Tag: Finance

Referendum Wrecking Tactics – Supermarkets – Banks & Retailers

1. Wrecking tactics, (conceived, organized and ordered by David Cameron) require the billionaire heads of banks and businesses to issue, “gloom and Doom” messages to their Scottish staff and the public in the last few days before the referendum. Frighteners such as; transferring banking activity and employment to London, (adversely affecting 30,000 people employed in the Scottish financial sector). Price increases, across the board in the case of retailers and in particular Supermarkets, (designed to spread negative messages to retailing staff and shoppers).

2. The Banks

3. But the devil is in the detail and David Cameron may yet be hung by his own petard

a. The total cost of employing 30,000 highly trained finance staff in Scotland is approximately £1 Billion.

b. Assuming it might be feasible to locate and purchase 30,000 homes in or near London and transfer staff and their families relocation cost would be in the region of £10 Billion.

c. On-costs, house purchase, mortgage support, travel and other aspects of relocation would require another £50 Billion.

d. Then there is the additional wage bill for 30,000 staff who would attract salaries in line with those in place for London staff .750 Billion.

e. Total cost £61 Billion.

f. Is it financially prudent to relocate staff? No it most certainly is not.

g. I n any event it would not be possible to recruit new staff in London and financially prohibitive to relocate Scottish staff and there is insufficient housing stock available.

h. The solution? Move the brass plate to London effectively registering the banks there, ensuring any financial deficit carried over from the financial crash are retained in London with the UKr Treasury. Note: This will happen regardless of the outcome of the referendum

i. Retain all 30,000 staff in Scotland, effectively outsourced from London. Discharging the same duties as before. Might need some IT investment but this would be minimal.

j. Result. Everybody happy. No unnecessary financial expenditure associated with the changes
4. Supermarkets and Retailers

5. Retailers were put under ruthless, unfair and persistent pressure from David Cameron to back and make public their support for a no vote in the Scottish referendum, (but most refused). However the attack dog, (self appointed) is Sir Ian Cheshire, the, (soon to be replaced) Chief Executive of Kingfisher, the business behind B&Q, the DIY chain. His position is that, “business leaders need to speak out and get the facts in front of Scottish voters who need to make a decision”. “It’s not scaremongering. Independence is possible but there are costs and consequences of separation. I think the current system works well, but people have to decide if it is better.”

6. The thrust of the intervention by the Chief Executives of a few retailers and two of the largest supermarkets, (since withdrawn) is centered around the probability of, “Increased Prices” for goods and services in the event of a, “Yes” vote. Such increases would be justified since goods distribution costs to Scotland are higher than in the rest of the UK.

7. If Scotland votes, “yes” in the referendum, at the date of change supermarkets and retailers would be free to establish new markets in Scotland. Assuming Scotland would retain, “special membership status” within the EU all, “new” markets would be governed by internal market regulations operating within Europe. To that extent any restriction of trade measures that Supermarkets might seek to introduce would need to meet all aspects of the aforesaid regulations. The European Commission may, if provided with reference, decide to order a market investigation so as to ensure a fair extension of the frontiers of competition within Supermarkets operating within England & Scotland.

8. Any costs inflated by carriage charges would need to be measured and imposed equally across the entire supermarket distribution area, (England, Scotland, Wales and Northern Ireland). eg Asda, (based in Leeds) would need to introduce an added carriage cost for distribution to Glasgow, Edinburgh, London, Plymouth, Portsmouth and Cardiff. It would not be permissible to add carriage costs to goods for sale in Scotland to the exception of the same goods for sale in England.

9. Tax – Now That’s Another Thing to Sort

10. UK lax tax laws provide a myriad of loopholes which are widely used for tax avoidance and the Treasury is losing many £ billions of tax revenues each and every year. Five of the UK’ largest banks use tax havens, namely BARCLAYS, LLOYDS, TSB, HSBC, and the ROYAL BANK of SCOTLAND. Just about all of the larger retailers, (supermarkets) and food manufacturers compete for places in the top 10 tax haven users A survey of the UK’s largest 100 public companies revealed that there are over 8,000 linking offshoots involved in business activities, (onshore and offshore) all registered in tax havens. Only 2 out of the 100 public companies had no offshoots registered in tax havens. George Osborne, in a recent speech brought the issue to the attention of the UK public stating the matter needed to be resolved. The task of closing the loopholes and recovering tax due is proving to be just about impossible since the bulk of the offshoot companies were registered in UK Crown dependencies such as, Bermuda, Gibraltar and Jersey.

