Banks again and again

There is an email doing the rounds at the moment a variation of which I have seen over the years.  Nevertheless, it still makes me chuckle.  Entitled “economic models explained – an update”, it uses the example of 2 cows to amusingly explain different political and economic systems and country stereotypes. 

So, for an explanation of socialism, it explains how you have 2 cows and you give one to your neighbour whereas the section on “an Italian corporation” explains how you have 2 cows but you don’t know where they are so you decide to have lunch! 

The reason this is now considered to be an update is that there is one particular section on Royal Bank of Scotland venture capitalism and it goes like this. 

You have two cows. You sell three of them to your publicly listed company, using
letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back
to your listed company. The annual report says the company owns eight cows, with an option on one more. You sell one cow to buy a new president of the United States, leaving you with nine cows. No balance sheet provided with the release.
The public then buys your bull.

Whilst of course this is meant to be amusing, and I do find it so, it really does sum up in a  satirical way both the debacle that the banks have created and more importantly for me, the extent to which they have lied.  In particular, and I speak as a chartered accountant, I just cannot accept that the financial accounts sent to shareholders and filed at Companies House, in a period prior to the credit crunch, could in any way be a true representation of the banks asset base. 

Fellow accountants don’t concur with this view, and it wont be the first time that someone has disagreed with me, but I just don’t understand how any organisation can report a £30bn loss much of which relates to the write down of assets.  The effect of this of course as we all know is that we are all now shareholders in a business that to be honest we wouldn’t want to touch with the proverbial barge pole. 

Perhaps I should re-read the joke and think more of the British interpretation of the economic model (you have 2 cows – both  mad!).  We must be mad to have let this happen.