RBS 'deliberately' doubled losses to £2bn in 'Alice in Wonderland' accounting

[bobspud]

The UK government should have let one bank (e.g. Northern Rock) go bust, as a lesson to the banking industry. The ensuing panic by depositors of other banks could have been quickly nipped in the bud by a public announcement from the prime minister to say that the government would bail out the other banks, and that the one bank had been allowed to fail as a warning to others.

Bankers would have been knocked off their pedestal and the banking industry would have received a badly-needed wake-up call.

The thing I've never yet heard a worthwhile answer to is: If we need to pay such HUGE bonuses & salaries to retain the top "tallent" in the banking industry, then how did the banks get into such a mess when they were already paying HUGE bonuses & salaries to retain the top "tallent"? Of course, the banking appologists cannot answer that, because the truth is that it's all an illusion, which is proven by the so called "tallent" having brought the entire western economies to the brink of destruction.

Its not favourable to let a bank fail, because apart from all the money the government would have to pay back to customers under the deposit guarantees you would then have to spend the next 5 -10 years getting administrators in to wind back trades and settlements for every bank that was doing business in that settlement period. Lehmans is going to take ages to sort out. If your main bank account went bust tomorrow you would lose every penny in all of the accounts until the government got round to giving you up to the 35k limit... Now bare in mind that 35k is a limit for all your holding. So if you have a joint account and 2 personal accounts with savings on each and the business account you are screwed... As another question if you had a flexible mortgage and was holding 150k in a deposit account against the mortgage that money would be gone but you would still have a mortgage for the full 400k do you still think Northern Rock, HBOS or Lloyds TSB should go to the wall?

Now look at the trading arms... If you consider that you not only have to reverse trades of the failed bank you also have to find the end point of that trade and get the shares back from someone that bought them anywhere up to 10000 trades after the trade that started the mess, its likely that with high volume trading, shares were being traded at maybe a thousand times a second. It's really not something you want to do just to teach someone a lesson.

The reason why we are in this mess is not I repeat not because the banks were doing illegal stuff. It was because the FSA was not saying to the entire industry STOP IT! The banks competed legally in the markets that they had.

Start hanging the FSA if you want the source of the issues...

[doodab]

Because next time it might be their bank that the government allows to go bust.

But this is the flaw in your plan. In order to create that illusion, the government cannot promise to bail out the others, so you end up with a run on them.

By the way, I also don't buy this BS about "But if we don't pay them huge bonuses, they will go to another bank.". As if another bank would just suddenly hire a load of staff that they hadn't been planning hire, and pay them huge bonuses. More like the other banks would realise that it's now a buyers market and only hire people on reduced money, and then only those who they actually needed.

Neither do I. I've been suggesting we call their bluff for years.

[doodab]

The reason why we are in this mess is not I repeat not because the banks were doing illegal stuff. It was because the FSA was not saying to the entire industry STOP IT! The banks competed legally in the markets that they had.

Start hanging the FSA if you want the source of the issues...

Actually, they were quite vociferous, particularly with sub prime mortgage lending, within the constraints of the power they had, and especially so once things started to kick off in the US in 2007, well before the tulip hit the fan here. The problem was that they were toothless and with regard to the risks being taken could do little more than issue advisories. Ultimately this was a result of the industry's desire for self regulation, predicated on the idea that they could assess and manage risk more effectively themselves. In that regard you do have to blame the banks to some extent. Anyone who suggested we should have had more and better regulation at the time would have been laughed out of town.

Bear in mind the FSA was funded to the tune of perhaps £450 million a year (none of it from tax BTW) and this budget had to cover not just regulation of investment banks but of every financial adviser and dodgy mortgage and insurance salesman in the financial services and insurance industries, every consumer complaint, every pension provider and so on, expecting them to take on the entire global banking industry, the (at the time fairly well respected) ratings firms and the US government and argue that many triple A rated securities weren't worth the paper they were written on isn't very realistic, IMO.

[bobspud]

Neither do I. I've been suggesting we call their bluff for years.

It starts at the money making end of the business.

If you are a trader with a shelf life and you don't make a few million pounds worth of bonus, when you have probably made the bank 100 million off your books are you going to stay or take another job?
Obvious answer is you take the walk across the street to a competitor who will probably wave what you should have got as a bonus at you just to get your attention. Now back in the days after big bang entire desks would up sticks and go to competing houses. So making sure you retain talent at that level is not a throw away comment. It means the whole industry would sell their grandmothers to screw you up and take your staff.

