Simon Jenkins is uneasy about Quantitative Easing…

“The Bank of England quarterly bulletin is full of QE theology. Its report on a recent conference on the subject is pure angels on pinheads.”

This morning the Bank of England’s Monetary Policy Committee will meet and in all likelihood order another £50 billion of Quantitative Easing, or money printing. This will again be used to buy government bonds, artifically holding down long term interest rates. This deliberate policy is approved by George Osborne and allows the Treasury to finance government over-spending via sales of government gilts to the Bank of England. It robs the old of the value of their savings and the young who will have to finance the future taxation which the government has effectively deferred.

This monetary experiment will have totalled some £375 billion, it is unprecedented in scale and there is no clear exit strategy to unwind QE. The Bank of England’s balance sheet is now loaded up with gilts that were not sold in the open market, holding down interest rates and allowing George Osborne to point to the bond market and claim the UK is a safe haven. In reality we have an artificial bubble in the bond markets that could pop disastrously if confidence was lost. If it goes wrong, we will look back on QE as the biggest rate-fixing scandal of all time.

Downing Street are drawing attention to this email in Barclay’s evidence to tomorrow’s Treasury Select Committee:

Click to Enlarge

“Mr Tucker stated the levels of calls he was receiving from Whitehall were ‘senior’ and that while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.”

As Guido said this morning, you have to distinguish between the nickle and dime LIBOR fixing scandal of traders trying to massage their end of day mark-to-market and the Treasury / FSA / Bank of England policy of fixing LIBOR. Tomorrow Bob Diamond is likely to point out that manipulation of LIBOR rates was in the national interest and sanctioned by Downing Street and the regulators.

Gordon Brown’s Downing Street economic adviser Shriti Vadera was driving the policy…

After resigning as CEO of Barclays this morning, Bob Diamond may yet exact some revenge on the government when he testifies tomorrow in front of the Treasury Select Committee.

There are two LIBOR fixing scandals – the first involves traders massaging the settling of LIBOR rates a few basis points, mere hundreths of a percent, off market reality to flatter their trading books. It appears to have been going on for years and not just at Barclays. This was not so petty corruption.

The second LIBOR fixing scandal is of a different order altogether – it involves the wholesale systematic substantial misrepresentation of true LIBOR, with the encouragement of the Treasury, the FSA and in particular the Bank of England. The policy was to under-report LIBOR rates at much lower levels than were actually trading in the market. This deliberate policy was to cover-up the increased risks to the UK banking system revealed by higher LIBOR rates.

It is emerging that Gordon Brown’s economic adviser in Downing Street, Shriti Vadera, an ex-UBS investment banker, circulated a paper on “Reducing Libor” at the height of the banking crisis, which she argued would be “a major contribution to the stability of the banking system and to the health of the economy”.

That message will have gone out to the Treasury in Whitehall, the regulators and the Bank of England. They in turn will have given a nod and a wink to the investment banks. Bob Diamond is reportedly furious that the “lowballing” of LIBOR rates by Barclays – which was explicitly encouraged by the authorities  to stabilise already panicked markets – is being used against Barclays. Bob Diamond is expected to testify tomorrow that the Bank of England’s deputy governor Paul Tucker encouraged the “lowballing”.

The politicisation and manipulation of interest rates is ongoing even after Gordon Brown and Shriti Vadera are long gone. The £275 billion Quantitative Easing (QE) programme implemented by Mervyn King with George Osborne’s blessing is designed to artificially lower interest rates. We currently have a false market in Gilts, it is arguably the biggest bubble since the South Sea Bubble. It is cheating pensioners and savers of income on an unprecedented scale. This is a robbery organised from within the Bank of England …

Don’t buy a newspaper this morning – it’s already out of date with the musical chairs:

“Barclays today announces the resignation of Bob Diamond as Chief Executive and a Director of Barclays with immediate effect. Marcus Agius will become full-time Chairman and will lead the search for a new Chief Executive. Marcus will chair the Barclays Executive Committee pending the appointment of a new Chief Executive and he will be supported in discharging these responsibilities by Sir Michael Rake, Deputy Chairman.

The search for a new Chief Executive will commence immediately and will consider both internal and external candidates. The businesses will continue to be managed by the existing leadership teams.

Bob Diamond said “I joined Barclays 16 years ago because I saw an opportunity to build a world class investment banking business. Since then, I have had the privilege of working with some of the most talented, client-focused and diligent people that I have ever come across. We built world class businesses together and added our own distinctive chapter to the long and proud history of Barclays. My motivation has always been to do what I believed to be in the best interests of Barclays. No decision over that period was as hard as the one that I make now to stand down as Chief Executive. The external pressure placed on Barclays has reached a level that risks damaging the franchise – I cannot let that happen.”

Diamond has nothing to lose now at tomorrow’s Treasury Select Committee appearance. He’s unlikely to go out quietly…

This is from page 36 of the FSA Notice on the Barclays LIBOR fixing scam:

Robert Peston has identified the senior individual at Barclays to be Bob Diamond and his interlocutor to be Paul Tucker, deputy governor of the Bank of England. If it turns out that, as Guido suspects, the Old Lady was encouraging Barclays to downplay its LIBOR funding costs to help maintain calm, we have a right old regulatory pickle. The Bank was in all likelihood encouraging Barclays to break the rules for the greater good of the City of London…

Hat-tip: Jim Pickard