Zak Mir on RBS – our very own vampire squid!

By Zak Mir.

At the risk of sounding like the anti-Christ, perhaps some good can come out of government “entrepreneur in residence” Lawrence Tomlinson’s revelations about the latest shocking practices to afflict our banking sector. In case you’ve missed it, Royal Bank of Scotland (RBS) has been accused of sending otherwise profitable businesses to the wall for its own profit.

So what good can possibly come out of this scandal? Well, it is yet another reminder that our financial services sector is not the Messiah of our economy and there is absolutely no justification to treat their failure (or potential failure) differently to any other sector.

My view has always been that the banks should never have been bailed out in 2007/08. This view remains, whatever the outcome in terms of subsequent profit or loss to the taxpayer. (As an aside – even if a “profit” is ever made this will be no more than an accounting trick, with all the off balance sheet transactions there have been and other associated bail out costs, not attributable to the P&L).

When you consider the behaviour of banks in consistently acting as if they are above the law, as well as morality, then there is an argument we’d all be far better off without them. After all, at the moment what do they actually give depositors?  A slightly safer alternative to the mattress?

The Paul Flowers Co-Op saga evidences the corrupting influence absolute power has over people, especially those who believe they possess it. However, this week’s revelations suggest that the culture of immorality is so deeply ingrained in the financial system that organisations there are set up deliberately to prey on the weak. Looking at the Tomlinson report it is difficult not to agree with the comments of Andre Spicer, Professor of Organisational Behaviour at the Cass Business School, who said “business lending at RBS was like an A&E ward being used as an organ harvesting operation”.

In other words, RBS was acting as an asset stripper. Its modus operandi appears to have been to hit its customers with high interest rates (e.g. 5% above base), then hurt them with all manner of extra commissions and charges. Over time, this would corrode away at the company’s financial position, during its most difficult times i.e. the first year or two. Then RBS would send the stricken client to its Global Restructuring Group (GRG), where the company would find some of its assets sold to the specialist property arm, West Register. After this, the business would “miraculously” turn around, minus certain assets of course!

Of course, you may say “so what?” to the above. After all, no one forces anyone to set up a small business and you’d expect anyone doing so would know the headwinds they are up against. To an extent I agree with this, but banks also have a societal function to perform, especially if they’ve been bailed out by taxpayers to the extent RBS was. I’m certainly not a socialist and abhor the nanny state, which appears to be making us progressively weak will and soft hearted. However, I am equally against market abuse, as RBS appears to have been a culprit of.

So, while we have all grown to know Goldman Sachs as the “vampire squid” of modern capitalism, it looks like we have been growing our very own version on our shores. Only our version has been directly funded by the taxpayer for the last 5 years!