Home > General Politics > Audit, banking, sytemic corruption, legitimate protest

Audit, banking, sytemic corruption, legitimate protest

The leftie blogosphere has been somewhat taken up recently with coverage and analysis of the student protests, and rightly so. 

But in so doing this potentially huge story of rank corruption at the heart of the world’s banking industry risks being relegated to the obscure inside pages of the financial press, when it could do with being on the front pages of the papers that the occupying students hopefully get given by helpers from the outside. 

It’s certainly educational, and may help with the formulation of demands……

Auditors misled investors in the lead up to the crisis by supplying UK banks with a clean bill of health after being told taxpayers’ money would be used to bail them out, a House of Lords Committee has heard.

The Lords’ Economic Affairs Committee criticised auditors for signing off on banks’ accounts on the basis the UK Government would prop up the banks.

“Your duty is to report to investors the true state of the company. You were giving a statement that was deliberately timed to mislead the company and mislead markets and investors about the true state of those banks and that seems to be a very strange thing for an auditor to do,” said Lord Lipsey.

Debate focused on the use of “going concern” guidance, issued by auditors if they believe a company will survive the next year. Auditors said they did not change their going concern guidance because they were told the government would bail out the banks.

“Going concern [means] that a business can pay its debts as they fall due. You meant something thing quite different, you meant that the government would dip into its pockets and give the company money and then it can pay it debts and you gave an unqualified report on that basis,” Lipsey said.

Lord Lawson said there was a “threat to solvency” for UK banks which was not reflected in the auditors’ reports.

“I find that absolutely astonishing, absolutely astonishing. It seems to me that you are saying that you noticed they were on very thin ice but you were completely relaxed about it because you knew there would be support, in other words, the taxpayer would support them,” he said.

Hats off to Nigel Lawson, the closet revolutionary.  Get it? The auditors didn’t say the banks might go bust, because they knew the taxpayer would bail them out anyway. 

The riches of bankers, the bankers would have us believe, are in keeping with their roles as go-getting risk takers and entrepreneurs who bring wealth.  This is a lie.

And why didn’t the auditors do their job? 

Well, just like the Credit Rating Agencies, the way they make their money best is by not doing their job, because they depend on those same banks for their lucrative contracts.  As Francice at the brilliantly forensic  Re The Auditors blog says:

Their complacency is calculated.  They are much too tied into the work, and the millions in fees, that have been generated by the aftermath of the crisis.

And just like the Credit Rating Agencies, the audit firms might make a suitable target for what it is increasingly obvious is legitimate peaceful protest.

You hear that, you students?

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Categories: General Politics
  1. November 27, 2010 at 11:03 am | #1

    Thanks for highlighting this – my own post on it is at http://swift-web.org.uk/towncryer/?p=82

  2. Mike
    November 29, 2010 at 1:00 pm | #2

    The bankers were fully aware that selling securitised sub-prime mortages as AAA investments was going to collapse as their chief source of revenue, when the mortgages inevitably defaulted. (Northern Rock has admitted that they only accepted the mortgages because they were selling-on the hidden risk to others.) Given the highly leveraged state of the banks, the bankers were also fully aware that their banks would collapse when the revenue was pulled. Yet they didn’t care, because of the money they, as individuals, were pocketing. As with house price and share bubbles, the only question was ‘when’, not ‘if’. When the collapse inevitably came, they would simply walk away from the collapsed banks to jobs elsewhere. When the collapse came, thanks to the bank bailouts, they didn’t even lose their jobs. (Unlike manufacturing workers yet again.)
    A lot of flack has been thrown at Brown for ‘designing the regulatory system’ that failed. No doubt there was a lot of Civil Service incompetence; the FSA walked away from attempting to regulate derivatives because they were too complicated (rather than grabbing the nettle). But with the bankers as the perpetrators and the ratings agencies and the accountants as paid accomplices, the early warning system was deliberately turned off.
    And now, thanks to the strength of the banking lobby, banking regulation is still no better.

    Lawson is only critical of the current regulators because he’s attempting to paint banking regulation in the late ’80s as a golden age. The Lords are questioning the actions of accountants during the crisis, but they need to trace the crisis back to its roots in the ’80s, in the City’s deregulation.
    And also question why the Bank of England failed to ensure that the function of bank regulation was transferred successfully to the FSA.

  3. Lethe
    November 29, 2010 at 7:05 pm | #3

    Mike – I thought that something like 1/6 of all City jobs had been lost? And wouldn’t the bankers have lost a lot of money when the value of their stock options plummeted?

  4. December 1, 2010 at 11:23 am | #4

    This seemed more of a calmer and more peaceful protest, thankfully those protesting acted more like adults this time, rather than spoiled brats that didn’t get there way. Attacking policemen and smashing buildings up is unacceptable, and thankfully this time, it seems people were more calm and peaceful, and hopefully the government will acknowledge that. Isn’t time time we had a little perspective though? http://davidhatton1987.blogspot.com/2010/11/little-perspective.html

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