money was made, the bigger the commission and bonuses for all concerned. Individuals were making £10 million a year bonuses.
The entire UK banking boom of the years following the official abolition of boom & bust seemed little more than a stack of pyramid schemes, interlocked through a web of complicated instruments which nobody appeared to understand, built around mathematical formulae and hedging where nobody lost. Markets went up - people made money. Markets went down - they made more. Loans and mortgages were being bundled up into packages and sold off as quickly as possible thus allowing them to loan even more. Banks were even creating products where they were actually betting against the punters who had been daft enough to buy their own products! What could possibly go wrong? Well, the American sub-prime crash saw to that. The rest is, unfortunately history.
Fred Goodwin cannot but come out of this in any other light as an ambitions megalomaniac and bully who appeared to have more interest in things like the colour of bank carpets, cars, or the shape of filing cabinets, than the intricacies of how banking actually worked. He continually displayed extreme arrogance - right up to when in December 2007 he turned up on Alistair Darlings Edinburgh doorstep with a gift wrapped panettone demanding that the Governor of the Bank of England `do something' to get him out of the mess of his own making.
If you want to find out how boom went to bust - there can be few better and more easily readable books. You do not need to be an accountant to understand what went wrong.
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on 17 April 2014
Great context charting the history of RBS and Fred Goodwin setting up a recurring Emperor's New Clothes theme throughout the book - an insatiable desire for growth at all costs starting by turning Bank Staff into Sales People and being the master "integrators". Terrific read - pacy account of turning a relatively insignificant Scottish Bank (albeit regarded as a national institution) into a major international player recognised alongside JP Morgan et al.

The scary thing well - illuminated by Iain Martin is the countless opportunities to stop this juggernaut that were missed and If history teaches us anything it is that there is the undoubted capacity for this to happen again. Board Scrutiny and Corporate Governance is portrayed as shockingly absent as was the Regulator who was hopelessly inadequate. Goodwin comes across as being highly complex, full of contradictions,driven, intelligent and gifted in a number of areas - Integration, project planning and getting his own way. Martin exposes a darker side of bullying, a detailed attention to detail (almost myopic)in areas which were less relevant and an ability to blank technical components of the business which he could not understand (whilst taking to task staff who could not reach the huge targets set for them). However, whilst painting a detailed picture of 'Fred the Shred' Iain Martin does not spare others that were involved - the two hapless Chairmen - Mathewson and McKillop and the individuals that make up the Board, the Regulator and indeed - Gordon Brown himself is highlighted as being a contributor through the easing of regulation and arrangements that hopelessly negated liquidity. The Book does earnestly attempt to evaluate why only Goodwin and Johnny Cameron (the Head of the Investment Banking arm - Global Banking and Markets) were the subject of some retribution - although no real conclusion is reached. The author does well to highlight those who lost heavily including long-serving dedicated hardworking staff and through the accounts documented by Martin - the pain is quite palpable. On the numbers - Martin does well highlighting the important figures - the near £46bn bailout and the level of Balance Sheet assets held by RBS and the other UK banks relative to the UK GDP - you get the significance of how "bust" the system had become and Martin's account of Goodwin's presentation to a Banker's convention organised by Merrill Lynch in London during which the RBS share price had dropped by some 40% within his 30 minute presentation was by the end of his speech was gripping stuff. Nearing the end you got a real fear of a run on the Banks although only a hint of the consequences. Darling and HM Treasury actually comes out of this well within the book in the way they dealt with the potential melt down of the UK banking system but Martin does not spare Gordon Brown for setting the culture that precipitated such events. A great read - some terrific investigated journalism and well put together highlighting a consistency of behaviours that leaves you with the feeling that you are witnessing a car crash in slow motion!
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on 10 October 2013
I bought this book in the expectation of juicy gossip and executive level backroom banter from what must have been some of the most incredible weeks in City business. Sadly there was none of that, and in fact nothing new at all.

The author is a political journalist who struggles with finance; manfully at times, but it is always a struggle, right from the off. He labours under the misapprehension that it is possible to be a "professional" banker much in the same way that one can be a lawyer or doctor. The book is riddled with elementary misunderstandings like this; the author has no understanding of the role of external accountants, uses inverted commas when he talks about hedging, totally misses the Barclays bailout. If you work in finance, don't waste your time on this drivel. I picked up this one after reading Hank Paulson's "On The Brink", and this is undergraduate stuff in comparison.

Again, the author is a political journalist (being from The Scotsman) and to that end he's not above misleading the reader. There is a pretty clear agenda and Alex Salmond is, surprisingly, singled out for more flak than the regulators or even the Chancellor. On more than one occasion it is indicated, in all sincerity, that RBS failed directly because of Braveheart ... ignoring Iceland, Ireland, Spain, Portugal and other countries which suffered far worse.

Overall, one has the sense that the author wrote to meet a page number target, with reams of material taken straight out of the newspapers. My biggest gripe is that the author promised a dynamite critique of the regulator, yet it totally fails to materialise.

Powder puff punches from an author out of his depth.
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on 14 April 2015
Journalist and broadcaster Iain Martin has written an absorbing account of how Fred the Shred Goodwin destroyed the Royal Bank of Scotland (RBS).

