RBS – slimming down at last

 

As one of the few opponents of Mr Brown’s purchase of most of the shares in RBS I would like to look five years on at the way RBS has progressed since the crisis.

I advocated the UK authorities giving limited support through loans and guarantees to the UK clearing bank parts of RBS that needed support to prevent a wider collapse. I had in mind the kind of controlled administration or living will approach which the authorities now say they will adopt if there is a future similar crisis. I thought it was quite wrong to put so much taxpayers money at risk, wrong for taxpayers to finance a bank which was undertaking large amounts of investment banking business and paying huge salaries and bonuses to its staff. I wanted RBS to be forced to sell off its insurance and overseas banking arms, and slim or sell its investment bank, as part of its response to the crisis.

Instead Labour took over the conglomerate, appointed a new Chief Executive, and told him to run it as an integrated group. Taxpayers enjoyed quarter after quarter of heavy losses. The Group was reduced in size drastically, as they closed down business activities and wrote off large quantities of loans that had gone wrong. No wonder the UK economy did not make much progress 2010-12, as its largest bank was cutting its balance  sheet by more than  £600 billion.

Now the  management seems to agree with much of the approach I have advocated, splitting up what was never a natural integrated business. They are in the process of selling Citizens, the US bank. They have sold the insurance interests. They have slimmed down the Investment bank and wish to concentrate on the main UK clearing bank business. The last quarter saw some profit at last for the ill served taxpayer shareholders. There is talk of a dividend later this year.

The Bank of England should never have left the wholesale markets so short of cash as they did during the crisis. It exposed weaknesses in this large bank too drastically, and increased the likelihood of major losses. Once the bank was brought down by the lack of funds in the market, the government should not have leapt in to buy the shares. It has been a long battle to get more to understand that in such a crisis the government and Bank should act as a lender of last resort and a guarantor of the crucial parts of the financial system, but should not take on a whole rambling conglomerate with a failed business model and put taxpayers money into shares.

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36 Comments

  1. Lifelogic
    Posted May 15, 2014 at 6:03 am | Permalink

    Indeed.

    The government rescued the bank but the bank still demanded loans back (or imposed expensive terms) from perfectly health customers. Customers who were never a risk, and who were often part way through sensible developments. This forced the customers to slow down, fire people and sell assets they did not want to just to repay perfectly sound loans to the bank. Other had margins hugely increased and lending terms made much more onerous. The bank was just looking for any excuse to call loans in. The government rescued the bank but the bank still persecuted sound customers it was the customers that needed protecting. This was the government shooting itself in the foot with the recession machine that was a cash starved RBS/Natwest/Coutts (needing repayment? ed) from sound industry and businesses and destroying confidence.

    The real problem is that directors are not under sufficient control from shareholders they can and do run companies into the ground and help themselves to huge fees, pensions and options for doing so.

    There is a parallel problem with politicians and voters lack of power. Politicians giving away powers that are simply not theirs to give away. Saying one thing while doing the complete opposite.

  2. Mike Stallard
    Posted May 15, 2014 at 6:18 am | Permalink

    Luckily I do not have money in RBS.
    Also I know nothing about banking.
    My only worry is this: what happened to all those mortgages tied up as bonds in the 2008 crash? When things just disappear into thin air, it worries me. Is the RBS the holder of a lot of worthless mortgages?

    • Lifelogic
      Posted May 16, 2014 at 8:24 am | Permalink

      It was more of a problem for people borrowing from Natwest, RBS who were treated very badly by them in my experience.

  3. Jennifer A
    Posted May 15, 2014 at 6:25 am | Permalink

    Here we have an example of government interfering in one vital ‘industry’ when a real industry and one which actually makes things (another world beater – and we all seem to know how important it is to manufacture our way out of this economic fix) is left unguarded and up for grabs.

    Is the UK really going to be successful on the back of lots of small start-ups while we lose major manufacturing which has taken decades, sometimes centuries to establish ?

    In banking, in order to be competitive, we must pay people millions in bonuses (so they tell us.) Quite the reverse to virtually every other job in which we are told wages must be cut to compete with the rest of the world. Bear in mind bankers helped bring us to the brink for all their ‘brilliance’.

