Today’s announcement that Canadian Mark Carney will be the next governor of the Bank of England took many by surprise. Even journalist turned financial sage Robert Peston was effectively thrown off the scent by the Treasury.

Carney’s appointment is interesting on several different levels. His appointment comes at a critical moment for the Bank. The Treasury is about to implement another overhaul of the financial regulatory system. This will include the dismantlement of the existing FSA and giving more powers to the Bank. In short, it needs to be a system which people have faith in while still allowing the City of London to prosper. We have been down this path before.

It will be hoped that Carney will help form a system that will manage to avoid repeating recent disasters that has seen the Bank role’s questioned.

It will also be hoped that Carney will help steer Britain towards a more sound economic footing. Britain’s economy is still fitful and the possibility of recession still looms. The Bank’s major policy so far has been QE, but its effects on the economy have been far from decisive. Carney has partly been appointed because of his work as Governor of the Bank of Canada. He has helped Canada steer clear of most of the current financial mess, but in his new job he will need to help Britain pull clear of its current situation.

However, perhaps the most interesting aspect of his appoint is that he’s a relative outsider. The Treasury have clearly opted for a new start and fresh ideas. It also highlights how they felt they needed to spread the net further than these shores. As The Spectator reported, there was a paucity of outstanding British candidates. They were either seen as not the right fit for the job or had become entangled in recent scandals such as Libor. This has clearly undermined the case of Deputy Governor Paul Tucker.

In one light, this could be viewed as worrying – seen as evidence of Britain’s inability to produce financial leaders with real nouse and skill. On the other hand, it may merely reflect the diversity of the City of London. The City has been built by a hotbed of diverse talents from all over the globe and the Bank may have done well to steer clear of any sense of partisanship.

It’s over to you, Guvnor.

Sir Mervyn King said this was because the banks’ current “insufficient capital” was continuing to deter them from lending to households and firms.

He added that banks needed to accept that further bad debts were expected.

Sir Mervyn said only such a change could allow economies to prosper again.

“I am not sure that advanced economies in general will find it easy to get out of their current predicament without creditors acknowledging further likely losses, a significant writing down of asset values and recapitalisation of their financial systems,” he said.

“Only then will it be possible to return to a more normal provision of vital banking services so crucial to an economic recovery”.

‘Encouraging signs’

Speaking at an event in Cardiff, Sir Mervyn said the government and Bank of England’s latest effort to boost bank lending – the Funding for Lending scheme – must be used as a “window of opportunity” to “restore the capital position of the UK banking system”.

Yet he said the initiative could only be “temporary”.

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For what it is worth, some may well see Sir Mervyn’s attack on helicopter money as an attack on a candidate to succeed him as governor”

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Robert Peston Business editor

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Under the Funding for Lending scheme, commercial banks can borrow up to £60bn from the Bank of England at a low rate of interest.

Turning his attention to the wider economy, and with the latest UK economic growth figures out on Thursday, Sir Mervyn said the economy was “barely higher than two years ago”.

Yet he added that there were “encouraging signs”, particularly in the jobs market.

He added that the Bank of England would “think long and hard” before it decides to increase its programme of quantitative easing (QE) from the current level of £375bn.

Under QE the Bank pumps fresh money into the banking system to try to boost lending.

Sourced from The BBC

The Coalition government has no intention of reducing the UK’s debt burden as it provides an excuse to cut spending on public services and shrink the state. Messrs Cameron, Osborne et al know that, when the public becomes sick of all the nonsense they have been spouting about it, they can hand the mess over to the next government and laugh all the way to the (offshore) bank.

Government borrowing figures for August have been released and the Treasury has been talking nonsense about them. Again.

Let’s start with the facts: UK public sector net borrowing was £14.4bn in August – slightly higher than the same month last year, and therefore the biggest deficit for the month since records began. Corporation tax receipts fell by 2.1 per cent; benefit payments rose by 4.9 per cent.

