01/11/2013 Newsnight

The bank you own, RBS, decides not to break up, but put all its toxic

assets in an internal Bad Bank. Here is George Osborne's explanation. The

bad bits will be managed by a different team, who will wind them

down or sell them off. Allowing it lend more to British businesses.

What do the Treasury's cartoons tell us about when British tax-payers

will get their money back. We have asked the man who wrote the book on

RBS, Ian Martin, to explain. Keep your eye on this, the tiny cameras

we could all use a high-tech breakthrough of possiblities, or Big

Brother's nosier little brother. Newly convicted prisoners will be

forced to earn proof links, starting from the bottom. We ask the man who

wrote the speech Hug a Hoodie, how it could shake up jails in England

and Wales. And this... I can assure you this is my kind of town.

Good evening, the rise and fall and near utter collapse of the Royal

Bank of Scotland is one of the most extra ordinary stories of the

banking crisis. Today there were signs of new life. Over the years

some assumed the way to save RBS would be to dump its most toxic

assets in a new separate Bad Bank, then try to get back the tax-payers'

money from selling our stake in what remained. Now RBS has decided to

keep the toxic acid dustbin within its own structure, fencing it off

from other parts of the organisation. If banks in the past

were too big to fail, would it be a good idea if banks were broadly

forced to downsize. We asked the journalist Ian Martin, who recently

published a book on the RBS story, to give his acements on what might

end up best for the banks, the taxpayer and the country.

A draft report commissioned by the Government... Including a

conversation recommendation to split the bank in two... I recommending

breaking up Royal Bank of Scotland. That was then, today we learned they

are not going to split RBS into a good bank and bad bank afterall.

Following a year of turmoil and the removal of the chief executive that

led the bank since the epic bail out in 2008. The Government have decided

that RBS, for better or worse will hang on to its toxic debt. It flies

in the face of advice from Mervyn King and Nigel Lawson. Both say that

the stuff should be dumped. What are we talking about? What is toxic

debt? Toxic debt is the very worst stuff on a bank's balance sheet.

Loans and other assets gone bad. We're talking about mortgages for

homes, the owners struggle to repay, and borrowing by customers and

companies that went bust. These were reckless loans made in the long boom

and during the financial crisis of to 2008 they collapsed in value,

leaving banks such as RBS exposed to losses. Pretty grim stuff. Is there

way to get rid of it? Well there is no easy answer. One idea was to put

all of the toxic stuff inside a separate RBS Bad Bank. But that

raises another question, what exactly is a Bad Bank? It is where

you dump your toxic debt. The idea is to park the bad loans weighing

the bank down and put it in a different bank, your Badger, to be

owned by the -- your Bad Bank to be owned by the tax-payers. They can

sell off the risky assets to investors who think they might make

a profit. That leaves the managers at the good bank free to focus on

being bank. Lending money and making money and restoring themselves to

rude financial health. Restored in this manner the good RBS could then

have been sold off before the election, with garlands and mutual

back slaps all round. But after a four-month look at the nuts and

bolts the Government and RBS have decided that this option is

potentially too complicated and messy. Instead they will create a

Bad Bank inside RBS. It is a tweaking of the existing structure.

So the option of a proper good bank and bad bank is effectively dead. So

are George Osborne's hopes of a pre-election sell-off. I think it is

frankly unlikely that we will be able to sell RBS before the general

election. Just because there is a lot of work to be done to make sure

that RBS cleans up the mistakes of the past, gets out of its big

American operations and focuses on Britain. Supports small business,

that is all going to take a bit of time. The Treasury hailed today's

announcement as a brave, bold new start, for an institution that is

still more than 80% owned by the taxpayer. The markets however were

sceptical. Shares in RBS fell 7. 5%. The bottom line is RBS has a long

road ahead, as its new boss tries to make it a healthy, profitable bank.

Until he does that the prospect of the taxpayer getting any of the ?45

billion we sunk into RBS remains a distant prospect.

Ian Martin is with us, along with the banking commentator, Frances

Coppola. Firstly the banking story we talked about last night,

allegations of fixing foreign exchange rates has taken a new twist

today. We have the details. What has been happening? Very interesting day

of further developments on this story. Tonight Citigroup and JP

Morgan have confirmed that US regulators have approached them

about foreign exchange dealings. Earlier it emerged that Barclays had

suspended six traders, coming after news I reported last night that RBS

has suspended two of its traders and various other banks had sent

executives off on "leave. At this stage there is no evidence of any

wrongdoing, the investigation is at an early stage. I get a sense in the

City that there is a real sense this is an international issue now. It

has been taken extremely seriously at the major banks. There is a worry

I think in some sources that it has the potential, potential I stress,

possibly to get to the scale of another LIBOR scandal. If it did

that would be disastrous for the reputation of banks in the City

trying to rebuild after a all that emerged last year. We will be

following that. On the wider story that you covered today for us.

