Stephen Hester, Fred Goodwin, Bernie Madoff and the fraud at the heart of our banking system

"these men can afford to refuse what the rest of us would consider a fortune"
"these men can afford to refuse what the rest of us would consider a fortune" | Source

"If you lend money to any of My people who are poor among you, you shall not be like a moneylender to him; you shall not charge him interest." Exodus 22:25

Stephen Hester

Royal Bank of Scotland chief executive Stephen Hester has agreed to waive his bonus of approaching £1million after the Labour Party threatened to call a parliamentary debate on the issue.

This follows close on the heels of the RBS chairman, Sir Philip Hampton’s, decision to refuse his own bonus of £1.4million.

As a measure of wealth these figures are pretty striking. They are bonuses not pay. Mr Heston still stands to pocket in the region of £39million during his time with RBS.

Apparently these men can afford to refuse what the rest of us would consider a fortune. To put it into perspective, if you were to put £1.4million into a savings account at 5% interest, this would earn you £70,000 a year.

Of course, while Parliament can exert pressure on banks which are substantially in public ownership, it has no control whatsoever over the private behemoths that sit astride our world.

For example, Goldman Sachs paid its chief executive, Lloyd Blankfein, $2.9million last year, and gave him a bonus in share options worth $12.6million.

In 2007 Mr Blankfein was paid $67.9million. This was the year before the credit crunch hit. Personally I would be very surprised if Goldman Sachs wasn’t already fully aware of what was about to happen. The following year the American government handed the banks $1.2trillion in bailout money.

1.2trillion. Try to get your brains around that. That’s 1.2 followed by eleven noughts. 1.2 trillion seconds is 38 thousand and 26 years. 1.2 trillion inches is 19 million miles. That’s all the way to the Moon and back nearly 40 times.

This is just to give you a measure of how large the figure actually is. And you wonder why the world has grown significantly poorer of late.

The word privilege comes to mind here. It is from the Latin and means “private law”. A privilege is a legal advantage given to one group over another. The specific privilege the banks have is the right to issue money and then to charge interest on it.

This is in effect a form of privatised tax. It is a tax on the money supply. Every time money circulates we pay tax on it. But not public tax, to pay for public services. Private tax to pay for banker’s bonuses.

The interesting thing here is that David Cameron’s reason for threatening to veto any European treaty designed to keep the Euro afloat is that it would damage the interests of the City (sometimes euphemistically referred to as Britain). This is because the EU is proposing a Financial Transactions Tax on the banks. In other words, the EU wants to tax the tax that the bankers have imposed on the rest of us. A tax on a tax means more tax. It would be a hell of a lot simpler to remove the banks’ right to impose their taxes in the first place.

"a very rich commoner"
"a very rich commoner"

Fred Goodwin

Meanwhile Fred Goodwin (formerly Sir Fred) has had his knighthood stripped from him. He was given the knighthood in 2004 on the advice of the last Labour Government for services to banking. Note the irony in this. This is barely four years before the activities of banks such as the Royal Bank of Scotland had brought our world to the brink of collapse.

Both acts – the act of giving him the knighthood, and the act of taking it away again – show how little power the government really has. It cannot control the financial system. The most it can do is to reward or punish, in very superficial ways, those who do.

But the act of removing his knighthood just looks like scapegoating to me. We are punishing ex-Sir Fred – now plain old Mr Goodwin - in lieu of all the other bankers we cannot get to. The rest of them are getting away with it. Or perhaps it is a way of diverting attention? And somehow I doubt that even Mr Fred is all that worried at his demotion. So he was a knight, and now he is a commoner. But he is a very rich commoner indeed and – unlike the rest of us – will never have to pay for the consequences of his behaviour.

Meanwhile the banks continue on their merry way. They continue to pay themselves the kind of bonuses that would keep whole cities afloat. They continue to amass wealth off the back of our labour. And who, aside from Mr Goodwin, has ever been punished for what was, at the very least, large scale dishonesty in the financial services industry?

Remember: they were slicing up and repackaging toxic mortgages as triple A investments and then selling them on to our pension funds and other public bodies; banks like RBS were bloating themselves with borrowing and then taking on risky investments in order to increase bonuses; they were hiding their activities from the rest of us behind complex financial arrangements which didn’t show up on the balance sheet.

What all of this amounts to is fraud by any other name.

They got away with it because of a culture of extreme liberalism in the financial sector. This is what is commonly referred to as the free market. What this means is that governments are content to look the other way, to allow self-regulation, to not question where the money is coming from.

