The Purging of Scottish Madness

am-banksyWhen the banks fail again, as they surely will, they will fail in London. Relocation is a good, not  a bad thing for Scottish financial security.

By Ciaran Healy.

I was lucky enough to have a hand in bringing the world down in 2008.

Not a very big hand, of course. I was a headhunter. I found a certain kind of person for a certain kind of bank. The kind of person I found could best be described as being like Matt Damon from Good Will Hunting. The banks I found them for were all the ones which exploded.

I want to give you a very specific insight into something, some revelations that have recently surfaced about how the finance sector will react to Scottish Independence. This seems a little abstract, but isn’t for the thousands of Scottish people who work in finance – it is vast here. Vast. Here’s my take on this, and this is informed by the intimate knowledge and privileged view I had of the culture, personalities, systems and insanity that led to the last crash, and what all this means for us.

Because there is a real simplicity to this. Something very simple has just hoved into view. No side that I’ve heard is talking about it. I’m going to hit it as fast as I can, but we’re covering a lot of ground, so try to keep up.

The explosion of 2008 has not been communicated to the people. It’s been broken down into little buzzwords. ‘Risky bets’. Stuff like that. The kind of stuff that fits in a red-top headline. But that’s not what happened.

What happened is arrogance. What happened is systemic arrogance buttressed by absolute faith in mathematics so complex that only a tiny few could ever understand them. Mathematics of probability and chance so arcane that they could make anything seem like anything else. They could make risk vanish. And they did. And then the madness began to truly spiral.

If you have a bet you have no risk on, the amount of profit you make is just the amount of money you can slap down on the table. Banks have billions – but billions weren’t enough. They didn’t bet the money they had, or even the money they managed. They did something else.

They took all that money, and used it as collateral to borrow massively more at incredibly high interest rates. From who?

Well, from each other, of course. From each other, because they all knew that the money would be earned back because it would be placed into riskless bets that could never fail.

Complexity onto complexity, abstraction onto abstraction, further and further down the rabbit hole of mathematics until the entire mental world these men (all men) occupied was so far away from reality that full noonday sunlight seemed to it like the twinkling of a distant star.

But there was simplicity too. Real simplicity. That if you borrow money to bet, and take all the profits of your betting, and put that down as collateral so you can borrow even bigger and even bigger sums of money, ALL of which you throw into these bets…..

….well. You only need to lose once, don’t you?

And when you lose once, you don’t lose all the money you have. You don’t lose all the money you manage. You lose the massive amounts of money you’ve borrowed. The average was between 20 and 40 times the amount these banks had.

The bank jargon for that is ‘leveraging’ your position. That’s what that word means if you come across it again.

When the banks lost, they all lost at the same time – and not by chance. They lost because they were all locked together in the same betting system, laying the same ‘risk-free’ bets with money they’d borrowed from each other. When it came down, that’s why it came down.

They’re still doing it. Today. They’re still doing this in Scotland.

This is not a caricature of what they’re doing. It’s not an exaggeration. I’m not fudging it so you can understand it better. This is EXACTLY what they are doing.

Bear that in mind.

RBS and a whole slew of massive banks are leaving Scotland, legally, in the event of independence. This is real. They’re going to do it, and they’re going to do it because they have to do it, because there’s a power in this world much, much greater than that of the people. It’s that of the markets.

If a bank is engaging in this kind of betting, we all know that there’s the chance it can all detonate. But even that’s not really fair. Think of Edward Norton in Fight Club, that thing he said. Over a long enough timeline, everyone’s survival chances drop to zero.

Sooner or later this is going to explode again. It’s a system that is insane. Nobody has stopped it. Nobody has slowed it down. The regulators are useless, and basically non-existent. There’s a lot of press releases. Actually that’s not even true these days. There’s barely even that.

Even if this is stopped, what other madness can arise from this terrifying culture of ‘banking’? Well I’ll tell you one thing – a mass scandal in systemic insider trading that scoops billions every day off the pension funds of the world, in which almost every major bank is complicit. Michael Lewis’s book Flashboys just lays it out, clear as crystal. Nobody cares though.

Point is this. Scotland just received notice that a number of banking heavyweights will leave it if and when independence hits. They’re not doing that because they want to. They’d much rather do nothing – any ripples and uncertainty about any operations causes market ructures that are savagely expensive for these companies. So why?

