Good bye, Royal Bank of Scotland

Or farewell, shareholders. The stock price is disappearing into a rat hole as British nationalization becomes inevitable.Even if I didn’t have friends who have their wealth tied into those shares (and their jobs tied to the company), I’d find this sad and alarming. It’s just amazing that such large institutions that seemed to have real substance just a year ago can be revealed to be hollow -cored rotten trunks. Remember Dagny Taggart’s shock when the huge oak tree on her father’s land split and fell? Something like that.

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9 responses to “Good bye, Royal Bank of Scotland

  1. FlyAngler

    Chris:

    The Atlas reference is interesting and makes me wonder, What would John Galt do? Or what would Ayn say today?

    More immediately, what becomes of that RBS building going up in Stamford? If they are forced to seriously scale back their US operations, at best, they may never fill it and, at worst, they may never occupy it at all.

  2. anonymous

    Back when GS was private, most smart partners (esp traders who tend to understand cap mkt risks more than generally clueless bankers) were terrified about their entire net worth tied up in a highly (for that era) leveraged entity….most eagerly awaited retirement to rapidly “diversify” their holdings out of equity in a black box trading operation….

    If nothing else, this Meltdown revealed which senior financial executives and investors really knew how to manage dangerous risks….and who clearly did not…Darwinian selection is ultimately healthy for the US economy…need to periodically differentiate smart money from dumb money in any leading economy…otherwise we become more like EU or Asia….

    • christopherfountain

      I agree, but isn’t that an argument against this TARP bailout? Seems like we’re Europeanizing our economy, rewarding failure, and punishing success.

  3. anonymous

    Agree…bailouts tend to prevent Darwinian selection…

    Unfortunately, politicians need to get re-elected, so need to appear to be doing something (and many of their biggest donors/fundraisers are asking for bailouts)….and many execs who screwed up will claim it was someone else’s fault…those evil short-sellers; our risk models/managers screwed up; some 25yo prop trader in London made some bad bets, blah-blah….another, higher-end version of the belly-aching from Detroit…

    What many on outside don’t seem to realize is smartest guys in finance largely left the I-banks by ~10yrs ago to either leading HFs or to retirement….yet the IB balance sheets became much larger, more leveraged in past 5yrs w/markedly less IQ in the senior/middle-management ranks (vs 5-10-15 yrs ago)….the blow-ups were simply waiting to happen….risk is risky, even when smart guys try to manage it…

  4. Cos Cobber

    Chris, the TARP was about nothing more (but what could be greater) then preventing all out anarchy. I’m serious. In Sept’08 banks were crumbling by the minute as super large depositors were rapidly leaving the money center banks in favor of complete self management of cash (ie no deposits, convert all cash to treasuries). For example, the smallish shop I work for pull nearly 50m out from banks and bonds and into treasuries in the spring and early summer of ’08 (yes we were ahead of the game). You and I would probrably be doing the same with our own personal cash if it wasn’t for TARP (and what it symbolized) and/or the increase in the FDIC coverage. Just imagine if regular people starting pulling money from banks en mass. The TARP help smother the great deposit unwinding of all banks. Sure, some banks are still experiencing bank runs, but nothing today is happening like the near great and collective bank run of Sept’08.

    I’d prefer we let the weak fail too, but there is a tipping point, particularly for financial institutions whereby if too many fail simultaneously, then you bring down the entire system. Be happy we let Lehman fail, Bear be eaten, Merrill melt and Wachovia be dismembered. All my democratic friends think the republicans completely blew it by letting any of these companies fail. Now letting all those live, on life support, would be a europeanization! We culled the heard to let others know in the future that a government bailout isn’t automatically on the table. The US government will let you fail. It will be impossible to measure the effectiveness of this approach in the future, but I have to think that it will benefit us with more disaplined mgmt for decades to come.

  5. christopherfountain

    I suspect you’re right, Cos Cobber, but scratch a libertarian and the anarchist streak shows through. It’s all a pretty fascinating train wreck, though, whatever we do.

  6. chickenlittle

    Chris:

    You have some pretty savvy readers and commenters —

    Didn’t “Anonymous” politely draw our attention to the GCM/RBS conundrum back in October?

    Appears there are very different “fireworks” on the horizon now.

    • christopherfountain

      I have some amazing readers, you’re right. One of the real pleasures of running this blog is learning from such smart, knowledgeable people. It’s cool.

  7. Bill

    Some points to consider here regarding TARP and the markets… The govt is scrambling each and every day to plug holes – they have done a horrible job and will continue to do so because frankly they have NO experience running a business, managing a responsible budget, and have NO clue what direction to move in. If you dig deep enough, these issues were discussed years ago and because the problem was evident in $ lost (yet) it was swepped under the rug. Congress is just as much to blame as the disgraced CEO’s… But we rely on them for help and guidance.. Its an absolute joke – and you are seeing the smart money CRUSH the banks in markets (which will continue by the way) until we see companies like C and BAC pay the ultimate price. These are both ZERO’s – insolvent! and the goverment knows this (especially MER) – as does the smarter money on the street. They will slowly trade to 1. and sit there for years… Watch GE – its next to see 5 or lower – I hate to say it but its true unfortunately…