Major monetary institutions crashed overnight and, on their descent, brought with them countless others. The result was a domino effect on a historic scale in which tens of thousands of ordinary people were immediately confronted with the possibility of redundancy, homelessness and bankruptcy.
Perhaps the pivotal moment in the disintegration of the British banking system was the collapse of the Royal Bank of Scotland, whose then chief executive, Sir Fred Goodwin, is the holder of an Honorary Degree of Glasgow University.
Previous to the crash, the Royal Bank of Scotland was the quintessential corporate success story. Described in 1992 as an ‘old and sleepy bank’, within a decade the stock price had risen by a thousand percent. By 2003, RBS had become the second leading bank in Europe and one of the largest in the world. The success of RBS resulted from two main factors: the lucrative nature of the credit market and the aggressive policies implemented by Sir Fred Goodwin.
The dominant ethos in banking for almost two decades was that of uncontrolled lending. Thus, loaning to previously unsuitable applicants became common practice and massive amounts were handed out for the purchase of private equity in firms. This credit issuing, however, was so profitable that it had to be supplemented and so the creditors became the credited; the debt packaged up and sold on. The string of debt became so complex that when people discovered they hadn’t the money to pay back loans, a chain reaction of unaccounted debt ripped through nearly every inch of the industry.
Fred Goodwin’s tenure as Chief Executive of RBS was characterised by the most uncompromising and aggressive lending and takeover policies in the bank’s history. In his first two years, he played a formative role in the hostile takeover of NatWest; a bank three times the size of RBS.
It was the beginning of a period of massive expansion through acquisition pioneered and spearheaded by Goodwin. Soon after, RBS had footholds across the world’s financial markets and its worldwide assets had quadrupled. By 2006, RBS operating income had reached 9.2 billion pounds after a sixteen percent increase on the previous year.
The increased profitability of RBS was due not only to the recently obtained assets, but the so-called ‘efficiency measures’ that earned Goodwin his pet name Fred the Shred. When asked why he was christened so he replied, “because Fred does not rhyme with charming and considerate”. In reality, however, it was due to his habit of buying rival banks and proceeding to strip them of staff and minor assets: 18,000 people were sacked at his command in the RBS-NatWest merger.
It was for this ruthlessly ‘pragmatic’ approach and his supposed ‘services to banking’ that Glasgow University awarded Goodwin an honorary degree of Doctor of the University in 2002. Honorary degrees are used as a means by which a university can reward a remarkable individual for their contribution to a particular field and to society at large: to express the University’s recognition of an individual’s achievements.
However, though possibly worthy of respect in 2002, Goodwin’s management style has proven to be profoundly detrimental to society. The 2008 UK Bank rescue package, which promised the RBS more than 20 billion pounds of public money — the largest given to any of the banks — will cost each household potentially tens of thousands of pounds. The rate of home repossessions has been increasing and the recession, provoked by the banking fiasco, will cast millions across Britain into a state of economic ruin.
The burden of the RBS collapse rests on Goodwin’s shoulders as much as any other influential figure. The mantra currently circulating Westminster — “No reward for failure” — is equally applicable to academic institutions. Glasgow University should not continue to celebrate the ultimate failure of Goodwin.
During the presentation of the degree, Glasgow’s incoming principal, Professor Anton Muscatelli explained: “Having seen for himself how banking can go spectacularly wrong, Fred Goodwin obviously decided to show the business world how to do it properly.” Such a statement is indicative of the short-sightedness prevalent within finance. Immediate gains are of paramount importance; the long-term potential consequences are not.
It is vital that the recent failings of the fiscal sector are recognised and understood by educational establishments and that criticism is levelled against the main proponents and their ideologies. Throughout history, universities have been the main contributors to the intellectual ethos of the day. To remain ‘in bed’ with Fred Goodwin is to align Glasgow University with a disastrous philosophy, and to expose this establishment to public humiliation.
Goodwin’s subsequent actions to the bank bailout have also aroused much public anger. Through them, he has come to personify the corruption and decadence rampant within banking. His time at RBS was characterised by the gross flaunting of success; the £350m cost of creating headquarters near Edinburgh; his regular use of a private jet owned by an ancillary company; the suspected 200m pounds spent on celebrity backing.
What has fuelled public animosity more than anything else, however, is Goodwin’s self-righteous attitude towards his pension. On leaving RBS, he claimed entitlement to the whole £16m that lay in the pot — now composed of public money. Although, had Westminster refused to buy up the bad debt, RBS would have been bankrupted and Goodwin would have been entitled to a nominal compassionate fund of £27,000.
The eventual cut Goodwin accepted leaves his pension standing at more than £340,000 a year. For a man to walk away from such total failure with this as his reward is disgraceful. Glasgow University must ensure that we are not tarred with the same brush; that publicly, we are not seen as apologising for or condoning Goodwin’s actions.
In recent years, there has been an alteration in the fundamental principles of the education sector; a shift to a more pro-business mentality. Universities are now frequently viewed as little more than research establishments for profit-driven enterprises.
In the midst of recession it seems likely that funding to higher education institutions will fall. Equally, most departments and faculties should expect to find their budgets cut by a lack of private investment. These attacks are not separate to, but a direct consequence of, the two decades of irresponsible lending policies promoted and enforced by the likes of Goodwin and others. To leave a Glasgow University honorary degree in the hands of one of the main sources of the crisis is inexcusable.
Sir Fred Goodwin has consistently denied responsibility for his part in the banking collapse. His pension still sits at millions of pounds. Calls have been made in Westminster for his knighthood to be removed. And public opinion is more opposed than ever to the beneficiaries of disastrous commerce. It is now essential that Glasgow University publicly renounces its association with him and his catastrophic career by immediately rescinding his degree.