Royal Bank of Scotland made a loss last year of £8.2bn, its sixth consecutive annual loss, taking its cumulative losses to £46bn. This staggering loss sheet now meants that RBS has now lost all the bailout money invested in it by the taxpayer six years ago when the bank came close to complete collapse.
Despite this continued cycle of corporate loss, RBS also put aside £576m to pay staff bonuses in 2013. We the taxpayer continue to be taken for unwitting philanthropic mugs. Whatever the scale of corporate malpractices within RBS such as the £3.8bn bill for customer mis-selling compensation, £4.8bn impairment charges against the continued run down of its bad loans, or whopping great big bonuses (despite continued loss making) – we the taxpayer continue to foot the bill.
This is absolutely scandalous. Huge corporate failure, yet guaranteed internal reward is Robin Hood in reverse. Take from the poor and give to the rich – for some ill gotten gains. Yet, continually, we have our government saying that such a culture has to end. Yet, continually, we have our government failing to act. We have now had almost six years for our politicians to implement a set of policies aimed at curbing the worst elements of the banking system and after six years we are still waiting for anything tangible to be implemented.
So while the government continue to demonise the poor, cut benefits, cut public services – all under the auspices of austerity due to the financial crisis. They have failed to address the core reason why we got into the mess in the first place – the banking industry.
The banking industry continues to lobby that they need to pay out bonuses to secure the best employees. So, if these employees are so good, how come they are still managing huge annual coporate losses – six years after the beginnings of the financial crash? £8.2bn of losses hardly indicates professional competence.
This continued scandal of the misplaced banking bonus culture and rewards for failure highlights two things:- 1) Our financial services industry has yet to regulated effectively. 2) Our government continues to sit on their hands. The outcome of all of this will inevitably lead to another financial crisis, the problems of 2008 have yet to be fixed. The Tories are sticking their heads in the sand, probably hoping that any new crash will happen in 2016 – on Labour’s watch.
Fundamentally, the loss making cycle and bonus payments are unlikely to go away if banks work in the knowledge that they will always be bailed out. They are seen as “too big to fail”. Why should RBS bother about efficiency when the expectation is that any failure will be underwritten by the government, Bank of England and the taxpayer?
RBS remains in a complete mess. It is now time to consider a different path. We should let them fail. The government would now re-focus their energy away from the “moral crusade” against the £1.5bn “benefit scroungers” to the much more serious problem of banking hucksters manipulation of taxpayers money.
We are now at the point where RBS is too big to save. Iceland let its banks fail in 2008 because they proved too big to save. Iceland’s economic meltdown in October 2008 resulted in its government refusing to back the banks, which subsequently defaulted on $85 billion. The government’s decision to protect state finances left it with the means to continue social support programs that shielded Icelanders from disaster during the financial crisis.
Successive Icelandic governments forced banks to write off mortgage debts and protect consumer savings. From the wreckage, only three modest domestic banks emerged, allowing Iceland to keep functioning. The country was also able to let its overheated currency devalue, and impose capital controls to bring some stability.
Iceland also squeezed out foreign creditors – in particular, hedge funds or “vulture funds” – in order to bankroll the mortgage relief programme for all homeowners and a string of pro-business tax cuts.
In February 2010, 16 months after the Icelandic government let Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Islands hf fail, unemployment peaked at 9.3 percent. By December 2010, the rate was 4.2 percent. Compare this to the Eurozone – unemployment held at a record 12 percent in December 2010.
The Iceland model has worked. It would have been wrong to burden future generations with the mistakes of the financial system. Iceland let the creditors of its banks hang. Ireland did not – and look what happened there in 2008-2010.
Iceland’s let banks fail approach has won praise from the International Monetary Fund and from numerous economists, including Nobel Laureate Paul Krugman. Iceland put their citizens first, and the banks second. As a result, they survived the financial crisis. Britain should take note and consider doing the same with the likes of RBS – let them fail.