Blain’s Morning Porridge 18^th August 2025 – Russia, Bank Failures and Capitalism

“The two most powerful warriors are patience and time.”

The next few days could set the future of capitalism if Putin continues to successfully divide the Western Economies. Meanwhile, the hit show of the Edinburgh Festival is a timely reminder its people that create financial crises, and the naked pursuit of wealth was never the vision of Adam Smith, the founder of modern economics.

Editor Note: As yet another exciting week opens in the international financial markets, I find myself trapped by the weather in the Devon town of Salcombe. There are much, much worse places to be…. But’s it’s been blowing an Easterly Gale since Saturday meaning we are going nowhere for the next few days. (Full Morning Porridge Service resumes next week.)

Ukraine and Consequences

I will be putting together a fuller comment on the implications for global markets of the Ukraine negotiations following today’s meeting between Trump and Zelensky with European Leaders in attendance. The range of potential outcomes don’t look favourable – almost all scenarios look like Putin will be rewarded. That raises serious issues for Europe, and ultimately the future of the Global Economy.

The question I would pose to all Americans is what favourable outcome do they expect the US to gain from so clearly favouring Russia? President Trump repeatedly reminds us he stands for America First. Why then does he favour a loser state?

Putin has already won his most significant victory – splitting Nato. That is the critical geopolitical takeaway. Whatever emerges later today, and however much European leaders pile on their flattery of Trump, it’s clear the fundamental bond of trust that underlay the 80-year success of the Trans-Atlantic Economy, that served the US so favourably for decades, is now ruptured. The end of the Transatlantic economy will change the global economy utterly – favouring Asia and new trade relationships, which was probably inevitable anyway.

All things pass. Trump just accelerated the process.

What follows? In the short-term, the best Europe is likely to get from Trump is an extension to the agreement they can fund Ukrainian purchases of US weaponry.

The longer-term question for Europe will be how to deal with Russia. All the talk is of the Russian Threat and the need for Europe to rearm. But the reality may be very, very different. Europe can probably beat Russia the same way the USA did during the Cold War.

One of the most interesting courses I took at university – in the early 1980s – was to examine the Economic History of the Soviet Union. It was a fascinating examination of repeating failure – although the end did not finally come till a few years later when the Berlin Wall fell, and Gorbachev had no alternative but to dial back the economy. The Cold War was a decisive strategic victory for the West.

Although Russia has land and resources in abundance that should have made it a strong, successful nation – as China has done since reproachment with the West during the same time frame – in reality Post-Soviet Russia it is a small, corrupted, kleptocracy about 1/10^th the size of the European economy. Per capita income in Europe is double that of Russia, and European men live a decade longer. Russia’s resources are now sold cheap to India and China which floods them in the knock-off goods Russians crave.

But Russia is aggressive out of proportion to its scale. The reality is the last 4 years has seen Russia repeatedly embarrassed on the Ukrainian battlefields. Historically, that’s how Russia usually performs – almost obliterated in the early days of WW1 and the German Invasion of 1941, before coming back in unstoppable force. But Russia today is not the nation of 1914 or 1941 where fanatical youth and workers were willing to die in huge numbers for Tzar or Stalin. It is a ticking demographic time bomb.

Today Russia is dependent on North Korean “volunteers” and paying massive sign-up bonuses to attract new recruits from its underemployed middle aged, unfit cohorts. There is a widely held view among Russian supporters in the West that it is now battlefield competent, having learnt from its earlier mistakes. The reality is, the war would have been over 2 years ago if the West had provided Ukraine with the weaponry to have decisively won the war. That opportunity has now past, and it’s become a stalemate. The populace must know the reality of their state.

We know how to defeat Russia. Not in open warfare, but on the economic battlefield – simply outcompeting, outproducing and sanctioning the Russian economy into oblivion. Europe should continue arm and support Ukraine – making the point aggression can not be allowed to succeed, and use every penny of Russian assets held in Europe to pay for it. A new Cold War with a diminished Russia is one a resurgent Europe will win. At some point… Russia will come to understand becoming a dominion of China was a very bad, bad option.

