Two questions need to be asked: who knew what and when? During the credit crunch of 2008, there was a concentrated effort to get interest rates down – which was the right thing to do. If banks are not lending to each other then money dries up in the wider economy; Baroness Vadera prepared a paper with former colleagues at the bank UBS headed ‘Reducing Libor’, which was shared with senior figures within the last Labour government. The previous administration was concerned about the eye-watering interest rates of Barclays, RBS and HBOS.
As Alistair Darling noted in his post-crash analysis, the Bank of England and Treasury thought RBS was a matter of hours away from collapsing. Fear was running high through the Treasury and the Bank of England with senior figures honestly believing the economy was on the verge of collapse.
We need to know one fundamental fact: who, and how, authorised the plan to bring down the Libor rate? of course, I’m not suggesting the previous government openly told the City to manipulate the rate, but the wider plan to stabilise the financial sector has been exploited by some. Labour refusing to participate in Parliamentary inquiry is politically foolish – it stupidly portrays guilt and secrecy. No one is claiming the Treasury helped manipulate rates or Ed Balls attitude to little regulation, as City Minister, helped create the air of corruption. Failing to cooperate, however, creates the environment for conspiracy theories.
And that’s why I am more concerned about the other clandestine institution, the Bank of England. In the eye of the storm, in 2008, the BoE had a very close relationship with the financial sector and secured emergency loans to several institutions. I can slightly understand the naivety of politicians, but not central bankers. If Mervyn King was genuinely blind to the activities of the City then we need a new Governor of the Bank of England; it would be dangerous to have such an incompetent figure overseeing one of the most influential central banks in the world.
There is a reason why conspiracy theories are very fertile around the Bank of England.….
I’m not going to speculate on who knew what and when, it would be incredibly facetious and the political equivalent of Cluedo. The inquiry should not be about saving face, but an exercise in finding the truth.