If you are good at dealing. Why would you accept a promotion away from the floors to handle more politics and crap and earn less? IMO Hester was offered a rather low £1,000,000.00 to head up a team that has real chalenges only to get a mauling.
while there will be more or less a dozen 20 - 30 somethings taking home between 100k to £30,000,000 downstairs...

[sasguru]

It starts at the money making end of the business.

If you are a trader with a shelf life and you don't make a few million pounds worth of bonus, when you have probably made the bank 100 million off your books are you going to stay or take another job?
Obvious answer is you take the walk across the street to a competitor who will probably wave what you should have got as a bonus at you just to get your attention. Now back in the days after big bang entire desks would up sticks and go to competing houses. So making sure you retain talent at that level is not a throw away comment. It means the whole industry would sell their grandmothers to screw you up and take your staff.

If you are good at dealing. Why would you accept a promotion away from the floors to handle more politics and crap and earn less? IMO Hester was offered a rather low £1,000,000.00 to head up a team that has real chalenges only to get a mauling.
while there will be more or less a dozen 20 - 30 somethings taking home between 100k to £30,000,000 downstairs...

WHS.

[doodab]

It starts at the money making end of the business.

I'm aware of how it works. My comment was really aimed at those institutions who like to have things their own way and threaten to move overseas if they don't get it.

My personal opinion is that UK PLC would be much better off if more of the undoubtedly very smart people (and I'm talking about a few of my friends here, so hardly banker bashing) who have been sucked into the financial industry were doing other things. Most of the people working in the city will never see 7 figure bonuses, but on average they get quite a bit more than they could in other fields, and across the wider economy that causes something of a brain drain. This has been propped up to some extent by an artificial bubble, and in my opinion it's a distortion and not indicative of some underlying superiority of financial services relative to other industries.

[bobspud]

Actually, they were quite vociferous, particularly with sub prime mortgage lending, within the constraints of the power they had, and especially so once things started to kick off in the US in 2007, well before the tulip hit the fan here. The problem was that they were toothless and with regard to the risks being taken could do little more than issue advisories. Ultimately this was a result of the industry's desire for self regulation, predicated on the idea that they could assess and manage risk more effectively themselves. In that regard you do have to blame the banks to some extent. Anyone who suggested we should have had more and better regulation at the time would have been laughed out of town.

Bear in mind the FSA was funded to the tune of perhaps £450 million a year (none of it from tax BTW) and this budget had to cover not just regulation of investment banks but of every financial adviser and dodgy mortgage and insurance salesman in the financial services and insurance industries, every consumer complaint, every pension provider and so on, expecting them to take on the entire global banking industry, the (at the time fairly well respected) ratings firms and the US government and argue that many triple A rated securities weren't worth the paper they were written on isn't very realistic, IMO.

I have awareness of the FSA. They have more than enough cash and have the envious position of being able to tell the industry how much more money it wants to regulate them! It's very S&M in my opinion.

They go to the industry and say give me more money I want to spank you harder! (unless you are bundling sub prime)

[bobspud]

My personal opinion is that UK PLC would be much better off if more of the undoubtedly very smart people (and I'm talking about a few of my friends here, so hardly banker bashing) who have been sucked into the financial industry were doing other things. Most of the people working in the city will never see 7 figure bonuses, but on average they get quite a bit more than they could in other fields, and across the wider economy that causes something of a brain drain. This has been propped up to some extent by an artificial bubble, and in my opinion it's a distortion and not indicative of some underlying superiority of financial services relative to other industries.

Agreed but we have a free market and they want the best people they can find. My son is extremely good at maths. He has several relatives that are very good Engineers and achitects and would probably make a fantastic physicist... There's no way he will be going near a lab to earn £40k when I can get him a job on the trading floors through a mate and set him up for life...

[redgiant]

Agreed but we have a free market and they want the best people they can find. My son is extremely good at maths. He has several relatives that are very good Engineers and achitects and would probably make a fantastic physicist... There's no way he will be going near a lab to earn £40k when I can get him a job on the trading floors through a mate and set him up for life...

He could always go into law as trading isn't for everyone. A friend of mine also very good at maths and studied physics at university went onto be a patent attorney and is doing rather well for himself now and has a great quality of life.