Great news…

Britain’s accounting watchdog has launched a formal investigation into KPMG’s work as the auditor of the Co-op Bank ahead of the emergence of a £1.5bn capital shortfall at the lending arm of the country’s largest mutual society.

The Financial Reporting Council (FRC) said it would look at the way the Co-op Bank’s accounts were prepared, audited and approved in the years leading up to the discovery of a the capital black hole that threatened to put the lender out of business.

 And it’s not just the FRC…

The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) are undertaking their own investigations that could lead to formal action being taken against current and former senior managers and directors of the Co-op Bank.

Were there dodgy deals between beancounters and clients? We don’t know but at least with the FRC and FCA on the case if there was a lack of due diligence we should find out because an FRC/FCA investigation will be relentless….

What’s that? The boss at the FRC is Sir Win Bischoff, a former big cheese at Citigroup?

The City veteran is a contentious choice because he presided over astronomical ‘golden goodbyes’ to failed bankers during his two years on the Citi board. 

This included an eyewatering £40million payment for failure to former Citi chief Chuck Prince when he was forced out in 2007, despite steering the bank headlong into the toxic debt mire. 

Bischoff succeeded Prince on a temporary basis, then moved into the chairman’s job just months before Citi was bailed out by US taxpayers. 

 Surely this is not a case of the higher the title the weaker the talent pool?

Most people were underwhelmed when Sir Win Bischoff, former Citi chairman, was appointed as chairman of the Lloyds Banking Group to replace Sir Victor Blank. Bischoff never seemed to get to grips with Citi’s problems and gave the impression of hobbling along behind the bus rather than sitting upright at the steering wheel

After Citigroup Bischoff became chairman at Lloyds and was involved with the controversial sale of 600 Co-op Bank branches known as Project Verde.

Hmmmm

Still John Grifiths  Jones  at the FCA should be a safe pair of hands….shouldn’t he?

Questions have been raised about Mr Griffith-Jones because until last year he was chairman of KPMG, which is the Co-op Bank’s auditor. Last week, the Co-op Group launched an investigation into the bank’s £1.5bn capital shortfall including a review of “the role of the independent auditors”.

Tony Shearer, former chief executive of Singer & Friedlander, said Mr Griffith-Jones was “conflicted” as chairman of the banking regulator due to KPMG’s involvement with banks. The firm was also auditor of HBOS, Bradford & Bingley, and Kaupthing, all of which failed. Similar questions were raised in April about KPMG’s HBOS audit, by Mr Shearer and others.

 Are these really the men who should be investigating the KPMG/Co-op Bank affair?

In all the current “hang the bankers” frenzy (see BBC Question Time every week) coming out of left wing throats most of those voices seem to conveniently forget that Gordon Brown, from the moment he became Chancellor not only schmoozed with bankers but gave them the green light to encourage banks and building societies to lend money like a drunkard who has just won the lottery. We also know that Ed Balls, now shadow chancellor, was Brown’s creature from the very start. So yesterday’s statement from the Reverend Paul Flowers, Methodist minister, former Bradford Lalour Councillor and the ex Chairman of the collapsed Co-operative Bank that Ed Balls encouraged the bank to expand certainly rings true.

The Rev Paul Flowers, who was resigned as chairman of the Co-op Bank in June, said he had “absolutely no doubt” the lender had political and regulatory support for its 2009 takeover of the Britannia Building Society that has largely been blamed for putting a £1.5bn hole in the lender’s balance sheet. Rev Flowers said shadow chancellor Ed Balls had given his full support for the Britannia deal as a minister in the then Labour government

We also learned that that Rev Flowers authorised a payment of £10,000 to Ed Balls

Rev Flowers confirmed he had been involved in authorising the payment of £100,000 to Mr Balls and his Parliamentary office, though he said the money had come from the Co-op Group and not the Co-op Bank as the lender was “politically neutral”. “We believe in supporting our political friend,” he said, describing the donations to politicians as “small amounts of money”.

The hapless Reverend also had a confession to make

 Rev Flowers admitted during his evidence his only qualification for chairing the Co-op Bank was four years spent working in a bank after he left school and said his experience could be considered “out of date”.

