Madoff sentenced to 150 years in prison
By Joanna Chung and Alan Rappeport in New York and Brooke Masters in London
FT.com
Cheers erupted in the Manhattan federal courthouse on Monday as Bernard Madoff was sentenced to 150 years in prison, the maximum possible under law, for running a $65bn Ponzi scheme that has devastated thousands of investors around the world.
The sentence came after an emotional hearing in which Mr Madoff, 71, conceded he could offer no excuses for decades-long fraud that may be the biggest in history.
“I leave a legacy of shame, as many of my victims have pointed out, for my children and grandchildren. That is something I will have to live with the rest of my life,” Mr Madoff said before the sentence was handed down. The former Nasdaq chairman also turned briefly to the victims in the courtroom, saying: “I’m sorry, I know that doesn’t help you.”
But his victims were not appeased. Nine of them testified at the hearing. Several had to pause as they were overcome with emotion, while others sat in the benches behind them, weeping.
“Underneath that facade, there truly is a beast. He has fed upon us,” said Sheryl Weinstein, the former finance chief of Hadassah, a Jewish women’s organisation.
Michael Schwartz, who lost a family trust fund and is supporting a disabled brother told the judge: “I only hope that his jail sentence is long enough so that his prison becomes a coffin.”
Mr Madoff’s attorney Ira Sorkin had asked for a 12 year sentence and the probation service had recommended 50 years. But Judge Denny Chin opted for the statutory maximum for the 11 charges to which Mr Madoff pleaded guilty.
Noting that he had not received a single letter in support of Mr Madoff, Judge Chin said: “Mr Madoff’s crimes were extraordinarily evil ... Not merely a bloodless financial crime ... [but] one that takes a staggering human toll.”
The White House said Judge Chin had sent a “loud and clear” signal to investors who handle other people’s money.
Mr Madoff’s family did not attend the hearing, but afterwards his wife Ruth broke her silence, releasing a statement saying she felt “embarrassed and ashamed” and “betrayed and confused” by the revelation of her husband’s crimes.
“Nothing I can say seems sufficient regarding the daily suffering that all those innocent people are enduring because of my husband. But if it matters to them at all, please know that not a day goes by when I don’t ache over the stories that I have heard and read,” she wrote.
While this case is unusual because of Mr Madoff’s age, a sentence of that length would ordinarily lead to Mr Madoff being sent to a maximum security prison.
In recent years, judges have handed down increasingly harsh sentences to high-profile white collar criminals. Bernie Ebbers, former chief executive of WorldCom, was given a 25-year term and Jeffrey Skilling, former head of Enron, more than 24 years, although that sentence was overturned on appeal.
There are still many unanswered questions about Mr Madoff’s decades-long scheme and what happened to the money. Mr Madoff has always insisted he committed the crime alone, but many believe he had accomplices.
David Friehling, Mr Madoff’s long-time accountant, has been charged with falsely certifying that he audited Mr Madoff’s firm and with enabling the investment fraud.
Mr Friehling, who has denied wrongdoing, is scheduled to appear in court next month. No one else has been criminally charged in the case.
The US Securities and Exchange Commission and the trustee leading the effort to recover money for victims have begun filing civil lawsuits, seeking to force some of Mr Madoff’s early backers to return some of the withdrawals they received from him. They have denied wrongdoing.
“What happens after the sentencing will be crucial,’’ said Dan Nardello, former federal prosecutor and chief executive of investigative firm Nardello & Co. ‘’The investigation is clearly not over. Although Madoff confessed and pleaded guilty, there is still much to learn. The government will continue to pursue other responsible individuals and assets belonging to the victims. $65bn ... does not just disappear.’’
Mr Madoff’s investors had $65bn on paper, most of it in fictitious profits, when federal authorities arrested him on December 11. The trustee has so far identified more than 1,341 account holders with collective real losses of about $13bn.
Mr Madoff and his wife have been stripped of most of their assets, including their homes and boats, according to court documents filed last week. Mrs Madoff, who has not been accused of any wrongdoing, will be allowed to keep $2.5m in cash, according to an agreement with prosecutors.
Monday, 29 June 2009
Tuesday, 31 March 2009
Reckless decisions’ sink Dunfermline!
‘Reckless decisions’ sink Dunfermline
By Andrew Bolger and Jim Pickard
Published: March 29 2009 22:56 | Last updated: March 29 2009 22:56
FT.com
An extraordinary expansion in commercial lending lies behind the collapse of Dunfermline Building Society, which has cast another pall over Scotland’s beleaguered financial sector.