  4. margaret brandreth-j
    Posted May 15, 2014 at 6:45 am | Permalink

    Was the reason for taking RBS on, one of lost jobs against a potential slimming down or was it due to the fact that the recovery ,which did not eventualise, may increase the value of the government shares, or was it a deliberate stripping of assets for the business market / individuals whilst they were able to

    When businesses are hanging on to the last threads, they convince the financial institutions that there is to be a recovery and a blip has occurred in the current state of affairs. Money is removed and placed elsewhere , the businesses fail ,loans and much more than was originally owed can be taken out by all ( in for a penny in for a pound) and proceed to liquidation and bankruptcy and leave others to pay the debts off, who in this case is the tax payer.

  5. Gary
    Posted May 15, 2014 at 6:54 am | Permalink

    But cash IS debt! In this system cash is created out of thin air only when a loan is made. The system collapsed in 2008 because the productive economy could no longer service the level of debt. Adding more cash would just add more of what created the problem : too much debt.

    And nothing has improved since then, it has got worse. There is more debt now. The non-solution to 2008 debt overload crisis was to issue another credit card called QE. Debt on steroids.

  6. Richard1
    Posted May 15, 2014 at 6:54 am | Permalink

    There is no doubt that you and the very few others who opposed the Brown bank bailout have been proved right. History will judge the £70bn bank bailout by Labour the greatest single economic error in UK history, due to the losses taxpayers will suffer and the effect on the economy. The lesson is banks do not need special treatment beyond access to the central bank as lender of last resort. Shareholders and creditors will have to bear losses from bad strategy and management, and leverage ratios will have to be set by banks with this in mind.

    It would be nice to have some recognition of this and apology from Messrs Miliband and Balls who were intimately involved in the bailout decision.

    • Lifelogic
      Posted May 15, 2014 at 6:08 pm | Permalink

      I am not sure about the £70bn bank bailout by Labour being “the greatest single economic error in UK history”

      The total for Bliar’s counter productive wars in Iraq, Afghanistan, and Pakistan is at least $3.2-4 trillion including the US costs. Even the bonkers (but only 6? MPs against) climate change act may well exceed the £70bn in total in the end.

      Yet Cherie Blair accuses Piers Morgan of having “no moral compass”. At least Morgan was sound on Blair’s counter productive and losing war on a Blatant lie. (words left out ed) It is socialism that lacks a moral compass, all that politics of envy and the buying votes with promises of money from the magic money tree.

  7. Denis Cooper
    Posted May 15, 2014 at 7:03 am | Permalink

    It may be recalled that RBS and other banks and financial institutions had large volumes of so-called “toxic assets” on their books, which if shown at their current market values would have meant that they were bust. It may also be recalled that when Darling and the Bank of England started talking about “unconventional measures”, “quantitative easing”, the first explanation disseminated through the mass media was that the Bank would use newly created money to buy up those “toxic assets” and remove them from the financial system; but within weeks it became clear that virtually all the new money was instead being used to buy up sound assets for which there was still a highly liquid market, gilts, and that the real purpose was to rig the gilts market so that the government could continue to borrow and so continue fund its massive over-spending during the year leading up to the general election without any need to make the drastic and hugely unpopular cuts seen in some other countries. Personally I felt that it would have been better to use the new money to capitalise a state-owned Resolution Bank which would do what was originally advertised as being the purpose of “quantitative easing”, removing dodgy assets from the financial system, so they could later be gradually sold off for the best prices obtainable in the market. But of course that would have done nothing to save the Labour government from running out of money to pay its bills; to do that the Bank had to buy assets that the Treasury was selling, not “toxic assets” or corporate bonds or property, but gilts. The fact that hardly any of the electors understood this when they voted in May 2010 – indeed five years on it is still not widely understood – was probably the greatest single reason why we ended up with a hung Parliament and a coalition government rather than a Tory government with an overall majority.

  8. Gary
    Posted May 15, 2014 at 7:09 am | Permalink

    How are the authorities attempting to service the debt? They are plundering savings. They are raiding any source of equity they can find. If not on a large enough scale already, they are talking about making negative nominal rates on savings. Real rates on savings are already negative. ie The saver pays the bank interest to have a deposit sitting at the bank. This is all an attempt to create demand in the economy through increasing consumption to try and grow the economy to service the growing debtberg. Like a dig chasing its tail, it wont work. You may get some short term boost, and then the hangover is worse than before. Eventually the patient dies of overdose, or in another metaphor, when all the family silver has been pawned the family is homeless in the gutter.

  9. A.Sedgwick
    Posted May 15, 2014 at 7:17 am | Permalink

    Quite so, as many of us wrote at the time, following your lead, RBS should have been run as if in adminstration, another case of the blindingly obvious or wilful blindness.

