Leading article: Bad debts and bad decisions


When surveying Wall Street, the phrase "Rewards for failure" is one that comes inescapably to mind. Chuck Prince, former boss of Citigroup and, thus the world's leading banker, has walked away from his job having overseen further losses of between $8bn (£4bn) and $11bn, on top of the $6.5bn already revealed. Citigroup's total exposure to the American "sub- prime" mortgage market – home loans for people with poor credit histories and scant means – is reported to be $55bn.

Given that the early estimates of the global total of losses to financial institutions from sub-prime amounted to some $200bn, that either means Citigroup has amassed more than its fair share of dodgy loans, or that the fall-out from the sub-prime crisis will turn out to be greater than feared. Either way, Mr Prince will be able to reflect on all that while resting on a pillow stuffed with a possible $90m of Citigroup share options.

Mr Prince's departure follows that of the boss of Merrill Lynch. Stan O'Neal resigned after admitting his firm would suffer a $7.9bn hit because of bad bets on mortgage-related securities (sub-prime again). For his pains, he received a $161.5m parting gift. The head of UBS, which has taken a $3.4bn knock, on the other hand, is still in post..

The rest of us may be able to stomach the combination of greed and stupidity exhibited by Wall Street's finest were it not for the fact that there is probably worse to come, and that their strategic errors will cost every homeowner, pensioner and investor dear. It is, for example, difficult to believe that Northern Rock will turn out to be the only British institution to find itself in trouble.

The Chancellor, Alistair Darling, is right to say that "we are experiencing an unparalleled period of financial uncertainty" but wrong to blame the phenomenon on the depressed US housing market, as if our own bankers, regulators and ministers were, helpless victims of unforeseen events.

They knew what was happening; some, in the Bank of England and elsewhere, issued public warnings about the global ballooning of debt, the riskiness and opacity of complex financial instruments and the precariousness of the US sub-prime market. They knew a crisis was coming, just as they now know this crisis is not over.

So is Mr Darling going to carry on pretending to be a powerless bystander, or can we be confident he is doing everything he can to prevent a big British banking name going the way of Northern Rock? Heads have rolled in the US, albeit onto silken cushions. Over here only the chairman of Northern Rock has had the decency to go. The rest are still in place.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Ashdown Group: Marketing or Business Graduate Opportunity - Norwich - £22,000

£18000 - £22000 per annum + training: Ashdown Group: Business and Marketing Gr...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + Commission: SThree: Are you great at building rela...

Ashdown Group: Database Analyst - Birmingham - £22,000 plus benefits

£20000 - £22000 per annum + excellent benefits: Ashdown Group: Application Sup...

SThree: Recruitment Resourcer

£20000 - £25000 per annum + Uncapped Commission: SThree: Do you want to get in...

Day In a Page

Read Next
Tactical voting is a necessary evil of the current first-past-the-post system, where voters vote against what they do not want rather than in favour of what they do  

Election 2015: Voting tactically has become more fraught in new political order

Michael Ashcroft
Ed Miliband said the Tories are a danger to family finances  

Election 2015: Me, my 18-year-old son, and why I’m voting Labour

Matthew Norman
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before