In Charles Ferguson's excellent documentary Inside Job, Nouriel Roubini (famously dubbed Dr Doom for his accurate prognostications of financial meltdown in 2008), concludes that there were no investigations into the financial crisis because then you’d find the culprits. Ian Fraser, author of the 435-page 'Shredded - Inside RBS, the Bank That Broke Britain' in his assessment of what went wrong with what was once one of the largest banks in the world, draws a similarly caustic conclusion.
RBS is “so toxic, it’s beyond repair” he told the Book Festival audience. He added that the best thing for it would be to bury it deep in a concrete bunker.
Of course, that option is not viable. Ever since RBS's stock went into a death spiral during the financial crisis and was rescued by the British government’s £46 billion bailout the hapless British taxpayer has owned 81% of the company. Due to past chicanery and illegal behaviour, Fraser suggests, the bank could be looking at crippling unfunded liabilities.
The British government is in a state of moral hazard and a “very dangerous one” at that, said Fraser. Given the still precarious situation, there is little incentive to get to the root of the debacle by coming clean about past misdeeds. Investigations into criminal behaviour by the Crown Office and Procurator Fiscal Service have been going on for 3 years, pointed out Fraser. We’re still waiting.
Fraser reserves much of his ire for Fred “the Shred” Goodwin, the “sociopathic bully” at the top. As CEO, he ultimately ruined RBS with his cut-throat targets and enormous appetite for risky, dodgy products. The bankers must have known they were involved in “deliberate fraud,” says Fraser, but has been unable to put that question to Goodwin as he hasn’t given an interview since the crisis. Silence reigns.
Fraser gave the Book Festival audience a quick breakdown of why RBS became such an icon for our dysfunctional financial system. Going back to the Seventies with the emergence of Friedman and the Chicago School of economics, he talked about how priorities in RBS’s corporate culture shifted from:
- Staff
- Customers
- Shareholders
to
- Shareholders
- Shareholders
- Shareholders
The Blair/Brown era saw a “fetishism of finance” with the prevailing ideology being “markets know best”, “bankers can be trusted”, and such like mantra that allowed the financial uberclass to capture the regulators 100 per cent (Fraser says that it is now about 75% captured). Bankers began to feel above the law, and complex bundles of high risk, securities flourished.
Goodwin, basking in the uncritical light of the financial media after successfully buying NatWest, had the hubris to think that Royal Bank of Scotland could become the biggest bank in the world, and during his “reign of terror” oversaw a systematic abuse of customers, staff and, ultimately, shareholders.
Al Senter in the Chair asked many good questions and echoed the audience's still strong sense of stunned disbelief that so many people in the financial food chain could either have failed to see what was happening or have turned a blind eye - senior management, RBS's auditors, ratings agencies, regulators, politicians.
Had the financial press acted like “fans with typewriters”, asked Senter. Yes, said Fraser, too many were taking the free lunch (and still are). The company’s auditors had seriously failed in their fiduciary duty because they were too dependent on selling services to the companies they audited. But regulators and politicians had also, crucially, failed to see what was coming.
As well as pointing the finger of blame, audience members also wanted to hear how Fraser would fix things. As CEO, he said he would try to rebuild trust in the bank. He would review the litigation department, sack the guys at the top for deliberately and repeatedly lying; remove the bonus culture, and start gradually installing prudent managers at branch level.
On Scottish independence, he saw both problems and opportunities. Lloyds and RBS would have to move their head offices to London as the Bank of England is the “lender of last resort" in the instance of another financial failure.
He suggested that RBS could be broken up proportionately. The 5% stake in Scotland could become a rebranded state bank initially, could be used to lend to SMEs, in a way that banks had really failed to do since the crisis, and then have the new Scottish bank IPO’d in the first “Tell Sid” privatization in an independent Scotland.
He added that with the possibility of a “Brexit” from the EU in 2017, if an independent Scotland remained in the EU while the remainder of Britain exited, it would open up opportunities, and allow Scotland to regain control of its banking heritage.
It was disappointing to note, after the fireworks of the Occupy movement in recent years, the advanced years of most of the audience. Few were younger than fifty. No doubt, a mostly finance orientated crowd, or those looking for an explanation for the hole in their pension pot.
A few in the otherwise quietly attentive audience cheered when Fraser referred to the outrageous behaviour of Goodwin making soft loans available to RBS staff members to buy a last-ditch rights issue when he knew the company was already “enfeebled”.
At the start of the talk, Senter dubbed Fraser a "mild mannered... Clark Kent" among financial journalists. Hyperbole aside, it's fair to say that we need more journalists of Fraser's calibre capable enough and sufficiently resourced enough to delve into the often arcane world of high finance and take a strong, independent viewpoint.
We may never see the perp walk that the British public richly deserves. But, by keeping vigil, we might avoid sleepwalking into another financial crisis.