This is Westminster- MPs’ 9% Pay Rise to be Implemented

MPs elected to Westminster in nxt year’s general election will start their tenure with a 9% pay rise. The Chief Executive of the Independent Parliamentary Standards Authority (Ipsa), Marcial Boo said the proposal was not excessive, arguing politicians should not be paid a “miserly amount”. Their pay will be increased from £67,000 to £74,000. The proposed £74,000 figure was seen by some as being “at the low end”, he claimed, adding that pay needed to be fair to attract good candidates. Other quotes attributed to Boo;

a. “They are there to represent us all – to form laws, to send young people to war,”

b. “It is not an easy job to do. We want to have good people doing the job and they need to be paid fairly.”

c. “Now, that’s not paid in excess but it’s not being paid a miserly amount either.”

It is disgraceful and obscene that the Westminster system finds it acceptable to increase the salaries of MP’s whilst there are so many Scot’s on the breadline. Many have had no pay rise in years and the, incapacitated, unemployed and elderly are about to be hit with another round of Osborne’s austerity cuts. Surely this must be the, “straw that breaks the camel back”. Enough is enough. Scot’s need to send a clear message to Westminster that we have no interest in remaining with a political system that punishes the poor and enriches the rich. Vote, “Yes” in the referendum. Take Scotland back. Let us manage our own affairs.

Tax Havens Used by UK’s Top Companies

UK tax laws provide a myriad of loopholes which can and are being widely used for tax avoidance. Companies that come to mind are, Google, Amazon and Starbucks who have been widely criticsed for making extensive use of a number of the legal but morally abhorrent loopholes achieving markedly reduced corporate tax charges. Taking into the survey of the UK’s largest 100 public companies there are over 8,000 linking offshoots involved in business activities, (onshore and offshore) registered in tax havens. Only 2 out of the 100 public companies had no offshoots registered in tax havens.

George Osborne, in a recent speech brought the issue to the attention of the UK public stating the matter needed to be resolved in months not years, to the satisfaction of the Treasury. The challenge would be daunting and time consuming since the bulk of the offshoot companies were registered in UK Crown dependencies such as, Bermuda, Gibraltar and Jersey. Onshore tax havens are also extensively used. Ireland, has a reputation for low taxation and a hands off business environment. Efforts are being made, through the legislation to force Ireland to harmonise their taxation policies with other european countries.

4 of the UK’ largest banks use tax havens, namely Barclays, Lloyds TSB, HSBC, and the Royal Bank of Scotland. Just about all of the larger retailers, (supermarkets) and food manufacturers compete for places in the top 10 tax haven users emphasising the extent of the tax losses to the UK treasury. So there we have it. The UK is losing many £ billions of tax revenues each and every year. The loopholes need to be closed and sharpish but is the will to do it with government?

Taxpayers to Fund Westminster Drop outs

I expect a clear “Yes” to Independence in September will ensure Scottish taxpayers will not be required to find an extraordinary amount of money being payment to MP’s voted out or voluntary standing down at the next General Election in 2015.

So that readers & taxpayers are informed payments include;

1. Resettlement Grant: (tax free) £30,000+ (compensation for loss of MP status).
2. Redundancy pay: (tax free) £20,000+
3. Winding up Payment: £45,000+ Funding for office staff and any other incidental expenses.
4. Pension pot: £50,000 rising to £550,000, (for long serving MPS).

It is projected that in excess of 330 MP’s and their staff will qualify for the foregoing financial packages. Cost to the taxpayer £20Million. The, “Gravy Train” comes over the hill and she blew.

