Scotland and the banking bailout - time for the truth

A quiet demolition has been taking place early on Saturday mornings. If you like to catch up on your sleep – or head out for a bracing weekend run at that time – you may have missed Newsweek Scotland’s myth-busting in the last fortnight.

It all started rather inauspiciously, when Secretary of State for Scotland Michael Moore answered a backbench question that was both predictable and planted. Philip Holloborne (Conservative, Kettering) suggested:  Isn’t it the case that a separate Scotland simply wouldn’t have been able to survive the global banking crisis on its own and, had it been separate, would now be heading the way of Ireland and Greece?

Moore replied in familiar fashion: “A very important point, because the scale of the financial disaster that befell both Royal Bank of Scotland and Halifax Bank of Scotland would have placed a crippling burden upon Scotland.  By being part of the United Kingdom we shared the risks…”

Unionist politicians have used the banking collapse to trash Scotland many times before now. Brown, Murphy, Cameron…they’ve all had a go so often, the assertion has become received wisdom. But they are wrong.

The Newsweek team on BBC Radio Scotland have for the last two programmes lined up experts to prove just how wrong. First was Andrew Hughes Hallett, Professor of Economics at St Andrew’s University who described Moore’s answer as a nonsense.

“By international convention, when banks which operate in more than one country get into these sorts of conditions, the bailout is shared in proportion to the area of activities of those banks. In the case of the RBS…roughly speaking 90% of its operations are in England and 10% are in Scotland.”

The Federal Reserve stepped in to bail out US operations linked to RBS and HBOS. In Europe the governments of France, Belgium The Netherlands and Luxembourg joined forces to help the Fortis and Dexia Banks operating across their borders.

George Walker, Professor of International Finance Law at Queen Mary University, London and also Glasgow University, supported this position. So did Andrew Campbell, Professor of international and finance law at Leeds University.

Professor Walker said it was inconceivable that the Treasury would not have stepped in to save RBS’s English operations, even if Scotland was independent. “This decision was not taken to protect either RBS or HBOS, nor specifically the Scottish markets, but to protect the financial stability of the UK financial system as a whole.” he explained.

He went on: “Many of those (RBS) subsidiaries operate out of London and only out of London.  I don’t think you can, simply, look at it purely on the basis of where, as you point out, the brass plate of the holding company is.

Professor Campbell said HBOS’s operational head quarters were in Halifax, Yorkshire, so there was even less reason to assume Scots would be responsible for its rescue. But the indisputably Scottish RBS ran up most of its losses in the City of London where it was regulated: “It would be inconceivable that Edinburgh or Scotland as a whole could be held liable for that full bill.”

Moore refused to speak on the programme, so the government’s position was defended by the former Labour chancellor, Alastair Darling. Despite presiding over the meltdown of the UK economy, Darling insisted that he knew better that the professors - or for that matter Sir George Mathewson who used to run RBS and who has made similar comments in the past.

As the facts become understood, the received wisdom about Scotland's banking shame looks as shaky as Darling's economic management.  For example, the figure of £450billion is sometimes quoted as the cost of saving the banks. But this completely misleading because it states the banks’ entire liabilities. All banks have more out in lending than they reserve in capital so by this calculation all banks would be technically bankrupt all the time.

The bailout of RBS and HBOS actually cost £66bn in shares and loans. Given that Scottish GDP at the time was £145 billion and our remaining oil reserves, using the American Energy Departments cost calculations, are valued at a trillion pounds, we’d have been well placed to negotiate a good deal on the international money markets – which was how the UK, and other national governments, financed the banking rescue. Indeed given our valuable natural resources, we might have negotiated a better deal. Either way, it would come right in the end. The Office of Budget Responsibility calculate that the Treasury is set to make a profit of £3.4bn on the entire UK bailout, thanks to buying bank shares at the bottom of the market and getting a very attractive rate of return on its loans.

So an independent Scotland could easily have bailed out our banks, but we would not have had to, according to Professors Hughes Hallett, Cambell and Walker.