Barring the effects of one-off transactions like the raid on the Royal Mail Pension Plan that I mentioned last month, borrowing from April to August increased by £12.9bn, or 22 per cent, on the same period last year – to £61.3bn.

The British Chambers of Commerce reckon that at this rate, total borrowing for 2012-13 will be £20bn+ more than estimated by the misnamed Office for Budget Responsibility at the time of the last budget.

Public sector net debt stood at £1.04 trillion at the end of August 2012, equivalent to 66.1 per cent of gross domestic product (GDP) – that’s up from 1.032tr at the end of July, or 65.7 per cent of GDP.

The BBC, reporting on its website, has stated that the figures make it more likely the government will fail to wipe out the structural budget deficit by its deadline – and I think it won’t make a difference whether that’s 2015 (already long-abandoned) or 2017.

The Treasury, on the other hand, is still telling us it is getting the deficit down. Exchequer secretary to the Treasury David Gauke said new figures showing borrowing for 2011-12 came it at £119bn, rather than the OBR’s forecast of £126bn meant the government was dealing with its debts.

This is particularly rich, coming from him. Everybody now knows that the best way for the government to pay down its debts is to tax all the rich Brits who have stashed their cash in offshore tax-havens. Mr Gauke used to work for a tax avoidance firm and his wife is a tax avoidance lawyer. He is exactly the wrong man to lecture us on getting the deficit – the difference between government spending and tax receipts – down.

Some, like Sir Mervyn King, governor of the Bank of England, are now saying that overshooting the deficit reduction target would be acceptable if the reason was slower economic growth across the world, and the government has been happy to play its ‘Eurozone Strife’ card many times in the past.

But I’m not convinced. I tend to agree with The Guardian’s summary of the Coalition’s non-achievements so far, which states: UK exports to the EU have been growing, at least until early 2012; the deepening Eurozone crisis was mainly due to the same austerity policies employed in the UK; therefore austerity should have been cut back and demand revived.

What we’re left with should be no surprise to anyone: Numbers that don’t add up and explanations that don’t make sense.

The Bank of England has printed £375 billion of government assets to increase economic growth and get more people back to work.

This is known as Quantitative easing.

29.7 million UK taxpayers should each be given £126,262,62.63 million.

These multi- millionaires would spend the money on homes and consumer goods that would grow the economy for decades.

Bank of England governor Sir Mervyn King admitted that “quantitative easing has not yet restored us to prosperity.”

It’s time to try something new.

So, Mervyn what are you waiting for?

Thatcher wasn’t wrong: the London financial market was in danger of being overrun by New York and the ‘Old Boy’ bowler-hat brigade had a comfy, Corinthian attitude to doing business amongst themselves, to the exclusion of real talent. Nepotism ruled, brains took a back seat.

However, with every revolution, good comes hand in glove with bad. So fast forward a few years and the can of worms known as the Pension Mis-selling Scandal exploded into the headlines, after unscrupulous middlemen chivvied many financially-naive workers into switching from safer, better-performing company schemes into ‘private’ plans that promised punters less and sellers fat commissions.

The scam wasn’t redressed until after 2000, when the Financial Services Authority stepped in and hundreds of thousands of mis-sold victims were rightly recompensed.

For the first time the ‘fish in the barrel’ had some teeth to bite back.

I cite the example to underscore the greedy, grasping, amoral culture that started with Thatcher’s Big Bang and continued to fester in the City, under the wilful connivance of generations of banking bosses, whose chief aim has always been to make a fast buck.

Using deliberately arcane jargon, their institutions created products so intricately complex – like derivatives and insurance credit default swaps – one banker admitted to me not so long ago, ‘Sometimes we don’t even understand them ourselves and our customers take it on our say-so they’re all right.’

The US sub-prime mortgage travesty, which saw the collapse of Lehman Brothers, should have heralded a long-overdue rethink by regulators and a thorough cleansing of the international finance industry’s Augean Stables. But efforts were feeble, largely due to the omnipotent power of the banks.