Annual operational costs of maintaining Westminster political systems is approximately £650Million. The split:

a. House of Commons. £365Million.
b. MP’s. (salaries, expenses. £175Million.
c. House of Lords. £140Million
Total Cost Annually. £680Million

Lifetime of Parliament. £3,755,000 YES!!!! Nearly £4Billion.

The Scandalous cost of maintaining the UK parliament cannot be justified. We Scots have, (in September) the opportunity to escape from the madness that is the UK. Vote yes to independence. We will also gain from a redistribution of financial assets at the time of independence

Northern Rock The Building Society Gone Bad

A belated intervention, (authorised by the Chancellor of the Exchequer)by the Bank of England in support of Northern Rock failed to prevent a run on the bank. This has led to an embarrassing U-turn in policy by the Governor.

The handling of the liquidity crisis at Northern Rock by the UK authorities became a major embarrassment for the government and Gordon Brown in particular. The new Prime Minister had always stressed his achievements as Chancellor of the Exchequer during the period 1997 to 2007, while he was waiting in the wings for Tony Blair to retire. Yet within several days, his reputation for prudent economic management was undermined.

The problems at Northern Rock, and other financial institutions, did not appear overnight. The crisis in the USA sub-prime loans market was well documented, as was the fact that this dodgy debt had been repackaged and sold on to UK and EU banks. Major banks in Germany as well as Barclays Bank in the UK are rumoured to have had significant exposure to these dubious assets.

A Month after Northern Rock made shocking headlines around the world, the full story of Britain’s first bank run in 140 years was yet to be told. People were little the wiser, after Adam Applegarth, the mortgage bank’s chief executive, and Matt Ridley, its chairman, tried to convince a sceptical parliamentary committee investigating the fiasco that they had been struck down by a bolt from the blue. The business model of Britain’s fastest-growing mortgage bank — which funded its loan book mainly from the wholesale markets, rather than from retail deposits — had been prudence itself, they explained, derailed only by sloppy lending in America that caused those markets to seize up in August.

But their Northern Rock is now a busted flush. None of the three groups who talk of buying it at a knock-down price — a consortium led by Sir Richard Branson’s Virgin Group and two private – equity outfits, Cerberus and J.C. Flowers — wants to keep its name. The bank, kept afloat at present by £13 billion ($26 billion) of public money, does not rule out going back to the Bank of England for more. And just as Northern Rock’s bosses deny imprudence, so the central bank’s governor, the head of the Financial Services Authority and the Chancellor of the Exchequer stoutly maintain that they were not responsible for the mess either.

Yet the story needs to be pieced together, for the debacle has had three important and unpleasant consequences. A financial institution that underpinned for years the economy and self-image of one of England’s poorest regions, the north-east, has been destroyed. The reputation of a broadly good central-bank governor has been tarnished. And an admired regulatory system that helped to make London the world’s biggest international financial centre has fallen into disrepute. What went wrong? What signals were missed? And what lessons should bankers and regulators both learn?

The year that Northern Rock fell from grace could hardly have started more promisingly. In January the bank announced record pre-tax profits of £627m for 2006, 27% higher than the previous year’s. This marked a decade of success since its conversion in 1997 from a building society — a residential mortgage lender owned by its savers and borrowers — into a bank quoted on the stockmarket. Year after year its assets had grown by a fifth, even though it had few branches — 128 when it converted and 76 this year. A small local lender had become Britain’s fifth-biggest mortgage provider, ambitious to become its third-biggest before long.

The trick Northern Rock pulled off was to rely on wholesale markets rather than on retail deposits to finance most of its lending. More than any other big British lender, it relied on “securitising” its mortgages. The bank bundled its loans together and packaged them into bonds that it sold to investors around the world. In January 2007 it raised £6.1 billion that way; a second securitisation in May brought the first-half total to £10.7 billion and made Northern Rock the top securitiser among British banks (see chart 1). With money swirling around the world’s capital markets, securitisation worked a treat. By tapping global wholesale markets, Northern Rock was able to raise money more cheaply than its home-bound rivals, price its mortgage offers more keenly and carry on its hectic expansion.

