The ludicrous pension being paid to the former RBS’s chief Fred Goodwin hides the scale of the problems at the bank and the further money being given to bail it out by the government (us).

RBS reported a statutory loss of £40bn which falls to £24bn if technical issues relating to the acquisition of Dutch bank ABN Amro are ignored! The losses came from £16.8bn in write-downs on loans and assets – primarily complex products based on sub-prime mortgages – and £7.8bn on trading which was mainly derivatives trading and credit default swaps (CDS) where losses are marked daily.

RBS is going to insure £325bn of so called “toxic” assets with us (UK government). For “toxic” assets read failed investment decisions and loans. These decaying toxic assets include:

•   loans to individuals , small businesses, corporations and private equity schemes;
•   credit card loans;
•   mortgages;
•   mortgage backed securities including collateralised debt obligations (CDOs).

These CDOs are complex packaged securities based on sub-prime mortgages. These were incorrectly priced because of wrong assumptions on default rates and the relationship between sub-prime borrowers. These assets are falling rapidly as the US housing bubble continues to deflate. The US housing market is down 27% from its peak. Also, the US economy continues to weaken as the revised numbers on fourth quarter show the economy (GDP down by an annualised 6.2% for the quarter against an original 3.4% down) to be much weaker than was thought when the original number came out.

It is not clear if CDS’s are to be included in the “toxic” assets. These CDS leak money every day as the value of insuring against bankruptcy increases as the recession deepens and lengthens. But when a company goes bankrupt they (CDSs) are like a switch and a massive payout is made from the bank who has sold them to the investor who has bought the insurance. We expect to see more and more of these CDS’s switched on as we go further into the recession. CDS will really kick in during the last three quarters of this year.

How is RBS gong to pay us for this insurance? Wait for it… they are going to issue £13bn of non-voting shares which they will sell to us at 50p a share – RBS is trading at 29p a share – the premium is for us getting first go at any dividend as if there is likely to be one in the near future! RBS has the option to sell a further £6bn worth of shares. Finally RBS paying £6.5 bn for participating in the scheme by issuing new shares to us!

RBS are simply printing shares, selling them to us and giving us the money back to us so that any further losses on £325bn on “toxic” assets are born by us!

The scale of their losses and the exposure they have to the US housing market, corporate bankruptcies and the global recession means they desperately need capital (our cash) to cover past and potential future losses.

The UK government have exposed us through RBS to the global recession in a highly leveraged way. It’s highly irresponsible and pushes the UK closer to bankruptcy.

In the US the government has had to take a further bailout on Citicorp as they announced a further £10bn of losses for 2008, taking its stake to 37% of the company.

With the German government passing a law to allow nationalisation of the banking industry we are edging towards a global banking system bailed out by ordinary people but with ordinary people bearing all the risks of the banks greedy irrational investment decisions.