RBS’s rise and fall was part of the cancerous financialisation of capitalism unleashed by Thatcher’s Big Bang. As a result, “In the name of innovation, a sinister alternative universe had been created, in which customer care and ethics had been swapped for pure greed and downright treachery.” Banks’ profits rise when consumer debts rise, as they did from £500 billion in 1996 to £1 trillion in 2004.

RBS had a balance sheet of £870 billion in early 2007. By October it had soared to £1.9 trillion. Goodwin’s response? Buy the sub-prime-riddled Dutch bank ABN Amro. The SNP’s leader Alex Salmond foolishly backed Goodwin’s disastrous bid.

Then, just weeks after saying there was no need to raise any more capital, Goodwin asked for £12 billion. RBS collapsed in October 2008, losing £24 billion. Salmond tried to blame the collapse on English ‘spivs and speculators’, but as Martin remarks, “the real ‘spivs and speculators’ were actually some of those working ‘inside’ the offices of RBS and HBOS.”

The bankers tried to put all the blame for the collapse on the Labour government. The coalition government has followed suit. But RBS’s board of directors, its big shareholders, its accountants, its auditors, the rating agencies, the regulators, the Bank of England, the Treasury and the government all share the blame.

But none of them suffered. When the boom went bust, “It was the British taxpayer that was about to get royally screwed.” To save the bank, the Brown government bought £45.2 billions’ worth of RBS shares and offered billions more in credit facilities.

The collapse sank Brown’s Financial Services Authority and also sank the fashionable dogma of the ‘efficient markets hypothesis’. But unfortunately it didn’t sink the whole rotten ideology of living with capitalism.

After the collapse, RBS’s new bosses carried on paying huge bonuses, claiming that they still needed to ‘attract the best’, when ‘the best’ had caused the disaster. Goodwin was stripped of his knighthood but still draws a pension of £342,500 a year from taxpayer-funded RBS.

There has never been a proper inquiry into RBS’s fall. Nobody went to jail. It was all perfectly legal – which is an indictment of the feeble laws passed by successive governments.

No lessons have been learnt. We are still letting the banks carry on profiting from ever-rising consumer debt. By the end of 2012, the five clearing banks had balance sheets totalling £5.9 trillion (383 per cent of GDP). So a new bankers’ crisis is looming.
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on 9 October 2013
Any book on banking is going to be a dry read but this book was heavy on the ancient history of RBS which is readily available elsewhere and short on the goings on at GBM and Greenwich which aren't and which were central to the collapse.

The book also fails to deal in any detail with the two central questions of the 12 month period up to the collapse, which are:

1 Did the Board know that things were deteriorating disastrously yet chose to mislead the markets, or were they so incompetent (and negligent) that they just did not know what was going on. There must have been management information on the increasing problems flowing up the command chain and if there was someone must have suppressed it because the Board were upbeat until the very last minute. I had hoped the book would explain exactly how far up the management reports of deteriorating positions went. It doesn't.

2 What were the analysts at the major institutional shareholders doing all this time. It's one thing for the bank to dupe private individuals and its own employees, but the Standard Lifes etc (and the other fund managers who voted for the ABN deal) of this world have huge analytical resources which are supposed to be employed in ensuring they don't allow their stakeholders to be caught out by these things. What were they doing?

There is little in this book that hasn't already been in the papers.
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on 4 January 2014
A great deal has been written about the banking crisis of 2007-10, much of it of a similar dreadful quality to some of the assets on the RBS balance sheet in 2007. To my mind, two serious attempts have been made to document what led to the crash at RBS: the BBC documentary "Inside the Bank that Ran out of Money", and now Iain Martin's book.

Martin received co-operation from the Royal Bank. He interviewed the CEO and chairman, had access to RBS archives, and conducted off-the-record interviews with key current and former RBS employees. This book is largely a summary of those interviews, presented in a direct and unadorned style. If the Bank didn't want it to be written, they at least made the best of the inevitable. The resulting book is unbiased and reasonably sympathetic to the current RBS management.

Martin tackles the main areas leading up to the crash in roughly chronological order: the history of Scottish banking, the early career of Fred Goodwin, Sir George Mathewson's reform of the Bank in the 1990s, the NatWest takeover and Goodwin's stewardship in the 2000s. The pace quickens with the ABN Amro deal, whereby Goodwin set out to buy an American retail bank and ended up with a Dutch wholesale one. Then we have the American sub-prime mortgage crisis, the credit crunch and the crisis at RBS, culminating in the biggest failure in UK corporate history and recession in the wider economy. Even though you know the outcome, it's thrilling stuff.

An exception to the chronology is that chapter one deals with the height of the crisis. No doubt Martin's publisher thought it boring to start with a lesson in Scottish history, but to restore the proper order, insert chapter one between 13 and 14.

Martin is at his weakest when he strays from exposition of the facts. In chapter 11, he tries to teach us something of asset and liability management. Having accused Goodwin of having a weak grasp of the subject, Martin shows himself to be less than a master. I would recommend that every aspiring corporate treasury employee read this book as a warning of what can go wrong, but you won't learn much about how treasury actually works.