Four years of working in the real world – doesn’t sound much does it? But it’s four years more than self proclaimed economic mastermind Ed Balls. Though one has to admit that Ed certainly displayed a mastery of financial legerdemain in the way he operated his parliamentary expenses…  

If you have a banking sector that size you’re asking for trouble – for how can a state guarantee for depositors be credible? If the banks go under the state wouldn’t be able to rescue the savers

How much better off we are in the UK with our own rock solid banking structure – we are just a mere 450% …..

WTF? 450%?

Worse than those basket cases in Spain and Italy?

No problem….you can always trust a British banker….lol

Claims of bribes, kickbacks and false accounting at Italy’s oldest bank, Monte dei Paschi (MPS) based in Tuscany – a bank closely associated with the left wing Democratic Party which hoped to win next month’s elections on a pro EU “save the Eurozone” ticket. Indeed until a few days ago it was run by a leading socialist, Giuseppe Mussari

Moreover questions are now being asked about the head of the European Central Bank, Mario Draghi, who was in charge of the Bank of Italy in 2010 back when regulators went through the MPS books and claimed it was all kosher. Draghi is supposed to be the big cheese who will control the revamped Eurozone via the ECB so this brings into question his powers of judgement.

MPS is closely linked with liberal/left elite of Tuscany, the Italian equivalent of the high minds of WaPo/NYT in the US and Guardian/BBC in the UK so Berlusconi (loathed by the left) and other Italian politicians suspicious of EU schemes to prop up the Eurozone are rubbing their hands with glee.

Bribery, corruption and lies from the Italian left? Nothing new in that……

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices….

That was Adam Smith’s perceptive dismissal of any trading cartel be it an association of manufacturers, retailers or trade unions because every one of them was constantly seeking to fix a common price for goods or labour to avoid the dangers of individual members lowering their prices and thus offering a more competitive market to consumers. Smith placed demand at the centre of any economic activity

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.

Any attempt to fix or manipulate price outside the mechanism of the market for the short term “common good” would in the long term produce distortions (business closures, repossessions, unemployment, shorages etc) that would cause even greater social misery.

Including the price of credit over the last decade says Steve Baker MP in the UK Spectator

Central banks held down interest rates to stimulate economies with new credit, to push impending corrections out of sight. Those artificially low interest rates discouraged saving and encouraged borrowing but banks can extend credit into existence to cover the gap. With moral hazard endemic, banks loaned recklessly, using derivatives to book unrealised cash flows as profit up front. Some individuals went home unjustly rich and politicians won elections as the system over-extended itself.

Such shenanigans have been blamed on relying too much on market forces and so recently there have been cries for greater degrees of supervision and regulation.

Cobblers

If there had been a truly free market for credit the corrections would have been self generating according to the ebb and flow of demand. Closer supervision and regulation merely makes it easier for powerful elites to impose “adjustments” to suit their own particular political/cultural agendas.

The really important question today is not whether the Bank of England encouraged manipulation of credit markets by self-interested rogues but why we tolerate systematic credit market manipulation by the central banks as a matter of policy: nowhere else in the economic system would we accept explicit planning of the price and quantity of a vital commodity. If it worked, we’d all be communists.

In other words – beware of the man with a plan because it will inevitably lead to your own true interests being subsumed for “the greater good”…as perceived by the man with the plan.

If a man has a plan use another four letter word to tell him where to go…..

The ‘plan for growth’ is actually a euphemism for borrowing more money than we already are. Sound familiar?

The theory goes that the government borrows money to spend on a big project, like building a motorway. This creates lots of jobs in construction, and afterwards even more jobs are created.

We spend money to make money.

This sounds too good to be true because it is.

‘Growth plans’ have to generate enough money to pay back the sum borrowed, plus interest.

The government is already spending around £45 billion a year on interest payments alone – this is more than the defence budget.

This is actually a low figure, because those lending to us have confidence that we will pay the money back.

Countries that want to carry on spending money they don’t have (like Greece) can no longer borrow money easily and therefore need to be bailed out.

We don’t want to go there.

So, in order to ensure that banks and other countries retain their confidence in the UK’s willingness to sort out its deficit, this means sticking to the plan to spend what we earn.

I think we have learnt enough from the past decade to understand that a ‘growth plan’ is a thinly veiled call for ‘increased spending.’

Of course there is always the money tree……

Their fingerprints and DNA are all over the room but, you see, it was all a misunderstanding and anyway it’s water under the bridge.

That sound? It’s Al Capone, turning in his grave out of sheer envy….

Or, as Adam smith might have said

Investment Bankers, politicians and EU officials seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public