Thursday, March 7, 2013

(Business) Bank Of England QE program: B of E vote against increasing level of QE programme

The news that the Bank of England will not increase current Quantitive Easing levels of investment should be a cause for praise for members on the monetary policy committee who voted against expanding the £375 billion QE programme but what would have been much news would be the reduction or freezing of the programme all together.

Ever since the financial crisis of 2007-2009, banks across the globe have implemented similar programs of lending cheap money to banks in the hope that it will sink into the real economy but the results, in Britain at least have been less than successful to say the least.
The reason behind why the QE programme has not been a great success  is that what is considered success by its supporters is not really success at all. This is because, contrary to what most media outlet will tell the public,  QE is just a another word for publicly funded corporate welfare ensuring that the taxpayer funds banks that do not lend and are still making very large losses.

The news of RBS still making heavy losses despite the taxpayer being heavily invested in the bank coupled by the reasons behind those losses and the latest news of a computer crash to add to growing list similar instances has left many questions as to why the Bank of England chooses to pump money into banks that are so poorly run to the point that it would make the average observer think they were doing on purpose.

A recent computer malfunction (one in a long line of similar instances) inconveniencing its large base of customer goes to show that RBS are a state as same thing happened less than a year ago  leaving customers unable to   “withdraw cash from ATMs or check their accounts online, customers were also unable to use their card in electronic transactions”[1]The whole debacle has left the bank exposed to “compensation claims” running into millions and has provided another blow to a once proud bank[2].

If the stories do not convince readers of this article (meaning you whoever ‘you’ is) the number will leave no doubt as depressingly:

The bank posted an annual loss of more than £5bn and Stephen Hester, its chief executive, admitted 2012 had been a "chastening" year after its £390m Libor rigging fine. Its total losses since the 2008 bailout have now topped £34bn. However, the bank is still paying out £607m in bonuses in the coming weeks[3]
Seeing that RBS is faltering and looking for a private buyer,  the Bank of England seems to be coming to its senses as Governor Mervyn King in front of the Banking Commission supported  the idea of “full nationalization” of RBS in order  to split the bank “into two: into a “bad bank” of troublesome loans and “good bank” that can make fresh loans to cash-strapped businesses”[4]. While this idea not the worst idea and can actually work,  The Guardian’s Jill Treanor rightly pointed out that the idea of full nationalization is “five years too late”[5].

In sum, news of the Monetary Policy Committee voting against an increase of quantitive easing given to banks is encouraging but nowhere near how encouraging the actual end of pumping public money into private institution that are badly run and thanks to lax regulations and mickey-taking bonuses, are encouraged to continue the bad work.

[1] J Thompson and E. Moore, 2013, Computer fault anger RBS customers,
[2] S. Read and S. Anderson, 2013,  ‘#Naffwest’: Fresh compensation claims face RBS and Natwest as customers pledge to abandon bank after SECOND  computer glitch lock them out of their accounts,
[3] J. Treanor, 2013, RBS boss admits ‘chastening’ year as losses breach £5bn,
[4] J. Treanor, 2013, Mervyn King backs RBSbreakup – five years too late,
[5] Ibid

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