More securitisations were planned for later in the year. Northern Rock needed the money because it was growing even faster than before. In the first six months of 2007 its lending was 31% up on the same period in 2006; net of redemptions, lending soared by 47%. As HBOS, Britain’s biggest mortgage lender, put on the brakes, Northern Rock’s share of the net new-lending market jumped to 19%, an extraordinarily high share for a bank that had had just 7% of outstanding loans at the end of 2006.

Yet the bank’s share price had been sliding. As the Bank of England pushed interest rates up sharply, the City was starting to worry about the prospects for mortgage lenders. Northern Rock appeared to have a good loan book: at the end of June, repayment arrears were just half the industry average (though mortgages seldom curdle immediately, and a third of fast-growing Northern Rock’s were less than two years old). The bank suffered along with other mortgage lenders as financial folk pondered how far the fallout from America’s excessive sub-prime (ie, high-risk) lending might spread.

Worries intensified in June when Northern Rock trimmed the year’s expected profits growth from 17% to 15%. At a time when monetary policy was tightening faster than expected, the bank had agreed to issue a tranche of mortgages at interest rates that were lower than those it eventually had to pay in the markets to finance them. The episode highlighted the fact that its reliance on wholesale funding made it vulnerable.

Northern Rock’s profit warning led to a further slip in its share price. But banks do not answer to their shareholders alone. They are subject to special supervision, because a problem at one bank can undermine confidence in the whole system and do immense economic damage. The Bank of England had long been in charge of overseeing banks, and its record, though not flawless, was widely reckoned a good one. In 1997, however, when Gordon Brown, then chancellor of the exchequer, freed the central bank to set interest rates, he decided to hand bank supervision to a new Financial Services Authority. The FSA was to look after individual banks while the Bank of England remained responsible for the stability of the financial system.

A falling share price, an explosive increase in market share and a profit warning: three reasons, one might think, for a newish banking supervisor to start sweating about one of its charges. Yet the FSA remained cool. Indeed, it chilled out even more on June 29th, giving Northern Rock a stamp of approval that let the mortgage lender, under new international banking rules, set aside less capital against its loans. Northern Rock promptly announced an increased dividend (even though it expected profits to fall). At around the same time, bizarrely, the FSA was urging the lender to toughen its “stress tests”.

The FSA’s apparent insouciance was even stranger given Northern Rock’s specific history. In 2004, after short-term interest rates shot up, the bank was caught off-guard, and profits suffered. It promised investors that half its loans would be matched by retail deposits—a pledge it promptly ignored once rates moderated. By the time it hit trouble this year, just under a quarter of Northern Rock’s funding came from retail customers.

But there were good reasons to doubt the wisdom of relying so heavily on the capital markets. Though retail deposits cost a lot to acquire, many banks still prefer them, for they are generally a more steadfast source of finance than wholesale funding. A former chief risk officer at one of Britain’s biggest banks says that Northern Rock’s operating model was very risky: “To say that nobody could have envisaged what happened doesn’t wash at all.”

Yet both Northern Rock and the FSA assert that the event that felled the bank — the complete failure of the various market-based funding sources upon which it had become reliant — could not have been foreseen. Mr Applegarth has stressed the speed, duration and global nature of the liquidity freeze that started on August 9th. “I didn’t see this coming, I have yet to find someone who did,” he said. The FSA has played a similar card: in parliamentary testimony on October 9th, Sir Callum McCarthy, the regulator’s chairman, insisted that the seizing-up of the money markets was unprecedented.

So neither the bank nor the FSA had incorporated such a scenario into stress tests of the bank’s resilience. Indeed, the simulations carried out jointly by the FSA, the Bank of England and the Treasury to gauge the financial system’s ability to withstand potential upsets (one of which, ironically, posited problems at Northern Rock) failed to involve banks themselves as players, and thus were unable to predict their likely behaviour in a crisis of this sort.

