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The Emperors New Clothes

On the 17th Oct the BBC ran a programe called 'RBS; Inside the bank that ran out of money'.  I downloaded the prog from the BBC I player and watched a very good and insightful documentary on a classic case of the Emperors New Clothes. The documentary detailed the rise and fall of the bank, following its growth via purchases of Nat West, ABN and Citizens Bank. The alarm bells rang from the moment one source stated that 'Clydesdale Bank celebrated for 3 months after Fred Goodwin had left to join RBS'. At repeated investor meetings the chairman and his band of knights told shareholders and analysts that RBS exposure to sub prime was minimal, when in fact the Citizens Bank were up to their armpits in marketing and selling the product and were probably more exposed than anyone. Secondly, the bank refused to do due dilligence on the books of their hostile takeover target ABN, stating that Barclays had already done that for them or else they wouldn't have bid.   

Watching the chairman and his men talk in their meetings you can see that the top men never really knew the products they were involved in and probably didn't want to know all the while the profits were coming in.  Apparently the bank came within 2 hours of running out of cash, without UK Gov help they would have gone under.

Know your product, understand the instruments, know and manage your risks.

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