Friday, 11 September 2009

Parallel Universes?

The BBC contends that a report to published on the 'Phoenix Affair' where MG Rover was sold by BMW thanks to Government sweeteners in 2000 for a mere £10 then subsequently was run into the ground by the 4 members of its management team - allegedly.

The 'Phoenix 4', as they were known, are now known to have taken some £42m in pay and pensions before the company went belly up and the residual pieces had to be sold to the Chinese. It was a spectacular show as to how private equity can be not a good thing.

The Phoenix Four had somehow beaten off some heavyweight bidders to inexplicably 'win' MG Rover. To this day, no one really understands how this was achieved and I dare say that the report will, of course, not reveal which ministers actually contributed to what happened next by displaying consummate incompetence or, worse still, had a vested interest in making sure that a bunch of unproven, largely unknown private investors got to run one of the last decent British car companies. The rest is history.

The BBC's Robert Peston is spitting blood about how these individuals 'enriched themselves' while having no real interest in the firm's future or the workforce. It is at this point that my feeble brain clangs and I think, well surprise, surprise, there are real parallels with how banks acted in the last 10 years. I am sure financial people will beg to differ, but what the Phoenix Four did was to find something within the company that realised cash and they rewarded themselves with it. In reality, it wasn't illegal per se but it was a 'damned un-jolly' show. The parallels are there as the banking sector found something upon which to generate vast, effectively unreal profits that had nothing to do with the real worth of their banks or of real assets, to not show it on the their balance sheets and to effectively reward themselves lavishly and widely for their little scam.

So why are we spitting blood? I suppose in proportion, what the Phoenix Four did was highly 'geared' vs the eventual collapse. Put into context, the CEO of Lehmans, Dick Fuld, earned a mere $300m leading up to the spectacular collapse of the bank to the tune of around $700bn. But when you add up all the vast bonuses paid out in all the banks and the incredible losses they clocked up before having to be saved by taxpayers around the world, the principles are very similar. Banks borrowed money on the short term to fuel high risk gambling habits at rigged tables, and when someone found out the tables were rigged, we became liable for the full amount of profits they had previously made. Or have we yet paid the full dues? I would argue we haven't. Have we un-rigged the tables? Nope, we have refilled their vast wallets and allowed them to get on with it again. Only recently have some key people within the banking industry dared to break cover and revealed what the rest of us mortals already knew - banks were making money out of thin air.

The issues surrounding the Phoenix Four was that a great deal of jobs were at risk, the company eventually fell into the hands of the Chinese, ministers contributed to the incompetence and a small number of people made a lot of money in the process. That got a full independent inquiry in which it will likely be concluded that although the 4 individuals were rotten chaps to have taken so money out personally, in fact they were just rubbish businessmen who had no idea what they had bid for, couldn't run a company to save their lives, didn't know what to do when it went wrong but certainly knew how to realise some cash to pay themselves handsomely without a care for the workforce or the company. Where that leaves the idiot ministers involved, who are all around today, goodness only knows.

The parallels with what has occurred on a much more grand scale are there to be seen. In the case of banks, we bailed them out completely and, with few exceptions, the executives have either kept their jobs or have risen phoenix-like from the ashes. In their cases we will not get an independent inquiry which would reveal how we should not have allowed it to have happened or indeed how we can prevent it again for the future. The way the situation was solved was by the self-same people murmuring into incompetent ministers' and regulators' ears and persuading everyone it was a natural phenomenon and we must continue or else the world falls into oblivion and, heaven forbid, economic growth goes out of the window. The Planet Earth faced a fate that rendered the population as potential goat herders exchanging vegetables and beads for the future. To save us, there had to continue to be an incredibly small number of extremely wealthy people who make equally incredible sums of money while we watch in dumb satisfaction.

The Phoenix Four of John Towers, Peter Beale, John Edwards and Kevin Howe plus Nick Stephenson can rightfully claim that their clever accounting was chickenfeed to what ministers have allowed to happen and make us all personally pay for with the banks. It doesn't make any of it any the more palatable but it would be very good to get the names of all the individuals who benefited from the taxpayers' largesse over the last 10 years and get to know them equally well as a lot of people paid good money for them to have their lovely bonuses, fat lifestyles and to make sure they still have their glittering careers.

The poor chaps at Phoenix have had to make do with a paltry £42m between them and eek it out to cover the rest of their lives. Makes you feel quite sorry for them, doesn't it, when you put it like that?

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