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We should all know how RBS spends our money

Dan Box

26th October, 2009

Officials can sternly lecture the City on its excesses as much as they like: when it comes to actually regulating it, politicians just don't care. And don't want us to know...

Picture the scene; dinner in the City with the Worshipful Company of International Bankers. A lord rises to his feet. Lord Myners, for it is he, is City Minister, nominally in charge of bankers before him, and he is cross. They have been behaving badly. Taking too much risk. Paying themselves too much. Leaving the tax payer to foot the bill. It just won't do.

'The taxpayer,' Lord Myners says, 'will not be taken for a goostrumnoodle a second time – nor should they be allowed to.'

Fine words indeed (though not one that appears in my dictionary). Apparently, it means a fool. And Myners should know – for, one day before his speech, at the High Court, his Government argued that we should all be taken for goostrumnoodles for as long as it sees fit.

The issue at stake was RBS, the bank plucked from collapse by the British government, which has to date thrown almost £1 trillion at the sector to save it. The Government now owns 70 per cent of RBS shares. In effect, your tax money paid to save it.

So, campaigners asked, can we please take a look at how that money is now being used? No, said the Government. No, said the court.

Which is a shame, because RBS has in the past spent billions funding oil and gas exploration. Money has been lent to companies drilling in the arctic, opencast coal mining in the UK and to Vedanta Resources, recently criticised in a British Government report for not respecting 'the rights and freedoms' of Indian people in the way of a bauxite mine. Some of this spending you may disagree with.

But the Government, managing your tax investment in RBS, doesn't care. According to its policy, those RBS shares are to be managed, and ideally quickly sold, 'within the context of an overarching objective of protecting and creating value for the taxpayer as shareholder'. So you the taxpayer own the shares, and they will be managed to make money on your behalf, however that money is made.

'In case anyone needs reminding,' Lord Myners told his audience, 'the profits of banks belong to their owners; not their managers and traders.' What he didn't say is that we may own them, but thanks to his Government and the High Court, how those profits are made are no concern of ours.

The Waples index

I once worked as a business reporter on the Sunday Times under the now business editor, John Waples. Waples led me round the City, making introductions and gently encouraging me to cut my hair and buy a nicer suit. He loved business. Once, taking a glass-walled lift together in Commerzbank he pointed out the massed ranks of bankers working on either side. They were making millions, Waples said, his eyes shining. Often, that was millions each.

So I was surprised to read Waples offer a more critical view:
'I expect that 95 per cent of the population say the profits Goldman (Sachs, another bank) has made in the past two quarters are equivalent to drug companies making money out of Aids in Africa or a weapons factory cashing in on war,' he writes.

'4 per cent of the population are less angered. They say Goldman's clients are free agents, the bank manages risk better and its traders are smarter...

'The last tiny fraction...hero-worship free market capitalism.'

That the 1 per cent has done very well from ignoring the 95 per cent can be measured in the record bonuses Goldman Sachs has announced. But its a risky business. If those bonuses continue, Waples writes, there will be riots outside bank offices in London and New York.

 

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