BARCLAYS’ DIAMOND: ‘Period over for banks to apologise’

And, just emerging, is news of yet another scam, with banks – chiefly Barclays (yet again!), HSBC, Royal Bank of Scotland and Lloyds Banking Group – arm-twisting small business clients into buying complex products, supposed to offer protection against rises in interest rates, without the customers fully grasping the downside risks.

None of these are victimless crimes and, as Bank of England head, Sir Mervyn King, described them, ‘deceitful manipulation’.

We need banks to provide money at reasonable cost, the lifeblood of any economy. What we don’t need is banks acting like shysters, whose personnel, from the CEO down, net obscenely huge, annual bonuses for dreaming up scams to fatten their institutions’ balance sheets and bolster their share price.

The way to stop this serial malpractice is not by a Leveson-style inquiry or wrist-slapping fines, but for boardroom heads to role – as in the case of Barclay’s Bob Diamond, who had the chutzpah to tell a Common Treasury select committee in January, 2011, ‘There was a period of remorse and apology for banks, that period needs to be over.’

It’s clearly not. And only the fear of prosecution and jail will threaten to curb the greedy excesses of amoral bankers.

He said at a dinner in London:

What I can say tonight is that the Bank and the Treasury are working together on a “funding for lending” scheme that would provide funding to banks for an extended period of several years, at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending to the UK non-financial sector during the present period of heightened uncertainty. The Bank would lend, as in its existing facilities, against a much greater value of collateral comprising loans to the real economy to protect taxpayers. But the long term nature of the lending and its pricing mean that the Bank could conduct such an operation only with the approval of the Government, as offered by the Chancellor earlier. So such a scheme would be a joint effort between Bank and Treasury. It would complement the Government’s existing schemes, and tackle the high level of funding costs directly. It could, I hope, be in place within a few weeks.

The action was taken specifically because,

The crisis in the euro area is affecting our own economy in two ways over and above the direct effect of a dampening in the demand for our exports. The first is via bank funding costs, which have risen since the middle of 2011 as the crisis has intensified. In turn, that has led to higher borrowing rates on mortgages and loans to SMEs. This rise in bank funding costs reflects in part the exposure of our major banks to the periphery economies. Any significant re-denomination of their currencies, or a default on domestic debts, would, both directly and as a result of the consequences for all our economies, put a dent in the capital position of our banks. As a result, investors demand a higher risk premium on loans to banks, pushing up the cost of borrowing for home-owners and businesses.

The other effect of the euro-area crisis has been to create a large black cloud of uncertainty hanging over not only the euro area but our economy too, and indeed the world economy as a whole. Complete uncertainty means that the risks to prospective investments that will yield returns in five or ten years’ time are simply impossible to quantify. The black cloud has dampened animal spirits so that businesses and households are battening down the hatches to prepare for the storms ahead. The result is that lower spending leads to lower incomes and a self-reinforcing weaker picture for growth.

The move is bold and unexpected. Therefore, it may bring some real sense of relief to UK banks and businesses. It may also serve as a model for the US if the EU economic catastrophe spreads

Douglas A. McIntyre

We started the week with the debate on awarding the British people with a referendum on the status of our relationship with the EU; the motion proposed that there should be three options in the referendum; stay In, Exit altogether and then third some sort of repatriation of powers; however, this was extremely vague anc could facilitate anything that wasn’t expressly exiting the EU or Handing over more powers and therefore didn’t really propose a viable alternative to our current predicament. The controversy around this debate was further escalated with the use of a three lined whip by the government and opposition benches which was condemned for stifling debate on an issue which was ‘in the public interest’.