  10. Denis Cooper
    Posted May 15, 2014 at 7:23 am | Permalink

    Off-topic: having seen the Tory MP Mark Reckless on TV saying that the Labour Force Survey is a completely unreliable indicator of the number of Romanians and Bulgarians working in the country, and if there had been just five more Romanians or Bulgarians in the panel, 80% of which was chosen last year, then their reported numbers would not have gone down over the first quarter of this year, I thought I’d check the original data if I could.

    I’ve not yet been able to confirm what Mark Reckless said, but my eye was drawn to the note below the table on page 54 here:

    http://www.ons.gov.uk/ons/dcp171778_361188.pdf

    “The estimates shown in this table relate to the number of people in employment and should not be used as a proxy for flows of foreign migrants into the UK.”

    Which of course is exactly what some politicians and the press have been doing.

    • ian wragg
      Posted May 15, 2014 at 10:56 am | Permalink

      Denis, I don’t think anyone in Britain trusts the government figures on Immigration.
      Todays paper acknowledges that immigration to March is 300,000 net. probably double that gross. As Nigel says, it matters not where they come from. As for growth, it would be bizarre if we didn’t have some growth with the population growing by half a million each year. The only thing is it is unsustainable in the long term.
      Per capita income is some 10% down on average from 2008 which is what matters.
      A good slice of what the immigrants earn is remitted home and is of no use to our economy.

    • stred
      Posted May 15, 2014 at 2:31 pm | Permalink

      Given that the need for a permit ceased early this year and that any Romanian or Bulgarian can enter the UK and then find word informally, much of which may be in the cash economy, it seems odd that any statistics can be produced at all. If the stats were reliant on very small numbers and compared with a different set of figures using permit numbers, the need to discredit UKIP must have been truly desperate.

    • Lifelogic
      Posted May 15, 2014 at 6:11 pm | Permalink

      There is an election in a few days, so it is several anti UKIP lies, attacks, mud slinging a day from the Tories and the dreadfully biased BBC.

      No one believes a word from either of them.

      • Hope
        Posted May 16, 2014 at 8:04 am | Permalink

        Guido Fawkes highlights a lot of Lib Dem politicians who not fit for office. Worth a read.

  11. oldtimer
    Posted May 15, 2014 at 8:00 am | Permalink

    But the NatWest takeover reflected the Labour way of thinking – namely that it knows what is best for business and should employ the power of the state to enforce that view. It also prompted Mr Brown to suspend competition rules to push Lloyds Bank into an unwise acquisition. Nothing changed from its previous disastrous interventions in business such as Wilson`s promotion of the Leyland-BMH merger or, in its latest guise of Miliband`s “promise” to freeze energy prices.

  12. Bert Young
    Posted May 15, 2014 at 8:32 am | Permalink

    Brown’s decision to fund RBS as an on-going integrated entity was yet another reason why individuals at the top of “Politics” should have relevant commercial/industrial experience before becoming a politician . The gulf between across the counter banking and merchant banking was , and remains , a very wide one . The background and skills required in these two main banking sectors are very different and have never sat comfortably under one umbrella . RBS was allowed to spread its wings well beyond any of its supervisory skills entering various sorts of markets hoping and believing the acquired management would maintain the disciplines and standards of its past . Any analyst could see what would happen and Brown made a colossal mistake . The Vickers report has flashed up the weakness of the two sides of banking existing together under a common shareholding and made strong recommendations on keeping them separate . By now all of these recommendations should be in place and the public safely isolated from further risk .

  13. MickC
    Posted May 15, 2014 at 8:51 am | Permalink

    You are absolutely right.

    Your Party’s support for Brown’s “solution” to the crisis was a huge error.

    Regrettably, Osborne has continued to demontrate his poor economic judgement.

  14. Julie Innis
    Posted May 15, 2014 at 8:55 am | Permalink

    What I find a bitter pill to swallow is my neighbour retired from RBS aged 50 on a final salary pension with a 4-5% increase year on year. He and his wife go on holiday every month whereas thanks to the politicians and the banks, my husband’s private pension when he reached retirement age three years ago was half of what it should have been and to get the best of bad deal it is non-index linked so will never go up in value, only down. We can’t afford to go on holiday once a year, never mind once a month.

    The only ones that don’t seem affected by their incompetence are the politicians and the bankers. Meanwhile, the rest of us in the real world, the private sector part of it anyway, seem to be the only ones paying for their folly.

