Zak Mir on The Fawlty Towers Of Threadneedle Street

3 mins. to read

One of the biggest rises ever seen in the FTSE 100 came in the wake of the then new Chancellor of the Exchequer, Gordon Brown, giving “operational” independence to the Bank of England. For those who do not wish to look up the word “operational” in this context it actually means “not”.

The reasons for the stock market celebrations soon after the General Election in 1997 was that a new “New Labour” Government giving the Bank of England the chance to decide interest rates would call an end to the financial instability very often associated with a socialist “economic policy” of taxing too much, spending even more, and generally rewarding failure. Highlights of this approach include the 1967 “pound in your pocket” devaluation from Harold Wilson and the 1977 Denis Healey trip to the IMF for a Greek style bailout. Yes, your country can still go bust even with your own currency and even without being able to blame the EU or immigration.

But getting back to the Bank of England. It is perhaps no coincidence that shortly after Gordon Brown, the man who sold the UK’s gold reserves at the bottom, put the Bank of England at the helm, we led the world to a banking bust. Again, we can’t blame the EU or anyone else for that either.

Our friends in Threadneedle Street provided in 2007 -2008 one of the best examples of anyone, anywhere being asleep at the wheel.

To be fair, albeit reluctantly, I am sure that they would not have believed that anything so dire as multiple banking failures would happen on their watch. Nevertheless, the coincidence of this shadowy, club like institution with mysterious entry requirements and no performance criteria taking over and things going pear shaped so soon after does standout.

Why? The appointment process seems to be akin to getting into Oxbridge in terms of intrigue, and it helps who you know. Although, apparently, there are a proportion of people on the MPC who follow the contemporary politically correct  formula with regard to hiring. However, the BoE seems duty bound to employ people with no necessarily relevant previous experience, as well as token demographic candidates having no aptitude whatsoever. They are however allowed to learn on the job, something which they have plenty of time to do currently as interest rates have been static for years.

That said, the events of 7 years ago cannot be blamed on the Canadian Bank of England Governor, Mark Carney, who was apparently hired to be “operationally” independent, off the back of being a friend of George Osborne, and presumably because he likes chillaxing as much as David Cameron – something we have seen in the wake of the “forward guidance” policy biting the dust.

What the financial press have revealed now, to start 2015, is that the economy’s problems were deliberately hidden until the moment the BoE actually had to step in and rescue it. This came just months after The Threadneedle Gentleman’s Club had been patting itself on the back about how robust the financial system under its control was. Once the collapse came this “operationally” transparent organisation met in a secret emergency committee called Transco. The members of this committee were apparently not concerned about massive hikes in public debt which would be required to clear up the mess they had created.

But what is the worst aspect of all of these Kafkaesque revelations?

The complacency, the collapse, the incompetence? I would suggest none of the above. The worst is that it has taken four years for this to be extracted into the public domain. The only thing worse than no democracy with no flow of timely information, is one with a delay, if only on the basis that there could have been a second financial crisis in the meantime and none of the lessons learned could be applied. Cost is rarely a factor when it comes to saving reputations.

I would venture to suggest that longstanding and suffering shareholders of RBS (RBS) and Lloyds Banking (LLOY) will be very interested in what happened all those years ago, and will have fresh material for any legal action which they are likely to take, but of course very unlikely to win. It is almost impossible to sue a bank, hence the reason we have regulators. But that is another story.

In the meantime, I have one final gripe with the Bank of England. Can we sort out the two week delay on the minutes of the MPC? A press conference after their meeting finishes would be far more appropriate to the requirements of the 21st Century.

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