In his final chapter, Martin gives his own idea for regulatory reform. He thinks that balance sheets have grown too big to be managed by the boards of the banks, so we should have many smaller banks. The trouble is, there are two reasons for bailouts: not only are banks so exposed to each other that a collapse of one can trigger the domino effect, whereby the whole system starts to collapse, but it is politically unacceptable for small depositors and SMEs to lose their deposits. Even small banks may need to be bailed.

Many reforms are needed. Capital ratios are being strengthened by a combination of recapitalisation and balance-sheet reduction. Banks should never again fund long-term assets, such as mortgages, on the overnight money market - banking is all about funding long-term assets with short-term liabilities, such as current account balances and deposits, but the behaviour of such liabilities is well understood and they tend to roll over even in stressed conditions, whereas the short-term money market can dry up overnight as we saw in 2008. The Basel committee will hopefully agree improved standards on the weighting and inclusion of derivatives on the balance-sheet. The new UK regulators need to be bolder in enforcing new capital and liquidity standards and in being willing to refuse to approve insufficiently qualified and experienced bank directors and senior staff. There are things the government could do to help, such as smoothing the boom-bust cycle by counter-cyclicality in economic policy (with the acquiescence of us voters). Clearly, the ratings agencies got things badly wrong leading up to the crisis, so my own view is that we would be in a better position if we moved away from our dependence on these three American firms with their questionable fee structure, and instead developed an international ratings standards body. The latter reforms seem a long way off but the former are well underway and should stave off another disaster for a while. The danger will come in decades' time, when memories have faded and a new generation questions the need for the onerous banking regulation that we are now developing. If you buy Iain Martin's book, leave it in a prominent place where your grandchildren may stumble across it.
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on 25 October 2013
Before you all mark this down as an unhelpful review, the title was meant to be ironic. In my previous review of a much shorter study of the bank that nearly died, I posed a few questions that I hoped to answer after reading this nuclear-powered masterpiece:

As a former bank employee, I recall the very first piece of rock-solid advice I was given as a fresh-faced eighteen-year-old: Remember, you are not only competing against other girls, you are also competing against the men. People will walk all over you if you let them.

I've carried that advice right the way through my life, and reading this book brought all that back to me: the mistakes I made in my career that led me to be sent to a backwater branch of NatWest I loathed with a passion. And now to the questions:

How did it all begin? Most people fill in the application form to join a bank because they want to earn some money. Check.

What inspired it? Lack of imagination? Maybe. A shortage of other available and suitable jobs? Definitely.

Why couldn't it be stopped? Or to clarify this: Why couldn't Fred be stopped? Answer (sort of): He wanted RBS to be bigger than Barclays. Yep. I can understand that.

What are its lasting effects? A lot of people - including bank staff- lost a lot of money when they were persuaded to invest in shares.

Could it happen again? Well, they say these things go round in cycles. So give it another hundred or so years, and maybe it will repeat itself.

Did something like this ever happen before in history? See previous line. You bet it did: Ayr Bank in the 18th Century after it overextended its line of credit in London.

Who are the ordinary people hurt by all this? Look in the mirror.

I would very much like to read Fred's response to this. It is so easy to blame it all on him. Oh, and I've checked out some of the reviews already posted. They make great reading also. The affair bit? Try Google.
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on 9 April 2014
RBS has played a major role in Scotland's history, never more so than in the past 15 years as it rose from being a small (in global terms) bank based in Edinburgh, to being briefly among the largest banks in the world - before imploding.

Iain Martin has interviewed many of those involved in the debacle (though by no means all the key players) and, through those interviews has put together a readable and compelling account of how RBS fell. He avoids casting Fred Goodwin as sole villain, which is healthy, though Fred Goodwin's character is fully described and you can see why leadership by such an individual could bring about some issues. Pointing the finger in solely at Fred Goodwin would not help us to learn more important lessons. One of those is that banking is more than accounting and strategy. Risk - as the banking industry rediscovered in 2007/8 - has not gone away. Techniques for parking risk elsewhere don't always work. Economies still have cycles and loans do go bad. Another lesson you pick up from Iain Martin's book is the importance of genuine and informed independent challenge in the board room. As told by Iain Martin, this was utterly lacking at RBS.

In the end, however, you cannot help but think that there was also was an element of bad timing here. If RBS had not found itself with more of ABN-AMRO than it had bargained for (nice footwork by Santander there) at just the time liquidity dried up in the banking markets, might it have squeaked through to a time when Fred could have been moved aside and a banker put in charge? We'll never know; but I suspect the problem was deeper than that given how long it is taking to sort the bank out now under UK government ownership. I picked up less of that sense of deeper problems from this account.

I learned a bit about banking from this book; but not really all that much. This is not a book written by a banker and that is one of its strengths. This is generally rather big picture. It does probably mean, however, that the detailed lessons of what went wrong on a technical level need to be gleaned from another source. The next financial crisis (and there will be one) will be different, but it is still worth knowing enough about this one to avoid repeating it.
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