US Department of Justice photograph, 2009
US Department of Justice photograph, 2009 | Source

Bernie Madoff

Actually one man was punished. This was Bernie Madoff, who, on June 29, 2009, was sentenced to 150 years in prison for his part in the organisation of a huge Ponzi scheme known as Bernard L. Madoff Investment Securities LLC.

A Ponzi scheme is a specific type of financial fraud in which returns to investors are made by paying them off either with their own money, or by the constant recruitment of new investors.

A typical Ponzi scheme survives by the pretence that it’s perpetrator has access to some secret knowledge that the rest of us aren’t privy to. Armies of agents are sent out to recruit new investors who are lured into the scheme by promises of huge returns. Often a form of financial gobbledegook is employed. Long-winded phrases that mean next to nothing are deployed to cover up the emptiness at the heart of the scheme, whose entire purpose is to draw money into the centre. It’s a kind of pyramid scheme. One level of suckers are used to pay off the next. More and more people have to be dragged into it for it to survive. It can go on doing this for as long as:

  • a) it isn’t found out;
  • b) there is still wealth in the world to be extracted.

Doesn’t this remind you of something?

The whole of the financial industry is, in effect, a form of highly evolved, complex, interdependent Ponzi scheme. It doesn’t make wealth. It extracts wealth. It doesn’t create anything, it merely lives off the backs of those who do. It has to grow constantly for it to survive. It lives off promises and deceit and sleight of hand and trickery. It has to sucker more and more people into its mind-set, into the vain delusion that we can all get rich by doing nothing.

But, in the end, just like any Ponzi scheme, there is a limit to how far it can grow before the whole thing collapses in on itself.

We have reached that limit. Expect the collapse very soon.

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Comments 45 comments

jandee profile image

jandee 4 years ago from Liverpool.U.K

Another excellent write ! This is a juvenile thought of mine and very old -said before stuff ! Should we all just take every penny out and stop being lazy and tear up our cards and start using the post-office to pay bills?? Bring them to heel ! If only,

thanks from jandee


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

Not a juvenile thought jandee. If we all stopped participating in the system it would all fall down like the house of cards it really is.


sam freestone profile image

sam freestone 4 years ago from UK

I bet you feel better getting that off your chest! it makes for a carcrash read, both shocking and exhilarating. Do I understand correctly though that nothing has really changed since the banks brought the world to its knees and there is nothing to prevent it happening again?


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

Sam, I think it's on the verge of happening again. It's an unsustainable system, as far as I can see.


AlexK2009 profile image

AlexK2009 4 years ago from Edinburgh, Scotland

Governments are expert at passing laws that look like they are changing things but either do not change anything or do the exact opposite.


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

True Alek. I suspect this whole thing is a pantomime, to divert the masses.


Flickr 4 years ago

Interesting read, just remember we do live in a capitalist world.


gogogo 4 years ago

Very interesting, but what is the alternative, I try to use the bank as little as possible, but what else can we do.


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

Flickr: We do, but for how long unless it reforms itself?


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

gogogo: there are alternatives. I've put a link in above to other possible ways of keeping your money. There are credit unions and co-ops and here in Britain we have building societies. Ideally there could be a form of national bank. Again, here in the UK we used to have a post office savings bank which did most of the things a bank did. Such a bank is perfectly plausible. It would only take a little government will to set one up, and then we wouldn't need to be borrowing from these corrupt institutions.


Richard William Posner (ColdWarBaby) 4 years ago

USURY!

How many times did I write about it back when I was a member of HP? How many years ago was that?

Maybe it's time I returned.

I may have more to say later when I'm at my own PC with access to my library and my old Hub Pages essays.

All that aside, well said and important. So few people have a clue how deep this goes and how irreparable the damage is.

The monetary system is a fraud at the roots. It cannot be "fixed". It must be obliterated and replaced with something fundamentally very different.

"RBE" (Resource Based Economy)


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

Oh I remember Richard. Sometimes it just takes a while for things to sink in. If your essays were still here I would link to them.


fen lander profile image

fen lander 4 years ago from Whitstable

I guess that when I wrote, some years ago that in this new millennium, hidden or buried things would resurface... into light of day and awareness, this is possibly what I was intuiting but couldn't intellectually grasp or spell-out at the time. Actually I guessed it was hidden antiquities not THE TRUTH! Thanks CJ.


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

Yes that's what I thought when you told me that Fen. Buried truths are a form of treasure, of course.


Flickr 4 years ago

I think as long as the rich can get richer we will be in a capitalist world. Those with power aren't going to lightly give it up and if they can continue to capitalize whats to stop them? If they've earned their money fairly and justly why should they be stopped. It seems unfair that those who have millions continue to gain more millions.