Having said that, the argument has always struck me as bizarrely hypothetical. How long would this independent Scotland have been in existence before the financial crisis? Long enough to accumulate the same oil fund as Norway? Long enough to swallow the billions of pounds worth of tax on the profits of RBS and HBOS (for if we are responsible for the bailout it follows that we must surely have been due the taxes on profits?) Long enough to establish an effective banking regulation system of our own, perhaps on the advice of our Nordic neighbours who rescued their own banks in the early 1990s?

There is a well established technique at work here.  
The term “Fear Uncertainty & Doubt” was first used in the computer hardware industry to describe the practise of spreading untruths about a rival product.  Successive generations of political strategists as well as the MAD men of the advertising industry have found the method useful too.  It is a strand of “perception management”, getting your message across by any means necessary, including mass deception.

Scotland has long been a battleground for Fear, Uncertainty & Doubt spread by political elites to preserve their own privileges. The May election result shows that the technique is beginning to fail as the country grows in confidence. The banking bailout myth was one of the last skirmishes in this conflict, because the complexity of international finance means that a crude falsehood is more easily assimilated than the inconvenient truth. Now the vaults of dishonesty are breached, the last lie is exposed.

This article appeared in The Scotsman last week.

 

You can read a full transcript here of Newsweek's interview with Andrew Hughes Hallett

And here is a full transcript of Derek Bateman's interview with Professors Walker and Campbell

Comments

[cynicalHighlander]

Oops forgot no html.

http://www.bloomberg.com/data-visualization/federal-reserve-emergency-lending/#/overview/?sort=nomPeakValue&group=none&view=peak&position=0&comparelist=&search=

[cynicalHighlander]

Confirmation of the USA bailing out British based banks.

The Fed’s Secret Liquidity Lifelines

[cynicalHighlander]

This is interesting.

http://sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3

Among the investigation's key findings is that the Fed unilaterally provided trillions of dollars in financial assistance to foreign banks and corporations from South Korea to Scotland, according to the GAO report.

[Alibi]

Trying to land Scotland with 100% of the debt accrued by HBOS (why is that abbreviation avoided now by the unionists in favour of "Bank of Scotland"?) and RBS is a bit like saying that all the profits from the sale of Swiss Rolls throughout the world should become the property of Switzerland.

[AT]

Nothing to say about News Corp/NI yet?

[Dave McEwan Hill]

F A Hayak
I note you do not address the actual subject of Joan's piece. This is a classic but easily identified diversionary tactic of avoiding a debate when you know the other side is substantially correct.

Is it or is it not the actual fact that we are being continually lied to about the "bailout".

As a matter of interest neither Alistair Darling nor Gordon Brown had any training in economics and the UK economy is actually in a worse condition than the economies of Ireland or Iceland but fortunately UK has "British " oil to provide collateral on the huge borrowings which have been received to keep the economy afloat.

[F.A. Hayak]

You keep on carping about Alasdair Darling's economic mismanagement like a derranged banshee. It all falls apart because your party did not just think Labour's economic management was correct but that they didn't go far enough. "If we were in charge we would be more like Ireland" you said. You don't talk about that anymore, yet you don't waste breath in attacking a man who took office in 2007. Long before the seeds of the recession were sown. To blame him for everything only shines a light on your lack of understanding when it comes to economics. The primary fault from where the recession spread was from low interest rates. In case you don't already know, interest rates do not fall under the chancellors responsabilities. No. They are the preserve of the Governor of the Bank of England. Now I seem to remember your parties position is to either keep the pound or join the Euro. So you will not have control of interest rates. Your "independence" is a sham as all you want to do is take the powers and give them away to brussels anyway.

[David Hood]

Hi Joan - the Unionist 'cause' - if there actually is one articulated - is getting evermore desperate.

The other big scandal we really have to keep a constant check on is the upcoming grab of Scotlands assets by London, up to the referendum. We need a 'watch community'. This will not always be obvious and will be done by stealth. Lets protect the family jewels and keep our share of UK assets. This includes the public ownership of the banks of course...

DH