At the end of 2007, when prices in commercial property had already started to fall, the group had £270m worth of commercial loans on its books.
In spite of signs of an impending property market collapse, the building society ramped up its lending to the sector to £650m – a sevenfold increase over just three-and-a-half years.
A spokesman for Dunfermline said on Sunday that the mutual’s problems were almost entirely concentrated in its commercial property lending book.
It would appear that the institution, founded in 1869, had been swept up by property mania just as the cycle turned. It also emerged the group had significant exposure to bonds based on non-conforming UK mortgages.
Only last year, Graeme Dalziel – who was ousted in January after eight years as chief executive – had boasted that Dunfermline had “absolutely no exposure to subprime lending”.
It is also thought likely that several institutional investors will abstain or vote against.
Yet the mortgage-backed securities on Dunfermline’s books were bought from GMAC and Lehman Brothers, renowned as two of the most aggressive subprime lenders in Britain.
Jim Murphy, Scotland secretary, said the previous management had made “reckless decisions” because of its over-exposure to commercial loans, involvement in the subprime market and unfortunate decisions on technology. Dunfermline was forced to make a £9.5m write-off on last year’s £11m profits because of a failed IT system.
Much of that exposure will now be taken on by taxpayers, although Treasury officials hope the value of the loans will recover in the medium term. Any loss to the state will depend on default levels in the loan book.
The frantic negotiations over the weekend came as the building society prepares to publish its annual accounts later this week.
The figures are expected to show a substantial loss, worsened by Dunfermline having to contribute £7m last year to the government’s Financial Services Compensation scheme.
A new Fred?
The deposit insurance scheme has been hit by the troubles of the banking sector, in particular the collapse of Bradford & Bingley and the Icelandic banks, and building societies have complained they have been asked to bear a disproportionate share of the costs.
The Treasury’s decision to force a break-up sale of Dunfermline is an embarrassing distraction for the prime minister, whose constituency lies near the mutual’s headquarters.
On Sunday night Downing Street refused to say whether Mr Brown held an account at the building society.
The failure of the group is a setback for government plans to use the mutual model to rebuild the UK lending system. A Treasury white paper next month will lay out plans for an expansion of the sector, based on the premise that it is generally a safer system than the plc banking model.
But the rescue of Dunfermline – the fifth “benevolent takeover” in the sector in one year – may undermine that premise.
Dunfermline’s chairman, Jim Faulds, revealed on Sunday that the group had been in touch with the Financial Services Authority for the past six months. In the past fortnight there have been rounds of discussions to try to find another group to rescue the building society.
The Treasury finally acted after being told on Saturday that no individual group was prepared to take on Dunfermline as a single entity.
Alex Salmond, Scotland’s first minister, expressed disappointment that Dunfermline could not continue as a going concern. The Scottish National party leader said the Holyrood government had offered money to support the mutual, but this would have required Treasury approval.
Dunfermline, which has 500 staff, is a strong supporter of social housing and has loaned hundreds of millions of pounds to housing associations in recent years.
Copyright The Financial Times Limited 2009
Nationwide takes over Dunfermline
Reported in the Scotsman
Vince Cable, the Liberal Democrats' Treasury spokesman, told MPs the Dunfermline board had been guilty of "disastrous management" and a failure of oversight in allowing it to run up a £24 million loss for 2008.
That required the Treasury, Bank of England and FSA to put the rescue package in place which has resulted in the Dunfermline's staff, retail and wholesale deposits, branches, head office and original residential mortgages being transferred to the Nationwide.
A "bridge bank" has been set up to oversee its social housing portfolio in Scotland, while accountancy firm KPMG has been appointed to sell off commercial loans, which will be used to help repay the £1.6 billion to the taxpayer.
Mr Cable told the Commons DBS made a £10 million loan two years ago to Lancashire property firm In House plc – a company that was "loss-making, insolvent and had never filed any accounts".
He added: "There were substantial numbers of loans of this kind taking place. Is this not an absolutely gross failure of regulation by the FSA? It's very difficult to see how this could have happened under the old building society regime, which kept a much closer eye on the conduct of these societies."
Papers seen by The Scotsman suggest that In House used the 2007 loan to provide 100 per cent mortgages on multi- occupancy or rundown terraced homes in Hull, Stockton and Lancashire, and an industrial unit in Scotland.
