Mr. Tim Bush:

I thank the Senator. It is a very good question. When we identified the problem back in 2009 and 2010 it struck me early on that one of the first people to openly speak out, not only to describe the problem but to describe it very clearly, was the Governor of the Central Bank, Professor Patrick Honohan. He put it beautifully and so clearly. The Bank of England was not saying the same thing. The Bank of France was kind of saying it because it was in a position where it could. The then outgoing Governor of the Bank of England, Mervyn King, started talking about it but I believe that the problems the central banks have is that in law it is illegal for them to prop up a bank that is insolvent. They either lend to a solvent bank or they have to transparently put in new capital. If they are lending money to an insolvent bank they are effectively putting capital into an insolvent bank, and by that they should not be able to whip it out again. Huge conflict of interest arises when a central bank lends to a bank that is, essentially, bust and it then goes into a limbo state. I believe it is best to let such a bank fail. One does not have the ongoing zombie state of the living dead where the central bank is conflicted because it has lent money it, the auditors are conflicted because they have followed particular accounting standards that have not delivered company law and the directors are conflicted because they have run the bank badly and have given numbers that do not show the true position. The conflicts of interest are enormous. Interestingly, Mr. Butler refers to the case that settled in the High Court in London in February this year, called AssetCo plc vGrant Thornton UK.

AssetCo is a company that sold vehicles to the United Arab Emirates. The AssetCo case was interesting because it was the first major case against an auditor to settle in a UK court since 1968. The law was so clear in the 1968 case that it was enough to refer to and the respondents - the big four firms - preferred to settle out of court rather than having the 1968 case given a second lease of life. AssetCo decided to take its case right to the High Court, which was decided there. The case describes exactly not only the 1968 position but also the 1890s law because these are the same issues. The law is quite shocking and is quite clear that in the AssetCo case the auditors owed back to the company all the dividends that had been paid from false numbers. Not only that, the auditors owed all the funds that had been put into the company but which were then mis-invested. Effectively, it is consequential loss, which is the consequences of making business decisions based on the wrong numbers. When they see this case most people are quite shocked that it is the legal basis of settling on cases where the accounts were faulty. The position is so harsh that one can see why people do not want to go around the street with a loud hailer telling everybody that that is their liability position. Potentially, any company where there has been misinvestment due to the wrong numbers could follow the AssetCo case.