Let’s see how today’s meetings pan out…

Meanwhile…

Being stuck in Devon means I’ve not had the chance to make a trip (yet) to this year’s Edinburgh Festival and Fringe.

According to the reviews, the top ticket is “Make it Happen”, a play about the collapse of The Royal Bank of Scotland during the Global Financial Crisis of 2008. It sounds a very Scottish Play – (Scotland is rich in great stories; MacBeth is without doubt the best of Shakespeare!) This tragedy of RBOS winds its tale around an over-extended Scottish bank, a Scottish Prime Minister (Gordon Brown), a Scottish Chancellor (Alastair Darling), and, at its core, a failing Scotting Banker. Funnily enough, I met them all at various points in my career.

The central plot twist involves another even more famous Scot. The redoubtable Brian Cox (of Succession) plays the ghost of Adam Smith, come back to haunt the hubric Fred “the Shred” Goodwin, CEO of RBOS.

What a time the Global Financial Crisis was… and there are critical lessons for today about how to manage banking, finance and the true meaning on Capitalism…

I met Goodwin a number of times. He was not an extraordinary character – he exuded negativity. Back in 2007 I was head of the financial institutions group at a leading UK bank, but I’d met him earlier while he was CFO of RBOS. Dull, monotone and utterly convinced of his own immense wisdom and the inherent stupidity of all others – his staff appeared scared of him. I am told he never had to raise his voice or threaten, he just exuded menace and superiority.

Moreover, he was exactly the kind of accountant/technocrat that had floated to the top echelons of British Banking by the 2000s, after the glories of the post Big Bang era when London based finance dominated global markets. Back then, there were still smart, clever British bankers travelling the world, winning deals and innovating new financial products and markets. But there were the lawyers, accountants, regulatory specialists, clerks and other managerial busybodies who’d risen to prominence by “managing” these movers, doers and shakers who made banks their money.

They became a stultifying nomenklatura of C-suiters who understood how to play tax games, game office politics, to structure a balance sheet, read the small print, and meet the esoteric exactitudes of satisficing the FCA and Bank of England in the sticky mess of regulatory treacle the UK’s financial service regulators allowed to develop for 2008 to stop the GFC crisis repeating itself. Risk taking was punished – my generation of 1980s trained traders, fund managers and investment bankers were seen as the dangerous financial radicals who were responsible for the MBS, Credit Derivative, and CDO omnishambles. Most of us were pushed out.

Following the crisis, American Banks were smarter, more nimble, and moved more quickly. They seized the opportunity to expand and dominate global markets – look at the sheer invisibility of UK banking and financial firms in today’s market to understand who won and lost. Today, London’s financial markets are a mere shadow of their former selves, brought low by unimaginative management, bureaucracy, over-regulation, and getting rid of the skills sets of risk that make finance profitable.

The second point of the RBOS saga is where the Ghost of Adam Smith makes his mark. Goodwin, and a thousand other senior bank managers I’ve met through my career, justify their success in the service of capitalism. I doubt many have actually read The Wealth of Nations – certainly not Donald Trump. More to the point, few will even have heard of Smith’s other book; The Theory of Moral Sentiments.

Taken together Adam Smith’s works, as the founder of modern economics, describe a successful economy not in terms of rising wealth inequality, corporate success being measured in the number of staff sacked to be replaced by AI, or the huge wealth of founders and CEOs, but presents a vision of balanced, successful, even sustainable economies and businesses – where all share in the upside and have purpose. I believe Adam Smith would have been a subscriber to Stakeholder capitalism, and would have had little truck with the likes of Goodwin, et al.

I would recommend the following from TTOMS:

“This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments.”
― Adam Smith, The Theory of Moral Sentiments

More on Ukraine and market implications to follow.

Bill Blain

CEO – Windshift Capital

Author – The Morning Porridge

Partner – Shard Capital