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

Flickr, the problem is that they haven't earned their income fairly or justly, but by privilege, and in the process they have impoverished our world. Capitalism is a phase. How long did the Roman Empire last, or the Sumarian Empire? Empires fall, and this latest, capitalist empire will fall too, just like all the rest, and sooner rather than later according to my estimates.


Flickr 4 years ago

how about those who do earn their income fairly? are all to be punished for the 'sin' of a few?


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

The essence of privilege is that it is not fair. It is a legal adavntage given to one group over another. I'm pointing out a systemic failure here that, until it is corrected, will continue to make our world a poorer place. It's not a question of "sin". It's about whether we continue to allow a small group of unscrupulous people to take advantage of the rest of us.


Storytellersrus profile image

Storytellersrus 4 years ago from Stepping past clutter

CJ I have been struggling with the exact conclusions you lay out in this blunt piece, and have come to my own conclusion- witnessing the recent Republican efforts to elect a man so out of touch with his countrymen that he believes them envious rather than starving (let them eat cake?)- that living under the radar is an illusion and that even credit unions, public radio and women's rights can be stolen from We the Masses. This leaves me feeling hopeless and helpless. Is there some uncorrupt movement afoot? When we fall, what will replace our system? China's form of governing?


one2get2no profile image

one2get2no 4 years ago from Olney

Very good hub CJ and a lot of what you say is true. However, being an ex investment banker myself despite the fact that the high rollers make far too much money I can assure you that the banking system is so embedded into our capitalistic system that we could never live without them. You try importing cars from Japan without using a bank. Vote up!


DC Gallin 4 years ago

Awesome hub Chris, thanks! @ Richard William Posner I totally agree with you, the monetary system is rotten to the core. We have to find a different way to exchange and not hope for (oil sponsored) governments to come up with a solution. There was life before money and we will find a solution as the whole world and intelligent human beings are pondering these issues. How can we possibly believe in a system that has half the world trying to lose weight while the other half is starving? Somehow I believe that the solution lies within the individual to take full responsibility for every (trans)action. When every individual realises that it makes all the difference whether they buy or not buy that Japanese car @ one2get2no is talking about but cycle instead. Change will come through passive resistance to a system that is unjust. I've said this before but the 'economic crisis' has a silver lining: maybe the rich western world has to suffer to remember compassion and that wealth not shared with the rest of our human family isn't wealth at all.

The key to change would be to demand the right to allocate our income tax, which then automatically would reflect the needs of our Democratic society and take most of the money spent on defence to Education, Healthcare, Infrastructure, the Arts etc. If the whole population of Britain refuses to pay tax until this is granted we could implement change pretty quickly and those who have their tax money taken automatically would have to go on a collective strike within their companies. To make this long rant short: individual responsibility in combination with power in numbers could change the world with the new tax year. And with the internet we have the tool!

The ultimate power in a capitalist world lies with the consumer anyway so the responsibility is ours already, if we want or not.


Bard of Ely profile image

Bard of Ely 4 years ago from Lisbon, Portugal

Brilliant hub as always, Chris! Voted up!


Storytellersrus profile image

Storytellersrus 4 years ago from Stepping past clutter

DC Gallin, what a brilliant observation- recognize personal responsibility as Truth; the means to accomplish anything at all lies within. Thank you. Mobilization is key and your encouraging words inspire.


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

Storytellersrus, no we don't need to live in a communist country to sort out our ills, we just have to hold people accountable under the law. We have to take money out of politics, and regulate the banking system the way it used to be regulated. But then I wonder how people felt before the American Revolution? The only kind of governance they'd ever known was monarchy, but they still managed to invent new system which, while it wasn't perfect, at least kept America sane for the better part of 300 years. What went wrong was that money got into the system and perverted it, but there are ways around that too.


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

one2get2no: I take it as a compliment that en ex investment banker tells me that a lot of what I say is true. I'm not saying we have to do away with banks. I agree we need money, but we need accountable money not private money. In other words banking needs to be seen as a utility and not a means of generating profit. It's been done before, the American Greenbacks being the example.


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

Denise: you know I don't think there ever was a time when we didn't have money in some form. As long as there have been humans ther's been exchange of goods and some sort of accounting system. The earliest forms of writing are accounts. But, like I said to one2get2no above, we need to make money a utility like water (oops - they've privatised that too) not something that is there to generate private profit.

I agree about allocating income tax. All government needs to be accountable.

Time to go and earn some money!


