The FED's Bailout of Royal Bank of Scotland

Posted by Michael S. Rozeff on December 6, 2011 03:44 PM

I just viewed a BBC documentary titled "RBS — Inside the Bank That Ran Out of Money." The bank ran aground by over-expansion, especially by making a bad acquisition (ABN AMRO) that held tons of bad loans. This acquisition came 5 weeks after the head of RBS stated that he didn't foresee any acquisitions. Evidently, RBS didn't take the time to investigate what it was buying. The ambition to grow took over. But my main point here is not the downside of conglomeration and growth by acquisition, but the role of the FED when RBS failed. It loaned RBS at least $84.5 billion, more than any other foreign bank.

Now, clearly, like many U.S. banks, they should have gone DOWN. Bad management should not be rewarded. The FED also bailed out U.S. banks that had been engaged in fraud or massive mismanagement and over expansion, and it bailed out AIG which I believe had written credit default swap insurance fraudulently. And it bailed out investment bankers that had purchased these swaps.

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