Where Are The Customers' Knighthoods?

(Sir) Fred the Shred vs. Fred Schwed (Jr.)

Last week Stephen Hester, the CEO of The Royal Bank of Scotland (RBS), came under a lot of media and political pressure and gave up his million pound bonus. Yesterday Sir Fred (The Shred) Goodwin, his predecessor, was stripped of his knighthood, to become just plain old Mr. "Fred the Shred". Is this justice finally being done, or just a smoke-screen to keep the media and public at bay?

Today, business leaders are pointing out that this is unfair and anti-business; no previous knighthood has been removed without the person in question first being convicted or hanged. I agree. Shouldn't Sir Fred be convicted and sent to gaol (hanging is perhaps a little extreme). Or, since this financial mess is all about money, why not just strip him of that?

All this talk of Fred the Shred reminded me of the excellent, classic and amusing finance book: Where Are the Customers' Yachts: or A Good Hard Look at Wall Street by Fred Schwed Jr. It was written in 1940 after a similarly nasty period in economic history and the title refers to the old joke about a visitor to New York who admired the yachts that the bankers and brokers had in the marina. He then asked where the customers' yachts were. Of course, there were no customers' yachts. This joke dates from the 1920s or even earlier.

The book and the joke are just as relevant and funny now as they were when they were written, which is a sad reminder that although we have known that we were being ripped-off for generations, we seem to be powerless to stop it continuing. The banks and financial services industry take outrageous fees that are often rather opaque, from the investors and make a fortune even when they are losing their customers' money. Then, when they bankrupt themselves (and potentially the whole of the capitalist world economy) due to a combination of stupidity and greed, they get bailed out.

An interesting example of excessive fees is that Warren Buffett (The best investor and third richest man in the world) could have turned $1,000 into $4.3 Million if you could have invested in his Berkshire Hathaway fund when he started (in the 1950s) If however he had been a Hedge Fund manager he would have taken $4 Million in fees leaving you with just $300,000. Actually he probably would have sailed off in an enormous yacht, to some tax-haven with your money long before that.

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