A year later, it obtained a second £10 million loan from the Dunfermline, and it has withdrawn some £3 million to £4 million for similar lending. About 25 of the properties are said to be uninhabitable because of the amount of repairs required. The firm could not be reached for comment last night.
Mr Cable, Mr Darling and George Osborne, the shadow chancellor, were united in condemning the failures of the mutual's board and its decision to purchase more than £150 million of self-certified loans from the two US firms – GMAC and the Lehman subsidiary – and embark on £650 million of commercial property lending.
Mr Darling said the Dunfermline's toxic investments were made shortly before the credit crunch that led to the collapse of the residential and commercial markets. He added that the Dunfermline was now losing money as a result of firms collapsing or defaulting on repayments.
Mr Darling said Nationwide had promised there would be no compulsory redundancies for the next three years for the 345 staff of the Dunfermline's 34 branches in Scotland. However, he could give no guarantee for head office staff.
By Andrew Bolger and Jim Pickard
Published: March 29 2009 22:56 | Last updated: March 29 2009 22:56
FT.com
An extraordinary expansion in commercial lending lies behind the collapse of Dunfermline Building Society, which has cast another pall over Scotland’s beleaguered financial sector.
At the end of 2007, when prices in commercial property had already started to fall, the group had £270m worth of commercial loans on its books.
In spite of signs of an impending property market collapse, the building society ramped up its lending to the sector to £650m – a sevenfold increase over just three-and-a-half years.
A spokesman for Dunfermline said on Sunday that the mutual’s problems were almost entirely concentrated in its commercial property lending book.
It would appear that the institution, founded in 1869, had been swept up by property mania just as the cycle turned. It also emerged the group had significant exposure to bonds based on non-conforming UK mortgages.
Only last year, Graeme Dalziel – who was ousted in January after eight years as chief executive – had boasted that Dunfermline had “absolutely no exposure to subprime lending”.
It is also thought likely that several institutional investors will abstain or vote against.
Yet the mortgage-backed securities on Dunfermline’s books were bought from GMAC and Lehman Brothers, renowned as two of the most aggressive subprime lenders in Britain.
Jim Murphy, Scotland secretary, said the previous management had made “reckless decisions” because of its over-exposure to commercial loans, involvement in the subprime market and unfortunate decisions on technology. Dunfermline was forced to make a £9.5m write-off on last year’s £11m profits because of a failed IT system.
Much of that exposure will now be taken on by taxpayers, although Treasury officials hope the value of the loans will recover in the medium term. Any loss to the state will depend on default levels in the loan book.
The frantic negotiations over the weekend came as the building society prepares to publish its annual accounts later this week.
The figures are expected to show a substantial loss, worsened by Dunfermline having to contribute £7m last year to the government’s Financial Services Compensation scheme.
A new Fred?
The deposit insurance scheme has been hit by the troubles of the banking sector, in particular the collapse of Bradford & Bingley and the Icelandic banks, and building societies have complained they have been asked to bear a disproportionate share of the costs.
The Treasury’s decision to force a break-up sale of Dunfermline is an embarrassing distraction for the prime minister, whose constituency lies near the mutual’s headquarters.
On Sunday night Downing Street refused to say whether Mr Brown held an account at the building society.
The failure of the group is a setback for government plans to use the mutual model to rebuild the UK lending system. A Treasury white paper next month will lay out plans for an expansion of the sector, based on the premise that it is generally a safer system than the plc banking model.
But the rescue of Dunfermline – the fifth “benevolent takeover” in the sector in one year – may undermine that premise.
Dunfermline’s chairman, Jim Faulds, revealed on Sunday that the group had been in touch with the Financial Services Authority for the past six months. In the past fortnight there have been rounds of discussions to try to find another group to rescue the building society.
The Treasury finally acted after being told on Saturday that no individual group was prepared to take on Dunfermline as a single entity.
Alex Salmond, Scotland’s first minister, expressed disappointment that Dunfermline could not continue as a going concern. The Scottish National party leader said the Holyrood government had offered money to support the mutual, but this would have required Treasury approval.
Dunfermline, which has 500 staff, is a strong supporter of social housing and has loaned hundreds of millions of pounds to housing associations in recent years.
Copyright The Financial Times Limited 2009
Nationwide takes over Dunfermline
Reported in the Scotsman
Vince Cable, the Liberal Democrats' Treasury spokesman, told MPs the Dunfermline board had been guilty of "disastrous management" and a failure of oversight in allowing it to run up a £24 million loss for 2008.