The timing of the liquidity freeze was, it is true, disastrous for Northern Rock, which was low on cash because its last securitisation had been in May and it was planning another in September. But even if the timing had been better, its strategy for dealing with a liquidity crisis proved to be little more than wishful thinking.

The bank had sought to diversify its funding sources around the world; but markets dried up globally. It had hoped for a flight to a quality loan book such as its own if investors became alarmed about sub-prime mortgages; instead, investors shunned anything to do with mortgages. Unlike Countrywide, an American mortgage lender that also got into trouble, Northern Rock had nailed down little money — only $3 billion, it emerged this week—in committed credit lines from banks that it could call upon in an emergency. And it had failed to take steps to increase its access to central-bank liquidity in a crunch. About 150 banks, some of them British, were able to tap the ECB through their branches in the euro zone. Northern Rock could perhaps have put mechanisms in place to use its outlet in Ireland. But the paperwork would have taken a few months; and by the time the bank thought of it, the moment had gone.

If Northern Rock’s excuses fail to pass muster, so do those of the FSA. Hector Sants, who took over the job of chief executive in July, admitted on October 9th that the regulator should have been more forceful in its dealings with the bank, and accepted that stress tests had not been “extreme” enough. But both he and Sir Callum continued to depict the event as an “unknown unknown”.

How not to handle a crisis. On Monday August 13th, two working days after the markets dried up, Northern Rock told the FSA it was in trouble. The message was passed on to the Bank of England and the Treasury the next day. All three institutions were supposed to deal with crises under a “memorandum of understanding” setting out their respective roles. The Treasury, which chaired the committee, was involved in these “tripartite” arrangements because helping a bank often requires a bail-out from the taxpayer.

By August 16th the possibility that the Bank of England would have to act as a “lender of last resort” to Northern Rock had already been raised. All three agreed, however, that it would be better for a stronger bank to take over the mortgage lender. Northern Rock put itself up for sale and feelers were put out in all directions. Lloyds TSB, a British bank, emerged as a serious contender, but the deal foundered on September 10th. Lloyds was prepared to step into the breach only if it was given a loan of up to £30 billion by the Bank of England; but the tripartite authorities agreed it would be “inappropriate to help finance a bid by one bank for another”.

Of the three, the Bank of England had taken the hardest line since the crisis began. Whereas the world’s two main central banks — America’s Fed and the ECB— sought at once to relieve the liquidity drought by injecting extra cash into the money markets and accepting a wider range of collateral than usual, the Bank of England did neither until September. It wanted to send a message that if bankers took excessive risks they could not look to the central bank to rescue them from the consequences. So the central bank resisted pleas — not just from private banks but also from the FSA—to copy its American and European counterparts.

A telling indication of Mr King’s priorities emerged last year, when a new version of the memorandum of understanding came out. In the original agreement, dating from October 1997, the bank was “responsible for the overall stability of the financial system”. In the new version, however, it merely “contributes to the maintenance of the stability of the financial system as a whole”.

This anemic wording contrasts with the Fed’s “key role in the prevention and mitigation of financial crises”, which Ben Bernanke, its chairman, emphasised in a speech in January. Some charge Mr King with neglecting the subject since becoming governor in 2003. An executive director for financial stability respected for his close City contacts was replaced in that role by one without them. The bank’s widely followed, half – yearly Financial Stability Report was halved in size and published erratically. Others with City connections have left the bank, reducing its “eyes and ears” in the market.

Once the deal with Lloyds TSB fell through, only the Bank of England could rescue the beleaguered mortgage lender. Mr King wanted to do this behind the scenes, as happened as recently as the early 1990s. His desire for a covert operation was, he said, thwarted by a European – inspired law, the Market Abuse Directive, which came into force in Britain in 2005.

Charlie McCreevy, the Brussels commissioner responsible for the directive, denied at once that it prevented a secret intervention in an emergency. But even if the gold – plated British version of it did make things harder, the bank should not have taken so long to figure that out. “You don’t wait for the cinema to catch fire before you check out whether the fire precautions are going to work,” says Richard Lambert, head of the Confederation of British Industry and a former member of the MPC.

