Are You Listening Obama?!

On th UK Telegraph: Mervyn King: bail-outs created 'biggest moral hazard in history'

• Mervyn King: bail-outs created 'biggest moral hazard in history'
  The Governor of the Bank of England on Tuesday night launched his fiercest attack yet on big banking
  
  By Edmund Conway
  Published: 9:58PM BST 20 Oct 2009
  
  Mr King indicated that high street banks could and should be separate from their risky investment banking wings and calling for a reconsideration of the financial system's structure.
  
  In comments which will be seen as a clarion call for a potential break-up of Britain's banks, the Bank of England Governor warned that the support handed out by the Government had "created possibly the biggest moral hazard in history". He said that it was insufficient to expect that in the future tighter regulations alone would be enough to prevent banks from generating financial crises.
  
  The warning goes against the grain of efforts by Governments on both sides of the Atlantic, which have tacitly ruled out splitting up the biggest banks and opted instead to scrutinise them more actively. Mr King, who said earlier this year that if banks are "too big to fail, then...they are too big," said that there is a risk the financial crisis comes and goes but the current system, in which big banks enjoy an effective guarantee from the state, remains.
  
  In a speech in Edinburgh, he said "It is in our collective interest to reduce the dependence of so many households and businesses on so few institutions that engage in so many risky activities. The case for a serious review of how the banking industry is structured and regulated is strong."
  
  He added: "The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion," adding: "It is hard to see how the existence of institutions that are 'too important to fail' is consistent with their being in the private sector."
  
  Experts have said that one lesson is that banks with large household deposits should not be allowed to practice the risky trading which, ultimately, led to their near-collapse, since this leaves the entire economy at risk. However, neither the Government's White Paper on financial regulation nor the Conservatives' plans proposed breaking up Britain's four big banks into utility style high street outlets and riskier investment banking arms.
  
  Although he stopped short of calling for an immediate break-up, Mr King said: "There are those who claim that such proposals are impractical. It is hard to see why."

Well at least there's another person out there that recognise the insanity of the current financial world!

Are you listening Obama?

hereis the CNBC version: http://www.cnbc.com/id/33408782#

• ..... King said the use of taxpayers' money to prop up banks had created "possibly the biggest moral hazard in history" since institutions had an incentive to take risks if they were confident they would be bailed out.
  
  "It is hard to see how the existence of institutions that are 'too important to fail' is consistent with their being in the private sector," King said. "Encouraging banks to take risks that result in large dividend and remuneration payouts when things go well, and losses for taxpayers when they don't, distorts the allocation of resources."
  

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Bank Of England Now Free To Print Extra Money!!

Here's an interesting posting on UK Telegraph: Reform plan raises fears of Bank secrecy

Bank secrecy? Banking without transparency?

This is what the author has to say.

• By Edmund Conway, Economics Editor
  Last Updated: 7:01AM GMT 12 Jan 2009
  
  The Government is set to throw out the 165-year old law that obliges the Bank to publish a weekly account of its balance sheet – a move that will allow it theoretically to embark covertly on so-called quantitative easing. The Banking Bill, which is currently passing through Parliament, abolishes a key section of the law laid down by Robert Peel's Government in 1844 which originally granted the Bank the sole right to print UK money.
  
  The ostensible reason for the reform, which means the Bank will not have to print details of its own accounts and the amount of notes and coins flowing through the UK economy, is to allow the Bank more power to overhaul troubled financial institutions in the future, under its Special Resolution Authority.
  
  However, some have warned that it means: "there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses."
  
  It comes after the Bank's Monetary Policy Committee cut interest rates by half a percentage point, leaving them at the lowest level since the bank's foundation in 1694.
  
  With the Bank rate now at 1.5pc, most economists suspect the Government and Bank will soon be forced to start quantitative easing – directly increasing the quantity of money in the economy – in a drastic attempt to prevent a recession of unprecedented depth.
  
  Although the amount of easing is likely to be limited, news of this increased secrecy will spark comparisons with Weimar Germany and Zimbabwe, where uncontrolled use of the central banks' printing presses ultimately caused hyperinflation.
  
  The Bank said it will still publish details of its balance sheet, but, significantly, the data – the main indicator of the extent of quantitative easing – will not be presented until more than a month has elapsed. For instance, under the new terms of the law, if the Bank were to have embarked on a policy of quantitative easing last month, the figures on this would not be published until the end of this month.
  
  The reforms, which are likely to be implemented later this year, will make the Bank of England by far the most secretive major central in the world, experts said.
  
  In the US, where the Federal Reserve has already cut rates to close to zero and started quantitative easing, the main way to track its purchases of securities and the expansion of its balance sheet is through precisely these same weekly accounts.
  
  "Quite why the Bank has to keep its operations so shrouded in secrecy is a mystery to me," said Simon Ward, economist at New Star. "This [reform] will make it much more difficult to track what the Bank is doing."
  
  Among the details which will no longer be published are those revealing the extent to which London's banks are using the Bank's deposit facilities – a yardstick of pressure in the financial system.
  
  Debating the issue in the House of Lords recently, Lord James of Blackheath, a Conservative peer, said: "Remove [this] control and there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses.
  
  "If we went down that path we would be following a road which starts in Weimar, goes on through Harare and must not end in Westminster and London. That is the great fear that the abolition of that section will bring about – but the Bill abolishes it."

Oh Lord!

Banking without any transparency???

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Bank Of England Cut Rates Again!

And the cuts continues: Bank of England Cuts Rates to Record Low of 1.5%

• The Bank of England cut interest rates by half a percentage point on Thursday to a record low of 1.5 percent as it battles to keep Britain from falling into a deep slump, and experts say borrowing costs will fall again next month.
  
  British interest rates have now fallen by 3.5 percentage points since October as policymakers caught on the hop by the severity of the downturn pull out all the stops to revive an economy facing its first recession since 1992.
  
  Rates in Britain never fell below 2 percent even during the Great Depression of the 1930s, underlining the scale of the current crisis hurting economies all around the world. In the United States, rates now range between 0 and 0.25 percent.
  
  Economists said the BoE would cut again next month and interest rates could even fall below 1 percent, perhaps alongside a signal they would stay very low for a very long period of time.
  
  "They are still in cutting mode but have taken their foot off the gas this month," said Alan Clarke, UK economist at BNP Paribas.
  
  The pound, down 15 percent against the euro since the BoE started its aggressive interest rate campaign in October, rose after the decision as many in the market had been pricing in a bigger move after the last month's 1 point reduction.
  
  Short sterling interest rate futures also turned negative as markets priced in less aggressive monetary easing ahead.
  
  The BoE itself gave little indication on what it would do next, besides saying that while the fall in sterling, and recent tax and interest rate cuts would boost activity this year, there was still a risk inflation would fall below its target unless rates came down from 2 percent.

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