George Osborne has said this new RBS will be out batting for Britain. Is

that the way you see it that we should actually cheer that A Bigger

Splash bank will remain? What he means there is he means that the

Government wants RBS to become quite boring, it wants it to be much more

like Lloyd's, to focus on the domestic market and to sell off some

of its operation, or pretty much all its operations in America and become

something not exciting. They feel the taxpayer has probably had quite

enough excitement with RBS. Enough to last a while. There has been a

change of tone, hasn't there, by the Bank of England and the new Governor

of the Bank of England, he has been suggesting there are reasons to be

very cheerful about big banks, that is not quite the same tone that

Mervyn King was adopting in charge? It is as if Nauth, mark carne knee

-- Mark Carney made a speech for the 150th anniversary of the FT, I would

classify it as one of the most important speeches on public policy

in the last couple of decades. He essentially acknowledged that the UK

banking system is enormous, and it had become 450% of GDP on total

assets by the time of the crisis. He was saying we shouldn't be too

worried about that and the banking system, still about 350% of GDP, we

can envisage that as esently being nine-times GDd -- eventually being

nine-times GDP, why, because the systems introduced make it safer and

we have learned lessons from the crisis. It sounds familiar. That is

the problem isn't it, people all over Britain listening to, that they

didn't have much coverage at the time, but listening to think about

that and say banks too big to fail, we have heard that before? They

might very well. I want to put it in a bit of context though I was

looking at the history of this earlier and realised in the whole

history of the banking in the UK we have almost never had a big bank

failure, RBS was a real revelation. People need to be not quite as

worried as they are about big banks. Do you think the culture has really

changed within these banks? I wouldn't like to say that. Culture

change is a long and slow process. The I AW member writing in the FT

made that point forcefully recently. It is a long haul to change the

culture in banks. I have no doubt there will be further problems

resulting from what we call bad behaviour. It doesn't mean another

failure. In that sense then should we be quite happy or relaxed about

the idea that big banks will continue. TSB has been hived off

from Lloyd's, so banks can lose bits here and there? Yes. Without any

particular problems. So should we as citizens be fairly happy that the

big beasts remain? I think so. I think they serve a useful purpose.

Large universal banks have been a feature of the European banking

landscape for a long time and really rather successfully. The subtitle of

your book was the men who blew the British economy and they did nearly?

I think we should be really concerned about it. Writing a book

about the subject, I'm not a financial journalist by trade, I'm a

political journalist, but the jaw-dropping moment for me came when

you look at the graph of how fast British banking grew it used to be

73% of GDP and by the time of the crisis it was 450% of GDP. The

lesson is there is no end of boom and bust, banks will always go bust,

there will always be a downturn in the economy. But the difference is

that if you have small manageable banks, lots of them competing, and

they are not bigger than the economy or excessively large, when they blow

up they won't blow up the rest of the economy and won't do the damage

on the scale that was done. The worst economic damage in this

country for seven decades. You are more of a fan of the, small is

beautiful and all that kind of thing. You think smaller banks maybe

would be better for all of us? I'm a fatalist about it, I think banks

will continue throughout human history to blow up and people will

become prone to mania and hubris and madness during a boom. In those

circumstances, if you accept that, it is sensible to have banking

system I think that is more manageable proportions so that when

banks blow up or go bust that they don't cause the absolute carnage

that RBS caused. RBS, by the time you hit the crisis, RBS has a

balance sheet that's bigger than the UK economy. It is a timebomb by

2007/08. The culture you said, it is difficult to say whether cultures

have changed, but the regulations have changed and the oversight has

changed enough to prevent this happening again? And continuing to

do so. We haven't finished with the regulatory change by any means yet.

We have got layer upon layer of regulation being added. I have

concerns that we may be slightly overdoing it and pinning them down

so tightly that they actually can't move. Which also makes it pretty

useless, to be honest. In a moment: The sound of disco

music was in the air, I wandered over to see what gives. It was an

over-40s competition and incredible. Now, imagine a world in which

instead of spies, security companies and Government agencies being able

to film any detail of your lives, you could do that for yourself. The

technology is already here, cameras small enough to be mounted on any of

us, capable of recording pretty much anything we want. We asked the

former Government high-tech adviser and entre pen -- entrepenur Rohan

Silva to give us an idea of what might be in our future. We are on

the cusp of a new era, where computers and cameras have become so

small they can be worn on our wrists, faces and even embedded in

our clothing. These wearable computers will

provide us with new service, but they mean that our entire lives can

soon be recorded and analyses forever.