That required the Treasury, Bank of England and FSA to put the rescue package in place which has resulted in the Dunfermline's staff, retail and wholesale deposits, branches, head office and original residential mortgages being transferred to the Nationwide.
A "bridge bank" has been set up to oversee its social housing portfolio in Scotland, while accountancy firm KPMG has been appointed to sell off commercial loans, which will be used to help repay the £1.6 billion to the taxpayer.
Mr Cable told the Commons DBS made a £10 million loan two years ago to Lancashire property firm In House plc – a company that was "loss-making, insolvent and had never filed any accounts".
He added: "There were substantial numbers of loans of this kind taking place. Is this not an absolutely gross failure of regulation by the FSA? It's very difficult to see how this could have happened under the old building society regime, which kept a much closer eye on the conduct of these societies."
Papers seen by The Scotsman suggest that In House used the 2007 loan to provide 100 per cent mortgages on multi- occupancy or rundown terraced homes in Hull, Stockton and Lancashire, and an industrial unit in Scotland.
A year later, it obtained a second £10 million loan from the Dunfermline, and it has withdrawn some £3 million to £4 million for similar lending. About 25 of the properties are said to be uninhabitable because of the amount of repairs required. The firm could not be reached for comment last night.
Mr Cable, Mr Darling and George Osborne, the shadow chancellor, were united in condemning the failures of the mutual's board and its decision to purchase more than £150 million of self-certified loans from the two US firms – GMAC and the Lehman subsidiary – and embark on £650 million of commercial property lending.
Mr Darling said the Dunfermline's toxic investments were made shortly before the credit crunch that led to the collapse of the residential and commercial markets. He added that the Dunfermline was now losing money as a result of firms collapsing or defaulting on repayments.
Mr Darling said Nationwide had promised there would be no compulsory redundancies for the next three years for the 345 staff of the Dunfermline's 34 branches in Scotland. However, he could give no guarantee for head office staff.
Friday, 6 March 2009
UK set for 70% economic stake in Lloyds
Financial Times UK
By George Parker and Jane Croft
Published: March 5 2009 23:49 | Last updated: March 6 2009 09:22
The enormity of Lloyds’ ill-fated takeover of HBOS will be exposed on Friday, as the bank’s board considers a Treasury rescue plan that could see the taxpayer take an economic stake of about 70 per cent in the merged bank.
Alistair Darling, chancellor, has agreed an outline deal that would see the government insure toxic assets of £258bn, but it would come at a heavy price.
EDITOR’S CHOICE
Martin Wolf: Big risks for the insurer of last resort - Mar-05
Bank pumps £75bn into economy - Mar-05
Notebook: Tesco banks on a modest HQ - Mar-05
Capital base solid, says Nationwide - Mar-05
Mr Darling’s officials have peered into the HBOS loan book and concluded that the final insurance fee charged by the taxpayer must reflect the high-risk nature of many of its investments.
After more than a week of negotiations, Mr Darling’s officials have proposed a fee that would see the government’s economic stake in the Lloyds Banking Group rise to about 70 per cent, through the issue of non-voting, but dividend-paying, B shares.
If the government were to increase its economic interest it would be a blow to the bank’s chief executive, Eric Daniels, and the chairman, Sir Victor Blank.
Mr Daniels said last year that he regarded the government as just another name on the share register but he did not wish state ownership to rise above 43 per cent.
One big investor suggested that Sir Victor’s head should roll. “His move to buy HBOS has blown the bank up.”
The Lloyds board is also considering a separate – but related – proposal that could see the government’s £4bn in preference shares converted into ordinary shares, a move that would also give the taxpayer majority voting control of the company.
The preference shares are an expensive form of capital for the bank, carrying a 12 per cent annual coupon and incurring an interest charge of £480m.
But a conversion of those shares into ordinary shares – as Mr Darling may insist – would take the taxpayer’s voting stake in the company up from 43 per cent to closer to 60 per cent. The additional block of non-voting B shares – the fee for the insurance scheme – would take the government’s economic interest to about 70 per cent.
Shares in Lloyds gained 4.7 per cent in early trading on Friday to 42.2p.
The Lloyds board has resisted handing over direct voting control to the taxpayer and the bank insisted on Thursday night that negotiations were continuing, but it may conclude it has little choice.
