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Money, Meglomania, Greed and Incompetence
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.