It’s one issue. Just one, and you can probably guess. What’s called (banking jargon alert) a ‘lender of last resort’.

Sounds sassy, don’t it? Like the title of a John Grisham novel. It is exactly what you think it is, if you think it means that the banks leaving are the ones who need to have the constant, eternal option of a publicly funded massive bailout in case they explode.

That’s what it means, by the way. Again, that’s not a caricature. I’m not fudging it to make it easier to understand. This is literally what it is. It’s not more complex than this.

But think. Think.

What does this mean? THINK.

What it means is that Scotland’s entire financial sector, on the day of independence, will be purged.

Every company that is doing this, EVERY company, will immediately leave Scotland.

ONLY those companies will leave.

Do you see? None of these guys are doing it because they want to. They don’t want to do anything other than what they do all day.

Now, look – some of the banking sector (and it’s crazy to remember this, but it is true) is actually good. For real. It’s a business that works to create and sustain other businesses. That’s what banking is. All this other betting stuff, what it has become, is lunacy. But it’s a great industry, and an amazingly useful one if done with even a modicum of sanity and competence.

On top of that, there’s a lot of jobs here. A lot. A huge number of Scottish people are employed in the financial sector.

But that’s the thing. They don’t care about moving the jobs – nobody needs to physically be anywhere else, it’s a bank. So they relocate head office to London.

Now. It’s all not all sunshine and rainbows. There is a real hit Scotland has to take here. But that hit isn’t jobs. Banks are very complex systems, if you start relocating whole departments of real people, massive logistical ruptures will happen – or at least they might, and that’s enough for the markets to crucify the company. And they will.

So jobs stay. That is true. That’s not some wild speculation – you cannot move these people, with their existing skills, relationships, living arrangements, down to London, without the company being disembowelled on the exchanges. So that’s just not going to happen, and it’s not. It’s really not.

What will happen is that Scotland will lose the corporation tax (20% of profits after losses are taken out) of these companies.

Now, even if we put to one side the fact that some of these companies are still bleeding money, making vast losses from both the crash itself, and a whole host of other, deeply criminal activities they are being fined for… even putting that to one side….

Stop the press. Stop the press.

This ‘damaging leak’ saying that RBS and all the rest are leaving Scotland – when you look at why that’s happening and what that means in real terms….

It means that, for the loss of basically no jobs and only the corporation tax of companies….

All these companies are leaving because their ENTIRE BUSINESS MODEL NECESSITATES THE POSSIBILITY THAT THEY ARE GOING TO EXPLODE.

I’m trying to be really clear. I’m not dumbing it down. I swear to God. I’m not. This is why.

Think. This is why. There’s no politics in this decision. There is none. They are shunting their corporation taxes down to London because the markets will kill them if they don’t.

And why? Because at some point, someone’s going to have to pick up the tab for another explosion.

The loss of corporation tax from these companies will not destroy Scotland. It will hurt. Don’t flinch that. Don’t belittle it. When the going is good, these companies make vast profits. Vast.

But the loss of those taxes will not destroy Scotland.

The detonation of these companies on Scotland’s doorstep will.

It really will. It will annihilate this nation’s capacity to make political decisions. Like Greece, power will shunt to the German banks, or the London banks – whoever decides to make the power-play.

This is real. So what’s just happened… the ‘bad news’ that Downing Street leaked to destabilise the Yes campaign… is that ALL the banks who stand to explode and ONLY the banks that stand to explode are going to pay their corporation tax to London now, in exchange for London picking up the damage of their next explosion.

No jobs will be lost.

That is the leak. Look this in the eye. And think of this – good GOD. An independent Scotland would be a Scotland retaining it’s massive job-base in financial services, but freed of the danger of the toxic madness of modern banking in one day.

In one day.

That, in and of itself, regardless of anything else that has been said, is reason enough to vote Yes, alone.

Think about it.

Really do.

Then vote.



Categories: Economics

Tags: , ,

19 replies

  1. An extremely important piece on an issue that is not the headline news it ought to be (ever since 2008). Even within the independence movement, which wants lots of changes, there seems to be little appreciation of the depth of corruption of the banking and finance system and therefore of the urgent need for any longer-term – or even medium term – economic stability to be based on a sound footing.
    It’s not just arrogance and greed or even the logic of neoliberal economics with its primacy of profit. There’s an agenda behind much of it best exemplified in George Bush senior’s definition of “Bushonomics”: “The continuous consolidation of wealth and power into ever fewer, ever tighter, and ever righter hands”.
    This is not conspiracy theory – it’s conspiracy fact.