Mr Darling’s officials say they are “relaxed” over whether Lloyds converts the preference shares, but point out that when the Treasury struck a similar deal with RBS it insisted on turning them into ordinary shares.
“There are still extensive negotiations and the Lloyds board still has to get their head around this and agree to it,” said one person with knowledge of the situation, who suggested there was a 60 per cent chance of a deal being struck on Friday.
Peter Mandelson, business secretary, said on Friday that talks over Lloyds’ participation in the scheme were difficult.
”Obviously when you’re making a change like this, introducing new measures or instruments to enable the banks to to recover, it involves a negotiation about the terms, the pricing and all sorts of conditions that are attached and that involves a fairly difficult, tough negotiation between the government and the banks,” he told Sky News.
If the preference shares were converted into non-voting but dividend-paying B shares, the bank could use those to bolster its capital ratios but the voting stake of the government could remain at 43 per cent.
Last week, RBS announced it was putting £325bn of assets into the government’s asset insurance scheme, where the bank agreed to pay a “first loss” on bad loans while the taxpayer agreed to underwrite 90 per cent of remaining losses. The government could end up with a 95 per cent economic stake.
Another big investor said: “It is a great pity that Lloyds’ management got itself into this mess by agreeing to buy HBOS and there are investors who might be unhappy with Eric Daniels.”
Lloyds said its position had not changed and talks continued with the Treasury.
Copyright The Financial Times Limited 2009
------------------
Cost of UK Bank Bailout - Bloomberg!
By George Parker and Jane Croft
Published: March 5 2009 23:49 | Last updated: March 6 2009 09:22
The enormity of Lloyds’ ill-fated takeover of HBOS will be exposed on Friday, as the bank’s board considers a Treasury rescue plan that could see the taxpayer take an economic stake of about 70 per cent in the merged bank.
Alistair Darling, chancellor, has agreed an outline deal that would see the government insure toxic assets of £258bn, but it would come at a heavy price.
EDITOR’S CHOICE
Martin Wolf: Big risks for the insurer of last resort - Mar-05
Bank pumps £75bn into economy - Mar-05
Notebook: Tesco banks on a modest HQ - Mar-05
Capital base solid, says Nationwide - Mar-05
Mr Darling’s officials have peered into the HBOS loan book and concluded that the final insurance fee charged by the taxpayer must reflect the high-risk nature of many of its investments.
After more than a week of negotiations, Mr Darling’s officials have proposed a fee that would see the government’s economic stake in the Lloyds Banking Group rise to about 70 per cent, through the issue of non-voting, but dividend-paying, B shares.
If the government were to increase its economic interest it would be a blow to the bank’s chief executive, Eric Daniels, and the chairman, Sir Victor Blank.
Mr Daniels said last year that he regarded the government as just another name on the share register but he did not wish state ownership to rise above 43 per cent.
One big investor suggested that Sir Victor’s head should roll. “His move to buy HBOS has blown the bank up.”
The Lloyds board is also considering a separate – but related – proposal that could see the government’s £4bn in preference shares converted into ordinary shares, a move that would also give the taxpayer majority voting control of the company.
The preference shares are an expensive form of capital for the bank, carrying a 12 per cent annual coupon and incurring an interest charge of £480m.
But a conversion of those shares into ordinary shares – as Mr Darling may insist – would take the taxpayer’s voting stake in the company up from 43 per cent to closer to 60 per cent. The additional block of non-voting B shares – the fee for the insurance scheme – would take the government’s economic interest to about 70 per cent.
Shares in Lloyds gained 4.7 per cent in early trading on Friday to 42.2p.
The Lloyds board has resisted handing over direct voting control to the taxpayer and the bank insisted on Thursday night that negotiations were continuing, but it may conclude it has little choice.
Mr Darling’s officials say they are “relaxed” over whether Lloyds converts the preference shares, but point out that when the Treasury struck a similar deal with RBS it insisted on turning them into ordinary shares.
“There are still extensive negotiations and the Lloyds board still has to get their head around this and agree to it,” said one person with knowledge of the situation, who suggested there was a 60 per cent chance of a deal being struck on Friday.
Peter Mandelson, business secretary, said on Friday that talks over Lloyds’ participation in the scheme were difficult.
”Obviously when you’re making a change like this, introducing new measures or instruments to enable the banks to to recover, it involves a negotiation about the terms, the pricing and all sorts of conditions that are attached and that involves a fairly difficult, tough negotiation between the government and the banks,” he told Sky News.