  15. formula57
    Posted May 15, 2014 at 9:21 am | Permalink

    Coincidentally, Robert Reich in his latest blog post commenting on Geithner’s new book concludes “We’d have done better had we forced the biggest Wall Street banks, including the giant insurer AIG, to reorganize under bankruptcy rather than bail them out.”

  16. Ashley Mooney
    Posted May 15, 2014 at 9:54 am | Permalink

    How much have we lost?

  17. Colin
    Posted May 15, 2014 at 10:34 am | Permalink

    “The last quarter saw some profit at last for the ill served taxpayer shareholders. There is talk of a dividend later this year.”

    This sort of talk annoys me. The shares are not owned by taxpayers, they are owned by the government. The government bought them with taxpayers’ money, which it took from us by force. Any dividend will be paid to the government. When the shares are sold, the government will keep the money. It will then waste that money, as usual. There will be no return to taxpayers on “our” investment.

  18. Terry
    Posted May 15, 2014 at 10:45 am | Permalink

    Labour were completely out of their depth when the crunch occurred so they relied upon the expertise of the BoE, who were only too willing to ensure their colleagues in the Banking sector did not go short. It also presented them a lifeline to repair their badly damaged balance sheets caused by dodgy loans to financially insecure borrowers across Europe.
    The BoE took Labour-run Downing Street by the short and curlies and the rest is history.
    I bet they couldn’t believe their luck when in 2010, along came naive Osbourne who, against his pre-election anti-QE protestations, sheepishly followed the same disastrous line. It is not over until the fat lady sings and she is not yet on stage. But a bigger disaster is still around the corner.

    QE has done little to lift GDP but greatly rewarded the debtors, the bankers and the rich. Us pensions have been hit for six by the damaging ultra low interest rates conjured up by QE. Of course, when it comes to bankers bonuses et al, the dire state of OUR personal balance sheets are forgotten. We are not important enough to be considered.
    There is no doubt that the new manager at the main Threadneedle St branch is hiding us from the truth of the state of the UK’s finances. He is refusing to raise interest rates, despite insider warnings that the housing bubble is now pumping up. Low interest rates = high borrowings= increased debt. How will it all be paid when when the interest rates rise by several percentage points?
    It will all end in tears but as usual, nobody in authority will accept any blame nor take suitable punishment for the damage they have done. Instead, we, the public will take the hit again. Only this time it will not be so easy to overcome.

    QT: How could the government/BoE fund the wholesale market? It is too big. And how could we fund another huge credit crunch without affecting the pound and the International bond markets?

  19. Peter Lloyd
    Posted May 15, 2014 at 11:01 am | Permalink

    So few understand this but the Bank of England should have done and it played a full part in generating the obscene cost to taxpayers and was, as said, dangerously tardy in supplying the required liquidity.

    The governor failed to understand the situation and was stubborn to a fault. It didn’t stop him getting a knighthood in 2011 and peerage in 2013. One thing which has worked very well throughout the crisis, and subsequently, is blame deflection.

  20. Neil Craig
    Posted May 15, 2014 at 11:09 am | Permalink

    In retrospect you were clearly right John. I must admit, though not a fan of bail outs, I fell for the assurances that we would get the money back (mostly) and that it would prevent rioting in the streets as holes in the wall stopped working. I should give less credit to those in charge.

  21. Lifelogic
    Posted May 15, 2014 at 1:00 pm | Permalink

    More BBC think nonsense from Costing the Earth on radio 4 the other day. Not content with wasting billions on expensive intermittent wind and PV they now want to wast millions more on electricity storage that these intermittent technologies need.

    They go on about lack of investment in electricity storage systems- well yes there is a lack of investment because if make little sense and wastes from 20 – 60% or so of the energy in the process. So we generate it with “renewables” at say 4 times its value then store it and waste half. Thus 8 times the cost of plentiful on demand methane produced electricity. The economics of the mad house or green crap lunacy.

    The idiotic basic BBC assumption that we must have more far “renewables” and thus far more wasteful storage systems is never addressed by the BBC at all. It is just assumed to be a given religious truth -despite all the science to the contrary.

  22. forthurst
    Posted May 15, 2014 at 1:48 pm | Permalink

    Before Gordon Brown had been able to save the Galaxy, he had received advice from bankers some of whom had been instrumental in furnishing European banks with derivatives composed of dubious loans to dubious borrowers.

    When a similar situation had occured in the US, Congress was given twenty four hours to save Wall Street by agreeing that the private secret FED owned by Wall Street would be enabled to bale out Wall Street by indebting the US taxpayer by an amount substantially in excess of the figure plucked out of the stratosphere by the Treasury Secretary.