However, in my opinion, the controversy and exclamation around this debate has indeed been a distraction – whilst it is an issue which definitely has to be considered in the coming days (not years; days). Ultimately, I by no means feel that debate was stifled when I saw MP after MP take the floor in the Commons to argue for the motion against the government and over 100 MPs voted against the amendment the majority of whom were Conservatives and were vocal in their reasoning and views on the European question. Furthermore, as was pointed out on the blog ‘On Procedure and Politics’ in an article on MP confusion over E-Petitions the author points out that this debate wasn’t brought about by an e-petition through the new system introduced this summer, but rather was decided upon after a representation by Mr Nuttall MP with the support of backbench MPs and was granted and it was taken into account that a number of petitions (which between them had around 100,000 signatures) had also supported having this debate. However, this campaign had started before the E-petitions site had been created and therefore claims by MPs that it was as a result of this were misguided. Moreover, what I find staggering is the tendency for exaggeration: since when was a campaign by 100,000 people seen to be ‘what the public want’ when they represent only 0.0016% of our population!

Another Europe related event this week; arguably far more important in determining our future relationship with the EU was last Sunday’s European Debt Crisis Summit where the decision and resolution aspect was postponed to a follow-up summit on Wednesday. This summit managed to provide some short term direction and allowed some level of confidence, however, ultimately the resulting agreements were merely intentions and the specifics have still to be agreed and furthermore, part of the contingency plan with the increase in the Emergency bailout fund relies on China buying up ESFS bonds who haven’t agreed anything concrete yet, however, this aspect of the plans incites some concern regarding the potential for the Chinese to hold leverage over the operations of the EU through their contributions. It was also noted that there will be a movement towards a two stage Europe with the 17 eurozone countries moving towards greater political and fiscal union which could end up with reduced influence for Britain in the EU decision-making processes due to a possibility that the eurozone will vote en bloc. Ultimately, the outcome of the summit sparked a boost in the markets, write-off 50% of greek debt and don’t require any UK contributions bar the UK’s IMF commitments. Sir Mervyn King remarked that the summit decision ‘will only give a year or two of breathing space’.

Today, to in response to the heated debate on Europe over the past week Nick Clegg has hit out at the Conservative backbenchers and their demands for letting the British people decide if we should stay or go from the EU. His article, (here) highlights the fact that maintaining the European Single Market is crucial for the British Economy. Ultimately, as ever Clegg was vilified throughout the comments and the responses appeared to demonstrate a surprising lack of political knowledge and understanding with readers unable to understand the concept that removing ourselves from the EU would remove our influence and would not be able to uphold British interests in a community which is responsible for at least 40% of British international trade (see this article for the complexity of calculating trade figures).

Therefore, whilst there are very important issues that are at the forefront of everyone’s minds it cannot be denied that the question of the British-EU relationship is incredibly important and holds considerable influence over Britain’s future as does the plight of the Eurozone crisis. Ultimately, whilst any further treaty negotiations should be put to a referendum (which was agreed in the coalition agreement and has since been legislated on through The European Union Bill introduced to Parliament in Nov 2010), there should not be any further relinquishing of powers and we should ensure that Britain’s economic interests are pursued extensively and diplomatic ties with member countries; both eurozone and non-eurozone.  Furthermore, we should avoid attempting to leave the European Union as this is fundamental for us to play a significant role in the European Union to remain as a credible world player. In contrast however, I feel that Britain should also redouble efforts to encourage strong ties both economically and where possible politically with emerging countries such as Brazil, Indonesia, India, South Africa and China who will undoubtedly be major global powers in coming decades in the interest of future planning. In the end, the EU’s growing eurozone crisis has encouraged to see the EU as a scapegoat to tackle and this euro-sceptic attitude will not benefit our country in the long run; the EU is a pillar of our economy and without EU membership our economy would suffer with the loss of jobs being a minor part of the repercussions.

In the end it has and is being debated, the government is aware of the strength of opinion and it is their responsibility to ensure their decisions serve the British interest. Any claim that free speech was stifled is ludicrous after all o.oo16% of the population signed up to respective petitions and it was debated - a true sign of democracy. Although a note to MPs: 100,000 is by no means able to fully represent 61,838million people who constitute the British public: therefore don’t bang on about ‘that’s what the Public wants’, because it isn’t – we want growth in our economy, an acceptance of social responsibility by the main institutions in this country and an appreciation for those who have a less than rosy future ahead of them.

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