If the preference shares were converted into non-voting but dividend-paying B shares, the bank could use those to bolster its capital ratios but the voting stake of the government could remain at 43 per cent.
Last week, RBS announced it was putting £325bn of assets into the government’s asset insurance scheme, where the bank agreed to pay a “first loss” on bad loans while the taxpayer agreed to underwrite 90 per cent of remaining losses. The government could end up with a 95 per cent economic stake.
Another big investor said: “It is a great pity that Lloyds’ management got itself into this mess by agreeing to buy HBOS and there are investors who might be unhappy with Eric Daniels.”
Lloyds said its position had not changed and talks continued with the Treasury.
Copyright The Financial Times Limited 2009
------------------
Cost of UK Bank Bailout - Bloomberg!
Wednesday, 4 March 2009
Launching AlbaIM * Social Network for Internet Marketing!
Launching AlbaIM a Social Networking Site for Internet Marketers!
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Sunday, 25 January 2009
Browns Banrupt Britian
Browns Bankrupt Britain!
It's January 2012 ... one year after Britain joined the Euro. Iain Macwhirter looks at the disastrous financial crisis which led to the historic decision
WITH HINDSIGHT, the most astonishing thing is that Britain thought it could remain outside the euro for as long as it did. As a vulnerable island, dependent on a bloated financial services sector, without any significant exports and lacking a reserve currency, there was no way that Britain was ever going to ride out the crisis of 2009-10 on its own. City of London types used to say that the only difference between Iceland and Ireland was one letter and six months. Well, the UK was a year behind and had nothing to write home about either.
As delinquent banks such as Royal Bank of Scotland, Barclays and Lloyds ended up being taken into state ownership, Britain's finances were trashed. The combined liabilities of the UK banks was £4.4 trillion, three times Britain's GDP, so public debt rocketed. Moreover, before the formation of the National Government in 2010, the then prime minister, Gordon Brown, had handed the banks over £1 trillion in loans, guarantees, buy-backs and shameless bungs. The national accounts became as a reliable as a sub-prime mortgage.
Borrowing as a proportion of GDP reached 10% in 2009 and was heading into the stratosphere as the country collapsed into economic recession.
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Nearly a quarter of the government's revenue - which had come in the form of stamp duty on houses, corporate taxes and income taxes - simply evaporated as house sales plummeted, businesses collapsed and workers became unemployed. The welfare bill soared as unemployment rose to 3.5 million in spring 2010. Britain's public debt was further burdened by new international accounting rules which required that the government own up to tens of billions in PFI schemes and place them on the public books.
The unfunded cost of public sector pensions added another trillion to the British accounts, leading to an astonishing projected public sector combined debt approaching £3.5 trillion. This could never realistically have been repaid and the international markets soon started selling sterling as fast as they could. Even before the recession began, the pound had lost a third of its value, but as it plummeted below parity with the dollar, the government suddenly realised that the stability of the national currency still mattered. Import prices shot up; public debt could not be financed; banks registered ever greater write-downs as the value of their overseas loans increased as sterling fell.
Perhaps Britain might have still been able to muddle through, had it not been for the Bank of England's decision to indulge in "quantitative easing" - or printing money. In desperation, the government urged Mervyn King to introduce a crash programme of expanding the money supply by direct purchasing of bonds and assets, underfunding government spending and other measures which had the effect of pouring trillions of pounds into the economy. The government was hoping to create inflation to reduce the value of public and private debts - but the international markets aren't stupid and they dumped sterling in record amounts. As the printing presses hummed and pensioners saw their savings evaporate, the government insisted there was light at the end of the tunnel. Trouble is, it was the light of an oncoming train.
The true causes of the sterling crisis of 2010 will be argued over for decades, but what is not in doubt is that the so-called "benign neglect" of sterling was a foolish policy. The government and the Bank of England had hoped that a fall in the value of sterling would lead to an export-led recovery, just as it had in 1992, when the pound dropped out of the European Exchange Rate Mechanism, and in 1932, when Britain left the gold standard and devalued the pound. On both occasions, British manufacturing rose to the challenge and took advantage of the low pound to sell in overseas markets. But the difference this time was that British manufacturing had largely ceased to exist, having fallen to 14% of GDP even before the crisis hit. Moreover, so indebted were many British companies that the collapse of sterling led to a wave of corporate defaults as firms could no longer rely on foreign lenders.
