Thu 11 Oct 2018, 04:21 AM | Posted by editor
LETTER from Mark Langabeer, Newton Abbot CLP, personal capacity.
Last week BBC 2 aired a programme that charted the rise and fall of the Royal Bank of Scotland. This relatively small bank was transformed into the largest bank in the world. RBS had assets that were valued at £2.3trillion, but it ended in bankruptcy during the financial crash in 2008. The boss, nicked-named, Fred ‘the shred’ Goodwin, become synonymous with corporate greed. An accountant, who as the CEO of the Clydesdale Bank, earned a reputation for an abrasive style of Management.
The Thatcher government deregulated the banking system in 1986, under the leadership of Sir George Mathewson and at that time Goodwin began large scale acquisitions of big banks like Nat West and American investment banks that specialized in mortgages. By 2007, RBS boasted profits of over £9bn, the largest recorded profit in Scotland’s history. However, Goodwin’s acquisition of the Dutch bank ABM for cash, and big losses in the American mortgage market led RBS into bankruptcy.
Goodwin was forced to contact Mervyn King, the Governor of the Bank of England, for a bail-out. King asked Goodwin, ‘when will the Bank run out of cash’ and Goodwin replied, ‘this afternoon’. Fearing a complete meltdown, the Bank of England agreed a £36 billion bail-out. The collapse of Lehmans, an American investment bank, led to turmoil on stock markets around the world and banks stopped lending to each other.
The financial crisis was now effecting the whole banking sector. Robert Peston, the business editor of the BBC, described the situation as the ‘mother of all depressions’. The ‘stuff of nightmares’ was the general view. An emergency meeting was arranged to discuss a bail-out of £500billion. The terms of the bail-out included the nationalisation of RBS and HBOS. According to Alastair Darling, then Chancellor of the Exchequer, the Bank bosses were reluctant to accept these terms, particularly Goodwin, who was forced to resign as the CEO of RBS. The programme reported that the final bill for bailing out the Banks was around the £1 trillion mark.
The consequences of the crash remain with us still. Austerity and stagnation of real incomes has been the lot for the majority in Britain. It has been reported that for the first time in living memory, average life expectancy has fallen. Peston was of the view that the crash had eroded confidence in businessmen and politicians because the privileged few were protected and rest of us are paying the price.
Mervyn King thought that you can’t just blame an individual for the financial crisis, it was the ‘system’ which caused the crash. On this, I am in full agreement with King. Until society is transformed from one that is driven by private profit, to a system that is based on need, there can no lasting solution. The name of the solution is Socialism.