Natalie 4 years ago

As soon as I get back to the Uk I'm closing my natwest accounts and moving to the Cooperative Bank. Just read their ethical policy and they are a far better choice.Thank you for enlightening me to take action. Actually can't wait as for the first time in my life I have some money, and they're not getting any of it :)


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

Natalie, that's brilliant. This must be the first time (that I know of at least) that one of my hubs has had an actual effect upon someone's behaviour. Good luck with the Co-op. I'm in the Nationwide myself.


DC Gallin 4 years ago

@CJ Stone: Has Usery always been part of the monetary exchange system? Will follow suit and swap banks! Do you have a list of ethical banks or co-ops? Wouldn't that be an interesting hub? As in this is the state of the world and here you can do something about it... just a thought


DC Gallin 4 years ago

Ursury


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

That would make an interesting hub Denise. There's a link above called "Move Your Money UK" which gives links to ethical banks.

On usury: there are specific injunctions against it in the Bible, which is odd as a lot of these free market fundamentalists are also fundamentalist Christians. In other words they pick and choose about which bits of the Bible they follow. They like the bits which rail against immorality, but ignore the bits which talk about usury.


AlexK2009 profile image

AlexK2009 4 years ago from Edinburgh, Scotland

Chris: None of the ethical banks mentioned meet my needs. It would be better for the mainstream banks to adopt ethical practices

As for the hypocrisy of Fundamentalists cherry picking their scriptures, they probabaly haven't even noticed the bits about Usury and would deny it was a contradiction, merely a proscription on EXCESSIVE interest.


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

Alek, it would indeed be better if the mainstream banks adopted ethical policies. Better still would be a national bank which issued its own money and which was in domocratic control.

As for usury in the Bible, how about this:

"If you lend money to any of My people who are poor among you, you shall not be like a moneylender to him; you shall not charge him interest." Exodus 25

Or this:

'You shall not lend him your money for usury, nor lend him your food at a profit." (Leviticus 25:35-37)

Or this:

"You shall not charge interest to your brother -- interest on money or food or anything that is lent out at interest." Deuteronomy.


Flickr 4 years ago

CJStone and Alex it would be nice for ethics to play a role in the economy but how did our current global financial situation arise? was it not in good faith that banks loaned money to people who could never pay it back in their lifetimes and now the government bailed out these banks and we're cursing the government and banks saying they should have more ethical policies. That we should regulate the money market. We might have a big brother hanging over our shoulder but it is far better then what the Eastern/third world countries have to deal with.


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

Flickr, until the late 1970s the banks were regulated. It is deregulation that has caused all the problems, the ridiculous idea that banks should regulate themselves. If a bank lends to someone who can't pay it back, that's the bank's fault. The idea of the free market is that you take a risk on investments. If the government then bail you out, then you are effectively passing the risk on to the public. This is exactly what has happened: the banks indulged in reckless lending and took high returns on their investments, until the moment that, having crashed the system, the rest of us were forced to bail them out. It was a case of them having their cake and eating it, or of communism for the rich: cutting public spending for the vulnerable, but lavishing public money on the greedy and irresponsible.


Merlin 4 years ago

Hi CJ. The monitary system is a pyramid scheme. Can you tell me who prints the interest.


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

That's the point Merlin, we need to keep borrowing to keep the system going. There's always less money in circulation than is owed, leading to inflation and default and bankrupcy and all the other problems we have. What we need is a system of interest free money.


jandee profile image

jandee 4 years ago from Liverpool.U.K

Chris, I've been with Nat-West thirty years so time to move on,actually I checked out credit union,just out of my area and they are strict. Nationwide here I come,

thanks Chris,

jandee


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

jandee: I'm with the Nationwide, but I'm not sure they are very much better. A little bit maybe, and at least they are mutual. What happened to the Post Office banks, that's what I'd like to know? If the government reintroduced that it would save our post offices while giving us low interest credit at the same time. Sigh. What a mess our world is in.


jandee profile image

jandee 4 years ago from Liverpool.U.K

Chris, I was asking questions last week in the post-office re.saving accounts and one has to have a minimum of £500.to open an account -I think it's May when they'll be fully privatized ? Would be good to get people to write to individual M.Ps with your suggestion,

jandee


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

jandee, a lot of people have suggested it, but the politicians aren't interested. They are mostly in the pockets of the banks.


DC Gallin 4 years ago

The Gift by Lewis Hyde. talks about ursury and how it came into existence, very interesting read! :)


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

I'll look that up Denise.


CJStone profile image

CJStone 4 years ago from Whitstable, UK Author

Denise: sounds fascinating. I've put a link into the article.


kathryn1000 profile image

kathryn1000 4 years ago from London

This is excellent stuff.Thanks.

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