If everything in If everything in our lives can be recorded the

privacy implications are vast. How might we change our behaviour if we

know the person we are talking to is recording the conversation. How will

the new technologies alter our perception of what is public and

private. The first wave of wearable computers and cameras are now coming

on to the market. These devices are powerful enough to record our

movement, conversations and physical health, and permanently store all of

this personal information. Innovative entrepeneurs and

campaigners have been experimenting for several years. Their work can

help reveal how these technologies might affect our lives. The guy here

is a base commander and responsible for a lot of kidnappings, murders,

rape. He don't know that he's being filmed. This man is cofounder of a

charity that uses wearable cameras to uncover human rights abuses in

oppressive regimes. This is their first television interview. Because

it is not safe in this area to work with regular cameras or phones, so

we are distributing hidden cameras. Do you have any of these cameras

that we might look at? I can show you the proto-type, we are not using

it at the moment, but for example in some places we wanted to create a

cross that is a camera. So the camera is hidden inside. It is a

protest Poe type. This was worn by? People going to church and others.

What we are doing is talking the technology from inside the cameras

that we are buying in China, breaking it apart and building

cameras suitable for the environment. To protect their

sources they operate using a cell structure much like an underground

resistance. The footage they capture is used to bring attention to these

abuses through the world's media. In this country we have a lot of

footage of intimidation done by perpetrators who were sure because

they are working in the rural areas there is impunity and nobody could

see them. This was ahead of an election? This specific project was

coming to the elections in this country. The footage was broadcast

mostly in the local channels. The perpetrators see someone is seeing

them. It is an immediate deterrent, suddenly they are not alone,

suddenly somebody is watching them. Here in the west many people are

concerned about privacy, how do you think about those kinds of issues

when you are filming in Africa and across the world? The problem is

rape, torture, abuses in these countries, less the privacy. These

technologies could have a significant political impact around

the world. But closer to home, what might be the consequences for our

social and personal lives? James is an artist whose work examples our

relationship with technology. He has created art using wearable cameras

that explore what will happen when this technology will start to be

used by more and more people. When you are filming constantly, that is

overwhelming, as one person I can't even possibly review the amount of

data I have Kambin rated as an individual. What that -- generated

as an individual. What this says to me is how this is a computer's way

of seeing. We need smarter and smarter computers in order to

process all the information that the other computers are generating. The

more cameras there are, the smarter et systems become and the less human

they become essentially. Although he's excited about the creative

opportunities, James believes we need a debate about the vast amounts

about the personal information that these new wearable computers will be

collecting? Despite corporations and Governments are gathering

information about us, most people seem unbothered, even after the

Snowden deck backle. I think it will taken a information crash for us to

realise how much information we are giving up. How will we strike the

right balance between privacy and innovation. Microsoft researchers

Gordon Bell has spent years wearing computers to record everything he

does and who he needs. Meets. He understands better than anyone else

how the technology will develop. By 2020 we will be recording everything

we hear and see. So this device like this gets us everything we see

whether it will be socially acceptable to record everything you

ever heard is unclear. Did the recordings replace your memory? Now

I don't even think of it as back up to my memory. I think it is my true

memory. So the computer is the e-memory, my biomemory is really

just a URL to the e-memory. So, here is my true memory is here. Some

people are concerned though about the privacy issues raised by the

data capture. What is your view on that? I share very little

information about myself, where I have been, what I'm doing and

thinking and all that. Now that's totally in contrast to generation Y

wanting to say everything about their lives. Facebook, and Twitter

kind of have broken that mould of the idea of privacy that at least I

had. The age of wearable computers that can record our entire lives is

not science fiction, it is the world we are starting to live in today.

But it might take years for the full social and political implications to

be understood. These new wearable technologies are sure to deepen the

debate about personal privacy. That is understandable. These devices are

also being used to tackle human rights abuse, create new works of

art and deepen our understanding of the world around us. I hope we are

able to take stock of those opportunities as well as the risks.

Because in the end it is not the technology that matters, it is what

we choose to do with it that counts. Our guests are here. Are you as

enthusiastic about the fairly endless possibilities of this as

Rohan is? There are endless possibilities but the critical

system is people need to trust the systems to use them. If people are

sceptical we won't have the uptake we need to see the benefits. That is

why regulation is very important. You need to protect people's privacy

so they trust using the systems won't mean their insurance company

or lawyer suddenly ends up with reams of data about their lives.