On September 13th Alistair Darling, the chancellor of the exchequer, had little choice but to agree that the central bank should provide emergency funding to Northern Rock. News of the impending rescue leaked out prematurely, and the government scrabbled to put out a public statement on September 14th.

To financial aficionados, the fact that Britain’s central bank now stood squarely behind Northern Rock should have brought relief. But to ordinary people it sounded alarming, especially in its leaked version. Britain’s flawed deposit – insurance scheme guaranteed fully only the first £2,000 of deposits, and then 90% of only the next £33,000 (though it has since been made more generous). Alerted to trouble, depositors raced to get their cash out before everyone else did. The bank run was stopped only on September 17th, when Mr Darling issued an unprecedented guarantee for all existing deposits at Northern Rock. Bafflingly, he extended this on October 9th to all new retail deposits as well.

No one emerges well from this tale. Northern Rock pushed an aggressive business model to the limit, crossing its fingers and hoping that liquidity would always be there. The FSA failed to spot the danger. The Bank of England worried too much about forgiving over-risky behaviour and too little about shoring up a stressed financial system. Mr Darling failed to reassure depositors when he eventually got round to it, then arguably reassured them too much when it no longer mattered.

But the biggest failure was the “tripartite” system, and its unreadiness in a crisis. Undoing the reform of 1997 that divested the central bank of supervision would be hugely disruptive; and other countries have divided central banks from banking supervision without seeing financial institutions go to the wall. But if Britain is to learn one lesson from the Northern Rock saga, it may be that a single outfit needs to be in overall charge of financial stability, the bedrock on which economies are built. Only a central bank can provide the liquidity needed in times of crisis. So whatever its failings this time, it is the Bank of England that should take responsibility and call the shots.

The Labour Party 1997-2010

Witnessing Labour Party infighting over the direction to take, (left or right) it is opportune to look back to 1997 and Tony Blair. Tony was a considerable admirer of Margaret Thatcher. He certainly admired her absolute authority in the control of her Cabinet. That was a great pity, because what was needed in dealing with problems was a wealth of discussion and argument, whereas, on the contrary, cabinet meetings lasted around 30 minutes, having been convened to rubber stamp policies which had been decided beforehand.

This was unhealthy government since it was simply not possible for one person, even with the assistance of a few, “Nodding Dogs”, to solve all the problems single – handedly. It needed a collective effort. Under Tony Blair & then Gordon Brown, “competition” became the mantra. Their belief being that this would ensure excellence in performance by entrepreneurs and by result the Nation would benefit. In the beginning unquestioned perception was that the approach was a success, but in time, “the crows came home to roost” companies simply did not continue, “competing”. instead they instigated mergers, consolidating competing processes. Unfettered by effective Bank of England monitoring & control, Banks increased in size, ” in time taking the shape of giant squids with tentacles in many countries worldwide becoming fully international, by result, moving their activities beyond the control of the UK government.

Cash availability within these uncontrolled, “Global” markets was finite and increasing scarcity, brought about an increase in the use of credit, slowing down growth. The resultant sluggish market performance and ever increasing acquisition, by British Banks, of freshly packaged USA, “dodgy” sub-prime loans should have alerted the Bank of England that there were problems in the banking sector. It didn’t. So. There it is. It is appropriate to place fault firmly with Mr Blair & Mr Brown and of course Ally Darling, who started the run on the banks in the first place by dithering over support for, “Northern Rock” instead of allowing the Bank of England to get on with it’s remit.

The Chancellor, Gordon Brown, released the Bank of England independence from political control. His surprise announcement – coming only four days after Labour’s landslide election win – is being described as the most radical shake-up in the bank’s 300-year history. Mr Brown has also announced a loan rate rise of a quarter-point to 6.25%. The increase was decided after Mr Brown’s first and last meeting with the Governor of the Bank of England, Eddie George.
The chancellor went straight from that meeting to a news conference at which he unveiled his plans to give the bank freedom to control monetary policy. He said: “I want to set in place a long term framework for economic prosperity… I want to break from the boom bust economics of previous years.”