  2. Getting a bit frustrated that everybody seems to be accepting the Idea that RBS is intending to move its headquarters to London and therefore addressing whether this is a good or bad thing when in fact it’s already there. Is this a gambit based on the assumption that no-one will bother to look up the facts?

    For the avoidance of doubt:

    http://www.londonstockexchange.com/exchange/traders-and-brokers/membership/member-firm-directory/member-firm-directory-detail.html?castMemberId=ALSE1A0003T5

    Secondly a vibrant fairer economy will based on making stuff, trading stuff, inventing stuff and working out better ways to do things. Not on shuffling figures.

  3. Take a step beyond this, and on the assumption it is all correct (I don’t doubt it for a moment from my limited knowledge of “banking”) then we have to ask if a currency union with rUK is a clever move. Up to now I’d been concerned about it coming from the angle of the house bubble economy in SE England.

    A boil itching to burst, and perhaps the detonation you write about.

    I’d like to see Scotland revert to the regulated banking which we had until Big Bang in 1986. In normal circumstances, getting the genie back into the bottle might not be possible, but the abnormal circumstance of independence and having to create our own banking regulation anyway might be a huge opportunity.

  4. You may have seen this already but here’s an interesting insight into Scotland’s economic potential from Ireland.
    No fear.
    http://t.co/lwIgev4xcl

  5. In essence, a ‘Lender of Last Resort’ isn’t a Bank or other Financial Institution, it’s you (yes you, the cash cow who is reading this now).
    It’s your money they’re playing with, and if they lose it, it’s you who’ll be expected to stump up ever more cash in order for them to keep rolling the dice and maybe, just maybe, your savings will be worth about as much as they were a decade before.

    • It’s like handing your wages over to a gambling addict outside a backstreet bookies every week and hoping that you’ll make more out of it than you gave him.
      But when he inevitably loses on a promise of more cash than he has, you’re the one who gets their legs broken.

  6. Thanks Ciaran, this is EXACTLY what I was talking about just before I read your piece. Love the way you’ve explained it so clearly.

  7. Spent a few bob in Wetherspoons today, then the YES Bar, Buchanan Street awash with the Yes team, wonderfull seeing young folk fired up.
    “Asda no more, John Lewis no more, Deutsche Bank no more, Ic-e-l-a -n -d no more! 🙂

  8. “absolute faith in mathematics so complex that only a tiny few could ever understand them”

    Let’s hope that their opinion polls are in the same category, and that the RIC’s are on target.

    🙂

  9. Salmond claimed that Scotland wouldn’t in fact lose much of the corporation tax, which is based on location of economic activity. If true that’s not much loss and Scotland will have got rid of all the casino bank risk.

  10. A few months ago four extremely experienced Professors of Economics said almost the same thing when they gave evidence to a Holyrood Committee.
    One – it may have been David Simpson – also warned about the UK’s debt mountain and how it had been created, and what WILL happen when it has to be paid.

    Not a single word appeared in the media – and we all know why.

    The elitist (London) media works with/for the political elites at Westminster, which is largely controlled by big businesses. Both are run/influenced/guided by The City elites, and The City dictates what the elites at the Treasury should do.
    (you can move everything around – it will still mean the same thing)

    Things are probably arranged, decided, controlled, and directed not at Westminster or a boardroom where matters are recorded, but during cosy lunches or dinners at ”Gentlemen’s clubs” or weekend’s at a huge country estate.

    Collectively, it’s called ‘The Establishment’, and we’re seeing it in action right now.

    It’s the ‘No’ campaign – the banks and finance sector in London, the London-based media and it’s puppets, Westminster and it’s politicians, senior civil servants and ‘special’ advisors, and big business – all working together to prevent democracy breaking out in Scotland, and there’s not a damn thing we can do about it – except vote Yes.

    It depends on how many frightened, elderly, and misinformed people we can reach personally.

    Estimates show that as many as 1.4 million people in Scotland have no ‘easy access’ to a computer and/or the internet/social media.

    If we lose, it will be down to them, and the people who control the information they use to make a decision – ‘The Establishment’.