Isn't one of the implications of this is privacy is dead, we have

just not noticed? Privacy is different than 50 years ago. The

need for privacy to deal with medical issues or voting, privacy is

still very important. So we do need to find way to preserve it, if for

no other reason than that is how we understand who we are is in private.

Not broadcasting everything to determine things like our health and

sexuality. There is obviously huge interest in this and advantages to

it and so on. But there are people right now with today's technology

who do some pretty weird and inappropriate things, filming things

they shouldn't, filming women in situations they shouldn't, even

perhaps children. So this could be a tool that would be used by people

who are basically perverts? It is incredibly important there is robust

regulation. There already S my concern -- is, my concern is the

reason the technological devices are all coming from America and Asia is

that European regulators every time there is a new technology develop

new regulation to keep pace. All it is doing is leaving Europe at a big

disadvantage. If we are so afraid of the down sides we lose sight of the

upside possibilities. Regulation very, very important. What I'm

excited about are the technological responses to the issues. Device that

is can monitor and tell you when you are recorded, you are starting to

see apps emerging telling you which companies are using your data. That

is a better response. Do you see a generational divide, the Facebook

generation don't care about some of the issues you care a lot about,

privacy not so much? The pace of change is so fast, some young people

were going through school when Facebook launched a decade ago who

are now trying to get jobs and are seeing the impact of the data they

shared coming back to haunt them. I think you are now being people

seeing more aware and thinking about what they share in a different way.

When you talk about technological possiblities that is great, but the

idea of being able to regulate something that I don't know you are

wearing, and you are filming things that I don't want you to film. Do I

have no rights, or does Nick have no rights in this. Regulating that may

be essential but not possible? It is great question, in truth this is all

emerging so quickly it will take time for us to develop new social

norms, new technological responses, and maybe over time some regulatory

responses too. My question to Nick would be, a lot of these concerns

raised are about companies being able to access our data, and I would

say that we consent to share our data with company in exchange for

services. I'm much more afraid of what the Government is going to do.

They can lock you up using your data and deprive of your freedom. Isn't

that something to be more concerned about? I think that is absolutely

right, Government can get data from the companies. It isn't just

information the gets directly we know last year that Britain got more

data from Skype than any other Government in the world. Governments

go after the private data, both through legal channels and as we

have learned in the past few day, not always legal channels. I think

you do need to remember the best way to protect privacy is to control the

information at source. That means giving people a legitimate informed

choice about just what data you are collecting in the first place. We

will leave it there, thank you very much.

In Gilbert and Sullivan's opera The Mikado, it was talk of a short,

sharp shock to teach the town a lesson. The phrase was given a new

lease of life by Margaret Thatcher's Home Secretary, Willie Whitelaw, to

advertise the tough treatment for young criminal, the phrase has

disappeared, but the idea to make a prisoner's first experience in jail

less comfortable, has been brought against incentive schemes for good

behaviour. I'm going to take action, tough action and I shall spell out

that action. There is nothing new in policy makers talking about making

prison tough. Prison works. It ensures that we are protected from

murders, muggers and rapist, it makes many tempted to commit crime

think twice. Traditionally they were once places

of hard labour and toil. Today some feel prisons have got a bit soft and

prisoners have it easy. The Government's response is to insist

that new prisoners will have to earn many of the privileges that up until

now they could take for granted. New prisoners will not be able to see

adult movies, more Bambi than Rambo. Prison uniforms will be the first

dress code rather than the privilege of being able to wear your own

clothes. Behind the new regime is a simple principle, you are in jail

now and if you want to make doing time easier, conform to the rules,

otherwise the privileges once earned can easily be striped away. Danny

Kruger who famously wrote David Cameron's Hug a Hoodie speech, and

now runs the prisons rehabilitation service, Only Connect, do you think

the Government is on the right track, starting in jail you start at

the bottom and earn a better life? I think the principle is right. In

practice this is probably not a huge change to the status quo. There is

already lots of ways in which prisons manage their prisoners by

giving and withdrawing proof limbings. I think it makes sense to

-- proof limbs, I think it makes sense to start at the bottom and

work your way up. This is different from the main thrust of what the

Government is trying to do. It is a revolution in the way prisons are

managed and the way prisoners are expected to behave. The real problem

with prisoners is not to my mind how hard or soft the regime is, and what

television stations they are allowed to watch, but the fact that they

spend most of their time lying on their backs doing very little at

all. Most people think prison is a violent and dangerous place, in fact

they are pretty sleepy, very safe places where nothing much happens.

