Oh no; Not again

This blogger is rather vain about his English. And yet he was completely flummoxed when he spotted the headline "JP Morgan loses $2bn in egregious error" . He has to sheepishly admit that he did not know the meaning of the word "egregious" and had to look it up in a dictionary :( Trust a banker to come up with an unintelligible world - at least unintelligible to one "master" of English :). It sums up the problem neatly. The financial world has gone so bonkers in dreaming up structures of incredible and ununderstandable complexity that we cannot sit by and watch this go on anymore.

JP Morgan is a well respected bank. Its governance is top class. It should be one of the models of all that is good about the financial sector. In  Jamie Dimon, it has one of the finest Chief Executives in the world. It has superb risk management systems, strengthened even more in the wake of the financial crisis of 3 years ago. And what happens - it manages to lose $2bn in  one quarter on credit derivatives trading. An "egregious error".

This casino has gone gone berserk and has to stop. Enough is enough. Here is this blogger's remedy which is an extreme extension of the Volcker Rule.

• Commercial banking must be made a boring business. No proprietary trading. List of what they can do is made boringly small and strictly regulated by a super Ramamritham. All bankers have to come to work wearing only a panchakacham (man) or madisar (woman) - the logic being that anybody dressed like this can't be a punter.

 

• Commercial banks continue to enjoy the implicit sovereign guarantee. They are not allowed to become too big. After a certain size, they have to break up into two; somewhat like an amoeba.

• This is a free world. So the downright crazy casino is allowed; but at only two places in the world - Las Vegas and Macau. If Europe makes too much noise, Monaco can also be let in.

• Any idiot who enters any of these three places is required to sign a pledge that he clearly understands that he is committing suicide. Before he starts punting, he has to get a license, which will only be granted after he spends one night in the ward meant for the dangerously criminally insane.

• No bail outs for the punters in these three cities. If they lose their shirt , or something worse, it is their funeral. The state may helpfully construct a 100 floor tower with a fast lift to the top so that those who want jump off are easily facilitated.

Period. No more discussions or engagement with the financial community.

PS : If you are still wondering what "egregious" means, Dictionary.com defines it as " extraordinary in some bad way; glaring; flagrant"

Lie Down Mr Goodwin

Arise Sir Fred, the Queen of England said in 2004 after tapping the kneeling Fred Goodwin lightly on the shoulder with her sword. This archaic ceremony is the conferring of knighthood by the Queen of England. If you are a citizen of the UK or one of its dominions then you can call yourself  "Sir".

Fred Goodwin was the CEO of the Royal Bank of Scotland in its boom years. An unknown, middling bank in Scotland (where's that for Gods sake), he took it to become one of the largest banks in the world. First the acquisition of Natwest, a big British bank much bigger than RBS. And then the mega takeover of ABN Amro, just as the financial crisis was unfolding. The bank was growing wildly through mega acquisitions and was cheered on by all and sundry - the shareholders, the market and even the government, including Gordon Brown, the then Prime Minister of the UK. Hence the knighthood. Sir Fred could do no wrong.

Of course the party couldn't last. It came crashing down with the financial crisis. Sir Fred was axed after the bank reported a loss of £24 bn - the largest in UK corporate history. The UK government had to inject £45 bn to bail out RBS. The public was baying for his blood. He compunded his misery by trying to keep his £16m pension pot - for the years of service he had rendered. Public outcry forced him to give up part of this, although that's an unfair step - if you have to give up your accumulated PF because of a mistake you made, how unfair would it be for you.

Now the UK government has decided to withdraw his knighthood. This is very rarely done. He has for company, Anthony Blunt (a spy), Nicoale Ceausescu, the notorious dictator of Romania and Robert Mugabe, the tyrant of Zimbabwe who were all knighted and the knighthood subsequently withdrawn when it was realised what scoundrels they were. Fred Goodwin is however no scoundrel. The withdrawal was the result of a baying mob (otherwise called the British tabloid press) just wanting to inflict its own brand of punishment.

Fred Goodwin wasn't the first, and certainly won't be the last, to mistime a huge acquisition (ABN Amro) and get killed in the process. He made a bad misjudgement of the extent of the financial crisis - after all who didn't. But he did no crime. He hasn't even been charged, let alone convicted of any wrong doing. If business misjudgement was a crime, each one of us is a criminal. At that time, the shareholders of RBS enthusiastically supported his every move. There are many others who have been conferred knighthoods and were equally in the mess of the financial crisis.

The British are justifiably famous for their sense of honour and fair play. In this instance however, that noble quality seems to have deserted them. Punishing Sir Fred, with Mr Goodwin isn't cricket, old chaps !