    The method of indebting the British taxpayer in order to invest in bankrupt British banks had two major benefits: it did not draw attention to the fact that unlike the private secret FED, the Bank, not being privately owned, could have stepped in to resolve the immediate problem of bank indebtedness and freezing of interbank lending without damaging the taxpayer. The other benefit was that it prevented a forensic examination of the provenance of some of the of the derivatives and loans on the banks’ balance sheets which controlled adminstrations would surely have entailed.

    The Bank was concerned with moral hazard whilst the FED has gayly leveraged it balance sheet 80:1 by surrepticiously acquiring Wall Street’s and their European bank victims’dubious assets, thereby preventing an international row and demands that banksters should go to jail as well as in pursuit of QE and other such schemes to maintain the tranference of wealth from producers to the useless eaters of Wall Street.

    The Bank should have been instructed to sort out the mess which it in part created; it is the central bank and that is its responsibility and function.

    Reply The Fed is an arm of the US state subject to full scrutiny by Congress and working with the Administration to implement state policy.

    • forthurst
      Posted May 17, 2014 at 4:15 pm | Permalink

      “Reply The Fed is an arm of the US state subject to full scrutiny by Congress and working with the Administration to implement state policy.”

      “The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression”

      “The non-partisan, investigative arm of Congress also determined that the Fed lacks a comprehensive system to deal with conflicts of interest, despite the serious potential for abuse.” etc etc

      http://www.sanders.senate.gov/newsroom/press-releases/the-fed-audit

  23. Iain Gill
    Posted May 15, 2014 at 2:05 pm | Permalink

    Its not just the state owned banks, its the whole approach to the management of the financial system, such as the way interest rates have been manipulated down to rob from savers and prop up an already over priced housing sector.

  24. stred
    Posted May 15, 2014 at 2:34 pm | Permalink

    Also, there is joint action by bankrupted SMEs on the way with accusations of rug pulling and asset stripping. The figures go into billions.

  25. Brian Tomkinson
    Posted May 15, 2014 at 3:10 pm | Permalink

    Very important report in this afternoon from the Telegraph under the heading:
    ” EU officials plotted IMF attack to bring rebellious Italy to its knees “, Ambrose Evans-Pritchard reveals:
    “Tim Geithner recounts in his book Stress Test: Reflections on Financial Crises just how far the EU elites are willing to go to save the euro, even if it means toppling elected leaders and eviscerating Europe’s sovereign parliaments.

    The former US Treasury Secretary says that EU officials approached him in the white heat of the EMU crisis in November 2011 with a plan to overthrow Silvio Berlusconi, Italy’s elected leader.

    “They wanted us to refuse to back IMF loans to Italy as long as he refused to go,” he writes.

    Geithner told them this was unthinkable. The US could not misuse the machinery of the IMF to settle political disputes in this way. “We can’t have his blood on our hands”.

    This concurs with we knew at the time about the backroom manoeuvres, and the action in the bond markets.

    It is a constitutional scandal of the first order. These officials decided for themselves that the sanctity of monetary union entitled them to overrule the parliamentary process, that means justify the end. It is the definition of a monetary dictatorship.”

    This is the dictatorship your leader wants to keep us imprisoned in!!

    There is plenty more to read here:http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100027284/eu-officials-plotted-imf-attack-to-bring-rebellious-italy-to-its-knees/

  26. acorn
    Posted May 15, 2014 at 5:31 pm | Permalink

    Professor William Black, a US bank regulator, has told the story behind the crash of 2008, and why it will happen again, in his book, “The Best Way to Rob a Bank is to Own One”. Five years later, the evidence says RBS should have been nationalised on day one, with the BoE filling the holes in it with new cash, and sequestering all its assets good and bad, including all debt and equity accounts.

    A BoE Deputy Governor should have taken over management of RBS on day one; (removed ed) the senior management; appointed an Administrator to take over and keep the basic clearing operations of the bank a going concern, backed by the bottomless pit of BoE money. At this point it would look like a subsidiary of the BoE and safe to deal with in the interbank market (which it wasn’t for some time and hence no other bank would lend to it at any price, nothing to do with the BoE).

    You hear a lot of rubbish about the “markets” won’t like it; or, the “markets” will demand this or that interest rate blah blah. No “market” can take on a Central Bank that issues a Soverign currency. The “markets” can only do what the worlds’ Central Bank Governors allow them to do. The proliferation of neo-liberal ideology has merely been a wheeze to let the 1% Elite make huge profits by skimming off the top of the “real” economy that the 99% of us little people live in. This 1% Elite makes the Mafia look like amateurs.

