18 March 2009

Deeper and deeper into the hole

What happened to all that money the government threw at the banks? I don't know and, if the government knows, it's not telling us.

For the moment, set aside Sir Fred's pension arrangements and those AIG bonuses. This has all the makings of an even bigger scandal. Simon Jenkins in The Guardian reports:
It is clear that nobody has any idea what happened to some £100bn of public money pumped into the banking system since last October. It was meant to stop banks going bankrupt and "in the hope" that credit would flow again, without the drastic step of nationalisation. This hope has proved forlorn.
Brown pleaded in January for his rescued bankers to "come clean" with what they had done with the money. They declined to say. It is inconceivable that public money could be spent so casually to any other purpose or entrusted so recklessly to any other profession.
In January the Guardian reported that City experts had concluded that as much as 80% of the £50bn in the October package could have gone offshore. Last week a former Bank of England official, Danny Gabay, queried as "just not sensible" the £10bn of "quantitative easing" initiated by the Bank of England to reflate the economy (out of some £150bn promised). Probably two-thirds of the bonds had been bought by overseas institutions.
The suspicion that money intended to boost the domestic economy had gone abroad was supported by yesterday's startling news from the US Federal Reserve. Its biggest bailout, of the insurance giant AIG, for a staggering $85bn, had also gone to overseas beneficiaries. This behemoth has enraged Barack Obama by allocating $165m of the rescue funds to staff bonuses, including staff in London. This was apart from $11.9bn to France's Société Générale, $11.8bn to Germany's Deutsche Bank, $5bn to the Swiss bank UBS and $8.5bn to Barclays and thus presumably to the Gulf.
In other words, America's hard-earned tax dollars - like Britain's tax pounds - were not going to rescue car-makers, drugstores or mortgage-holders. They were covering exposed positions in a global debt market reckoned to be in excess of $100tn. There is no way such sums can be fully covered. The world debt mountain is not just toxic, it is bankrupt.

In an earlier post on this blog, I wondered if our supposed masters knew what they were doing. The answer is becoming clear.

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