Margareta Pagano: Fraud Office probe is the only way to rebuild confidence

We can't rely on anyone else to sort out the banks

You can almost taste the smell of decay wafting over Westminster. It's the stench of burnt fingers, singed scalps and backroom stabbing, as ministers and their spin doctors dance around each other in a desperate bid to distance themselves from the greatest banking scandal ever to hit this country.

Leaking the news of Sir Fred Goodwin's plump pension pot was clearly a ploy to anger the public, taking our attention away from the massive scale of the bailout required for Royal Bank of Scotland – one that appears to be growing daily. Whoever was responsible for attempting to set Sir Fred up as public enemy number one again must have done so hoping, in addition, that the leak would take the sting out of the relentless criticism of Gordon Brown, his handling of the economy as Chancellor, and now the banking crisis.

But the spinmeisters got it wrong. The attempted public humiliation of Sir Fred backfired. Now he's more likely to be martyr than scapegoat. The pension may be huge, but even greater is the knowledge that the Government knew about it when it took over RBS. It has owned RBS since October and could have changed the terms at any time, but it didn't suit it to do so. Now it does. That Brown and Alistair Darling claim they didn't know anything about the pension beggars belief. Either way, they are crucified.

Such incompetence goes to the heart of this crisis. We took it for granted that the Government, the Financial Services Authority and the Treasury Select Committee were regulating the City over the past decade. How wrong we were. As Lord Turner, now the head of the FSA, told the committee last week, the FSA was not "fit for purpose" and Brown's "light touch" regulation gave rise to reckless bank lending. And that's from Lord Turner, a Labour man.

Another vicious attack came from top law enforcer Sir Ken Macdonald, who rubbished the UK's entire financial regulatory system by pointing out the shocking inconsistencies of our approach to fraud in this country. As he said, no one in Britain has any confidence that fraud in the banks will be prosecuted as a crime: "If you mug someone in the street and you are caught, the chances are that you will go to prison. In recent years, mugging someone out of their savings or their pension would probably earn you a yacht."

That's the point. We are still being asked to trust the very same politicians and regulators who were responsible for creating this mess to get us out of it now. What's even worse is that several of those in charge of sorting out the crisis are unelected –from Lord Myners, whom Sir Fred quite rightly blames for the pension row, to Lord Mandelson, the Business Secretary.

There is only one way the Government can redeem itself if it is to remove the smell of corruption. It must ask the Serious Fraud Office to investigate RBS and HBOS, and specifically their corporate lending. As Richard Brunstrom, chief constable of North Wales, said on radio recently that if the banks were on his beat, he would be investigating both of them and can't understand why inquiries haven't been launched. Nor does anyone outside the Westminster village.

How vaunting ambition destroyed Lloyds, one of the best banks in the world

When the history books come to be written about the Great Crash of 2008, the Lloyds rescue of HBOS will surely go down as one of the worst corporate deals of all time, along with RBS's takeover of ABN Amro. In one swoop, the top executives of Lloyds, Sir Victor Blank and Eric Daniels, destroyed one good bank by buying a toxic one. Even they cannot have anticipated quite how bad HBOS would turn out to be. But they should have known, or at least found people who could do the numbers for them.

When Sir Victor, on becoming chairman, bought shares in Lloyds in January 2006 they were 515p. Before he took over HBOS, they were around 230p. On Friday night Lloyds investors owned shares worth about 60p.

Sir Victor and Daniels cannot blame the Government for forcing them to rescue HBOS. It was a deal they had hankered after for years but knew they couldn't ever get past the competition authorities. So when Gordon Brown asked Sir Victor to help out, he and the board jumped at the chance. Their ambition was for the merged bank to become a European superpower.

Long-term, they may well achieve their ambition. In the meantime, though, thousands will lose their jobs from the merger, while thousands of pensioners will be worse off as they lose the income from Lloyds dividends.

Until this disaster, Lloyds was one of the best-run banks in the world. Sir Brian Pitman famously refused to be drawn into the investment banking activities that seduced his peers at Barclays and RBS or the big corporate lending portfolio that landed HBOS in such trouble.

As a head-hunter said to me last week, they all fell in love with their own cleverness and artistry. We will look back and see that it was brave bankers such as Sir Brian who were the real artists.

Power walk PM should beware of unflattering comparisons

Quite why Gordon Brown is so excited to be the first European leader (Canada's PM was the first westerner) to visit President Barack Obama is hard to fathom. I guess he must be hoping that the magic surrounding the President will rub off on him when they meet on Tuesday. After Mr Brown speaks to Congress, the two are expected to get down to the really hard graft, working out the agenda for the G20 meeting here next month, at which, hopefully, they will show awareness that China and India must be given much bigger roles in our international agencies. Mr Brown should be careful what he wishes for on his trip. As any woman knows, standing next to someone really beautiful is a horrible way to show off your flaws.

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific