Assault on free enterprise, top banker’s knighthood revoked

TEMP ORARY February 12, 2012 1

The report from Britain is not reassuring. The Tories, supposedly the ally of business interests, are showing signs of hostility to capitalism. It is as if Mitt Romney were to propose an individual mandate as part of health insurance reform. Or Newt Gingrich were to accept honorariums from Freddie Mac to impart history lessons to a government-sponsored enterprise.

In the latest assault on free enterprise in Britain, the government has stripped a top banker of his knighthood. Mr. Fred Goodwin, formerly Sir Fred, is the ex-CEO of the Royal Bank of Scotland, a bank that failed in 2008 and helped usher in a recession in Britain. Following a government bailout of $71 billion, RBS was nationalized, and British taxpayers now own an 82 percent stake in the bank.

In the aftermath of the financial crisis, there were calls for nationalization of banks in this country as well. (Paul Krugman, columnist for the New York Times, was a prominent proponent of the idea.)

But a deep distrust of government ownership ensured that any state control of banks would be limited and brief. Banks too were quick to repay any bailout funds, unwilling to subject themselves (and their CEOs) to compensation restrictions and other regulations for long.

So what led Queen Elizabeth II to revoke Fred’s knighthood? Apparently, he had made some bad decisions just before the crisis, most notably an ill-timed multi-billion dollar acquisition of ABN Amro, a Dutch bank. And though Fred resigned, the British public took a rather dim view of his leaving with $25 million in pension benefits. They appear to resent the fact that, after overseeing the largest corporate disaster in British history, Fred receives a pension of more than $500,000 each year for life from RBS. Since RBS is nationalized, this effectively means that British taxpayers are helping Fred stave off penury in his golden years.

The former knight was renowned for his passion for cost-cutting, a trait that earned him the appellation of “Fred the Shred.” Such uncomplimentary titles appear to be the lot of chieftains who seek to boost profits through massive layoffs–just ask “Chainsaw” Al Dunlap, another misunderstood captain of industry. Critics will point out that Dunlap ran Sunbeam into the ground while engaging in massive accounting fraud, but these things tend to happen when you are working yourself to the bone on behalf of your shareholders.

A similar argument was made by Gingrich when he claimed that his love for America led him to work “far too hard” which in turn led to an extramarital affair (or two). If only politicians and CEOs eschewed hard work, the divorce rate in this country would be far lower.

Unlike Al Dunlap, however, Fred has not been charged with any crime. But no matter. What the Queen giveth, she can taketh away–and she has done just that with Fred’s knighthood. Indeed, if reports are to be believed, this may just be the beginning. With politicians looking to tap into public hostility towards the one-percenters and score easy political points, other British corporate titans, especially bankers, stand to lose their knighthoods. Some of them have been knights for just a few years—Fred, for instance, was bestowed with the honor only eight years ago. After being called Sir James or Sir Victor by an adoring public, they now face the prospect of having to go through life as Mr. James or Mr. Victor.

What a fall from grace—and one orchestrated by their own government! “Perfidious Albion,” they might think bitterly, as they reflect on the lack of gratitude from a nation for services rendered.

One Comment »

  1. happytravelling September 19, 2012 at 5:36 am - Reply

    “Apparently, he had made some bad decisions just before the crisis, most notably an ill-timed multi-billion dollar acquisition of ABN Amro, a Dutch bank.”  It was not the buying of ABM that was the problem, it was Freddie’s decision not to do due diligence to make sure that they got what they were paying (cash) for.  If you are going to spend more than ~$52B in CASH, you had better make sure that it is worth it.  As Freddie said, they were going to do due diligence lite. 

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