    • Less of the “elderly” please Adam. I don’t know how old you are but I expect you would consider me elderly. I voted SNP from the day I had my first vote until a term of Thatcher turned me to Labour as the only way to oust the witch. I understood the oil situation in the early ’70s to a far greater extent that was broadcast by Westminster and the media, I was disgusted by the stitch-up at the last referendum and have followed this one in minute detail. I have known which way I would vote from the first announcement. All I have gained from the last few days of BBC bias and interference from Westminster party leaders has been a seething feeling of anger. I pray for a Yes on Friday morning but the only fear I have is that we will wake up to not the status quo but much worse.

  11. Very well written. Economics is far from my area of expertise, but I did watch the brilliant doc ‘Inside Job’. Well worth a watch, this article echoes the points made, even more clearly

  12. Paul Mason was saying much the same the other day on BBC news. He’s been one of the few journalists to get what is going on in Scotland. It looked like it had just dawned on him that the impact of Scottish independence was relatively risk free. And that this news was a blessing not a curse.

    As long as we were part of the UK if didn’t matter if these banks were HQ in Edinburgh or London as both were in the UK and the Bank of England was the lender of last resort. Banks have to be registered in the country where their main business is. As within these British isles that is clearly in England if there is a split, then that’s where they’ll be.

    Alex Salmond was proposing lowering corporation tax anyway.

  13. Can anyone answer this?

    Whilst the British government has said it will guarantee individuals’ bank deposits of up to £50,000, in any of the British banks, will this still apply to depositors in British banks in Scotland if we become independent?

    Including ISAs?

  14. I know “banksters” are the basest kind of evil being…but it amuses me that even the most vocal anti-bank activists happily stroll into their local branch for a loan when they’d like to buy a home, or a car, or start a business…or a college fund…etc.

  15. Two fish and five loafs can feed 5000 bankers…. for a while. Then everyone else feeds them.

    Sincere article. I wonder if Scotland will have a central bank and currency of its own, and if that currency will be owned by the people who use it or privately leased to them as in the rest of the Deviloped World. Still, YES for the chance…

  16. ok, so I work in the financial services industry, so this is kind of my specialist subject. Oh and I’m not one of the “wolf of wall street” masters of the universe, million pound bonus, red braces, braying laugh, coke habit types – I look after peoples pensions.

    So, a question: will you be happy with EVERY bank in the country being owned by a foreign entity – Clydesdale is owned by the Australians?

    if (when) there is another banking crisis do you think the BOE will fully stand behind the accounts of a foreign country? Remeber Iceland? They didnt.

    if there is a run on the banks – for whatever reason (i dont know, perhaps in the event of capital flight after independence as wealthy individuals and companies flee an imminent high tax region?) – who will stand behind the depositors? Without the ability to print currency (not possible if a euro currency country – as all new applciants must eventually be, assuming Spain and Belguim don’t veto the idea – or with sterlingisation)

    In this event, how easy do you think it will be to get an overdraft, loan or mortgage?

    To join the EU it is the law that the applicant country has its own central bank. So where will the reserves (that every central bank needs) come from? Higher taxes or lower spending so that the country runs sufficient surplus for long enough. That’s not scaremongering, it’s mathematics.

    If Scotland does refuse to carry its share of UK debt, it WILL be punished in the debt markets, resulting in higher interest rates across Scotland.

    Asuming Scotland does in fact enter into a currency union with rUK, which is politically unlikely, but lets assume, does London setting your monetary policy equate to independence? doesnt sound like it to me. And when (if) Scotland joins the Euro, your interest rates will be set in Germany. That’s not working well for the other peripheral european economies, including Ireland.

    I know this sounds like the typical ‘No’ campaign monsters under the bed, but it’s actually just stating facts. Just because they are unpalatable, it doesn’t make them less true.

    I genuinly have no axe to grind either way. If Scotland votes for independence for emotional reasons, because it wants independence and hang the costs, then i wish you all well, i absolutely, honestly do.

    But please, not all negative reports (i acknowledge some will have been) are No campaign funded. The internal reports that dont get released to the public are pointing that way too. We are actually quite single minded, and if Scotland was to be the fiscal and monetary land of milk & honey we’d all be pouring our money north of the border, I promise you. Money talks, I’m afraid

    Good luck and best wishes whatever you decide.

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