Finally, the global depression and the re-appearance of protectionism shrank opportunities for foreign trade.
Britain had become over-dependent on financial services, and while there was still demand for banking services, many of the more profitable activities of the City, like hedge funds, securitisation, mergers and acquisitions, and private equity deals were destroyed by the credit crunch.
The image and reputation of British banking had become irremediably tarnished by the activities of banks such as Royal Bank of Scotland and HBOS, which became a by-word for irresponsible and imprudent banking practice.
The continuing collapse of the housing market wiped out much of the rest of the financial services sector and led to mass redundancies in lawyers' offices, estate agents and even surveyors. Only the auction houses experienced a boom.
By 2010 it was clear that Britain was in a very serious decline. The choice facing the government was: default on its loans - like Russia in 1998, calling in the International Monetary Fund - which would have led to massive public spending cuts and huge increases in interest rates; or joining the euro. Default was unthinkable, the IMF route would have made the recession 10 times worse by throwing millions of public sector workers on the dole and introducing Icelandic interest rates of 15%. So the government saw no option but to enter negotiations for joining the euro.
At first, there was resistance from Eastern European and Mediterranean states which felt Britain was getting a get-out-of-jail-free card. But the French and Germans were so keen to complete the jigsaw of European Union that they agreed to Britain entering on a generous exchange rate. Instead of 15% interest rates, the UK adopted the European Central Bank rate of 2.5%. Britain's debts didn't go away, but since they were now underwritten by the entire EU, confidence was restored in the UK's finances. There were still millions unemployed, but membership of the euro boosted exports.
Britain's crisis is not over, and there are major problems, especially in Scotland where the economy has been devastated. But the UK heaved a collective sigh of relief in January 2011 when the pound, and all its history, was finally put to rest.
***
Meanwhile, back in 2009 ... what are the government's other options? By Westminster Editor James Cusick It will take "four to six weeks" for the government to work out the details of its last bank bailout scheme. According to the new Treasury minister, Lord Myners, the government could then be facing another crisis in early March if it miscalculates the premiums on the insurance scheme to cover the banks' toxic assets.
With the economy contracting at its fastest rate since 1980, the pound at a 23-year low against the dollar, unemployment heading past two million and predicted to pass three million before the end of the year, and no sector of the UK economy seemingly immune from the slump, the government options look to be narrowing.
However, apart from petitionary prayer, there are other key options that are being considered.
1 Stabilisation: Predictions by Myners that more bail-outs remain a possibility indicate one of the government's more immediate hopes is for any sign of stability rather than outright recovery, which will be far off.
The Bank of England has left itself little choice but to cut interest rates again. On February 5, a further cut of half a percentage point, at least, is likely. Inflation, already at an all-time low, will fall again. Inside the Treasury there remains firm hope that the fiscal stimulus packages will finally begin to take effect. But falling demand and a reluctance by banks to return to old, and discredited, levels of international lending, makes stabilisation still an item on an economic wish list.
2 Reform of the global financial system: This may be the golden key needed to open the door for a return of confidence. The G20 meeting in London in April, which Brown will chair, is the opportunity for him to demonstrate his now much-repeated mantra that the recession wasn't his fault, but was a global financial failure, and therefore a different kind of "boom and bust" than anything dealt with before.
3 Obama as the new Roosevelt: It may be as high as a trillion dollars, though Congress in Washington DC is already getting cold feet about the scale of Barack Obama's version of the "new deal". But whatever the final numbers are, Downing Street and the Treasury will be hoping the trickle-down effect turns into a quantifiable rescue-laden tsunami that will boost UK recovery.
4 The return of "old style" conservative banking: Brown wants to see a return to basic banking, free of the sophisticated gung-ho practices that became part of the unregulated boom. But to deliver back-to-basics banks, Britain still needs its banks to survive. Lord Myners has let it be known that "nationalisation" is not the answer. Brown soon has to put our faith back in the banks and the banks' faith back in themselves. In what time frame can this begin to happen? Ask around, but no-one has an answer to this.
5 Quantitative easing: Britain's best hope of recovery may yet lie in simply printing money to boost a potentially deflationary economy in recession. If money markets remain frozen, property prices stagnant and the banks still unwilling to risk their capital, quantitative easing - the professional economists' definition of switching on the printing presses - will be the government's final weapon. This is happening in the US already and it can't be far off from happening here. It has long-term implications, but then, as Keynes said, the long-term is for other generations when recovery is needed now.
