Maybe, had Sir Fred Goodman retired two years ago when the price of Royal Bank of Scotland share was 705p and RBS was worth £65 billion, then a £650,00 year pension might have be understandable. At that point in time he had led the bank to a successful takeover of National Westminster Bank and pleased investors by increasing the share price by over 50% in his 8 years in charge. But that is not the case now.

Sir Fred Goodwin is responsible for the bad times at RBS as well as the good times

The share price stands at 24p and the bank is less than worthless. Sir Fred played a major role in the takeover of ABN Amro which resulted in a mountain of toxic debt and he should bear some financial responsibility for that failure. A trite apology will not suffice.

Instead his contract rewards him handsomely for his failure. It is an unreal universe where abject failure reaps such returns.

A Different Retirement Plan

I can imagine at alternative universe where instead of generous rewards a harsh punishment awaits…

Cast your mind back to the Mr Wolfgang, the 82 year old heckler who was detained under the Terrorism Act. If the Government can arrest one pensioner for shouting at a conference then surely then it can be applied to this new super-rich pensioner who brought a bank to its knees!

Quoting from the Terrorism Act

(1)In this Act “terrorism” means the use or threat of action where—
(a)the action falls within subsection (2),
(b)the use or threat is designed to influence the government or to intimidate the public or a section of the public, and
(c)the use or threat is made for the purpose of advancing a political, religious or ideological cause.

(2)Action falls within this subsection if it—
(a)involves serious violence against a person,
(b)involves serious damage to property,
(c)endangers a person’s life, other than that of the person committing the action,
(d)creates a serious risk to the health or safety of the public or a section of the public, or
(e)is designed seriously to interfere with or seriously to disrupt an electronic system.

In this harsher, punitive, alternative universe, then Sir Fred actions clearly fall into section 2b) of the Terrorism Act, where he has caused serious damage to the financial property of thousands of shareholders, employees and customers.

And as a terrorist under the Proceeds of Crime Act 2002, he can have his assets summarily seized without trial by the Assets Recovery Agency, now part of SOCA. That should bring in ten million or so, to help fund the toxic debt. He can also be stripped on his knighthood but what else? Is that enough punishment?

If only Dubya was still in power we could hand him over to the Americans for a spot of water-boarding. But that won’t wash with Obama. I have a British alternative that does not break the Geneva convention.

Instead of waterboarding in Iraq, we have surf-boarding in Scotland. Both are wet, cold and unpleasant. We can detain him at Coldingham Bay on the North Sea for 5 years without trial, with a daily regime of surf-boarding without a wetsuit. Fred and his missus can stay in a drafty B&B on a diet of fish suppers and deep fried Mars bars until the recession is over.

How will he pay for board and lodging? Well, I guess the taxpayers have to fork out for that. Unless of course, he gets a pension of £21,000 a year which is all that he would have recived if RBS had not been bailed out by the government.

A truly historic day as America’s most talented politician, Barack Obama, assumed the presidency of the United States of America. High on his rhetoric, his idealism, his realism and his hope, I am only more optimistic about the future.

The democratic election of a non white president, son of Kenyan father and a Kansasian mother, is the realisation of the second glorious sentence in the Declaration of Independence:

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness.”

As for his view of the credit crunch, he did not pull his punches, and does not underestimate the scale of the challenges ahead. He could be talking about any Western nation…

Obama’s Analysis of the Problem

“Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered.”

Obama’s Solution

“The state of the economy calls for action, bold and swift, and we will act — not only to create new jobs, but to lay a new foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. We will restore science to its rightful place, and wield technology’s wonders to raise health care’s quality and lower its cost. We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age. All this we can do. And all this we will do.”

Balance of Power shifts towards a Benevolent State?

The relationship between the state and the individual will change, the ‘invisible hand’ of the market won’t be cuffed, but will be gloved (i.e. greater transparency), and the USA will aim to live up to the high principles of liberty and equality to which it has mostly only paid lip service. Very interesting times ahead!

However, we are not all going to buy into big government, high taxation, more regulation, more intervention and less personal power (unless things get better). Yet it might be the right solution right now. We will find out soon enough.

In the UK, David Cameron set of an alternative to the consensus view of increased public investment and spending, in response to deepening downturn in the economy.

Is he a) enlightened? b) economically inept? c) partisan?

Let’s look at his proposals:
• Remove tax on savings up to the basic rate of 20%.
• Increase tax free allowances on savings for the retired.

Cameron the Enlightened

The problem that Cameron is trying to solve is that of the low returns to savers. It is generally recognized that giving people their own money back is a more effective way of growing the economy than large scale public investment so his proposal is encouraging in this respect.

Also Cameron’s proposal is cheap at this time because interests rate are so low. If you are getting a 2% return on your money, then the tax saving under Cameron’s plan is 0.4%. With the average saver having £10,000, that amounts to £40 a year or about £0.80 per week for the saver.

Cameron the Inept

This compares to the 2% reduction in Valued Added Tax ( a natonal sales tax). If the average person spends £75 a week on vatable items that this reduction will result in a £1.50 per week saving. So Brown’s proposal is on average about twice as effective as Cameron’s.

However, look at who is affected by the changes: the VAT savings proportionally help lower income families more while savings tax changes would benefit middle income more.

Cameron heavily criticised the VAT reductions but his proposals are even more ineffective.

Cameron the Partisan

The increase in tax allowances is really a give away to his supporters. It is targeted at the retired, middle income who are indeed suffering a fall in income as the returns.

The tax system already allows £7000 in tax free ISAs and through Post Office accounts, so the most substantial beneficiaries of his the proposed tax allowance increase would have savings of over £10,000.

However, now consider the scenario where interest rates resume normal levels of 6% as they must do in the next couple of years. The cost of the tax giveaway will be six fold what it is now and with the benefits going into the pockets of his supporters.

Conclusion

Savers will reap the just rewards of their savings but only once when we come out of recession.

Cameron does need to come up with alternative policies to the Labour Government but he needs to demonstrate he has some understanding of the economy and what is good for the country as a whole.

For example, he should agree with the current level of public investment but come up with a different set of priorities on that spending and propose putting in place a set of measures and controls to ensure the public is getting the best possible value for money for these initiatives. This would be a credible approach.