Another hugely popular event arranged by the Edinburgh International Book Festival with almost every single seat taken. Ian Fraser and Ray Perman came to discuss the factors that affected the crisis that hit both of Scotland's largest banks.
The session was genially chaired by Brian Taylor who started by suggesting that 'to lose one large bank appeared careless, but to lose two appeared utterly negligent'!
The two authors were here to tell the audience about what they have unearthed about the appalling chaos that took place at Scotland's two leading banks during the period of global financial meltdown.
Ian Fraser opened by saying that it was a very sad tale at the Royal Bank of Scotland (RBS) which had originally been established in 1727 and had been very well managed until 1990/2000 when it began to drive for growth.
Under Fred Goodwin, RBS wanted to challenge HSBC and to overtake its rivals. To do this risks were taken and these were not challenged by the Chairman (Sir Tom McKillop) or by the non-executive members on the Board, by other directors or by anyone within the Bank except Sir Keith Robson who was pointedly ignored. As for all the others, they were happy 'to go with the flow' and most were terrified of Fred "The Shred" Goodwin who made any challenge a case for dismissal. But it was not just the ABN Amro acquisition which did for the bank, there was wrongdoing and criminality in almost every area of RBS.
Ray Perman then examined the situation at Halifax, Bank of Scotland (HBOS). He said that he was finally convinced that HBOS was failing when a trader said he was taking £20 billion out of HBOS and "putting it into a safe place". How tragic, he said, for a bank that was a national institution and which had been founded for over three hundred years, before the Act of Union.
For years and years it had given magnificent service. There were those who joined the bank in 2007 and within a year it was bust. Perman spoke of one man who had invested all his life savings in the bank as security for his retirement. For a while all was well and the share price rose until he had over a million pounds saved, but suddenly it was gone and became worthless. He now makes enough money to live on by being a children's entertainer.
Perman said that the whole character of banks changed over this period; they sold you things like PPI (payment protection insurance) when you did not need it and did not really want it. Mortgages were given to 125% of the value of property and loans provided for two and a half times your salary. In most cases there was no chance of the loan being ever paid off. The collapse of HBOS with a loss of £54 billion was the largest collapse in banking history.
When asked why HBOS was taken over by a building society, it was explained that building societies had deposits while banks only had debt at that time.
On why McKillop was allowed to be Chairman of RBS when he was actually a chemist and knew little about banking - the situation at the time was that he came from another successful company (Astra Zeneca) but being in a different business he was used to taking risks with pharmaceutical products as that was how the forms operated. All this has had some positive effects as people are only now employed if they have had experience of the banking sector.
The question was asked, why if a small company defaults it must expected to be brought to account, but these bankers seem to have got away with it completely.
Why, when the Spaniards have people in gaol have none of our people suffered the same fate?
The explanation given was that the FSA were also to blame for the failure but did not want to be seen as incompetent, so instead if a 'whitewash' there was a 'grey-wash' report and therefore little has changed since the disaster.
The authors were asked if Scotland had been independent would this have made a difference? The response was that we would have been actually three times worse off than Iceland.
Both authors agreed that the disaster had done enormous damage to Scotland and to all Scotland's financial services. This is lasting damage and it will take many, many years to change. The impression people have is that the Scots have overreached themselves and are not to be trusted. We were told that there were over 2,000 bankers earning over a million pounds a year and that four hundred of these were with RBS.
There were questions about the 'securitized' packages of lending that were being acquired from America, among others, which was simply a wad of bad debts wrapped up in something attractive, which then fell apart eventually when sold on to unsuspecting pension funds. On this, as with many other, things whistleblowers were shabbily treated. There was a great fear of being 'shredded' in front of your peers as an executive in RBS.
Generally the audience were sceptical that anything had moved forward since the crisis and no major reforms appeared to be considered by Government.
A fascinating hour ended with Ray Perman signing his book, "Hubris" and Ian Fraser taking orders for his book "Shredded" which will be published in October.