Article hands out a whole lot of banking/corporate kool-aid
This article is rubbish. It tries to make a case that the HBOS failure was the 'old fashioned' way - that it 'unlucky'. It makes the insinuation that it was unlucky because if it was really the market, then all banks should of failed equally (and of course others did - using the same technique below). So by giving the impression it was unlucky it removes further examination of the rampant fraud by management.
The only thing traditional thing about this failure was that it used the 'traditional' model of looting a bank by the management. As described by William K. Black ("The Best Way to Rob a Bank is to Own One: How Corporate Executives and Politicians Looted the S&L Industry"), this is the simple recipe with four ingredients:
1. grow like crazy (HBOS - check)
2. by making really, really crappy loans but at a premium yield (yield just means 'interest rate') (HBOS - check)
3. while employing extreme leverage, and (HBOS - check)
4. while setting aside only the most trivial reserves or allowances for the inevitable losses this kind of behavior produces. (HBOS - check)
HBOS had a lot of other fraudulent lending going on (commercial, partnering with companies, buying out construction/builders et al), but the mortgage push was key. It also had a shed load of bad behaviour (Quayside, Farepak). But making poor loans (a feature, not a bug) with poor controls (feature, not bug) by poor risk management (elevated from sales - feature, not bug) while buying back shares (£2b - juicing shares for payouts - feature, not bug) and handing out massive bonus pools (nice bribe - feature, not bug) was all designed to allow management et al to loot.
And don't even mention that management believed they were right - Upton Sinclair nailed that one ("It is difficult to get a man to understand something, when his salary depends upon his not understanding it!").
So the article finishes with:
"That just brings us to the great truth at the heart of the subject of economics. There are no solutions; there are only trade-offs. You can have a robust banking system where it's difficult to get a loan, or you can have easy money and a banking system that periodically goes titsup."
This is straw man choice. Here are some others:
* Don't place folks that run a bank on the Regulator's board (Crosby and FSA);
* Don't expect 'light-touch' regulation to catch fraud or bad behaviour (it should be renamed 'light-fingered' regulation);
* Put the frauds in jail. Prosecute and put them away according to how much they embezzled. It might be 'hard', but so is life;
* Pay bonuses so they vest over a long term (5-10 years). When they whine, point out regular folks contribute to something similar called a 'pension' which they use when they actually retire;
* Pay 30% of fines prosecuting fraud and bad behaviour to any whistleblowers that brought it to light. The US IRS does this. Management cannot bribe everyone, and sooner or later a low-level assistant that does the grunt work for the fraud is going to catch on. Don't whine that this is unfair - the low-level folks are the first to be thrown under the bus when the fraud is discovered.
So five suggestions in 5 minutes. There are more. Maybe there are no 'solutions', but you can certainly corral the problems. But then if you are drinking the corporate kool-aid on government, regulation and the 'markets', you won't see these, or any others.