Sunday Herald , Scotland
25/01/2009
Thursday, 22 January 2009
Royal Bank of Scotland * £28 Billion Loss for 2008 *
"The Smartest Guys in the Room"
Now we have Scotlands ENRON its called
The Royal Bank of Scotland
(The Daftest Jocks in the World)
RBS shares collapse as bank warns of record loss
Published Date: 19 January 2009
SHARES in Royal Bank of Scotland plummeted today after the beleaguered lender revealed it was on course for a record annual loss for a UK company.
RBS shocked the City as it estimated bad debts and the lower value of its acquisitions could leave it as much as £28 billion in the red for 2008. This is higher than the £15 billion set by mobile phone group Vodafone in 2006.
Shares in the firm, which is 58% owned by the Government, slumped by more than 40% at one stage today, leaving the stock at a 23-year low.
RBS said a review of past acquisitions, most notably its share of Dutch bank ABN Amro, would result in a non-cash hit of between £15 billion and £20 billion. It also expects core losses of between £7 billion and £8 billion as a result of credit and market conditions in the fourth quarter of the year.
Asked about the record losses, Prime Minister Gordon Brown voiced his anger about the bank's decision-making, in particular international investments "that were clearly wrong investments".
He added: "Today's write-off by the Royal Bank of Scotland is for irresponsible losses accumulated in American sub-prime markets that partly derive from the acquisition of the Dutch bank ABN Amro."
However, he refused to say whether action should be taken against former chief executive Sir Fred Goodwin or other senior figures over "irresponsible" behaviour.
RBS also revealed today that the Government would increase its stake in the bank – likely to be around 70% – after the Treasury agreed to replace £5 billion of preference shares with new ordinary shares.
The move, which takes RBS a step closer to full-blown nationalisation, removes the annual cost of preference share dividends of £600 million and is expected to bolster the group's cashflow.
It said it intended to increase lending across its UK businesses by £6 billion, extending the lending commitment it gave in October in respect of UK mortgage and corporate customers.
Chief executive Stephen Hester, who took over from Sir Fred last year, said the dislocation of credit markets and the economic conditions continued to hit the bank hard.
He added: "We are making progress in recognising excess risk and dealing with it. In this context, the support we are receiving from Government benefits all our stakeholders and enables us to provide more customer support in return."
The group owns the Citizens commercial bank in the US and has a large investment banking presence in America, while it also operates across Asia and provides a wealth management service, through its private bank Coutts.
It gained a chunk of ABN Amro's European and global assets when it led a consortium takeover of the Dutch bank last year.
Shares in the firm, which is 58% owned by the Government, slumped by more than 40% at one stage today, leaving the stock at a 23-year low.
RBS said a review of past acquisitions, most notably its share of Dutch bank ABN Amro, would result in a non-cash hit of between £15 billion and £20 billion. It also expects core losses of between £7 billion and £8 billion as a result of credit and market conditions in the fourth quarter of the year.
Asked about the record losses, Prime Minister Gordon Brown voiced his anger about the bank's decision-making, in particular international investments "that were clearly wrong investments".
He added: "Today's write-off by the Royal Bank of Scotland is for irresponsible losses accumulated in American sub-prime markets that partly derive from the acquisition of the Dutch bank ABN Amro."
However, he refused to say whether action should be taken against former chief executive Sir Fred Goodwin or other senior figures over "irresponsible" behaviour.
RBS also revealed today that the Government would increase its stake in the bank – likely to be around 70% – after the Treasury agreed to replace £5 billion of preference shares with new ordinary shares.
The move, which takes RBS a step closer to full-blown nationalisation, removes the annual cost of preference share dividends of £600 million and is expected to bolster the group's cashflow.
It said it intended to increase lending across its UK businesses by £6 billion, extending the lending commitment it gave in October in respect of UK mortgage and corporate customers.
Chief executive Stephen Hester, who took over from Sir Fred last year, said the dislocation of credit markets and the economic conditions continued to hit the bank hard.
He added: "We are making progress in recognising excess risk and dealing with it. In this context, the support we are receiving from Government benefits all our stakeholders and enables us to provide more customer support in return."
The group owns the Citizens commercial bank in the US and has a large investment banking presence in America, while it also operates across Asia and provides a wealth management service, through its private bank Coutts.
It gained a chunk of ABN Amro's European and global assets when it led a consortium takeover of the Dutch bank last year.
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