With hindsight we should have seen it coming a long time before. But it wasn’t until 15 September 2008 that the world woke up to the first shock waves of the biggest financial disaster since the Great Depression.
Ten years later the ripples are still spreading. Unfinished business is what the Financial Times calls the crisis which broke banks, rocked governments, wrecked economies, ruined lives, unsettled national cultures – destabilised democracy itself. While corporations, communities and countries struggle in the slowest recovery in history, the poor have paid the cost of mistakes made by the highest paid figures in the banking world.
To mark its tenth anniversary, Sceptical Scot focuses on home-made follies; the extraordinary mistakes made by two once revered and typically prudent Scottish institutions: the Bank of Scotland and the Royal Bank of Scotland.
Starting today we begin a series of extracts from Hubris: How HBOS Wrecked the Best Bank in Britain by Ray Perman. In October, as we move towards the anniversary of the downfall of RBS, we will publish extracts from Shredded: Inside the Bank that Broke Britain by Ian Fraser.
Both highly acclaimed, these two books reveal extraordinary complacency on the top floor (C-Suite) of two global institutions based in Scotland’s capital city.
Despite the collapse of Northern Rock in September 2007, to outward appearances business carried on as usual throughout the early part of 2008. Having led a consortium with Santander and Fortis that had offered a staggering €71bn for Dutch bank ABN-Amro, Fred Goodwin silenced concerns about RBS capital and liquidity. “Capital doesn’t matter. We are so profitable that capital doesn’t matter.”
Storm clouds gathered through an unusually wet summer. Lord Stevenson told HBOS shareholders: “Armageddon may happen, and we should be prepared for it, and we are.” History very quickly proved him wrong.
Not everyone was so shortsighted. As Ian Fraser writes:
At the end of August, Darling gave a remarkably candid interview to The Guardian’s Decca Aitkenhead at his dynastic croft on Great Bernara, an island off the Isle of Lewis. The chancellor said the economic times ‘are arguably the worst they’ve been in 60 years’. He also said, ‘And I think it’s going to be more profound and longlasting than people thought.
Ten years on, and not over yet. It is important to remember how and where it began.
Ray Perman takes up the story in today’s first episode (Apocalypse now and then…ten years on). On 7 September the US government had announced it was taking Fannie Mae and Freddy Mac (now described by CNBC as Uncle Sam’s cash cows) into public ownership. A week later
On 15 September, a day the newspapers called ‘Black Monday,’ ‘Meltdown Monday’ or ‘Panic Monday,’ the FTSE 100 share index tumbled 200 points and HBOS shares went into freefall. The Financial Times described a macabre prediction game in progress: who will be next? The market had already decided: it would be HBOS.
[October update: Sceptical Scot financial crisis series this week reaches the conclusion from Ian Fraser’s Shredded: Inside RBS the bank that broke Britain. Our tenth anniversary review of the 2008 crash will end with a recorded discussion between Ian and Ray in the Library of Mistakes]
Fines paid (source This Is Money)
- by RBS: $27bn; by UK banks: £71bn
- for misconduct Lloyds: £23.4bn
- RBS £20.6bn
- Barclays £17bn ca.
- HSBC £10bn ca.
- FRC has imposed audit fines of £50m+
- Govt cost of bail-out: RBS £45.5bn, Lloyds £20.3bn;
- 62% RBS in state hands
Jobs lost: RBS employs some 150,000 fewer in 2017 than in 2007 (71,200 v 226,400)
- Iceland jailed 29 bankers
- UK zero
- US 222
- (324 Main Street convictions, zero Wall Street)
- Kweku Adoboli, the trader who lost $2bn at UBS, has been living with a friend’s family outside Edinburgh Bloomberg
- Goodwin, prototype of the evil banker, is 60
Global debt at record levels 225% of world GDP v ca 187% in 2007 The Guardian
Too-big-to-fail banks now bigger than ever. Gillian Tett Financial Times 7 September 2018
Featured image: Sunset storm over Edinburgh, Andy Smith Creative Commons CC BY-NC-ND 2.0