What the Government is trying to do is turn them into places of industry

and hard work. That is the main emphasis of the reforms. Ben do you

buy into that, that this is part of a picture but it is important to set

the tone right at the start when you enter prison? I think having the

gates shut behind you sets the tone. You don't have to wear a stripy

shirt to rub your nose in it. It is pointless and petty politicking. I

can see a broad thrust in transforming rehabilitation and

making prisons places of industry, and purposeful activity, not just

mindless repetitive work, but genuine skilled work. But this has

got nothing to do with it. Could you see that the reason this kind of

idea keeps coming back and back is that it is very popular. People do,

as Danny accepts, sitting at home think prisoners have an easy life,

they get to choose to watch TV, there is no human right to watch a

particular video, this is ridiculous? It also illustrates the

ridiculousness of the counter policy. So you ban prisoners from

buying 18-rated DVDs, what do they do, they rent their reel television

from the prison for a pound a week and turn on late night film rated

18. It is pointless, it is literally petty politicking and ministers

interfering with the my New Yorkway of -- minute New Yorkia of prisons

will get bitten. You seem to agree with changing the regime in terms of

education and making stuff improving more prisoner, this sends the wrong

signal, it is populist politics that we have seen many times before and

it fails. As you said minutes Triaz get bitten when they do this kind of

thing? They might do, that is for the politicians to decide for

themselves. Ben has a good point. There is politics being played here.

And what I worry about, I guess, is it feeds into the idea that it is

possible to deter crime by having really regime, I do think we need to

have what the minister describes as spartan regimes, it is appropriate

that prisoners don't have better lifestyles on the inside than people

have on the outside. Nevertheless it is not possible to deter or stop

crime by making prisons more and more tough. Unless we are prepared

to be not just spartan but medieval, unless we are prepared to brutalise

prisons completely, we will never make prisons so unpleasant that the

ones we need to worry about, the criminals, are deterred from going

there. The fact is their home lives, their lives on the streets are so

dangerous and so unpleasant that any form of prison in a civilised

country will be safer than that. Deterrents through regime, tougher

regime is not the answer to the real problem of prolific and violent

crime. What we need to do with the criminals we are all so worried

about is give them proper network, proper relationship, enable them to

build supportive community that will be there for them both before and

after they come out. That is the real emphasis. There is a difficulty

with that, part of the proposal, the practice as it comes in today from

Mr Greyling, is prisoner's contact with families is restricted. They

are only allowed to spent X amount of money in their first two week,

the main contact is by phone. Prisoners won't be able to phone

home and maintain family contacts. You are playing the same game you

are accusing Grayling of doing which is playing into the money issue. The

overall thrust is to improve relationships through the gate

before and after release to ensure prisoners spend the end of the

sentence near their families where they will be released to. Allow

charities like mine to work inside the prison and build the contacts

before they go out. We have run out of time. That's all for this week,

we leave you with news that New York Magazine is advising readers to give

London a miss and instead recommends Birmingham as a better place for

tourists. It happened before in 1981 the actor Telly Savalas told the

world how wonderful Birmingham was. He never set foot in the place,

recording his glowing travelogue in London's Soho. I can assure you this

is my kind of town. The sound of disco music was in the

air so I wandered over to see what gives? It was an over-40s

competition and, incredible. Riding the express elevator to the top of

one of the city's highest buildings, this is the view that nearly took my

breath away. Yes, it is my kind of town, so,

Hello, another blustery weekend across the UK, the wind dying down

overnight means we will start off with a touch of frost across parts

of eastern Scotland, fog in north-east England, the rain

arriving in Northern Ireland, spiralling across northern England

and much of Scotland through the day. By the afternoon we are left

with sunny spells and showers from Northern Ireland. The wet weather

moving north through the central belt and across the Grampians over

500ms heavy snow through the afternoon. The rain lingering in

Aberdeen through the night on Saturday night. After some heavy

showers it turns brighter perhaps across eastern counties of England.

Sunny spells here, a few showers whizzing through on the brisk

breeze, when the sun is out we could get temperatures into the teens.

Further west freak showers -- frequent showers, in Wales the winds

will strengthen throughout the afternoon and evening and it is

potentially causing a few issues, getting to 40-50 miles an hour,

maybe more around the coast. With high tides that means big waves. The

blustery continues will last through much of the night with England and

Wales with further showers. Paris also looks fairly wet and windy on

Saturday. Cooler but brighter on Sunday. Greece is a good bet at the

moment. Working sou towards Lisbon arriving on Saturday night. As for

the UK, Sunday is another breezy affair, rain in the north-east of