Well that didn't take long

When the 'LIBOR fixing' story broke, I immediately wondered who else stood to benefit from lower interest rates. The government was my conclusion and so I tweeted my thoughts but no more. Today I read in the Mail that:

'Leaked documents last night brought the interest-rate fixing scandal that has shaken Britain's banks closer to the heart of the last Labour government. They suggest that Baroness Vadera, a former Cabinet Office minister and one of Labour's chief economic advisers, told officials in 2008 that bringing down the rates which determine how much banks lend to each other would be 'a major contribution to the stability of the banking system and to the health of the economy'. A paper prepared by the peer with former colleagues at the bank UBS was headed 'Reducing Libor' – the name for the inter-bank lending rate at the centre of the scandal. The document was circulated among officials and Lady Vadera's ministerial colleagues at the height of the credit crunch in 2008 and concludes: 'Getting Libor down is desirable.' But the briefing note was prepared only days after Barclays boss Bob Diamond, who is fighting to save his job after traders at the bank were revealed to have made millions by fixing the rate, discussed the issue with Bank of England deputy governor Paul Tucker.'

As far as I am aware nothing, so far, points to Lady Vadera or her bosses Gordon 'light touch' Brown and Ed 'bully boy' Balls in any way requesting LIBOR rates be lowered artificially. However it is worth asking if this document shows how keen the labour government was to keep Libor then if/how that concern was communicated to bank bosses and how did they respond.

The one hundred and thirty-seventh weekly "No Shit, Sherlock" award

This week's award goes to Sky News, The Guardian and the head of a bank for combining to produce this Tweet & article:

'GUARDIAN FRONT PAGE: The head of a leading bank warns of repossessions if rates interest rise #skypapers http://twitpic.com/5hsx7h'

A rise in interest rates will cause a rise in repossessions - "No shit, Sherlocks"

"Best placed" economy?

Alex Masterley informs us that:

"The International Monetary Fund has just listed the UK as the country "most susceptible" to having its economic recovery derailed by a lack of credit in its global financial stability report.

The Fund says there aren't enough domestic resources to finance government borrowing and private sector credit, and that funding gap would represent about 15 per cent of national income in the UK during 2009 and 2010, compared with 2.4 per cent in the US and 3 per cent in the eurozone. This year the Bank of England has filled the gap with its £175bn programme of quantitative easing, creating money out of thin air to buy assets, predominantly government bonds.

"In terms of regional vulnerability, the United Kingdom appears most susceptible to credit constraints under our stylised scenario, given its significant reliance on the banking channel and the projected sharp decline in domestic bank balance sheets, as well as substantial public financing needs," says the IMF.

The choice for is either or all of

* more quantitative easing, in which case expect the value of sterling to drop further, making imports and the cost of living more expensive for all,
* drastically less spending by government and the private sector, but mostly current spending by government because that is where the biggest shortfall and hence most of the funding gap arises, which will hit the public sector worst immediately but damage the prospects of UK business through lack of investment and will keep unemployment high; or
* much higher interest rates to attract foreign lenders to put their money into sterling, in which case businesses and homeowners get it in the neck and few new jobs will be created.

Either way you are probably screwed. Sounds like the scrag end of the last Labour government."

I couldn't have put it better mysepf Alex, so I didn't!

Gordon Brown's word is hardly the law is it

Gordon Brown and his cabal consistently call on banks to pass on interest rate cuts which is why I was not that surprised to read the news that:

"RBS/NatWest will not pass on the latest cut in the Bank rate to its variable rate mortgage customers.

The bank, which is majority owned by the taxpayer, said it had to consider savers too and its standard variable rate (SVR) was already competitive. "

Gordon Brown, his word is law - pah!

"The Bank relies too much on interest rates to control the economy"

The BBC report an interview with deputy governor of the Bank of England Sir John Gieve. The interview is with the BBC business editor Robert Peston and Sir John Gieve informs us that:

"the Bank knew "crazy borrowing" was taking place and the price of houses and other assets was rising unsustainably.

But the Bank thought this problem was less serious than it turned out to be....

The Bank relies too much on interest rates to control the economy, he added.

...

In the interview with BBC business editor Robert Peston, he said interest rates were "a blunt instrument", because they affected the whole economy."

Just remind me who decided that the Bank of England would be responsible for setting interest rates and giving them few other control mechanisms... Was it by any chance Gordon Brown? Should he not be held responsible?