Labour MPs applauded the chancellor’s announcement – but the Conservatives were divided, with former chancellor Norman Lamont congratulating Mr Brown while former home secretary Michael Howard deplored it. Business chiefs broadly welcomed Labour’s decision to give the bank its independence. Under the new regime, a monetary policy committee was set up to decide interest rates with a view to achieving an initial inflation target of 2.5% or less. The committee was made up of the Governor, his deputy, a new second deputy, two bank executive directors and four experts, appointed from outside the bank. It met monthly and each member had one vote. Previously, the Chancellor held a monthly meeting with the governor at which interest rates were agreed. It means the bank was now free to decide monetary policy without taking the short-term wishes of politicians into account.

Equally guilty was the new system put in place by Mr Brown. Fragmented among three institutions, and manned by people who were either unaware of what was going on or unable to communicate what they knew to one another, it failed its first big test. Sir John Gieve, the Bank of England’s deputy governor in charge of financial stability and also a non-executive director of the FSA, gave evidence to the parliamentary committee on September 20th along with Mervyn King, his boss at the central bank. “I was concerned in a general way about the growth of wholesale lending,” he said. “Did I know the details of Northern Rock’s position before this blew up? No, I did not.” This institutional deafness was to become an increasing problem as the government sought solutions to the bank’s worsening plight.

The problems at Northern Rock, and other financial institutions, did not appear overnight. The crisis in the USA sub-prime loans market was well documented, as was the fact that this dodgy debt had been repackaged and sold on to UK and EU banks. Major banks in Germany as well as Barclays Bank in the UK are rumoured to have significant exposure to these dubious assets.

Northern Rock’s profit warning led to a further slip in its share price. But banks do not answer to their shareholders alone. They are subject to special supervision, because a problem at one bank can undermine confidence in the whole system and do immense economic damage. The Bank of England had long been in charge of overseeing banks, and its record, though not flawless, was widely reckoned a good one. In 1997, however, when Gordon Brown, then chancellor of the exchequer, freed the central bank to set interest rates, he decided to hand bank supervision to a new Financial Services Authority. The FSA was to look after individual banks while the Bank of England remained responsible for the stability of the financial system.

It would seem that the Bank of England is independent of the UK government when it is pursuing government policy. However, if it pursues policies which it deems in the interests of the UK economy, yet are contrary to short term political expediency, then this independence is an illusion. In October 1997, the bank was “responsible for the overall stability of the financial system”. In the new version, however, it merely “contributes to the maintenance of the stability of the financial system as a whole”.

Mr King’s critics say that in his fixation on future crises he failed to deal with the one at hand. Mr Santes pointed out that logically the only replacement for private-sector liquidity, once it dries up, is central-bank liquidity. According to DeAnne Julius, a former member of the Bank of England’s monetary-policy committee, “The first duty of a central bank is to retain confidence in the banking system, especially at a time of illiquidity, and our central bank didn’t do that.”

As long as five years ago Tommaso Padoa-Schioppa, now Italy’s finance minister but then on the board of the European Central Bank (ECB), pointed out that the liquidity of financial markets had grown in importance. He gave a prescient warning: “The deepening of the markets has improved the ability of banks to access funds in normal times, but liquidity may be more prone to dry up when it is most needed.” In 2006 Moody’s, a rating agency, cautioned that some British banks were exposed to the risk of disruption in wholesale markets because they were increasing their loans faster than they could gather the deposits to back them. More recently, the Bank of England itself highlighted in April the danger of liquidity risk in its Financial Stability Report.

The, “Independent Parliamentary Standards Authority” (Ipsa) given responsibility for Westminster pay and perks in the wake of the expenses scandal is pressing ahead with plans to, (after the 2015 general election) boost salaries by £7,600 to £74,000, but a fifth of the total number of MP’s are still lobbying for the salary to be increased to £95,000.

Former Commons speaker Baroness Boothroyd appearing on BBC Radio 4’s, “The Westminster Hour” commented, “The taxpaying public aren’t going to like it, but I think they’re just going to have to take it on the chin”.