    Have you thought about why the Pound (Stirling) is rising in value at the moment? Is it going up because someone is buying it; yes it is. Would that be for Americans buying Astra Zenica, or Russians buying a £140 million London West End flat, or a load of Eukranians, getting there money into a safer currency? Could it be the Central Banks of countries we import from, buying our currency, to push up its value, to make our imports from that Central Bank’s country, cheaper for us to buy?

    The best way to know how the commercial bank world operates, is for the government to own and operate one. RBS nationalised, would have exposed probably the greatest( banking problems ed) of all time.

    Reply The government and central bank know how the world works and can see for themselves what is going on, as they have large powers to inspect and demand records etc. Your remedy would mean no owner of any asset would be safe in the UK, so why should people come here or stay here if the state simply took over what it wanted for nothing.

    • acorn
      Posted May 18, 2014 at 7:14 am | Permalink

      This procedure would apply to Dealers in the Sovereign currency and reserves; that by normal corporate law standards, are allowed to operate in a permanent state of insolvency, by using a “Mark to Model” valuation system. A system that proved to be pure fiction during 2008/9.

      Nationalisation allows the bank to be wound down while being a 100% backed and risk free to counterparties. Naturally, those that had limited liability would be the last to get paid.

  27. Lindsay McDougall
    Posted May 16, 2014 at 12:37 am | Permalink

    This is a timely airing of this topic. Barclays is trying to reduce its dependence on investment banking without it collapsing, while at the same time reducing its retail banking costs (including closing some branches). This is generally thought to be the right goal but difficult to achieve.

    Liam Halligan’s latest article in the business section of the Sunday Telegraph is interesting. He thinks that there is an element of window dressing in Barclay’s proposals. He again advocates, as he has often done before, full Glass-Steegal separation of investment and retail banking.

    What is interesting this time round is that he quotes an IMF report of March 2014 showing the value of implicit subsidies to large banks under the caption ‘STILL TOO BIG TO FAIL’. The values are US £70 billion, UK £110 billion, Eurozone £300 billion. Mr Halligan comments “UK institutions enjoy by far the most backing compared with the size of their host economy. Such analysis points to the abject failure of post-crisis reforms designed to solve ‘too big to fail’”.

    Since Mr Redwood is an expert on this subject (1) Where does the IMF get its numbers from? (2) Do they refer to past or ongoing implicit subsidies? and (3) Is Mr Halligan right?

  28. Terry
    Posted May 16, 2014 at 4:01 pm | Permalink

    If I am wrong then tell me where.

    Labour were completely out of their depth when the crunch occurred so they relied upon the expertise of the BoE, who were only too willing to ensure their colleagues in the Banking sector did not go short. It also presented them a lifeline to repair their badly damaged balance sheets caused by dodgy loans to financially insecure borrowers across Europe.
    The BoE took Labour-run Downing Street by the shorts and the rest is history.
    I bet they couldn’t believe their luck when in 2010, along came naive Osbourne who, against his pre-election anti-QE protestations, sheepishly followed the same disastrous line.

    QE has done little to lift GDP but greatly rewarded the debtors, the bankers and the rich. Us pensioners have been hit for six by the damaging ultra low interest rates conjured up by QE. Of course, when it comes to bankers bonuses et al, the dire state of OUR personal balance sheets are forgotten. We are not important enough to be considered.
    There is no doubt that the new manager at the main Threadneedle St branch is hiding us from the true of the state of the UK’s total finances. We are £Trillions in debt. He is refusing to raise interest rates, despite insider warnings that the housing bubble is now pumping up. Low interest rates = high borrowings= increased debt. How will it all be paid when when the interest rates rise by several percentage points?
    It will all end in tears but as usual, nobody in authority will accept any blame nor take suitable punishment for the damage they have done. Instead, we, the general public, will take the hit again. Only this time it will not be so easy to overcome.

    QT: John, how could the government/BoE fund the wholesale market? It is too big. And how could we fund another huge credit crunch without affecting the pound and the International bond markets?

    Reply The problem was the authorities lurched from easy money to being too tight, starved the money market of funds and damaged the banks. The Bank could have avoided N0rthern Rock going down if they put more liquidity into wholesale markets through open market operations.

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  • About John Redwood

    John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College, and has a DPhil from All Souls, Oxford. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.
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