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Wednesday, April 17, 2024

Distortions, Lies, and Muggings by the Fed, Bank of England

Distortions, Lies, and Muggings by the Fed, Bank of England

Courtesy of Mish

The first priority of Central Bankers in any crisis is to buy time by any method available. By now, it should be perfectly clear that Central Bankers are willing to unconstitutionally usurp authority in an effort to buy that time.

I talked about that idea most recently in Hussman Accuses the Fed and Treasury of "Unconstitutional Abuse of Power"

Hussman: "The policy of the Fed and Treasury amounts to little more than obligating the public to defend the bondholders of mismanaged financial companies, and to absorb losses that should have been borne by irresponsible lenders. From my perspective, this is nothing short of an unconstitutional abuse of power, as the actions of the Fed (not to mention some of Geithner’s actions at the Treasury) ultimately have the effect of diverting public funds to reimburse private losses, even though spending is the specifically enumerated power of the Congress alone.

Needless to say, I emphatically support recent Congressional proposals to vastly rein in the power (both statutory and newly usurped) of the Federal Reserve."

Fed Uncertainty Principle

Long before that, and even before such blatant abuses occurred, I predicted such happenings in the Fed Uncertainty Principle, written April 3, 2008.

Uncertainty Principle Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Uncertainty Principle Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it’s easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.

Ironically, after being lied to for years by the likes of Bernanke and the BOE, the Central Bankers act shocked at proposals like "Audit The Fed".

With that backdrop, let’s now look at shenanigans, lies, and manipulations by the Bank of England.

Bank of England Props Up RBS, HBOS at Height of Crisis

Inquiring minds are reading Bank of England propped up RBS, HBOS with £61.6bn in emergency loans at height of crisis.

Mervyn King, the Bank’s governor, said the central bank stepped in as a lender of last resort to provide a bridging loan before the Government rescued the two institutions.

The banks put up collateral worth more than £100bn in return for the loans as the financial system was rocked by the failure of Lehman Brothers, the Wall Street bank.

Mr King, appearing at a Treasury Select Committee hearing on the Bank’s November Inflation report, said the loans were granted because “this was a dire emergency".

"It was very effective in buying time,” he said.

Details of the Emergency Liquidity Assistance (ELA) for the banks were revealed in a Submission to the Treasury Select Committee.

Mr King repeated his argument that no bank should be deemed “too big to fail.”

Preposterous Statements by Mervyn King

If no bank is "too big to fail" then the BOE would not have done what it did. The amazing thing is how King can make such a preposterous statement in light of what he did. Yet he acts as if he expects to be believed.

Discerning Truth From Fiction

What makes it hard to discern truth from fiction is sometimes Mervyn King actually tells the truth about important issues. Please consider Bank of England’s Mervyn King testifies on growth, inflation and the deficit.

Mr King on the world’s global imbalances:

"I think the point that really does trouble me is the speed at which the imbalances in the world economy are likely to adjust. As the level of output in the world starts to grow again, my concern is that the imbalances will start to emerge again.

"I have no doubt that as those imbalances become large again, that will create pressure for protectionism to build up."

"It behooves the Treasury and the Bank to do a contingency plan for what kind of private sector assets you would buy, and how."

Honesty Amongst Thieves

Those last three paragraphs above are 100% believable. Moreover, you will never see the Fed make statements like that for fear of upsetting the markets.

However, clever readers will note the implied problem in the third paragraph, highlighted in red.

The BOE virtually guaranteed it will buy whatever it wants, whenever it wants, and however it wants. It is a promise that the BOE will hide, distort, and manipulate to its heart’s content to buy whatever time it thinks it needs, just as it has done before.

At least the BOE has the honesty to admit it is crooked. One cannot say the same thing about the Fed.

Secret Loans Disclosed

Please consider Bank of England tells of secret £62bn loan to save RBS and HBOS

In a shock announcement, the Bank disclosed that it had been forced to use its lender of last resort facility last October to "buy time" for RBS and HBOS, which were "effectively… bust". It managed to keep the loans – the equivalent of almost £3,000 for every household in the UK – a complete secret to all but a handful in the City for well over a year.

Most remarkable, however, was the fact that the Bank managed to lend such a sum without it being detected by market participants or by the media – although rumours did abound at the time.

The loan facilities, of £36.6bn for RBS and £25.4bn for HBOS, were in addition to the hundreds of billions provided to the banking system in the form of guarantees, liquidity support and recapitalisation funds. Through them, the Bank was also quietly injecting cash into the economy some six months before it started quantitative easing.

Shadow Chancellor George Osborne said: "The scale of these loans raises the question of how Labour’s tripartite regulatory structure allowed these banks to come so close to collapse in the first place, and underlines the need for fundamental reform to put the Bank of England back in charge."

Pray Tell, What Is The Fed Hiding?

Once again note how the BOE is willing to admit what it did, while the Fed is still hiding in the closet, getting help from Barney Frank. What is on the Fed’s balance sheet that it is so concerned about?

An Admitted Mugging

Inquiring minds noting how Lloyds investors ‘mugged’ over HBOS deal.

Lloyds TSB shareholders were “mugged” when the bank agreed to buy HBOS last year without knowing that the stricken lender was being propped up by a secret £25bn loan, it was claimed on Wednesday.

Alistair Darling, the chancellor, was forced on to the defensive as he gave a Commons statement explaining the decision to keep secret the combined £61.6bn of emergency funds given to HBOS and RBS last year.

Although Lloyds shareholders were told that HBOS would have to “substantially rely for the forseeable future” on Bank of England liquidity support, they only found out on Tuesday the true extent of the stricken bank’s problems.

Lloyds bought HBOS at the height of the banking crisis in a deal facilitated by Gordon Brown, who waived competition rules to allow the merger to take place.

Eric Daniels, Lloyds chief executive, later admitted that his bank could have escaped being part-nationalised in October 2008 had it not been for the liabilities it assumed when it bought HBOS.

“It is plain that the workers and shareholders of Lloyds were mugged,” said Jim Cousins, a Labour MP.

But Mr Darling disowned any responsibility for the fact that Lloyds shareholders were kept in the dark about the emergency loans at the time of the HBOS merger, saying it was “fairly and squarely” a matter for the Lloyds board.

My Dear Darling …

My Dear Darling don’t you have enough decency to openly admit you are a crook? If Mervyn King can allude to it, why can’t you?

I have the just the spot for Alistair Darling should he happen to lose his job as chancellor. He would have to change his citizenship of course, but otherwise he is clearly suited for the Fed.

Place No Trust in Central Bankers

Why anyone would believe anything the Fed or any other Central banker says (other than the blatantly obvious truth) is beyond me. Others agree as noted in Marc Faber Sees War Against an Invented Enemy and a Big Financial Bust.

Faber: “No decent citizen should trust the Federal Reserve for one second. It’s very important that everyone own some gold because the government will make the dollar (in the long term) useless."

Mish: No decent citizen should trust any central bank anywhere. The problems go far beyond the Fed and in the long run all fiat currencies are worthless. Fiat currencies do not float, instead they all sink at varying rates.

Mike "Mish" Shedlock

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